Keith Fitz-Gerald (Money Morning):
Millions of investors who bought gold in the last 12 months are undoubtedly very happy at the moment – considering that the yellow metal has risen 60% since last November to a recent close of $1,138.60 an ounce on Monday.

But chances are good that many won’t be smiling when they discover just what the taxman has planned for their gains.

Unbeknownst to most investors, gold is considered a collectible not a capital asset. In plain English, this means that despite the fact that many people believe they are investing in gold, the Internal Revenue Service (IRS) believes that they are collecting it.

This is no small distinction and hurts investors because it means that gold does not qualify for the 15% maximum tax bite that most of us employ as a matter of routine when we mentally calculate profits earned on investments held for more than a year. That 15% cut for Uncle Sam is the long-term capital gains tax rate that applies to most stock or mutual fund investments.

Precious metals are a completely different story. Profits from these “investments” can be subject to a 28% maximum tax rate if held for more than 12 months. And if they are sold in less than a year, the profits count as ordinary income.

The long and the short of it “is that as a result of gold’s spectacular run-up, many investors may have a tax problem they haven’t counted on when they go to sell,” said Gary E. Ham Jr., of the Oregon-based accounting firm of Jones & Ham PC

This may be especially true for investors who have piled into such asset-backed, exchange-traded funds (ETFs) as the SPDR Gold Trust (NYSE: GLD), the iShares Silver Trust (NYSE: SLV) and the iShares COMEX Gold Trust (NYSE: IAU), for example, because precious-metals ETFs are set up as something called a “grantor trust.” According to Barron’s, ETF investors are treated as owning undivided interests in the actual metal that’s owned by the fund. Therefore, when an investor sells shares in the ETF, the tax code treats that investor as having sold a share of the metal backing the fund.

Click here to continue reading this article on Money Morning.

But we’re not…yet.

Classic economic theory says that money supply can be used to stimulate the economy and our central bankers seem to agree. That’s why they’ve pumped more than $1 trillion dollars into the economy, engineered countless bailout bonanzas for zombie institutions, put Detroit on life support, and delivered a bunch of financial Band-Aids to the trauma ward — all in a desperate bid to make Americans feel better about the global financial crisis.

To their way of thinking, the trillions of dollars have been a success. That’s why any meeting of the Group of Eight (G8) nations looks more like a mutual affection society with central bankers anxious to claim credit and backslap each other in congratulations for having avoided the “Great Depression II.”

But by taking the Federal balance sheet to more than $2 trillion from $928 billion 2008, they’ve created a situation that should have resulted in an epic inflationary spike to accompany the 137% increase in liabilities.

Yet that hasn’t quite happened.

Core inflation — which denotes consumer prices without food and energy costs — has actually decreased from 2.5% in 2008 to 1.5% presently. And that has many investors who have heard the siren call of the doom, gloom and boom crowd wondering if they’re worried about nothing.

So what gives?

Well, there are four reasons we haven’t yet seen hyperinflation:

Click here to continue reading Mr. Fitzgerald’s article.

There’s one antidote for this problem … remembering a few basic rules. Just embrace the 10 ideas that follow and you’ll be in line to make some serious money in the months ahead.

Rule Number 1: Invest on the Right Side of Major Economic Trends:That old investing adage “Don’t fight the Fed” serves as a good example here. Rising interest-rate environments make meaningful gains difficult to sustain – unless you know what to look for. Far too many investors got it wrong in the 2000-2003 and 2008-2009 periods by betting on growth stocks in a recessionary economy, and they’re still getting it wrong. Those investors are likely to get burned again should the economy slow even more, despite the government-bailout and federal-stimulus efforts. Make sure to analyze all of the other major global trends, as well – and ride the ones that are truly unstoppable. You’ll know them when you see them, because they’ll have trillions of dollars in new capital flowing directly at them – investment plays in such areas as infrastructure, inflation, energy, food, and water (both supply and purity) are great examples.

Rule Number 2: Sell Your Winners: This may seem counterintuitive, but – if you want to succeed – you must sell your winners. Rule Number 6 – thinking like a plumber to prevent losses – is only part of the success equation. To be really effective, you have to take profits, too. That way, you get more capital that you can put to work. Think of it this way – Safeway Inc. (NYSE: SWY) regularly replenishes the inventory in its

Produce Department to keep it fresh. You should do the same with the “inventory” in your portfolio because, if you let your stocks sit on the shelf too long, they’ll eventually go bad – just like fruit that’s past its expiration date.

