U.S. S&P 500 equity futures were down 0.7 percent , which increased demand for those currencies which typically gain in times of risk aversion and weighed on higher risk currencies such as the Australian dollar.

Sterling pared earlier steep losses, however, after Bank of England minutes showed policymakers voted unanimously to maintain their quantitative easing target.

Analysts said Federal Reserve Chairman Ben Bernanke on Tuesday dented sentiment when he said U.S. interest rates would stay low for some time.

“The dollar has found a bit more of a stable footing, which is largely a function of what Bernanke said yesterday,” Bank of Scotland Treasury market economist Kenneth Broux said.

“There is no reason for the Fed to hasten its way out of QE, which should dampen some of the recent excitement on equity markets,” he added.

By 1208 GMT, the euro fell 0.5 percent to 132.55 yen , while it dipped 0.1 percent against the dollar at $1.4200 .

Traders reported hefty options activity in euro/dollar at $1.4200, set to expire later in the day. A holder of a digital option will get payout if spot is above $1.4200 at expiry, while other expiries at $1.4200 are thought to total 1 billion euros, market participants say.

On Tuesday the euro hit a seven-week high on Tuesday at $1.4278 , close to its peak for the year.

The dollar fell 0.3 percent against the yen to 93.36 yen .

Reaction in the euro was limited, however, after data showed euro zone industrial orders data unexpectedly fell 0.2 percent in May, compared with forecasts for a 1.9 percent rise month-on-month.

“It looks not really consistent with what we had seen for the euro area…so I have some doubts if we do not see a substantial revision of this May reading at a later stage,” said Juergen Michels, economist at Citigroup.

STERLING OFF LOWS

Sterling fell 0.2 percent against the dollar to $1.6410 , well above an earlier low around $1.6311.

The minutes from the Bank of England’s latest policy meeting showed a 9-0 vote to maintain the 125 billion pound asset-buying total and keep interest rates at 0.5 percent.

The market took this as a signal that UK quantitative easing could be at or near an end — suggesting the economy may be starting to recover — and sterling gained as a result.

“The MPC minutes should be bullish for sterling,” Bank of Scotland Treasury’s Broux said.

The Australian dollar fell 0.4 percent against the dollar to $0.8154 and by 0.4 percent against teh yento 76.14 , dented as oil prices fell below $65 per barrel.

“Levels look quite stretched for these big gainers,” said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

Investors awaited further comments from the Fed’s Bernanke later on Wednesday, this time before the Senate Banking Committee.

Bernanke will repeat his testimony before the Senate Banking Committee at 1400 GMT, and then take questions

July 22 (Reuters)

• Royal Bank of Scotland plc (ADR:RBS) said it may eliminate as many as 9,000 additional jobs to curb costs and repay $3.7 billion in government bailout money over the next three years. The bank said the actual number of losses may be “significantly lower” because of efforts to shift employees to new positions, Bloomberg reported.
• The number of delinquent mortgages rose 7% in February, with 39.8% of subprime borrowers at least 30 days behind on their mortgage payments, Dann Adams, president of U.S. Information Systems for Equifax Inc, told Reuters. “I’m trying to find optimism in these numbers, but I’m pretty hard pressed to do that,” Adams said.
• After contract negotiations stalled, Rio Tinto Group PLC (ADR:RTP) offered Asian steelmakers a 20% discount on its iron ore, well below the 40% to 50% discount Chinese steelmakers demanded, four executives close to the deal told Bloomberg. Some Chinese mills already rejected the offer from Rio, the world’s second-largest iron ore producer.
• Retailers are expected to post a 0.3% drop in same-store sales in March. Excluding Wal-Mart Stores Inc. (WMT), that figure would be a 4.7% drop, according to Thomson Reuters data. “We don’t see any signs of significant improvement with the exception of a continued full-fledged flight to value retailers,” said Craig Johnson, president of Customer Growth Partners, a retail research firm.
• The number of Latin American companies whose ratings have negative outlooks or are under review for a downgrade has jumped to 23% from 10% in September and more than half have “high exposure to funding risk,” Moody’s Investors Service reported yesterday (Tuesday).  The region’s companies are struggling to refinance debt as the financial crisis reduces access to credit and slowing economic growth crimps earnings, according to Moody’s, Bloomberg reported.
• A survey of U.S. chief executives released yesterday (Tuesday) showed two-thirds plan additional layoffs and expect sales to decline in the next six months as their confidence in the economy continues to fall, Reuters reported. The Business Roundtable’s quarterly CEO Economic Outlook Index fell to negative 5 – the first negative reading in the survey’s six-year history – and down from a fourth-quarter reading of 16.5. A reading below 50 means CEOs expect contraction rather than growth.
• Private equity firm Colony Capital LLC is in talks with MGM Mirage (MGM) to help refinance the casino company’s debt, two people with knowledge of the discussions told Bloomberg. Colony may invest as much as $750 million in corporate debt secured by a lien on one or more of MGM Mirage’s casinos, the anonymous sources said.  An investment in CityCenter, MGM Mirage’s unfinished Las Vegas Strip project with Dubai World, is unlikely.
• Worldwide sales at Audi fell 10.7% in March from a year ago, but the German carmaker managed to increase sales in China, Reuters reported Monday. Audi, a Volkswagen AG (OTC:VLKAY) unit, sold 90,400 cars worldwide in March as sales fell 12.9% in Western Europe but rose 6.6% in China. “The trend is positive: Our monthly results have been continually improving since January,” said Peter Schwarzenbauer, the manager in charge of marketing and sales at Audi.

