Of course, that’s assuming there’s a paycheck to spend. The Labor Department reported on April 3 that new applications for unemployment insurance jumped 38,000, to 407,000, at the end of March, a two-year high. Some analysts estimate the unemployment rate may reach 5.5%.

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If that weren’t enough, oil has topped $110. Prices at the pump hit $3.28, another all-time high. Meanwhile, the nation’s truckers prepare to strike. According to reports, many truckers are operating at a loss when diesel prices rise above $4 per gallon. To protest rising fuel costs, a group of big rig operators engineered a massive traffic jam on the New Jersey Turnpike. They monopolized all lanes, geared down to 20 mph and crept from the Big Apple like floats in a holiday parade. Similar protests clogged Chicago and Atlanta. It feels, dear reader, like an emotionally debilitating chapter from Atlas Shrugged.

We take these protests very seriously. After all, the health of the American economy rests on the ability to move goods to and fro. Like shipping, trucking still serves as the world’s economic circulatory system. This business connects the world in ways high-tech never will. Trucking is, and will remain, irreplaceable on the world stage. We cannot live without it.

Trains and planes, by nature, have limited reach. Railroads lead to rail yards. Airplanes fly to airports. Ships, for their part, carry goods to the to the tidewater’s edge, but no further. In each case, commerce depends on the truck to finish the job.

Truckers will demand higher wages to offset higher costs. Higher wages will require the goods they haul to be sold at higher prices. You get the idea. And this scenario discounts a major disruption to world oil supplies. A militant group truly determined to thwart the American dream wouldn’t have to leave the Middle East. Ask policymakers which asset they covet more: The Green Zone or Saudi oil production?

Treasury notes and bonds yielding 3-4% may appear a safe haven in today’s market environment, but they are a long-term investment I would strongly advise you to avoid. It’s better to own a diversified portfolio of stocks — especially stocks that have the ability to pass through price increases and those levered to long-term investment cycles, like energy, natural resources and infrastructure stocks. They might be rocky in the short term, but they should far outpace bonds over the next five-10 years.

Therefore, we argue that it never hurts to hold a major refiner.

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America’s limited refining capacity ensures tight supplies. It’s no secret that the U.S. hasn’t built a new refinery since 1976. Why? Keep in mind that historically speaking, oil markets thrive on volatility. OPEC can effectively manipulate the price overnight. Consequently, many industry executives remain wary of risking the billions in capital investment needed for such expansions. Even as gas prices soar, companies wonder: What about five years from now? What about 10 years down the line? How will alternative energy affect the demand for petroleum products?

Others argue that tangible growth in offshore refining capacity can offset a lack of U.S. expansion. Maybe so. Or maybe Southeast Asian growth will absorb any and all extra supply. Maybe a decrepit old American refinery will explode or succumb to fire, restricting capacity even more. And maybe sound judgment will prevail, and the illogical, economically unfeasible solution better known as corn-based ethanol will lose its proverbial steam.

Whatever holds for 20-40 years down the road, our present situation remains inescapable: The world consumes about two barrels of oil for every new barrel it finds.

To think this can continue in perpetuity is delusional, a naiveté of convenience and nothing more. No amount of rationalization can convince a sober mind that one plus one equals three. If and when carbon-based fuels are replaced, we think the substitute will be just about anything but ethanol. But for now, the world still runs on oil.

But the real problem, dear reader, isn’t the absence of oil. It’s the absence of cheap oil.

Until next time,
Christopher Hancock

P.S.: My colleague, Byron King, is the true expert on anything that comes out of the ground, specifically oil. He just found a way for his elite Energy and Scarcity Investor to cash in on the oil rally. In fact, he has one way to actually tap an American oil reserve that’s three times the size of Saudi Arabia’s. Check it out here…

The Dow boomed up 391 points. Gold, meanwhile, got whacked – down $33 to close at $887.

Oil held steady at $100; the dollar rose against the euro – to $1.55.

This morning, markets in Asia have already popped up. The banking crisis is over, says a headline on Bloomberg. The bad news is already priced in. If you believe the report, the departure of UBS chief Marcel Ospel marked the absolute bottom of the decline in the financial sector. It’s all up from here.

What do we make of this?

Well, let’s step back and take a look.

