Notes can reveal that the pre-meeting booklet for the meeting is predicting “either a prolonged, agonising depression that dooms the world to decades of stagflation, decline and poverty – or an intense but shorter depression that paves the way for a new sustainable economic world order, with less sovereignty but more efficiency.”

While no names will be mentioned I will soon document receipt of a $10 Federal Reserve Note (while it still holds value).

You know I write about the Fed a lot. They are at the epicenter of the American and global economic and monetary crisis. These same elitist powers now want to take their act world wide. The Fed’s 100-year reign has all but ruined this country. Only a second American Revolution that totally dismantles this monstrosity and strips away the power of those behind its curtain will allow us to once again function according to our founding roots.

In late 2007 I proclaimed 2008 would be “the year of the bailout”. What a dummy … thinking just one year would suffice. Neither did I suspect bailout money would find its way overseas. What do you expect from a mere dentist?

The Fed is busy handing over trillions of dollars to well-connected US based cronies. The sum of present promises is close to $13 trillion and counting. These are monstrous commitments on yours and your children’s behalf. Please reply at the bottom of this piece if any of this money has found its way to your doorstep.

Fed digital-entry funny money has also been sent to France’s Societe Generale ($11.9 billion), Germany’s Deutsche Bank ($11.8 billion), Britain’s Barclays PLC ($8.5 billion) and Switzerland’s UBS ($5 billion). Yep, these foreign elite banks were provided these funds through the perpetual AIG bailout. The overall plan includes sending hundreds of billions of dollars in “currency swaps” to foreign banks. The blood boils.

You can also rest assured that we are at the mercy of many foreigners at this point. If China, Japan or Middle Easterners dump the Treasuries they hold or refuse to buy more, the Treasury market and the dollar will tank. Nothing like compromising foreign policy.

Why do you think the Fed sends this unfathomable amount of money to foreign entities?

1. They are charitable.
2. The global system is so fragile that no domino can fall.
3. Blood is thicker than water. Elitist connections rule. Period.

Could it be that the Fed bails out foreign entities because the Fed itself is largely a foreign entity? Home and abroad, the Fed takes care of its own first and foremost. You’d better protect yourself.

Source: Why is the Fed Bailing Out Foreigners?

You see, there’s a bond scandal that was uncovered in Italy, with Italy losing large sums of money, and some major banks like Deutsche Bank and UBS are right smack dab in the middle of the investigations. With Deutsche Bank in Euroland, and UBS in Switzerland, there you have the story behind those two currencies taking a beating from the dollar the past two days. There are other banks like JP Morgan Chase reportedly involved, but the majority of the problems resides in Europe… Let me try to explain the problem, as I know it to be from reading the story in the U.K. Telegraph last night.

Investment bankers, many based in London, spotted a major opportunity in the 1990s. Italian cities and regions wanted to borrow money. In order to avoid ballooning debt, the central government required local authorities to put away a percentage of the loan every year in a “sinking fund” so that when it was time to repay the full sum, they would be able to do so.

Investment banks offered to manage the sinking funds. While the funds initially had to be invested in Italian government bonds, the criteria were widened to include other government debt within the European Union. This could include debt from countries seen as more likely to default, such as Greece, as long as it was triple-A rated.

The banks took a fee to manage the sinking funds. They argued to the Italian authorities that as well as saving the money to repay their initial loan, they might also make some money from the investments. Many did when the global economy was booming.

All of the contracts were different. But critics have said some contained a “sting” which was not properly understood by some of the Italian authorities. While the local authorities only earned a return on the money they put aside, the value of their total loan was at risk. The banks could invest all of the money the authority had borrowed through bonds. If everything went well, the bank would pay a return based on the incremental amounts the local authority was putting into the sinking fund, and keep the rest as profit.

If things went badly, it was the local authority which would have to pay for the loss – and then also have to pay off the bond when it became due.

And THAT my friends is the big bugaboo right now… Things have not gone well, and the local Italian authorities (like cities) are left holding the bag, and they have no way of paying this debt! It’s a remake of: The Italian Job!