Click here for rules 3-10 from Keith Fitzgerald, Chief Investment Strategist of The Money Map Report.

Conservatively, plan for US$200/barrel by 2010, but don’t be surprised if a recession somewhere drops price back to US$100, for a short while, or sudden war in the Middle East sends prices skyrocketing.

Expect the fundamentals of fading supply growth and growing demand to push prices ever higher in the 5 year horizon, perhaps well beyond US$300/barrel.

In May of this year Goldman Sachs energy strategist Argun Murti famously made his oil price prediction that the black goo would “super-spike” past $200 in six months to two years’ time.

Turns out Murti knows a thing or two about the oil price prediction game. In 2005 he correctly predicted — when oil was at about $55 a barrel — that it would pass $100, which it duly did in January.

“Murti is getting the last laugh,” says Justice Litle in Taipan Daily. “When he first predicted oil could reach a $105 a barrel, way back in March of 2005, oil was trading below $60. The prediction was scorned and laughed at, even as it caused a bump in crude prices… some thought it was just a Goldman Sachs publicity stunt.

“But it was no stunt. Murti’s call was dead right, and all the naysayers were wrong. For the past three years, many have been predicting that the bottom would fall out for oil prices. As crude passed through each new threshold — $70, $80, $90, $100 — there were loud drumbeats for how the price of crude would collapse ‘any day now.’”

Another oil price prediction that is proving scarily accurate is Keith Fitz-Gerald’s forecast that oil prices will reach $187 a barrel within three years. Read on here to find out why Keith thinks oil is heading for $187 a barrel and why the energy ‘experts’ have it wrong again.

Compared to $200 in two years, Fitz-Gerald’s $187 per barrel prediction seems quite conservative.
For more about oil price projections and Peak Oil, visit our Peak Oil Guide.

“As the post-Memorial Day hangover lingers, and $4 per gallon gasoline becomes a national reality, expect more and more daily energy prognostications,” says William Patalon III in Money Morning.

“Goldman Sachs Group Inc. (GS) already is on record for $200-a-barrel oil. As you all know, our own Keith Fitz-Gerald has projected a crude-oil price of $225 a barrel. Do I hear $250? What about $5 a gallon gasoline by July 4th?

“Sometimes, these daily price gyrations take on lives of their own, but at the end of the day, the basic laws of supply and demand always work themselves out.”

There’s a new oil rush going on in Alberta, Canada, says Alex Green in InvestmentU: “Alberta’s oil sands are the largest known reserve of oil on earth containing between 1.7 and 2.5 trillion barrels.”

“For decades, these sands weren’t even considered part of the world’s oil reserves because the oil there wasn’t economically extractable at prevailing prices using then-current technology. But times have changed… And the new gold rush is on.

“Here’s the kicker: Exploration of Alberta’s oil sands is virtually risk-free. You can’t drill a dry hole here. There’s no drilling at all. It’s a mining operation – and the reserves are thoroughly outlined. So what you really need is a company with plenty of machinery, money and manpower to dig it up and process it as quickly as possible.”

Read on here to find out the one undisputed blue-chip play on Alberta’s oil sands.

Why U.S. automakers can’t import smartly designed, well-made little cars that get 50 miles per gallon into the United States is absolutely beyond my comprehension.

Particularly because they already make those cars, and because oil prices (as well as gasoline prices) are destined to move even higher from here.

If you don’t believe me, let me tell you about the little beauties I saw in downtown Shanghai early one recent morning.

They’re made by Buick – a General Motors Corp. (GM) nameplate that’s on its way to extinction in its home U.S. market.

Here in China, on the other hand, Buick is a luxury car of choice. Buick’s also known for making sporty “econo-boxes” that offer a little bit of zip.

Ford Motor Co. (F), too, seems to have gotten back to its once-successful roots by “bringing a better idea” to the Chinese market. It’s not a luxury car, but it does demonstrate some global thinking. The car I’m referring to is the Ford Focus, a “world car” designed so that a common chassis can be adapted for virtually every key market around the world. The car started out as the “Euro Focus,” so it was imbued with a sporty, sophisticated design and image right from the starting line. And it shows – it gets very high marks from Chinese buyers.

