If you’ve got money, credit and patience, today is your cheapest opportunity buy or refinance a house in at least 38 years.

The 30-year fixed-rate mortgage carries a rate of 5.01% this morning, the lowest rate of its kind since at least 1971, when Freddie Mac started keeping track. Since the peak of the credit crisis in late October, the 30-year mortgage has plunged almost 1½ percentage points, even past its 5.8% average this time last year.

Yet mortgage applications are only at a six-year high, according to the American Bankers Association. Rates will probably get even lower, consumers suspect, at least until there are some signs of home price stability here in I.O.U.S.A. We agree. The government has already set a goal of 4.5%, and with news like you’ll read below, the market won’t put up a fight.

Friday’s jobs report was even worse than it seemed. For starters, the retail sector shed 66,600 jobs in December — what should have been the best month of the year. Instead, retailers posted their worst December sales growth since 1969, and cut jobs for the 13th month in a row. If they couldn’t profit during Christmas… ummm… the first quarter of 2009 could be horrible.

Also, we note the world’s top two oil service companies — Schlumberger and Haliburton — have announced their first sizable job cuts of the credit crisis.

“That’s bad,” Byron King somberly explains.

“We already have an aging work force in the energy industry. Over 50% of the work force is eligible to retire within the next 10 years. So it’s imperative that the industry hire and train new people. But SLB and HAL are doing the opposite. If you get rid of the oldsters (they’re old & expensive), you lose the corporate knowledge that you need for training. If you lay off the ‘last hired’ (they’re young and don’t know squat), then you don’t have anyone left to train. Something’s gotta give here…

“It’s not like Schlumberger and Halliburton don’t know this. So would they be laying off people if their forecasts were sunny for the coming months or the next year or two? No. If things looked like they were picking up, they’d keep the people so they have enough work force to do the work. They’re laying off because they see a significant period of slow business. Which if you’re SLB or HAL, means less well drilling. And that’s bad for U.S. energy output. Fewer wells mean, eventually, less output, which means scarcity and higher prices.”

And which companies will profit from such an environment? Look no further than Byron’s Energy & Scarcity Investor.

Elsewhere in the oil patch, Russia’s gas dispute with the Ukraine is over for now. After almost a week without Russia’s precious fuel, the EU essentially forced Ukraine to make a deal. The exact terms of the agreement are yet to be revealed — they may never be — but we feel safe jumping to this conclusion: The whole ordeal began when Russia accused Ukraine of stealing gas and demanded higher prices, and we suspect the Ukraine yielded on at least one of these matters.

“Energy, too, is its own kind of capital,” Dan Denning notes. “Vladimir Putin is reminding everyone of that again. Russia supplies Europe with 25% of its natural gas, and 80% of that gets to Europe via Ukrainian pipelines. The Russians say the gas is being siphoned off illegally and then sold at a higher price. Maybe it is. Maybe it isn’t. Who knows?

“The real issue is control of the energy resource and the network for transporting it. One is no good without the other. Both are critical, and happened to be owned by competing interests. And if you’re at the tail end of a long energy logistics network (like, say, the UK), you’ve got troubles.”

Yet for all the troubles in this world, oil is markedly cheaper today. From around $50 two weeks ago, it’s back to just $38 a barrel this morning.

The Dow ended down 1.6% Friday after another dismal jobs report. For the week, most indexes fell 4-5%. The Nasdaq managed the “best” week of the index bunch, down 3.8%

By one metric, the future shouldn’t be TOO terrible for U.S. equities. Check out this chart, sent over by Rob Parenteau of The Richebacher Letter:

“The contraction of the total value of the equity market relative to GDP,” notes Rob, “has reversed nearly the entire premium introduced during the New Economy bubble years.

“If there is a reversion-to-the-mean process under way with respect to the equity market capitalization-to-GDP ratio, the most violent part of the move must be behind us. Given the severe recession developing before our eyes, however, we are in no rush to be buried beneath a landslide of earnings shortfalls, employment reductions and bankruptcy announcements.

“A fiscal push in early 2009 may help stabilize or improve the near-term earnings growth expectations held by professional equity investors, which are already much lower than those offered by brokerage house equity analysts. But the larger question remains: If financialization is not going to be the growth driver for the U.S. economy, what will take its place? If credit booms and busts are going to be restrained by a stripped-down financial system, especially one that is heavily regulated, what will drive earnings growth?”

In 2009, the savvy investor will “confront the reality that is, not the one that should have been,” opines Bill Gross in his monthly investment outlook.

Gross says the key to profits this year is to “shake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond. Anticipate, then buy what they buy, only do it first: agency-backed mortgages, bank preferred stocks and senior bank debt; Aaa asset-backed securities such as credit card, student loan and auto receivables.