OK… That was a long explanation, but one that was needed, I believe, to explain this mess… One thing that I did notice in the story is that a Japanese Bank (Nomura) was involved, and this is the first instance of any involvement of a Japanese Bank in any of the mortgage bond meltdown and now this. Could be why the Japanese yen has seen a removal from terra firma the past couple of days.

There’s also the euphoria going on from the Obama Bounce… I’ve explained this a couple of times now in the first few days of 2009, so I won’t go there again, but when the President-elect goes on TV to discuss is “stimulus plan” the “bounce” gets magnified. There’s a lot of euphoria being built up for this plan. My problem is the size that it will end up being once the lawmakers get their hands on it, and begin hanging other spending bills on the plan. That just adds to our National Debt, folks… And that, in a nutshell, is a BIG Problem for me…

The euphoria is spilling over to the risk takers, as I explained yesterday. The Big Winner yesterday was the Brazilian real, which last week had a full 6 figure move higher, followed that yesterday with a full 8 figure move higher! WOW! OK… Before we get too excited about reals, let me point out that this huge rally in the past week, has left reals about at November’s levels. It’s still got a long way to go, to get back to last summer’s levels… But, Shoot Rudy! Why throw cold water on this move? 14 figures higher is better than 14 figures lower!

OK… Have you been following this Madoff stuff? So… I hear that the lawmakers are going to grill the SEC… As if! As if the lawmakers, save for Ron Paul, could have figured out what Madoff was up to if they were the SEC! But, it’s interesting anyway… The thing that ticks me off about the Madoff meltdown is that his people pulled the wool over the SEC’s eyes, even though there had been 8 probes by the SEC in the past 16 years…

Other lawmakers expressed concern about the make up of the SEC and even whether it should exist. Rep. Ron Paul, R-Texas, said he believes Congress should eliminate the agency, which he argued gave investors a false sense of security about Madoff and other problematic investment vehicles. “Investors should be self-reliant,” Paul said.

Did you see the collapse of Auto Sales yesterday? YIKES! Where have all the car sales gone? Long time passing… Shoot Rudy, even Toyota has announced that they will shut down their plants for 11 days in Feb and March… Now, that’s should tell us something… Here’s what the Wall Street Journal printed… “GM posted a 31% drop in U.S. light-vehicle sales for December, while Ford reported a 32% fall. Toyota saw a 37% decline, and Honda saw sales drop 35%, closing out the auto industry’s worst year in more than 15 years.”

Of course one might think that there would be some “real” sales for autos, eh? And not that cheesy “you get what we pay” promotion… I mean something with some real meat to it! Better to sell than to see it rot on a sales lot!

Well… The European Central Bank (ECB) and the Bank of England (BOE) both meet this week to discuss interest rates. There’s some speculation out there that the ECB will cut rates, especially after it was announced this morning that inflation for the Eurozone has fallen to lowest level in 2 years… Of course oil prices are behind that fall in inflation, but still… The ECB has done a marvelous job of providing price stability, even when Oil prices were shooting for the moon… Of course, I’m of the opinion that we’ll see Oil prices shooting higher again, and this is all great right now, but it won’t last.

Inflation for the Eurozone hit 1.6% in December, down from 2.1% the previous month… Now that inflation is back under the ECB’s 2% ceiling target for inflation, we could very well see them cut rates this week… But, I’m going to go out on a limb and say they will be prudent and wait… But then, I don’t know about any smokey back room deals between the Fed and ECB…

The BOE will also meet, and I DO expect them to cut rates this week… The BOE is cut from the same cloth as the Fed, and believes that lower interest rates are the way to a Lender’s heart… I would argue that the way to a lender’s heart is through their stomach… They need to be fed tons and tons of cash, which is another arrow in the Fed’s quiver that they are using… But not the BOE at this time…

Today, in the U.S…. We’ll see Factory Orders for November (pretty long lag, I agree!) which I believe will follow up the previous month’s rotten print of -5.1% with another negative print of -2.3%. We’ll also see Pending Home Sales for Nov. , and later today, we’ll see the color of the last Fed meeting minutes, when they cut rates to .25%… These ought to be good!