Source: Global Investment News Briefs Wednesday, April 8, 2009

In England, the yahoos attacked poor Sir Fred Goodwin’s house. Fred ran the Royal Bank of Scotland into the ground; you’d think the rabble would be delighted.

In America, meanwhile, they organize bus tours to gawk at AIG executives’ houses…and howl for blood. Apologize, resign…or commit suicide, suggested Senator Grassley.

“The corporate security business is booming,” says the International Herald Tribune.

Until now, the whole bonus/executive pay/bailout spectacle was just an amusing diversion – diverting the public’s attention with a trifling few million dollars, while the feds picked their pickets for trillions. But now, it’s turning ugly.

Our guess is that the blood will flow…but later. It’s still fairly early in the correction. Investors have lost money – lots of it. Homeowners have lost their homes. Working stiffs and Wall Street sharpies have both lost their jobs. But the violence-prone yahoos still expect something for nothing. The bailout plans will work, they believe. The government will step in and save them. They haven’t figured out that the government’s bailouts are just making their situation worse.

Today’s International Herald Tribune tells that “shanty-towns” are beginning to appear throughout the United States. People are setting up tent communities…shacks…and Rio-style favelas – in America. The paper shows a photo of a group of tents under a California freeway. It’s not hard to understand why. Many families live paycheck to paycheck…just one week ahead of the rent payments. If the paychecks stop – even for a short time – they’re in trouble.

When credit is expanding, jobs are plentiful and credit is willing. Lose a job and you can always get another. And you can fill in the gap in your budget with credit cards. But that was then…this is now. Advertise a job opening now and you’re likely to get hundreds of applicants. And not only is it harder to get a job…it’s harder to get a line of credit too. And even people who still have credit are more reluctant to use it. They know where that leads; many would prefer to live under a highway than to run up more debt.

A big change in attitude has taken place. People used to think that whatever they needed, they could get it ‘just in time.’ That’s why we have 24-7 liquor stores, all-night convenience shops and cash machines on every street corner. But something has gone wrong with the ‘just in time’ system. The cash machines aren’t as yielding as they used to be. Neither is the housing market. Or the job market. Sometimes, they just say no.

Now, people want a little cash in their pocket…just in case.

But what do we know? We missed the whole credit cycle. When we were young and in need of credit, the banks were still smart enough not to lend to us. When we got older, we were smart enough not to borrow.

But pity people about 20 years younger than we are. They were just starting out…having children…buying houses…at a time when the banks had lost their minds. Credit was as easy to get as a social disease. Now, the debt is even harder to get rid of. Old people…and young people…tend to have little debt. It’s the people in between who are hurting.

But enough rambling…

Everyone’s looking for the recovery. The commentators think they see signs of it everywhere. Commodities are rising. Stocks are going up. Even houses are said to be selling better than they were a few weeks ago.

