Turns out March will be the slowest month for IPOs since August 2003, with a measly three IPOs.

Like the broader market, which experienced wild mood swings during the month, IPOs suffered from investor panic in March as the credit crisis enveloped more firms and economists began to speak more assuredly of a recession ahead.

Bankers say that issuers and investors alike are hanging back from taking the plunge into IPOs until there is more clarity and stability in the stock market.

Read the full story here.

The financing spigot for private-equity funds has also been largely turned off by the credit crisis, says Jason Simpkins in the Takeover Trader.

“Recent data from Thomson Financial suggests that worldwide M&A deals slumped by nearly one third in the first quarter of 2008. But that doesn’t mean the M&A market is dead in the water. Instead, it means that cash-laden corporations will be taking the baton from the private-equity firms and will re-ignite the buyout binge.

“The one caveat: Companies, buyout firms and banks are being more selective about picking partners, and are looking for comprehensive, ‘perfect-fit’ deals.”

According to a report in The Daily Telegraph:

A senior official at one of the Scandinavian central banks told The Daily Telegraph that Fed strategists had stepped up contacts to learn how Norway, Sweden and Finland managed their traumatic crisis from 1991 to 1993, which brought the region’s economy to its knees.

It is understood that Fed vice-chairman Don Kohn remains very concerned by the depth of the US crisis and is eyeing the Nordic approach for contingency options.

You can get the full story here.

The news comes amid a raft of proposals by US Treasury Secretary Hank Paulson to overhaul the system of financial regulation in the US by turning the Federal Reserve into a kind of Wall Street ’supercop’.

Stephanie Grimmet says Paulson’s proposals “could actually save money and provide a simpler system for companies trying to follow the ornate business laws already in place in the U.S.”

“But I’m afraid the public, or at least the public as it is seen by the press and elected government, will require a whipping boy after watching their home values collapse and inflation destroy their savings. Someone must be slapped about by a Congressional committee or, preferably, jailed in a comfortable resort-like low-security prison for several months to satisfy the blood-lust incited by the real estate collapse.”

Spending, which accounts for 70% of the US economy, may be technically up, but the the lack of real growth is likely to weigh heavily on investor sentiment.

Record falls in home prices, job losses and sky-high energy costs mean Americans are doing the unthinkable: they’re cutting back on spending.

Is this a once-in-a-generation chance to buy financials? Are they as cheap as they are going to get? Is all the recent selling a kind of irrational excess?

“Those who call the action in financials ‘irrational excess’ show a distinct poverty of imagination, or rational poverty,” says Dan Denning in The Daily Reckoning Australia.

“Your once-in-a-lifetime buying opportunity is a-once-in-human-history collapse of the financial system responsible for the last 200 years of global growth.”

The bad news will continue for Merrill Lynch and UBS, according to a recently released analyst’s note from Oppenheimer & Co.

Merrill may post a loss of $3 per share and write down $6 billion of assets, Whitney wrote in a report dated yesterday. Zurich-based UBS will lose $2.75 per share after writing down about $11 billion, she said. Sanford C. Bernstein & Co. also abandoned its prediction of a profit for Merrill today.

At least a dozen analysts have reduced profit estimates in the past six weeks for the biggest banks and securities firms on expectations of more writedowns related to the collapse of the subprime mortgage market. Credit losses for banks worldwide already total about $208 billion, according to Bloomberg data.

Source: Bloomberg

 While the big boys take a pasting over the subprime fiasco, small banks may the perfect investment.

“Many small banks are trading at book value, or less,” says DailyWealth editor Steve Sjuggerud.

“The good part about the small banks is, they generally stick to their knitting – taking deposits and then making loans. They simply earn a spread… They charge more interest on the loans they make than they pay out as interest on their deposits.”

Where will the market be eight days from now? Will it look back on Tuesday’s Fed action as the turning point in the great credit crisis of 2008? Or will yesterday’s action be just another failed attempt to halt the rampaging bear market in credit?

You have to give it to Ben Bernanke. For an academic, he sure has a great sense of theatre. It may not last long. But Tuesday’s 416 point rally on the Dow Jones was kind of refreshing, wasn’t it? It’s like coming up for air after you’ve been holding your breath under water… for two months.