The danger, of course, is that the markets are signalling that we are dead wrong. Stocks are healthy…gold is not. That’s what yesterday’s news could be telling us. If that is so, we want to close out our Trade of the Decade right now, hole up in a monastery somewhere, and rethink our whole weltanshauung. In the thin air and dim light, with no alcohol available, perhaps we’ll be able to see things more clearly. We’ll come to realise, finally, that paper money really is a good thing; that Alan Greenspan and Ben Bernanke are not only geniuses, but saints too; that Wall Street labours night and day for the betterment of mankind; and that now is the time to dump gold and buy stocks.

Maybe.

First, we have to recognise that no matter what is the long-term trend, it’s not going to announce itself like new ambassador to the Court of St. James. Instead, it’s going to sneak in like a thief in the night. We’re not even going to realise it has been here until we wake up the next morning and find the silver missing.

Looking around, we see a strange and marvellous scene. On the cover of yesterday’s Independent newspaper, for example, there is a photo of a long line of people lining up for food stamps in New York.

“The Great Depression,” says the headline. “Food stamps are the symbol of poverty in the US. In the era of the credit crunch, a record 28 million Americans are now relying on them to survive – a sure sign the world’s richest country faces economic crisis.”

Again, we see the sad evolution of the US of A since the end of the ‘60s. Then, fewer than five million people received food stamps. Now, there is nearly six times that number living on them…after, what was supposed to be the biggest boom the world has ever seen. Of course, dear reader, we know that the boom was a phoney. It made Indians and Chinese much, much richer. But Americans were left out. They got to spend their wealth, not make more of it. And now, nearly 26 years after the boom began, Americans find that they owe more money to more people in more places than any people ever did. What’s worse…while wages shot up among our old adversaries – Russia and China, in the 50 states, the average person earns about the same thing, in real terms, as he earned during the Carter administration.

And now, to make matters worse, he faces an economic downturn.

Comparisons with the ‘30s keep coming up. The last time there was a nationwide drop in the housing market was in the ‘30s. Not since the ‘30s, has there been such a crisis in the finance sector. And the last time there was such a hubbub of pressure to reform Wall Street was – you guessed it – the ‘30s.

And yet, for all the talk of ‘depression’ – where is it? It is nowhere. So far, the depression is as phoney as the boom that preceded it.

In the real Great Depression of the ‘30s, thousands of US banks failed. How many have failed recently? One out of every four working people (usually men, in that era) was out of a job in the Depression. Now, the unemployment rate is one out of every 20. In the Great Depression growth went negative. In nominal terms, GDP was almost cut in half during the ‘30s. But so far as we know, US GDP growth is still positive. The IMF, always a little behind the times, says the US will post a 0.5% growth in ’08.

And what about the stock market? The Dow hit its peak on Sept. 3, 1929, at 381…collapsed…rebounded…and sank again. By the time it was over, the Dow had sunk to 41. So far this time, the Dow is off 7%. And yesterday, it shot up more than the entire Dow value in ‘29. US stocks still trade at 18 times earnings – compared to barely 8 at the bottom in the ‘30s.

Obvious question: where’s the depression?

Obvious answer: there ain’t one…at least, not yet.

Obvious next question: then what’s causing so much trouble?

*** There ain’t no Great Depression. But that doesn’t mean that there aren’t a great many depressing financial statistics…and a great many financial decisions in need of correction…and a great number of people who will wish they had done things differently.

But yesterday, stock market investors seemed to think the worst that could be seen had been seen; it was time to bid up stocks again.

Of course, investors always think they see the end…long before the end actually comes. In ’29, the greatest economist of his day, Irving Fisher, proclaimed the sell-off over in November. The market “was only shaking out the lunatic fringe,” he observed. Of course, it soon shook out everyone else.

And in 1990, the Japanese stock market also began to collapse. Then too, the greatest minds of the time – in America as well as in Japan – looked with favour on the Nikkei. The index hit its high of 39,000…and then began an historic decline. At 35,000…30,000…and 25,000 analysts pronounced the crisis over. Each time the Nikkei fell, it was another “buying opportunity.” But the collapse didn’t stop. It kept going until 80% of the Nikkei’s capitalisation had been wiped out. Now, 18 years later, you can still buy Japanese shares at 60% off.

While US business still seems fairly solid, generally, the financial sector is hurting. The banks say they will cut as many as 200,000 jobs. George Soros, speaking on the BBC last night, said he thought this was just part of a very big, very long credit cycle downturn. Credit has been expanding since the end of WWII. Now he thinks it will contract for a long time.