“Risk appetite grows on hope US is near bottom,” says the FT today.

The Dow rose 174 points yesterday. Oil, the dollar, and gold moved little.

Maybe you should stop reading here…before we get to the ‘rest of the story’…

But first, we turn to Ian in Baltimore for more news:

“On the housing front, we see a ray of hope,” writes Ian in today’s issue of The 5 Min. Forecast.

“According to this chart, the precipitous fall in home prices might start to ease up soon:

“The current crisis has finally wiped out the bubble in home prices,” continues Ian. “Adjusted for inflation, the price of median single family home has plunged 33% from its 2005 high. Now at pre-mania levels, an average of $165,000, home prices have a reason to at least slow down their rapid decay.

“Ouch…sorry if you bought your home during the height of the housing boom in the 1979. The median, inflation adjusted return over the last 30 years is negative 1.6%.”

Each weekday, Ian and Addison bring readers the The 5 Min Forecast, an executive series e-letter that provides a quick and dirty analysis of daily economic and financial developments – in five minutes or less.

And now, as Paul Harvey used to say, the rest of the story:

GM says 7,500 hourly workers have left the company. Jobless claims sent another record – the 9th one in a row. There are now more people getting benefits than any time since 1967.

And what’s going on in the bond market?

“Weak demand at Treasury auction gives Wall Street pause,” says an article at the New York Times.

And in England, an auction of government bonds “failed” – buyers didn’t show up.

If the government can’t finance its debt, how will it pay for its bailouts? Oh, never mind…we forgot; the Fed will lend the government the money. Where will the Fed get the money? Oh, never mind…

Meanwhile, the corporate bond market is still expecting a Great Depression…

“Investment grade corporate bond indices are [still] priced for default rates of 38% in Europe; 40% in the US; and 51% in the UK – all worse than the Depression,” writes John Authers in today’s Financial Times. Bank lending is the target of all these recent operations, he points out.

Stocks are going up. But corporate debt is still priced “on the assumption of absolute disaster,” says Authers. Someone’s got to be wrong: either stock market investors…or the bond market. “Either the credit market is so illiquid that these numbers bear no relation to the outcomes that investors expect; or we are in for a re-run of the Depression.”

Naturally, we don’t know which it is. We are incurable optimists here at The Daily Reckoning. Let the markets work…they’ll straighten things out. In the meantime, we keep our Crash Alert flags unfurled…just in case.

And finally, Alan Greenspan is in the news today. He has a major work of obfuscation in today’s Financial Times, the gist of which is the same as his previous pieces. “It’s not my fault,” is the message.

In a sense, he is right. The free markets are full of boom and bust, sturm and drang, yin and yang. Free markets also create prosperity, he points out. And if bubbles are the price we pay, well…it’s worth it.

“I do not recall bubbles emerging in the former Soviet Union,” he says.

Yes, bubbles will always be with us, dear reader. But that is no excuse for a Federal Reserve chairman who pumped extra air into the already bubbling economy.

Poor Dr. Greenspan. The more he tries to defend himself…the more guilty he appears. And now he must shuffle out the end of his days…an empty coat upon a stick…with the curse of the biggest financial crisis in history upon his wrinkly, old head.

Source:  Still Searching for a Recovery

World stocks fell on Monday as optimism after Britain’s multi-billion rescue plan gave way to concerns about the banking sector after Royal Bank of Scotland reported the biggest ever loss in UK corporate history.

The euro tumbled after Standard & Poor’s cut Spain’s credit rating, following its downgrade of Greece last week. Oil fell 6 percent below $35 a barrel, hit by worries about weakening energy demand in a slowing economy.

Britain will allow banks to insure against steep losses and guarantee their debt to stop the credit crunch pushing the economy into a deep slump. The plan raises the government’s stake in RBS, which said it lost over 20 billion pounds last year, sending shares down nearly 70 percent.

“Whilst today’s measures will be widely welcomed, significant risks remain,” said Keith Bowman, equity analyst at Hargreaves Lansdown.

“All in all, should these measures fail, a further ratcheting-up of bank sector nationalization in order to force lending would appear to be the next step, a conclusion seen beyond all possibility just 12 months ago.”