But it, too, remains “unavailable” in the U.S. market – at least the sporty designs that I’m seeing here [although our crack Money Morning research team back in the States did some digging and were able to tell me that the Focus could debut in the U.S. market by 2010 or 2011]. European competitors such as Germany’s Volkswagen AG (OTC: VLKAY), and France’s PSA Peugeot Citroen SA, with its Citroen and Peugeot nameplates, both, also are clamoring for share on Chinese streets.

There’s a good reason for all this interest: Here in China, auto sales are growing by 15% to 20% a year, with no signs of slowing down. Where as this used to be bicycle heaven, it’s now bicycle hell.

Much of that torrid growth is being “driven” by locals who are buying their first cars. But, believe it or not, rental-fleet operators are becoming more-frequent customers, especially in such major cities as Shanghai and Beijing, and in Hong Kong, one of the two “special administrative regions” in the People’s Republic of China.

And “rental fever” is reflected in the emergence and fast growth of such companies as the Anji Rental and Leasing Co Ltd., which expects profits to soar beyond its usual 50% growth rate in 2008 and revenue to exceed the normal 25% to 30% rate the company consistently has been booking in recent years.

Much of that recent acceleration in sales and profits, according to company representatives, is being fueled by the looming Summer Olympic Games in Beijing. But Anji – a joint venture between Shanghai Automotive Industry Sales Co. Ltd., and Avis Europe PLC, expects this higher-than-normal business volume to continue after the Olympic games, because of the World Expo to be held in Shanghai in 2010.

To prepare for this, Anji is opening offices all over China, including locations at Beijing’s International Airport and at both of Shanghai’s airports. The rental firm is also taking steps to align itself with Avis’ globally available services, including – for the first time ever – enabling foreigners to reserve cars before arriving in China.

And in China’s red-hot competitive markets, companies like Hertz Global Holdings Inc. (HTZ), Bole International Car Rental, RuiJie Auto Rental and ShangCar are right behind them – pun absolutely intended.

Unfortunately, both the auto-manufacturing and car-rental businesses remain small and highly fragmented, meaning there is no clear pathway to profit – not yet, anyway.

But there is an alternative.

Many cars here lack critical safety features that are standard in both Europe and North and South America. Take air bags. Here in China, less than 60% of the cars come equipped with them. But as demand for cars and trucks continues to grow, consumers will become more informed about safety features.

The upshot: Beijing is expected to mandate higher automobile-safety requirements that fall in line with international standards within five years. That means that companies that have already started incorporating global safety requirements into their daily business operations have given themselves a real competitive advantage – both here in China, and in the growing global markets that even include the United States.

Our tour group just met with the top two executives – the chief executive officer and the chief financial officer – of one such company: Jinheng Automotive Safety Technology Holding Ltd. (HK: 8293).

If you’ve never heard of the company, don’t worry. You probably will in the near future.

Jinheng is the leading automotive safety airbag supplier in China, and will likely become a global force in the very near future.

The company already makes products used in more than 60 different vehicle models produced by 30 different manufacturers in China, the Middle East and Europe. And the company is growing rapidly, with the expectation that it will be adding new international customers this year.

Jinheng’s shares are trading at a compelling eight times earnings, right now, and is arguably undervalued. Furthermore, the company has fulfilled the requirements needed to advance from Hong Kong’s secondary board (exchange), to the larger and more prestigious main board.

When that happens, expect the company’s visibility to increase, making it much easier to attract large blocks of capital it can then use to finance its global aspirations.

And stay tuned … as this Money Morning series continues, we’ll have many more such “on-the-ground” observations to bring your way. And we continue to believe that China will be a key to any investor’s ultimate success.

["The View From China" is an investing travelogue chronicling Investment Director Keith Fitz-Gerald’s current journey through Mainland China. Next up: A look at how China has played a key role in causing worldwide energy prices to increase.]

“This place is one big construction site,” Fitz-Gerald said. “You cannot turn around without finding scaffolding, piles of materials, construction equipment and the like [no matter where you look] here.”

With the U.S. economy suffering its worst downturn in years, and China’s stocks down more than 40% in the past six months, the bustle of construction-related activity in this Asian giant seems incongruous – if not downright contradictory.

Surprisingly, it’s neither. This divergence between China’s ailing stock market and its still-spunky economy is an early manifestation of “economic decoupling” – an emerging trend being fueled by the globalization of worldwide markets.