“These have been well-advertised PIMCO strategies over the past six months, but there are others in clear sight. An Obama administration will quickly be confronted by the need to provide those hundreds of billions of dollars to states and large municipalities. Their requests total nearly a trillion dollars and to think California or NYC would be allowed to fail is, well — unthinkable. Municipal bonds then, selling at historically high ratios relative to U.S. Treasuries, offer attractive price appreciation potential, or at the very least a defensiveness with high carry that a 2½% 10-year Treasury cannot…

“As an additional strategy, global bond investors should recognize the value in high-quality investment-grade corporate bonds in many markets. Yields of 6%-plus for intermediate maturities are still common and readily available.”

Dollar buyers seem unfazed by the U.S.’ precarious future. The dollar index rallied steadily through the weekend, from Friday’s low of 81.6 to 83 as we write. The media pundits tell us this morning that the dollar is stronger because Friday’s jobs report wasn’t as wretched as many feared.

So gold is being punished for the dollar’s latest strength. The spot price took a dive at the opening of the New York market today, falling to $830. That’s about $35 short of Friday’s high.

In our mailbox today: A staggering hodgepodge of some truly bad ideas.

“If there must be a refund and/or stimulus check given to the American people,” writes a reader, “then it shouldn’t be for some lousy $500. What is that going to accomplish? If you really want to get things up and running, then give every taxpaying household and those on permanent disability a check for $150,000. Most people would either pay down or pay off their mortgages and other loans, which then, in turn, would help the banks and lending institutions. The money would get back in the system where it needs to be. And if it doesn’t work? Well, at least we had fun trying to jump-start America. Kind of like a last call on the Titanic, eh?”

“Instead of giving that tax rebate,” writes another, “to be used only for American-made products, as your reader mentioned, due to the fact it doesn’t help out most retailers, give every taxpayer $600 in the form of a gift card just like sold at most retail stores these days. Let’s call it a ‘Stimulus Card.’

“The government would issue through a TARP recipient bank (they owe the taxpayers huge already). The card would have no cash value, so can be used only for purchases or deposits on products (food, restaurants, down payment on a car, toys, clothes, ANYTHING — but due to the nature of gift cards, they can’t be banked, so they wouldn’t be used to pay existing bills, just by the nature of the card (most people, including myself, used the last $600 government stimulus check to pay bills, not spend on new items).

“Put an expiration date of three-six months max on them… to be sure people spend them timely. 100% bang for the buck. To prevent mail theft, the card has to be activated from the phone number used on your tax return or by calling and giving information only Uncle Sam knows. If lost or stolen, just call and cancel and government can reissue a new one, just like stores do already. The systems are in place. Now that wasn’t so tough was it?

“Here’s a way,” suggests our last, “to come to grips realistically with the housing foreclosure scenario that is getting worse nationally: Let the federal government put every house that has a mortgage in line for a federal reserve mortgage. The present owner signs over his house to the FRM agency and is relieved of paying off the mortgage, but has the lifetime right to occupy the property as his principal residence, provided he pays all property taxes and maintenance costs to meet neighborhood standards. The homeowner has given up the right to sell or rent or gift or will the property; the FRMA owns the property. The original mortgage lender takes the loss for tax purposes.

“Of course, many tweaks to the above would need to be in order. But the ultimate justice would be that the mortgage lenders have to live up to the market risks, just as the homeowners unable to pay the mortgage loan will have to forego whatever they paid into the date of federal takeover. All such property becomes publicly owned, a national asset against the national debt. My guess is that this kind of bailout would be acceptable to the American public.”

The 5: $150,000 in cash, a $600 gift card and a “free” house. What could possibly go wrong?

Source: Mortgage Rates, Scary Jobs Details, Investing in 2009, Russian Gas Dispute, and More!

This from Investment U:

Our next President will be faced with unprecedented challenges in health care, energy, global warming, an aging infrastructure and huge “legacy” automobile businesses that are teetering on the verge of bankruptcy.

He’s also being presented with an incredible opportunity… one that, if implemented correctly, could have profoundly positive effects on the economic health of the world, just when we need it.

For years, the engine that fueled global economic growth was the spending of the American consumer. Market crashes because of the dot-coms and the housing boom have left many individuals with too much debt and not enough money. Americans are tapped out, and they’re closing their wallets.

Reinvigorating our economy rests upon jumpstarting consumer spending – and ultimately improving the financial condition of millions of Americans. It’s much easier said than done – and this new administration will have its work cut out for it.

If you’ve got an eye on how these government actions could benefit your bottom line, you should take a look at our past. You might find these newest sources of “economic fuel” and wealth creation look surprisingly familiar. The government’s solution could be just the thing our portfolio needs for a healthy return in the years to come…

The Cause of The Current U.S. Economic Slowdown

Ask most people to give you the cause of the current economic slowdown enveloping the United States and the rest of the world, and their likely answer will be the explosion of housing and the subsequent bubble in the credit markets.