The ISM (non-manufacturing) Index, which covers the Servicing Industry, will print too… And I don’t normally give two hoots about the Index, except for the employment component of the report, which is normally where I get my thoughts about where the total Jobs Jamboree will print. There, I just gave away one of my secrets! And you didn’t have to pay a penny for it either! WOW! What a guy! OK, stop it Chuck! Seriously though, I do use the employment component of this report to give me a clue about where the National jobs will print… So, here’s a key to look for!

Currencies today 1/6/09: A$ .7115, kiwi .5870, C$ .8405, euro 1.3350, sterling 1.46, Swiss .89, rand 9.31, krone 7.0420, SEK 7.94, forint 200, zloty 3.04, koruna 19.79, yen 94.10, sing 1.4790, HKD 7.7535, INR 48.69, China 6.8363, pesos 13.35, BRL 2.1820, dollar index 83.81, Oil $49.66, Silver $10.87, and Gold… $841.55

Source: Italian Job

Platinum also traded flat for most of the day, ending at $2051/oz., up $10. For the week, platinum gained 1%.

Silver rose to $17.60 at the New York open, but then declined steadily through the day, closing at $17.32/oz., unchanged. For the week, silver shot up 5%.
(Click here for charts)

It was, perhaps, another mildly disappointing day for the precious metals, as they showed only a little life despite the support offered by a sinking dollar, rising oil, and weakness in the equities markets.

Peter Spina, an analyst at GoldSeek.com, concurs, writing that “the price is not reacting as strong as one would expect as some overhead resistance around $900 is keeping a bit of a lid on an extended rally.”

Julian Phillips of Goldforecaster.com summarized the market thusly: “It was New York and COMEX that took the gold price back over $900, so long and short-term investors are behind gold’s price rise today. With their eyes on the $ and oil they took it higher. Despite the oil producers conference this Sunday and despite the removal of subsidies on oil in China, the oil price has risen $3. On top of that the $ itself became anemic and fell back over $1.56 sending gold up as it fell.

“If good news for oil doesn’t push it down what will? It seems the market doesn’t want talk, it wants action! Until it gets it, the prospects are good for gold and silver.”

$900 is obviously a resistance point for many buyers, as gold has been toying with the mark for a while now, with no sign it’s going to be decisively taken out. But some think the time may be near, and are raising their buy-in levels.

“I bought some last week and would buy again under $880,” said Adrian Day, president of Adrian Day’s Asset Management.

However, a third-quarter rally in gold may be limited by a “relatively high level of net speculative length,” wrote analysts at Deutsche Bank. Speculative long positions in Comex gold have doubled in the past year, according to the Commodity Futures Trading Commission.

Source: Precious Metals Move Slightly Higher

Ryanair’s net profits fell to €391m in the year to 31st March from €436m in 2007. It would have been even higher, but the firm had to writedown €91.6m on its stake in competitor Aer Lingus.

Adjusted for this, Ryanair’s profits would actually have shot 20% higher! Revenues rose to €2.24 billion despite reducing ticket fares, which looks to have inspired the 20% growth in “customer traffic.”

Additional revenue from food, luggage and duty-free spending rose 35% to €488m.

All eyes are now on the airliner’s cost base. Fuel accounts for anywhere up to two fifths of expenditure versus just 10% during the last cyclical slump in 2000, according to Deutsche Bank.

Ryanair’s boss Michael O’ Leary is unimpressed, “the overriding concerns for airlines, passengers and investors currently is the irrational price of oil.”

Though, O’ Leary reiterated his famous promise of never implementing fuel charges… a good by-line for a budget airline but does it make good business sense in this climate?

I would say not. But it looks like Ryanair passed on the costs anyway, through more expensive additional revenue, the same additional revenue that jumped 35% by the way. And O’Leary said the airline expects fares to rise 5% next year, which I would take as a response to the rising price of oil.

Ryanair will squabble with critics over the details, but stealth charge or no stealth charge, the company will probably face a revenue squeeze, and soon.

The firm is throwing everything it has into pro-active cost cutting, “In recent months we have added cheaper fuel efficient aircraft, announced a company wide pay freeze, implemented painful redundancies in our Dublin Call Centre, renegotiated many of our airport maintenance and handling contracts, as well as increased discretionary charges for baggage and airport check-in.”