In fact, China’s ability to maintain its frenetic growth rate of nearly 11% per annum while the U.S. market could well be mired in a recession is yet another example of economic decoupling, says Fitz-Gerald, the investment director for Money Morning who is currently leading a group of investors on a tour of Mainland China.

“Economic decoupling will continue and is accelerating with each passing day,” Fitz-Gerald said in an e-mail interview from China.

But the main point to remember is that economic strength is a function of consumer power – which China has plenty of, with more still to come – whereas stock markets are a function of expectations.

And the amount of new investors in and outside of China blew expectations too high for companies to deliver, especially in the face of a U.S. slowdown.

“Economic strength and stock markets do not have to move simultaneously. In fact, history suggests they don’t. Cycles nearly always reflect underlying economic movement prior to financial markets separating,” Fitz-Gerald said.

A Tough Deal

Not everyone agrees with Fitz-Gerald’s assessment. The broadest of the three key U.S. stock indices – the Standard & Poor’s 500 Index – is down 8.38% in the past six months, although it was down nearly double that before a recent rebound. And the U.S. economy is near – if not actually in – a recession.

Until recently, the U.S. economy was such a key element of the global market that a downturn here made it a near-virtual-certainty that overseas economies would sour and spiral downward – hence the Wall Street adage: “When the U.S. economy sneezes, the rest of the world catches a cold.”

Perhaps no longer. Rich in both commodities and cash, China’s economy continues to advance. But here’s the part that makes decoupling tough to understand: Although the Chinese economy is still growing at a double-digit rate, its benchmark Shanghai Composite Index is down a painful 40.3% in the past six months.

And some of the country’s all-star companies have really taken it on the chin. The past six months, for instance:

• Aluminum Corp. of China Ltd. (ACH) is down 40.65%.
• iShares FTSE/Xinhua China 25 Index ETF (FXI) is down 22.34%.
• PetroChina Co. Ltd. (PTR) is down 40.44%.
• And China Life Insurance Co. Ltd. (LFC) is down 33.75%.

Skeptics of decoupling will argue that China’s index is tanking in lockstep with the U.S. economy. However, Fitz-Gerald, who lives in and around Asia, sees a different story both in the numbers and on the ground.

So what gives?

“Most of [the critics of decoupling] are Anglos sitting in the heart of New York City, never having visited and seen this first hand,” Fitz-Gerald said. “Economic progress here is unstoppable and market slide is temporary.” 

The real answer is that different forces are influencing Chinese stocks and the Chinese economy, meaning the two aren’t always as interlocked as people would like to think.

For a long time, most China stocks were off-limits to foreigners, and even domestic investors faced restrictions on where they could put their cash. As an increasing number of China-based companies went public and made their shares available to both domestic and foreign investors, cash poured into those firms, running their shares up much higher than the company’s underlying value really warranted.

“There is so much capital chasing them that it’s natural they’re going to move,” Fitz-Gerald said.

Granted, some investors who knew when to cash in and pull out made quick fortunes.

But many first-time investors (or first-time China investors) bought Chinese stocks blindly, lost a ton of money, and are now scratching their heads wondering why investment analysts keep talking about China’s vast investment potential.

The major culprits that dragged down China’s indices are stock market linkages between the United States and foreign markets – meaning that currency devaluations and slowing foreign economies (such as China’s major trading partner, the United States) pinched the profits of some Chinese companies – but nowhere near enough to cause a downturn there.

Plus, unlike past emerging-market downturns, there hasn’t been massive “capital flight,” with foreigners taking their money and heading for the safety of their banks at home. China has too much long-term profit potential for foreign investors to give up now.

Besides, even if they did, China has record foreign reserves of $1.68 trillion – more than enough to weather a rainy day in the economy there.

On top of sightseeing, shopping, food, and hospitality well beyond the standard tourist fare, Fitz-Gerald is leading a tour of one or more of China’s stock exchanges. [Fitz-Gerald is also the editor of the New China Trader, an investment newsletter dedicated solely to finding value and profits in China’s red-hot economy].

And although it’s difficult for investors to navigate through the volatile markets, the long-term payoff is worth the pain.

The bottom line is that China is on track for 10% to 12% growth this year – and that’s after China’s government has taken steps to slow the country’s economy down.