Inhale. Did you know that by inhaling and exhaling three times-calmly and fully-you actually reduce the chance you will lose your temper? Fear and anger are physiological as well as psychological. Calm, deep breathing lowers your heart rate and prevents the chain reaction of neurochemical events in your brain that leads to bouts of anger and panic. Perhaps oxygen tanks should be made available in the trading pits.

Then again, traders were quite happy with their Fed-induced high on Tuesday. U.S. investors sent the indexes up by over three and half percent thanks to a new plan of attack by the supreme allied commander in the war against deflation, U.S. Fed governor Ben Bernanke.

General Bernanke-or perhaps we should call him Air Marshall, in honour of his arsenal of money-dropping helicopters-bombed the markets with an innovative new strategy. It’s called a Term Securities Lending Facility (TSFL).

Starting 27 March, the Fed will loan prime brokers (big banks) up to US$200 billion in U.S. Treasury bonds. In exchange for the Treasuries, the banks will deposit with the Fed collateral in the form of AAA rated residential mortgage backed securities (RMBs) and agency debt issued by Fannie Mae and Freddie Mac.

The prime brokers, you’ll recall from yesterday’s Daily Reckoning, are putting the screws to hedge funds. After years of virtually no-questions-asked lending, the prime brokers are now engaged in no-answers-accepted margin calls.

For example, the hedge fund run by Carlyle Capital is trying to prevent its creditors from selling US$16 billion in collateral. The fund pledged the assets as collateral for loans last year. The banks (prime brokers) want their money back, and are antsy to get it. The trouble is, in their rush to sell the collateral, the banks risk collapsing prices for all sorts of other assets that have been pledged as collateral. More selling leads to falling prices leads to more selling. You can see where all that goes. Down.

Into this no-trust zone between borrowers and lenders steps the Fed. The Fed hopes that by taking the illiquid collateral off the prime broker’s hands, it can prevent cascading asset sales. But will the prime brokers begin lending again? Hmmn.

The prime brokers could simply keep the Treasuries on the balance sheet for a month and boost their own capital. This would prevent them from having to borrow more capital from the Gulf States. Or they could lend against the Treasuries. In a fractional reserve banking system, $200 billion worth of new assets can quickly become $2 trillion worth of new lending (lending at 10x reserves).

If the banks expand lending on their comfy new Treasury capital base, well then the Fed will have achieved its goal of loosening up the credit markets. But here’s a question for you… if the new term securities lending facility leads to an expansion in bank lending, why hasn’t the gold price reacted? Hasn’t the Fed indirectly increased the money supply?

For starters, the Fed’s action today makes it less likely to cut rates by 50 or 75 basis points next week. That’s one reason gold didn’t move more today. But the bigger reason is that we have to wait and see if the Fed’s action has the intended reaction, namely restoring liquidity to the financial system.

Stocks sure liked what they saw. But stocks always behave impetuously. The stock market and the credit market are two different animals. It’s too early to tell if banks will actually change their lending behavior because of the new lending program. We walk past a magic shop on St. Kilda Road every day. But that doesn’t mean we have a closet full of wands and white rabbits.

Maybe banks will use the TSFL. Maybe they won’t. The banks know a third new wave of mortgage debt is already facing higher delinquency rates. They may not be in any hurry to loan more money at all, knowing that a lot more collateral is about to go bad.

What do we know? Not much. But it does seem safe to say the Fed has solvency in mind as much as liquidity.

The TSLF is supposed to allow prime brokers to exchange illiquid assets for liquid ones for 28 days. But that 28 days… could just as well be 56… or 84… or three years. That is, the Fed has shown us it’s willing to take de facto ownership of bad mortgage debt in order to restore order to the system and guarantee that banks don’t become insolvent due to inadequate capital.

Of course the Fed can’t come right out and say its willing to own bad debt. If it did, the U.S. dollar would tank even more. But the bond market isn’t stupid. “The risk of losses on U.S. Treasury notes exceeded German bonds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves, credit-default swaps prices show,” reports Abigail Moss at Bloomberg.