The list goes on, but, with the relentless incline of oil prices, it may not be enough.

Airlines squeezed at both ends

The airline industry is an essential component of the transport universe, but not necessarily a good investment. From the budget groups to the flag carriers to the private jet charter services, the business model is rarely profitable.

The sector-wide downturn is pretty textbook.

Airliners tend to suffer most in a weak economy. The airlines biz is very cyclical, i.e. very sensitive to the business cycle. Revenues tend to pick up in times of economic expansion, and fall in periods of economic contraction.

Airliners also are at the mercy of the oil markets, which are at all-time highs.

This isn’t just a recession. This is a recession combined with the raw asset prices getting too high to handle.

Lower revenues were already on the cards with the threat of UK, US and Eurozone recessions. But throwing in oil prices that range from $125 – $135 a barrel, the problem is made much, much worse.

Research firm CreditSights agrees. “The latest spike in oil prices, whether sustained or not, just punctuates the income difficulties airlines face in 2008,” said the group.

For airliners to succeed they not only need to cut costs, the whole business model needs a radical overhaul.

Ryanair’s actions were standard issue for responding to a turbulent climate.

Ticket fees will have to rise to their “elastic limit” — the maximum price travellers will still pay. The frequency of flights will have to be cut down to reduce fuel costs. Also, wages would need to be frozen, as cost cutting in other areas throws up safety issues.

Where is the smart money going in this sector?

Consider this.

With flag-carriers desperate to consolidate that will probably prove ineffectual, business-class airlines filing for bankruptcy and budget firms being squeezed by fuel costs, this doesn’t look a very clever place to do your investing.

So don’t.

Theo Casey

Source: Ryanair’s Last Hurrah?

It seems that European stocks are at their cheapest levels in six years and the French and German stocks top the list of bargains on the continent.

According to Bloomberg, the XETRA DAX and France’s CAC 40 are the least expensive of the world’s 10 biggest markets. But let’s not get carried away just yet… markets are often said to be cheap when stocks have fallen, rather than the preferential scenario where huge profit growth has been missed by the market. We’re seeing the prior here, falls in earnings and a bearish turn in sentiment.

First-quarter corporate profits in Western Europe dropped 25%, even worse than US firms! “The U.S. has been at the epicentre of the problems, but the shockwaves are more felt here in the euro zone. Cheap valuations are a direct result,” said fund manager Franz Wenzel.

Despite this, the contrarian club is unshaken… is it time to buy?

Well, according to Anthony Bolton, the negativity can act as a cloak to sneak in and pick up the real pearls. It is always difficult to buy recovery stocks, but it’s when stocks are at their most unloved is where the biggest rewards can be had. Do your buying in a bear run, and superior returns can be yours.

It’s this belief that propelled Warren Buffett onto a shopping tour of Europe in recent weeks, with a focus on Germany.

“We would like more family owners of Germany businesses who, when they feel some need to monetize their business, to think of Berkshire Hathaway,” said Buffett.

“We are happy to invest in businesses that earn their money in the euro, or in companies that derive their earnings in Germany, or from sterling in the U.K. because I don’t have a feeling that those currencies are going to depreciate in a big way against the dollar,” added the world’s most successful investor.

And he might be onto something… Ben Traynor at the Fleet Street Letter tells me that companies in the French and German markets are trading at a 40% discount to those in the American S&P 500. It’s a market packed with right bobby dazzlers.

So, why the weakness?

Profit warnings left-right-and-centre is why. Not just in banking, neither. Nokia, SAP, InBev, Roche are all firms that have fallen short of expectations through the tumultuous earnings season. It’s not just poor headline figures, but weak outlooks that really put the fear of god into investors. Commodity prices and inflation is soaring, knocking input costs while demand is set for a tumble as buyers grapple with the increasingly pricey Euro.

Though it could have been a lot worse. Earnings in the first quarter fell 18% but were odds-on to fall 23%. And, if you strip out the performance of financial firms like UBS and Deutsche Bank, the first quarter would have actually been in-the-money.

Big banks still see Europe slightly higher for the year, and back in double-digit growth for 2009. Too optimistic? Reasons to be cautious? Probably, but given the discount that shares on the continent trade at, it looks to be worth the risk.