But that was just the peak of the problem, not the beginning. The trouble has its roots in something that started 20 or 30 years ago.

That was when we started seeing the shift away from personal savings in America and toward the beginning of a huge consumer credit crisis.

And now, we are witnessing first-hand the effects of the increasing use of massive leverage can have on the markets, and ultimately on the American consumer. They’re broke and can no longer be the fuel that powers the world’s economic engine.

With consumer spending slowing, layoffs increasing and hiring all but stopped, the prospects for future economic growth aren’t particularly bright. Or are they? We have almost everything we need to fire up the world’s economic engine again: The ingenuity of the American people, plenty of factories, etc.

There’s only one thing missing… the fuel to get it going again. So what’s going to be the new “fuel?” History is a great teacher, and we need look no further than the Great Depression, and Franklin D. Roosevelt’s New Deal.

The New Deal was a series of programs Roosevelt employed between 1933 and 1936 with the intent to provide work for the unemployed, reform of financial and business operations, and economic recovery. Here are a couple of examples:

• The Works Progress Administration (WPA) was the largest of the New Deal agencies. It alone was responsible for providing almost eight million jobs. What did all of those people do? They built public buildings, roads, bridges and other infrastructure projects. Anyone who needed a job could easily become eligible.

• Another program, created by an act of Congress in 1933, was the Tennessee Valley Authority. The TVA, as it was known, was chartered to provide food, navigation and flood control, electrical generation, fertilizer manufacturing and general economic development for the people of the Tennessee Valley, a region hard hit by the Great Depression. And it was just what the doctor ordered: The TVA’s projects were catalysts that fueled unprecedented economic growth in the area that continued through the 1960s. Today, the TVA’s 43 power plants make it one of the largest producers of power in the country.

7 Companies Profiting From a “New” New Deal

While the slowdown we are experiencing is nowhere near as severe as the Great Depression, the solution will be the creation of similar New Deal programs in two specific areas: the infrastructure and energy sectors.

More specifically, developing energy savings, making alternative forms of energy our mainstream sources, and building the green infrastructure to support what will be our growing energy independence.

More insulation in a house’s walls, lower thermostats, fluorescent bulbs, more fuel efficient cars and commercial building energy management systems are just a few of the ways to save energy. Public transportation is another. Expect the new government to provide tax incentives for these and other programs as short-term incentives to save. Companies that stand to benefit are Owens Corning (NYSE:OC): insulation, General Electric (NYSE:GE): lighting and Johnson Controls (NYSE:JCI): energy management systems.

Clearly wind, solar geothermal and tidal energy companies stand to benefit, too. While a comprehensive list is beyond the scope of this article, companies like First Solar (Nasdaq:FSLR): solar panels, Ormat Technologies (NYSE:ORA): geothermal and Vestas Wind Systems (PINK:VWDRY): wind turbines, will do well.

As new green sources of energy begin to come on-line in a big way, the nation’s electrical grids will have to be upgraded to move the power to where it’s needed. This is a huge project, and one of the biggest winners will be ABB (NYSE:ABB): power and automation technologies.

Ironically, the same government that’s trying to find a solution to the energy problems we face has been the biggest roadblock to solving them. The trillion dollar coal and oil subsidies prolong the carbon industry’s advantage over – and are a constant roadblock for – fledgling alternative energy companies.

The new President and his administration have an opportunity to turn the recession ship around, before it runs aground. By implementing new energy and infrastructure projects, thousands of new jobs will be provided at a time when they are desperately needed, and most importantly, these projects will provide the fuel to restart the world’s economic engine.

Source: Obama’s New “Economic Fuel”… and 7 Ways to Profit

The debt, the deficit, two wars without end, the banking crisis, the mortgage crisis, the worldwide economic slow down, Social Security, a deadlocked partisan congress, health care, a tax system that everyone thinks is unfair, collapsing US auto manufacturers, jobs being exported at light speed, the defense of our northern and southern borders, a recession, still no energy policy, and what appears to be a complete collapse of our image abroad.

Why would anyone want this job? It’s beyond me. The real question is now that he has done what seemed like the impossible, how will it affect the markets?

This is a long and short-term issue. In the short term, the markets should rally. If for no other reason than the media and press will ease up on the hugely negative pounding they have been delivering for the past two years.

A rally is also likely because, as everyone knows, the market hates uncertainty. Even though this race has been all but a certainty for a long time, it has added to the mood of “what’s next.”

More specifically, and on the bright side, we should see good things for the solar and alternative energy sectors, biotechnology, the health care industry, and if he makes good on his promises to restore jobs to the middle class, manufacturing could see a jump.