The bond market realises that the Fed has wandered down a path that may lead to the natonialsation of a huge amount of bad American mortgage debt. At the very least, this means inflation. And there may be bigger plans in the offing.

Here’s a thought: what does a thirty year U.S. Treasury bond have in common with a thirty year, fixed-interest rate mortgage?

They both, quite obviously, have the same duration (30 years). Is it inconceivable that the Fed would buy up (at some discount) a large portion of Fannie and Freddie’s mortgage portfolios, and then, as the new lender, allow Americans to refinance into 30-year fixed mortgages? The Fed could then either hold onto the new mortgage portfolio, or foist it off on some new government agency.

It’s not inconceivable, because we just conceived it. In any event, this drama isn’t over yet. Monetary intrigue aside, the world’s central banks are fighting debt deflation with all the tools of inflation. As a result, you’re getting inflation.

In China, inflation is growing at its fastest pace in 11 years. Chinese consumer prices were up 8.7% in February. Food costs were up a staggering twenty three per cent.

U.S Vice President Dick Cheney has been dispatched to the Middle East to try and talk down oil prices from $108. Good luck with that Mr. Cheney. Gulf States are importing inflation through their dollar pegs. Keeping oil prices high by refusing to increase supply may be the Saudi’s way of getting back at Bernanke for gutting the dollar.

An eventful day, all in all. The local market will probably follow New York’s lead. For the day, that means up. For the year? We reckon stocks better enjoy the fresh air while they can. Inflation sucks out all the oxygen in a room like a greedy fire.

Ben’s retired now. But he was the CEO of a few smaller banks over his career. Last night, at a party, Ben called them the perfect investment:

“I’m earning 6% dividends in small banks now – better than money in the bank. And as long as a small bank doesn’t try to get fancy, it can steadily grow its dividends. High income with growth too… a portfolio of small banks is the perfect investment.”

Ben personally made millions of dollars in small banks. The real secret was the price he sold banks for…

Ben’s career secret was that he could start a bank (at book value, of course), grow the deposits, and then sell it to a bigger bank at a multiple of book value. Pretty safe money.

Last night, Ben told me he actually got paid two times for the last bank he sold… He he sold the bank at 2.75 times its equity (its book value). Only instead of cash, he accepted stock in the acquiring bank. In a stroke of luck for Ben, the bank that acquired his bank was then bought out for more than two times book value, less than a year later. Since Ben now had that stock, in essence, Ben got paid twice!

Under normal circumstances, you and I can’t do what Ben did. But now we can…

Over the last 25 years, we’ve generally had to pay two to three times book value when we buy a bank stock. But not now… Many small banks are trading at book value, or less.

The good part about the small banks is, they generally stick to their knitting – taking deposits and then making loans. They simply earn a spread… They charge more interest on the loans they make than they pay out as interest on their deposits.

It’s simple. As Ben said it’s a great business, as long as they “don’t try to get too fancy.”

Small banks are generally not like the big banks. Big banks do try to get fancy, with derivatives trading, massive leverage, and such.

Right now, with banks selling at around book value, we have a rare opportunity to act like Ben… to buy small banks cheaper than they’ve been in 25 years. We can collect 6% that will grow over time. And chances are, we’ll be able to sell at two times book value someday, when bank stocks return to normal. I don’t know when that day will come, but it will.

Right now, a downtrend in financial stocks is in full force. For safety’s sake, with new money, it’s probably best to wait a bit. We don’t know how far down this spiral can go. It could end tomorrow. It could still be around in six months or more.

So there is no hurry.

But someday soon, you’ll be able to start your own little mini-fund of small banks… business owned by people like Ben – CEOs running their businesses safely until they’re bought out. You’ll earn 6% dividends, with growth potential… And eventually, you should double your money as bank values rise from their current historic lows to two times book value or higher.

In the True Wealth portfolio, we hold a fund of small banks called the KBW Regional Banking ETF (KRE). Like I said, we’re probably a bit early, but KRE is a great way to own a portfolio of small banks – which will spread your risk – and collect a big dividend while you wait for the uptrend.