“Investors who abandon China now will live to regret their decision,” he said. “Even if the U.S. economy skids into a recession, China will continue to grow for decades to come. And that’s after nearly 30 years of double-digit growth that country has already logged into the history books.

The Kingdom of Saudi Arabia is the world’s leading petroleum exporter. Officially, it has reserves of about 260 billion barrels of crude oil – approximately 24% of the world’s total proven petroleum reserves.

But Saudi Arabia has a problem. And it’s the same one that every oil-producing nation will face someday: Its oilwells are drying up.

Saudi Arabia’s largest and most productive field, the Ghawar field, produces about five million barrels a day – accounting for more than half of the kingdom’s total production and 6% of total world output. But Ghawar was discovered in 1948 and has required large-scale injections of seawater to artificially pressurize the well since the 1970s. There’s no telling when the last drop of oil will be purged from the biggest oil find of the 20th century, but there’s no doubt Ghawar has seen better days.

As investing legend Jim Rogers pointed out in a recent interview with Money Morning Investment Director Keith Fitz-Gerald Saudi Arabia has claimed to have the same amount of oil it did 20 years ago, but logic seems to run contrary to that assertion.

“Saudi Arabia has announced for 20 years in a row that they have 260 billion barrels of oil in reserve,” Rogers told Money Morning during an interview in Singapore last month. “It’s astonishing. The figure never goes up and it never goes down. They have produced dozens of millions – billions – of dollars of oil in that period of time.

“If you go to Saudi Arabia, you have to wonder: ‘How could this be? How could it be that every year for 20 years in a row, you always have 260 billion barrels of oil in reserve?’ The Saudis say: ‘You either believe us or you don’t.’ And that’s the end of the conversation.”

About 75% the Kingdom’s revenue and 90% of its export earnings come from the oil industry. The oil industry accounts for 45% of Saudi Arabia’s gross domestic product, compared with 40% from the private sector. Without oil, Saudi Arabia would be little more than a desert. So its absolutely imperative the Kingdom find a way to maintain its high production levels.

With all of the most productive, most accessible and most cost-efficient reserves already tapped, Saudi Arabia has undertaken one of the largest industrial projects being executed in the world today. It is spending an estimated $15 billion on a vast network of pipes, treatment facilities, horizontal wells, and water-injection systems for its Khurais complex – a reserve expected to yield 1.2 million barrels a day.

Originally discovered in 1957, Saudi officials hoped the field would turn out to be another Ghawar but were vastly disappointed. The reserve lacks natural pressure, a key component in getting oil out of the ground. It was put into limited production in 1959 before being sidelined. It was brought back online when oil prices spiked in the 1970s and hit a brief peak of 150,000 barrels a day in 1981 before being shut down again.

“It was mainly token production, enough to help power the city of Riyadh and keep the king’s palace cool,” Jack Zagar, a reservoir engineer who worked on Khurais in the 1970s, told The Wall Street Journal.

In 2001, reservoir engineers launched an investigation into the field’s potential and found that injecting massive amounts of seawater would be the only way to generate any significant output from the field. But Khurais is located about 120 miles inland from the Persian Gulf, and more than 60 miles west of Ghawar. Hundreds of miles of pipes will be needed to transport highly filtered saltwater from the Gulf and carry oil back from the middle of the desert.

According to the Wall Street Journal, Saudi Arabian Oil Co., otherwise known as Aramco, spent 20 months shooting 2.8 million three dimensional images of the field’s geological makeup. The company then built models to simulate how the field might respond to water injection. The water injection program will require125 injection wells and dozens of electric submersible pumps to drive 2.4 million barrels of seawater a day into the reserve. That’s two barrels of water for every barrel of oil the company hopes to extract.

“This will be the biggest smart field the world has ever seen,” Nansen Saleri, Aramco’s former head of management, told the Journal.

It will also be a very risky procedure as the water will have to be filtered down to minute particles to avoid clogging the Khurais’ dense layers of rock and blocking the oil. Aramco also runs the risk of flooding the well.

“When you’re injecting water into the periphery [of a field], if you hit fissures in the rock and aren’t managing it well, you can have water flow in and kill a well. And a dead well doesn’t flow,” Saleri said.