Long term is another issue. We are in several very tough spots. We have a full-blown recession and the last thing we need in this environment is a tax increase. It could be fatal.

On the downside, pharmaceuticals will most likely take a hit. He is pretty clear he wants to change how business is done in this area. Defense contractors stand to lose if he makes good on getting our troops out of Iraq and Afghanistan, and if he is as pro new energy sources, as he claims, traditional energy stocks could be in for a rough time.

All of Obama’s promises about increasing taxes on the so-called “wealthy individuals” could be the proverbial last straw. If the President elect makes good on his promise to redistribute wealth by increasing taxes in this economic environment, we could have a longer and deeper recession than anyone has predicted.

The key to all of this is that all of these were campaign promises. Campaigns to me are a lot like our first few years in college, and last few years of high school. We had all the answers and no responsibilities. It’s easy to talk change and promise the middle class another New Deal, but what he will actually do is anyone’s guess.

The best thing the markets have going for them is that Obama is a very, very smart guy. And as smart guys usually do, they surround themselves with smart people. Hopefully, these smart people will help the new president see that most of the ideas used in the campaign to get votes need to take a back seat to the realities we face as a nation.

If this “smart guy” scenario plays out, we could do very well with this administration. When it comes to the markets, recent Democrats actually have a better track record than Republicans. If Mr. Obama is enough of a politician to beat the odds and win this election, I have to believe he is also enough of a realist to look at the situation he has inherited and deal with it appropriately.

History has proven that the markets do well no matter who is President. Most conservatives expected the world to end when Clinton was elected. Liberals threatened to leave the country if Bush was elected. Everyone under the age of 30 had heart palpitations when Nixon won in ‘68. The markets always find a way to make it to the next election.

Source: Congratulations President Elect Obama

Today, 88 businesses qualify for this exemption under the government’s rules. They are all publicly traded. The government calls these stocks “master limited partnerships” (MLPs) or “publicly traded partnerships” (PTPs).

Eighty-five percent of MLPs are in the energy business. Two-thirds of these energy companies operate pipelines. The rest run miscellaneous “midstream” energy businesses – things like refining, compressing, pumping, and field gathering. Only 15% of MLPs are outside the energy sector.

You likely know several MLPs already. Kinder Morgan used to be part of Enron. It’s an MLP. And though you’ve probably heard of Blackstone Group and its private-equity operations, you may not know Blackstone is also structured as an MLP. Carl Icahn’s business – Icahn Enterprises – is an MLP, too. (For a full list of MLPs, see the website of the National Association of Publicly Traded Partnerships at www.naptp.org.)

I like MLPs as an investment. One of the secrets of income investing is avoiding tax. When you avoid tax, you generate higher returns without taking on more risk. Besides, MLPs invest in infrastructure. The population of the United States grows every year. Population growth supports 8% average annual MLP market growth.

But here’s the thing: I think MLPs are going to beat almost all other income investments over the next two years for another reason altogether:

Canada.

The income-trust market in Canada is almost identical to the MLP sector in the United States. Canadian income trusts pay no tax, they distribute all their earnings in dividends, and they operate mostly in the commodity and energy sectors.

In other words, MLPs compete directly with Canadian income trusts for investment.

Millions of income investors, pension funds, retirees, and other dividend hogs have enjoyed these trusts’ high dividends over the last 20 years.

But on October 31, 2006, the Canadian government changed the law. It ended the Canadian income-trust structure. Existing trusts have until January 1, 2011 to convert back to corporations, begin paying corporate taxes again, and cut their dividends.

MLPs are the perfect substitute. Yield hogs will turn their attention to MLPs as the 2011 deadline approaches.

Right now, MLPs are paying 7.4%. A 10-year Treasury note pays only 4%. The “spread,” or difference, is 3.4%. This spread is the largest it’s been in five years. That means MLPs are as cheap as they’ve been since 2003.

North American Pipeline MLP Yields Versus
10-Year Treasury Bonds

If nothing changes, MLPs will keep generating 7.4% dividend yields. Add that to 8% industry growth, and we’ll make total annual returns of 16% – matching returns of the last 18 years.

But when you take into account the demise of the Canadian income trusts… I think MLP investors could easily see 25% annual returns over the next couple of years.

Good investing,

Tom

P.S. I’ve found the best way to invest in MLPs. It’s a basket of these investments, it pays a 6.5% dividend yield… and you can buy it at a discount to its net asset value. Here’s something else: You won’t have to worry about tax paperwork associated with MLPs because the SEC considers this investment a regular stock for tax purposes…

I recently published a report on this investment for readers of my advisory The 12% Letter. Click here to learn more about The 12% Letter.

Source: Canada’s Loss Will Make These U.S. Stocks Soar