We tend to find more value opportunities in a bearish market, and this is no exception. Whilst it can be emotionally difficult to pick up companies that have been receiving a bad press, if you can justify the purchase in value and growth then you go with your convictions.

Deutsche Bahn steams into the picture

And here’s the newest stock on offer… Deutsche Bahn, Europe’s biggest rail group, is en route to be one of the biggest stock market listings of the year, set for a £6.4 billion initial public offering (IPO).

The German rail operator is set to list on the DAX with Deutsche Bahn itself to control most of the consideration with a 25% stake selling in the IPO. The launch is set for the end of the year and should reassure investors that there is still a market, and hopefully an appetite for new listings amid the credit crunch.

Nonetheless, I’m not a fan of IPOs. I subscribe to the Ken Fisher school of thought that IPO should stand for ‘It’s Probably Overpriced.’ This is based on the frequent share price capitulations that follow the initial ‘stabilisation’ or honeymoon period &mdahs; where newly listed companies shares are bought by investment banks to prop up the price in the early days. When this support subsides, the shares invariably take a tumble.

More important than the investment case of Deutsche Bahn is that, like Visa in the US, the gesture will give heart to the investment community. It serves as evidence of life after the credit crunch. When shares are trading as cheaply as they are now, it may be the best time to stock-up on shares across the border.

The sharp cookies over at The Fleet Street Letter have not been MIA on European opportunities… our portfolio includes a Paris-listed gem that has outperformed the market by nearly 30% since our tip in 2007. With property rights in the South of France, it has profited from high-net-worth individuals and looks set to continue…

Theo Casey Source: The Value Investor’s Stock Market

Though it currently holds third place behind London and New York, Hong Kong’s presence as a world financial center is growing by the day. Credit Suisse Group (CS) is the latest financial firm to move a top executive to the Asian city.

Vikram Gandhi, the Swiss bank’s head of global financial institutions group, will relocate to Hong Kong from New York this summer to tap growth in Asia, Bloomberg News reported.

“As part of our ongoing commitment to transfer talented bankers to other regions, Asia Pacific will benefit greatly from having a banker on the ground with Vikram’s experience and client relationships,” Jim Amine and Marc Granetz, co-heads of global investment banking at Credit Suisse, wrote in an internal memo. “We are going to continue to align our best bankers with areas of highest potential growth.”

This move follows similar relocations to Hong Kong by top brass at Deutsche Bank AG (DB), Morgan Stanley (MS) and Citigroup Inc. (C) as investment bankers look to cash in on the large number of sovereign wealth, private equity and corporate deals occurring in Asia.

China and the other emerging Asian economies haven’t been as adversely affected by the global credit crunch. While deals are slowing down in the United States and Europe, the pace of business is still fast and furious in the Pacific Rim.

“Investment bankers follow the money,” Scott Moeller, a Professor at the Cass Business School and former executive with Deutsche Bank and Morgan Stanley, told BBC News.

“With sovereign wealth funds having a lot of money, with Asia having escaped the worst of the credit crunch and with the crunch having hit the U.S. and Europe the hardest, it is not surprising at all,” Moeller said. “Once you get critical mass in a location, it begins to snowball and that is what is happening in Asia.”

But despite the growing number of deals happening in Asia, competition between Hong Kong and Shanghai is likely to keep the former city from overtaking London or New York as the new global financial capital.

“I would be more worried if I was in a third tier financial center like Paris or Frankfurt than in London or New York,” Moeller said. “I don’t think London or New York will be losing their crowns as leading financial centers any time soon.”

Source: Hong Kong Gaining Prominence as Leading Global Financial Center

The price at the pump continues up as well, with a gallon of regular gasoline in the U.S. climbing on average to a fresh alltime record of $3.732, according to AAA’s Daily Fuel Gauge Report. That’s up over 10% from a month ago.

In one bull’s view: “We are engaged in a painful experiment to see how high oil prices have to go to curb demand enough to make a difference to global balances,” wrote Adam Sieminski, chief energy economist at Deutsche Bank. “There is not much reason for oil prices to go down until oil users slow their consumption.”