Soon enough, the time will be right.

Then there’s the other “March Madness.” And it’s not nearly as fun. This is the month when companies open their books, year-end audits, and budget forecasts to lenders. When times are good, as they have been until fairly recently, it’s not such a big deal. But when times are tough and a company’s numbers and projections aren’t looking so good, lenders are more likely to lower the hammer.

That could mean anything from forcing a major restructuring … to forcing companies to accept new loans with onerous terms … to finding a buyout partner. It also means banks will be more inclined to leave companies in the lurch. Moody’s Investors Service has projected corporate defaults jumping to 5.3 percent in 2008, up from less than one percent in 2007.

Investors need to be on their toes. Companies with banks that have run out of patience could also see their shares fall. How much and how fast depends on how hard the banks are coming down on them.

What’s more, it could easily bring more downward pressure on the markets, as if they need any more. This year, March could beat out April as the “cruelest month.”

You see, the European economy was showing signs of wear and tear. That worried these diners, who came from Europe’s central and biggest private banks. It wasn’t as bad as the U.S., but it was seemingly headed down the same road.

What to do?

They had the power to open up the money spigot, keep it as is, or tighten it. They were all aware of the Fed’s increasing inclination to lower the U.S. benchmark rate to help fight off recession.

If it made sense in the U.S., why wouldn’t it also make sense in Europe?

As expected, the conversation was decidedly one-sided. One by one, these bankers – every one of them at the pinnacle of their profession and confident in their knowledge and viewpoints – nodded in agreement. It was unanimous.

There would be no rate cuts in Europe. Inflation had to be defeated. Nothing else mattered.

Now, let’s fast forward 12 days. It was Martin Luther King Jr. Day in the U.S. and the markets were closed that Monday. But they were open elsewhere. And it was a terrible day for the global markets. Shares plunged everywhere – in South America, Asia, and Europe.

We didn’t know why back then, but now we do. It was because a guy somewhere in Paris lost a few billion dollars and the bank he worked for, Societe Generale, had begun quietly unwinding its losses.

But Fed chief Bernanke did not know that at the time. He assumed it was a sign of plunging confidence in the U.S. and global economic growth. He wanted to stop the bleeding before it got worse. So he signed off on the biggest one-day rate reduction in recent history – 75 basis points.

Unfortunately, it wasn’t enough to keep the U.S. markets from falling further. They’re now down 10 percent for the year. Global markets have followed suit.

Yet Bernanke has been nothing but steadfast in ratcheting down rates and opening up the money supply. When the Fed met one week later, he cut rates another half a percentage point.

All in all, since last September, rates have been cut by 2.25 percentage points.

Meanwhile, those 21 bankers who represent the European Central Bank (ECB) have been just as steadfast in not raising rates. Last Thursday, it decided once again to leave rates unchanged.

Look, Europe is not the U.S. and the U.S. is not Europe. Europe’s head banker, Jean-Claude Trichet, could be right and Bernanke could be wrong. Or the other way around. Or both could be right. Both could also be wrong.

But, there’s no denying that Europe and the U.S. are going in opposite directions. And that has consequences.

The first thing you need to know is that the Fed is constantly fighting two battles. One involves doing the right thing. The other involves managing expectations of what it does.

If the Fed isn’t successful in managing expectations, it doesn’t matter if it does the right thing or not. The market could come crashing down in a spasm of disappointment.

Or, another way of putting it is if it isn’t successful in managing expectations, then the right thing could become whatever it takes to meet expectations.

The ECB plays the same game. In not raising rates, it also has to convince its unofficial constituency – the European markets – that it won’t raise rates in the future … unless the European economy deteriorates sharply.

It’s been only partially successful at playing the expectations game so far. A lot of market players and pundits believe it’s only a matter of time before Europe follows the U.S. in cranking down rates.

Here’s the conundrum. The better the ECB is at playing this game, the bleaker the odds of the U.S. economy turning things around.

Let me explain to you what I mean.

The key is the U.S. dollar. Lower and lower interest rates in the U.S. won’t be able to compete against the higher and steady European rate, especially if investors are convinced that rates will remain high. Money will migrate to Europe and away from the U.S. in search of higher returns. As a result, the dollar will weaken even more. And that’s not good news for the U.S.