At $15 billion, the well will also be very expensive, but with the majority of the world’s “low hanging fruit” already spoken for costly endeavors like these are the future of the oil industry. While in even the latter part of the 1990s it may have cost Aramco $4,000 to add one barrel of daily production capacity, analysts believe it now costs $16,000 for the same production increase.

Could Brazil be the “New Saudi Arabia?”

Rising global demand is a big reason reserves are running low and prices are shooting higher. The International Energy Agency estimates that demand could climb to 99 million barrels a day by 2015, up from the 87 million barrels this year.

But the fact that there hasn’t been a significant oil discovery in the last half century hasn’t hurt either.

And while there may be no stemming the rise in demand, the possibility of another significant discovery, the discovery of a deposit large enough to significantly alter the world’s energy landscape can’t be ruled out.

In fact, just such a discovery may already have been made. Not in the Middle East or Russia, but in Brazil.

Just last week, Haroldo Lima, the head of Brazil’s National Petroleum Agency, revealed the unofficial figures from a new reservoir, known as Carioca, which could hold 33 billion barrels of oil and gas. If true, Carioca would be the world’s largest discovery in at least 32 years. Upon hearing the news, brokers and analysts rushed to tell their clients that Brazil, as one minister put it just months ago, was about to become the “new Saudi Arabia.”

Of course, both Jose Sergio Gabrielli, chief executive officer of Petroleo Brasileiro SA (PBR), or Petrobras, and Energy Minister Edison Lobao said at a press conference at Petrobras headquarters Thursday that they couldn’t confirm Lima’s estimate and reiterated that further drilling was needed before any estimate on volumes could be made.

Even if Lima is exaggerating, experts say even 10 billion recoverable barrels of oil (worth about $1.2 trillion at today’s prices) would be a remarkable find and enough to catapult Brazil into the world’s oil-producing elite. Brazil currently has about 12 billion barrels of proven reserves, and could soon find itself nestled between Nigeria (with 36 billion barrels) and Venezuela (80 billion). [See a related report in today’s issue of Money Morning that details why the price of oil still has much further to run.]

However, Petrobas has a history of playing down its discoveries and is infamous for leaking discovery data. The company downplayed the discovery of the Tupi oil field before announcing last November that the reserve contained between 5 billion and 8 billion barrels of light oil and gas.

Still the only certainty that comes with the Carioca discovery is that the oil, no matter how much there is, will be very hard to reach. The field is 170 miles offshore, more than 6,000 feet under the surface of the water trapped beneath a shelf of salt 500 miles long and 125 miles wide.

A decade ago, gaining access to such a field would have been a pipe dream (no pun intended). Just like Khurais, extraction will be a very costly process, even with today’s technology.

Petrobas will have to ante up quite a bit of cash to expand its use of drilling rigs, which are in short supply. Right now, there are only 40 rigs on the planet capable of drilling into massive deep-sea salt deposits.

Petrobas has already awarded Norway’s SeaDrill Ltd. contracts of up to $4.1 billion for deepwater rigs and signed a letter of understanding with Texas’ Noble for drilling contracts worth as much as $4 billion.

Companies like Transocean Inc. (RIG) Diamond Offshore Drilling Inc. (DO), and Pride International Inc. (PDE) could also be taking orders soon, as another big Brazilian discovery and record high oil prices could lead to a massive rush on deep-sea drilling equipment. In addition to the coast of Brazil, sub-sea salt layers are also present off the coast of Africa and in the Gulf of Mexico.

The dollar dropped to a record $1.59 against the euro overnight — its worst daily performance versus the euro in over three weeks.

“Inflation in Europe jumped even higher than the previous 3.5%,” explains Chuck Butler, “hitting the 3.6% level in March. That’s the fastest pace of inflation in 16 years. The ECB isn’t going to go forward with a rate cut in May, or anytime soon, for that matter.”

By contrast, futures on the Chicago exchange still put the likelihood of a 25-point cut by the Fed on the 30th at 100%.

“It’s the official policy of the Federal Reserve to debase the currency,” Jim Rogers told Keith Fitz-Gerald in an exclusive interview published in the Rude Awakening this morning. “Washington has sent a very clear signal: ‘We want the dollar to decline. We’re gonna do our best to make it decline’…

“[Bernanke] and Greenspan together will probably bring [about] the end of the Federal Reserve. We’ve had two central banks in America that failed. This third central bank will probably fail, too, because of Bernanke and Greenspan.