Traders await today’s inventory figures from the Energy Information Administration.

Source: Oil Resumes Rise After Day Off

At midday in New York, the blue-chip Dow Jones Industrial Average Index was down 25.57 points (-0.21%), to trade at 12,276.49. The tech-laden Nasdaq Composite Index dropped 6.65 points (-0.29%), to reach 2,269.17. And the broader Standard & Poor’s 500 Index decreased 3.31 points (-0.25%), to hit 1,325.01.

The basic materials sector (up 0.87%) and the conglomerates sector (up 0.61%) posted the biggest gains, while the capital goods sector (down 0.42%) and the technology sector (down 0.49%) posted the largest declines.

“The market is digesting the whole banking and financial issues, but the market has still to digest the recession story and how much of a damage to earnings we’ll get,” Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank AG (DB), told MarketWatch.

Tech shares such as Dow-component International Business Machines Corp. (IBM) and Cisco Systems Inc. (CSCO) were down. Intel Corp.’s (INTC) earnings release is slated for after the market the closes this evening.

Oil futures traded near $114 a barrel, boosting energy stocks such as Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX).

In overseas markets early today, Japan’s Nikkei 225 Index gained 0.6% with an increase of 73.07 points to close at 12,990.58. Hong Kong’s blue-chip Hang Seng Index inched up 0.4% with a 90.13-point gain, to close at 23,901.33.

European bourses were up, with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting slight gains.

At midday, the dollar had gained ground against the yen (up 0.486%) and the pound sterling (up 0.540%), but lost ground against the euro (down 0.051%).

What did the markets make of these monetary decisions? Not much. European stocks, as measured by the Eurofirst 300, closed down 0.4%. The FTSE 100 was down 0.3%. Again, be grateful if you didn’t invest in Icelandic stocks. The Icelandic index, two-thirds of it bank stocks, is down 80% over one year!

“Banks minor cut offers little respite,” says the FT headline of the UK cut. “We haven’t had enough of a slowdown to give the Bank carte blanche to cut…”, says Deutsche Bank economist George Buckley. Not yet, at least, but the consensus has it that the base rate trend is down. A stance of little help to those with mortgage rates which are moving quite regularly the other way. But then we’ve gone from feast to famine in the mortgage market within a year.

In the battle to keep a lid on inflation, the currency markets are backing the European Central Bank’s Teutonic inspired determination over that of their more flaky Anglo-Saxon rivals. The euro touched a new record yesterday against both the US dollar ($1.5912) and the pound (80.29p). It’ll buy 115 Icelandic krona too, against 92 at the start of the year.

Continues below …

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Aside from the prospect of a dearer holiday for Brits traveling on the continent this year, a weak pound adds fuel to the inflation problem. “Import price inflation reached a 14-year high in February as the weaker pound drove up the cost of imported goods,” reports the FT. The annualized rate, according to government statistics, is in double digits at 10.4%. A further worry is that UK wage settlements are starting to go up too. Median pay was up 3.5% in the first quarter but two-thirds of settlements in April are “at or above 4%,” according to Incomes Data Services.

Elsewhere, another day another housing market survey. The FT Acadametrics survey bases its read on all property transactions in England and Wales. It reports “static prices” in March, with annualised growth continuing to trend down. Now 5.4% from 6.1% in Feb. It’s a picture that looks set to continue for the time being, but the fundamentals of supply and demand, employment and interest rates continue to be favorable says statto-in-chief, Acadametrics chairman, Dr Peter Williams. He adds:

“Although expectations seem to be set for widespread falls in actual house prices, the facts remain that demand continues and mortgages are still being supplied in volume reflecting the relatively strong economy. The next few months will be critical in terms of likely outcomes with much turning on the part played by the Bank of England.”

*** For all our sophisticated technology, it’s back to basics for investors. Agriculture is the place to be, says Eclectica asset management. It makes the investment case:

The real cost of food has been declining for 35 years; the world’s population has been growing by 1.5% pa; land has been lost to water shortages and urbanization; supply has been lost to subsidized biofuels; emerging economies are drives demand for land intensive protein and dairy products and for eight of the last nine years the world has consumed more food than it has produced.