A flagging dollar will make U.S. imports more expensive, contributing to inflation. More importantly, because it will take more devalued dollars to buy a given amount of, say, gold or silver, expensive commodities will get even pricier. More than ever, investors will be encouraged to climb aboard the commodity gravy train as a hedge against a slumping dollar and rising inflation.

Where could relief come from? Normally, global growth could help pull the U.S. out of a recession. But in these circumstances, it would be more a curse than a blessing … if it helps prop up commodity prices.

Welcome to the dreaded vicious cycle, where expensive commodities contribute to destructive inflation, which leads to job losses that slow the economy even more, which forces the Fed to lower rates again …

A student of economic and Fed history, Bernanke has seen inflation calming whenever a recession strikes the U.S. It’s a valuable lesson and a leading reason why the Fed has chosen the course it has. But because Europe is determined to hold rates steady and fight the threat of inflation, it could be the wrong lesson at the wrong time.

Good Investing,

Andrew Gordon

Ed. Note: With a bear market looming, it’s more important than ever to select safe investments that produce monthly dividend income. Click here to learn about Andy Gordon’s INCOME service that selects the best dividend-paying stocks available.

“Commune di Campione,” as the Italians call it, is located on the shores of beautiful Lake Lugano. This unique little haven is a little plot of Italian soil, completely surrounded by Swiss territory. There are no border controls and complete freedom of travel.

Home to about 3,000 people (including a thousand foreigners), Campione d’Italia is about 16 miles north of the Italian border. It’s also five miles by road from Lugano, Switzerland, and makes a beautiful scenic drive around the lake. I’m sure you’ll enjoy it as much as I have.

With no Campione border controls, there is complete freedom of transit. The village uses Swiss banks, currency, postal service, and telephone system. Even automobile license plates are Swiss. Strangely enough, because of ancient history and treaties, the enclave legally is part of the Republic of Italy territory.

Campione is a pleasant place to live. It’s located in the heart of one of the best Swiss and nearby Italian tourist areas. The region boasts lakes, winter sports and the cultural activities of Milan, Italy, only an hour away by car.

If you want to become an official resident, you just need to rent or buy property there, although formal registration is required. Unlike in Switzerland, foreigners can buy real estate there without restrictions. But real estate prices are well above those in surrounding Ticino. A small townhouse may cost US$750,000 or more. Condominiums range from US$5,500 to $6,500 per square meter, and broker fees add a 3% commission. The same apartment across the lake in Switzerland can easily cost half of what it costs in Campione.

Be careful buying there as a foreigner. This small real estate market is served by a few local real estate agents — and some of them operate without a license. If you’re interested in a residence in Campione and purchasing real estate, you should be represented by a competent lawyer from the beginning.

BOB BAUMAN, Legal Counsel

P.S. Interested in this tiny Italian haven? I have a full chapter all about Campione d’Italia in my new book, just published, Swiss Money Secrets. Click here to get the full details.

See, playing penny options can be one of the best ways to capitalize on downside moves in distressed stocks.

Here’s a simple example: What if you were alerted through a simple e-mail in October 2007 that Citigroup Inc. (C:NYSE) was about to get whacked?

The simple course of action would be to buy a put option on Citigroup stock. For example, you could have bought the Citigroup June 2008 42.5 Puts (C RV) in October for $4.75 per contract.After a massive 52% fall on Citigroup stock, those penny put options contracts are trading for $21.15 per contract — a gain on your end of 345%!

Here’s the secret: These kinds of opportunities are flooding the market these days.

In fact, Death Cross Trader makes these kinds of triple-digit gains regularly. Over the last seven months, Death Cross Trader subscribers have been able to make 279%, 224% and even 207% gains in only 40 days’ worth of holding time.

And even better, at Death Cross Trader we do all the work for you. We alert you with our technical research when a specific stock is going to fall, and even tell you the best penny option that will capitalize on that downside move.

What better strategy can you employ in a time when all major American benchmark indexes are continuing to fall in value?