The FTSEurofirst 300 index of leading European shares fell 2 percent, reversing gains of more than 1 percent earlier. The MSCI world equity index fell 0.8 percent, after making its biggest weekly loss since late November last week.

Emerging stocks fell 0.6 percent. UK banking woes knocked sterling to a two-week low of $1.4452 .

EURO AND DOWNGRADES

S&P cut Spain’s long-term sovereign credit ratings to AA+ from AAA, after it downgraded Greece last week and gave recent warnings on Ireland and Portugal. Worries about European government debt burdens have been growing as countries fund packages to boost local economies.

“It’s a theme in general … and it will continue to run for a while. Looking at the fiscal balances in Europe, that’s where the economic crisis is hurting at the moment – Ireland and Southern Europe,” said Niels From, chief analyst at Nordea in Copenhagen.

The euro fell 1.4 percent to $1.3139 . The dollar fell 0.7 percent to 90.31 yen while it rose 0.7 percent against a basket of major currencies.

The yield premium investors sought for holding the 10-year Spanish benchmark bond compared with the more liquid German government bond held at 114 basis points, having hit a record 122 bps earlier.

U.S. crude oil fell 6.2 percent to $34.25 a barrel, pressured by concerns about weakening oil demand, as well as signs of a resolution of a gas row between Russia and Ukraine and a ceasefire between Israel and Hamas in Gaza.

The March bund future fell 52 ticks.

LONDON, Jan 19 (Reuters)

Friday brought news that the Royal Bank of Scotland was looking to raise another $10 billion. This came amid news that the City (London’s Wall Street district) faced its “blackest day in almost 20 years,” according to the Daily Telegraph, and would lose 3,500 jobs. Which just goes to show how sunny the financial business has been for the last two decades. A little rain would do it good, in our opinion.

Meanwhile, over on the other bank of the Atlantic, Citigroup (NYSE:C) has issued storm warnings and Merrill Lynch (NYSE:MER) says that it is reconsidering. Citi says it has about 9,000 employees too many; it says a flurry of layoff notices is about to go out. As for Merrill Lynch, the company went on record saying it needed no additional capital. But that was before announcing another $10 billion write-down of subprime debt. Now, the bank says it is “open to” further capital raising.

The price of oil hit a new high of $116 on Friday. The dollar stuck at $1.57 per euro (EUR). Gold got whacked – down to $915.

As we mentioned last week, there is a whole lot of flation goin’ on. Our guess is that it will inflate prices of commodities and gold…and that it will deflate (if only relatively) prices for stocks and houses. But you couldn’t prove it based on last week’s market action.

Friday, the Dow rose another 228 points. The stock market is said to ‘look ahead’ and see things that we mortals can’t see. The index went down about 10% since last October, but lately seems to want to go up. What does it see?

We think it sees inflation. But the conventional thinking is that it sees a boom. ‘The negativity has been severely over-done,’ goes the gist of popular opinion. Finance has bottomed out…homebuilding has bottomed out…the dollar has bottomed out. What’s more, the authorities have taken quick and resolute action to cure whatever was bothering the markets. Central banks have injected hundreds of billions into the banking system. The Fed has cut rates sharply. Congress is considering measures to help out homeowners…and here comes the Bank of England, which (according to the BBC) is preparing a $50 billion mortgage bailout plan. Well, that settles it as far as we’re concerned. It should be onwards and upwards from here on out!

As we pointed out last week, the newspaper headlines may be negative, but sentiment is not. Most people think this is a good time to buy a house – meaning, they still think ‘you can’t go wrong in property.’ And stocks at 20 times earnings are no bargains. At real bottoms, you can buy stocks at 5 to 8 times earnings.

At real bottoms, people have stopped looking for bottoms. Our old friend Marc Faber sent a convenient list of quotations from the crash of ‘29. A chart of the market action looks like a mountainside, with ledges…followed by more sharp downturns. But on each ledge…at each pause on the way down…there was some notable figure telling the world that it was over:

“This is the time to buy stocks,” said R.W. McNeal in the New York Herald Tribune after the first leg of the crash. “This is the time to recall the words of the late J.P.Morgan…that any man who is bearish on America will go broke.”