“The Federal Reserve last week put $200 billion more onto its balance sheet of mortgages. Now I don’t know how big they can expand their balance sheet, but if they keep doing it, there’s only so much they can do. Maybe that balance sheet is infinite. I doubt it. And it can be said to be infinite; they just print money like Zimbabwe or someplace. But that has to come to an end, eventually…

“Well, everybody has to make their own decision. I’m trying to do what the Federal Reserve wants me to do, and I’m selling dollars… All Americans should…”

On cue, this morning’s wholesale and consumer prices show what the Fed’s policy doth reap. The producer price index (PPI) shot up much higher than expected, to 1.1%, in March — nearly double the median forecast from the Street.

Food and energy prices led the way: Energy climbed 2.9%, gasoline grew 1.3% and food rose 1.2%. The core PPI moved up to a yearly rate of 2.7% — the highest level of core inflation since 2005. But if you factor in food and energy, wholesale inflation is at 6.9%, a fraction below the 26-year high achieved in January.

On the CPI level, energy and airline tickets helped bring inflation for the everyday consumer up to over 4%.

We also note the Canadian, Australian and Norwegian currencies all enjoyed big gains yesterday, almost entirely fueled by oil’s stunning rise. Chuck and his crew at EverBank have put together a World Energy CD — indexed to the loonie, Aussie and krone — all of which should benefit from higher energy costs. This round of funding is exclusively available to you, a reader of The 5.

The U.S. stock market managed some small gains yesterday. Positive earnings from Johnson & Johnson and the Delta/Northwest merger pushed the S&P 500, Nasdaq and Dow up about 0.5% each. Record energy prices helped out utility and energy sectors, which clearly led the way.

This morning, we kick off the earnings season in earnest… with a surprise to the upside. J.P. Morgan beat Wall Street estimates in its premarket earnings announcement this morning. Of course, the news wasn’t exactly rosy… the bank posted a 50% drop in first-quarter income and revealed another $2.6 billion in mortgage-related write-downs. But earnings came in at 68 cents per share, 3 cents better than expected.

Couple that with good news from Intel and Coca-Cola and the U.S. stock market opened up over 1%.

U.S. homebuilders began construction on the fewest homes in 17 years during March, the Commerce Department admitted this morning. The coveted housing starts number came in at 947,000, down nearly 12% — more than twice the forecasted fall.

Year over year, starts are down 36% across the nation and in every region surveyed by the Commerce Department. Looking forward, building permits appear even worse. Permit applications fell 6% in March, down over 40% year over year.

Headlining the global food crisis, rice found itself another record high yesterday.

Futures in Chicago ticked up another 2.3%, to $22.67, per 100 pounds when the Philippines — the world’s biggest rice importer — put in a buy order for 1 million metric tons. That’s more than 50% of all the Philippine rice imports in 2007… clearly, the government is concerned about food supplies.

According to the USDA yesterday, only 2% of the Arkansas rice crop is in the ground. Arkansas, the biggest rice state in the U.S., had planted 31% of its crop this time last year. As Kevin reported yesterday about corn crops this year… too wet, too cold to plant.

Along with higher prices, “Here’s another concern facing the food exchanges,” notes Dan Denning, surveying the situation from Melbourne, “increased margin requirements.

“In one famous example, regulators shattered the Hunt brothers in the silver market in the early 1980s by raising margins so much that all but the most cashed-up speculators had to flee their long positions. When the highly leveraged buyers left the market, the futures price collapsed. The same is a risk for the corn wheat, corn, soy and rice markets today.

“One difference: The futures markets are much deeper and more liquid these days. Market manipulation by regulation may be harder to achieve, especially when it competes with the forces of physical reality. Raising margins would only drive out speculators.

“Most of what is driving the grain markets is real demand. Exporters are hoarding crops, shopping for higher prices or, worse, being forced by governments to sell product into the local market to satisfy the crowds in the streets. The fundamental problem is in the allocation of global resources. We have a lot of people on this old furry ball… and a lot of people are starting to wonder if there’s enough food to last for the whole dinner party.”

Gold is quietly creeping up the charts this week. The precious metal has slowly, but steadily added on about $40 this week, trading this morning for $945.

Oil jumped up to another record high this morning. Light sweet crude is now well into the $114 range, like yesterday, mostly on news of a weaker greenback.