It is the “long slope of hope,” says Marc.

As it turned out, anyone who was bullish on America in October of 1929 went broke. Stocks did not return to their ‘29 high until the 1950s – after more than 1,000 banks had gone bust…a quarter of the workforce had lost its jobs…and the Dow had given up 89% of its value.

And now, dear reader…the press may talk about depressions, bear markets and credit crises, but we ain’t seen nothing yet. When we get a real bottom, they won’t be talking at all – they will have lost interest. That’s what happens. When we get a real bottom, people won’t be interested in buying stocks; they’ll come to regard stocks as a rich man’s game. And they will once again view houses as a consumer item, not an asset class. As for depression…they won’t need the newspapers to tell them how bad things are.

We think that day is coming. How far out it is, we don’t know. As we often say, we don’t have a crystal ball.

What we do know, however, is that this day of reckoning for the U.S. stock market is going to require some fancy footwork from those wanting to protect their already existing assets…and still be positioned to turn a nice profit. There are at least seven ways you can do this, even if the markets continue to tank…stocks continue to fall…and even if the entire world economy goes up in flames. See here:

Strategic Financial Survival Library

*** More and more indications suggest that there is a kind of decoupling happening. That is, the new economy of the Far East (and to a lesser extent Latin America and Africa) is separating itself from the old economy of Europe and North America.

Prudential Insurance, Britain’s largest insurer, says that Asian sales are now more than half its business. The company can grow, it points out, even with falling revenues from Europe and North America.

Meanwhile, colleague Manraaj Singh tells us that China’s latest growth announcement masked an even more important detail. The headline number – GDP growth over 10% – is breathtaking. But what is more interesting about it is that it is happening while exports to the developed world are actually going soft. That is, the growth is being fueled by domestic demand not foreign buying. This is not to say that emerging markets no longer need their Old World customers. Just that they don’t need them as much as before.

*** Our India expert, Ajit Dayal, paid us a visit last week in London. In the first two and a half months of this year, the Indian stock market got hit hard – the BSE 200 lost 32% of its value. We checked Ajit’s wrists for signs of slash marks and found none.

“I’m not the least bit worried,” he told us. “The India Thesis still stands. Indian GDP should post average growth of 6% per year for the next 10 years. Our stocks will give investors a risk-adjusted return of 15% to 20% per annum. That will make it possible for an investor to multiply his investment 4 to 6 times over the 10 year period.”

Ajit points out that while Indian stocks dropped sharply, they were coming down from a crazy high. A big rush of foreign money in 2007 had sent the BSE skyward. Even after correcting by 30%, Indian stocks are still ahead for the 12 months ending March 19th by 45%.

“Look around your house,” Ajit suggests. “You will find few things labeled ‘made in India.’ India gained little from the housing boom in America. And it will suffer little from the housing bust.”

What does affect Indian equities, though, is the movement of foreign capital. But foreign investors are generally light on Indian shares, while local investors – especially mutual funds – are taking bigger and bigger positions.

Like Ajit, colleague Chris Mayer is optimistic about India. In fact, he points out that investing in India today is very much like investing in China 13 years ago. Imagine how wealthy you’d be if you’d started investing in China in 1995.

Find out why Chris says India is the place where you could make two times, five times… even 10 times your money in the next two or three years. See here.

That seems to be the view of many this morning. Why didn’t the Bank’s Monetary Policy Committee (MPC) go further?

Those who hoped they would had their woes compounded yesterday. Signs are that the cut, already small, won’t be much felt by consumers. Nationwide, Royal Bank of Scotland, Alliance and Leicester and Britannia actually raised their rates yesterday.

So, in light of the fact that appears to have achieved little, was yesterday’s decision the right one? Should the MPC have gone further? Or (controversial), should it have stuck to its inflation-fighting mandate and left rates on hold? After all, the Consumer Price Index (CPI), the measure of inflation against which the MPC is judged, rose by 2.5% in February. That’s half a percentage point above the MPC’s inflation target of 2%.

I think the MPC fudged it. It made a decision based on fighting recession, not inflation. But it couched that decision in language that makes a weak attempt to tie it to inflationary concerns.

“Credit conditions have tightened and the availability of credit appears to be worsening,” said an MPC statement yesterday. The MPC also added that the slowdown in the economy will create spare capacity and ease inflationary pressures.

Of course, it’s easy to sit on the sidelines and carp. The MPC had a very tricky call to make yesterday. But by straying from its core objective, it has ensured its credibility has taken a hit. That’s likely to mean even trickier decisions in the months ahead.

Retail market “ugly”, Sir Philip Green says

One person not impressed by the MPC’s move is fashion magnate Sir Philip Green. The Kate Moss groupie gave a profit warning for his BHS chain yesterday, and predicts a shake-out in the retail market, which he describes as “ugly.”

The whole sector worries Green, and he sees little chance that yesterday’s rate cut would revive demand and predicted that the “very challenging” conditions would sort out good retailers from bad.

Green stopped short of calling time on any of his retail rivals, though.

Highly Recommended

—A SPECIAL FLEET STREET LETTER ALERT—

‘Assault on the Square Mile’

The finance sector makes up one third of Britain’s economic output.

It contributes £20 billion to the trade balance… and accounted for nearly HALF of UK GDP growth in 2007.

Let me ask you…

What do you think would happen to the domestic economy – and to YOUR savings and investments – if Britain’s ‘Miracle Money Machine’ had its output slashed by one tenth… one third… or even half?

Batten down the hatches, dear Reader, because you’re about to find out.

Below you’ll find the link to a brand new Crisis Report published by The Fleet Street Letter.

They’ve also identified three stocks poised to benefit from the finance sector-led recession they believe has to kick off in 2008.

Go here for the full report.

Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. Customer Services: 0207 633 3600.

If there’s one thing the market can’t stand, it’s profit warnings. To us, the domestic retail sector looks as ugly as Green says.

The US has plenty of money — but not enough to buy with it…

Given the attention focused on how creditworthy our banks are, some may well be tempted, as The Daily Telegraph’s Stephen Ellis notes, to “stuff it all under the mattress”.

However, that is not only rather risky, but also should be unnecessary, thanks to an investor safety net – the Financial Services Compensation Scheme (FSCS) – which pays out if a bank or building society holding your cash goes bust.

At first glance, the scheme is pretty simple; if a bank goes bust and a customer is unable to recover a cash deposit via the normal liquidation process, then they are entitled to claim 100% of any amount up to a maximum of £35,000. So far, so reassuring. However, there are some quirks to be aware of.

First off, the £35,000 applies per person and not per account. So if you have two accounts with a single bank, say a current account and an online savings account, the balances are combined to test the £35,000 threshold. Also, some banks, such as HBoS, have a single Financial Services Authority (FSA) registration for all of their operations – including the likes of Intelligent Finance, Birmingham Midshires, Halifax and Bank of Scotland. That means you only get a single £35,000 claim to cover balances across the whole group. So a cautious investor should limit single deposits to £35,000 and, ideally, spread them across different banks.

It’s also worth noting that the scheme only pays out if your bank is FSA-authorised. You can check this on the FSA Register, or call them on 0845-606 1234. Be aware too that certain banks, such as Bank of Ireland, ING, Landsbanki and Fortis, get their primary authorisation to operate here from local regulators rather than the UK FSA. Although you would still be entitled to claim from the FSCS should the local scheme pay less than £35,000, the process may take longer, given the complexities of dealing with two different regulators.

If this all sounds like a lot of homework for a simple cash deposit, remember that the Government’s bail-out of Northern Rock suggests a major UK bank is unlikely to be allowed to fail, so the FSCS may never be tested. That’s perhaps just as well, given that under new FSA rules from 1 April it can only raise a maximum of £4bn a year in funding, hardly enough to cover all the deposits in a major retail bank.

But if you still have doubts, consider investing with the Government-backed National Savings Bank instead. One savings product stands out if you don’t mind locking up your cash short-term – index-linked certificates. Running for three or five years, the investment limit for each is £15,000. They each pay tax-free interest at 1.35% above the retail price index (a key measure of inflation) currently sitting above 4%. For a higher-rate taxpayer that’s equivalent to a gross annual return of just over 9%, with your deposit guaranteed by the Treasury.