Corporate bond sales are down 32% in the first quarter. “Failure rate rockets for buy-out companies,” reports the Financial Times.

Charles R. Morris has a new book out. “The Trillion Dollar Meltdown,” he calls it. He says we’ve only seen the beginning of losses in the financial sector. In addition to subprime, there will be mega-losses in high yield bonds, leveraged loans, credit card debt and credit default swaps (which alone represent about $45 trillion of face value).

We mentioned the troubles in ’29 and in Japan deliberately. The current crisis (to the extent there is one) has its roots in finance – just as those two did. Most often, a recession is led by the real economy, not finance. Typically, the economy went into recession and pulled down stock prices. This time – as in ’29 and Japan – the crisis is POTENTIALLY more dangerous. Because it is finance pulling down the rest of the economy.

The part of the economy in worst shape now is the consumer. He’s the one whose salary has not gone up. He’s the one whose house is being foreclosed. And he’s the one who’s got to buy gas and food.

Banks now have twice as many foreclosed houses as they did a year ago. People take bus tours of foreclosed properties – looking for bargains…and generally depressing prices all over town. In Philadelphia, according to one report, they’re going to stop selling the foreclosed properties – to give the housing market a chance to recover.

People are buying fewer SUVs. Hummers are having trouble finding buyers… (We have a brother in Virginia with one; he says his daughter refuses to ride in it, citing environmental damage). Consumers are getting more careful when they go to the grocery store.

And even in the Hamptons, apparently the housing market is in a slump.

*** “We’re so sorry…but maybe you should come back when you have more money,” said the bank manager. We were trying to open an account in London at a private bank. But it was a club that we couldn’t join. Not enough money.

No matter how much you have. You will always feel like you don’t have enough.

28 million Americans will use food stamps this year to buy basic necessities –
the most since the program was established in the 1960s.

Back in 2002, we wondered aloud with Bill Bonner what the Soft Depression of the 21st Century might look like. Perhaps this is it:

The Greater Depression: Where are the porkpie hats and the trench coats?

“The increase from 26.5 million in 2007,” David Usborne writes of food stamps for the British rag The Independent, “is due partly to recent efforts to increase public awareness of the program and also a switch from paper coupons to electronic debit cards. But above all, it is the pressures being exerted on ordinary Americans by an economy that is suddenly beset by troubles. Housing foreclosures, accelerating jobs losses and fast-rising prices all add to the squeeze.”

Do we really need a Brit to point out the mess we’re in? Yesterday we did our best to show what food prices are doing to the middle class. Now we see what the rest of the horde is going through. If the forecasts for foreclosures and bankruptcies hold in 2008 — we haven’t seen the half of it.

U.S. stocks ended the day higher again yesterday. The Dow rose 0.4%, and the S&P 500 gained 0.6%. And the Nasdaq skooched up nearly a percent. With those gains, all three indexes managed to break even for the month, making March the best calendar month in nearly six…

But this morning also marks the beginning of the second quarter. And looking back on the first… well… it ain’t pretty. Brace yourself. “The truth hurts today,” Extreme Ian writes by IM, woefully.

*The Dow, down 7.6%, at 12,262 points, had its worst quarter in five years. Down 1,001 points during that time, the Dow recorded its biggest quarterly point loss ever.

*The S&P suffered a technical correction during the quarter, down 10%. The broad index came but a breath away from entering an official bear market, falling as low as 16% below its October peak. The index has sunk for five consecutive months… its worst monthly losing streak since 1990.

*The Nasdaq, which fared best of the three indexes in 2007, got hit the hardest this quarter. Down 14% year to date and over 20% from its October high, the tech index is the only one of the big three officially in a bear market.

Volatility rose to new highs in the first quarter, too. The VIX, largely a measure of market uncertainty, hit highs unseen since the tech bust. The S&P moved up or down 1% or more on 51% of the trading days in the quarter… that’s the most frequent period of big percentage moves since 1934.

And contrary to the growing belief that global markets are “decoupling” from the U.S. variety, take a gander at this first-quarter roundup from The Wall Street Journal:

A weaker dollar really is good for the global economy, isn’t it? Golly.

“The first quarter was rough,” laments our managing editor, Chris Mayer, “no doubt about that. Poor fourth-quarter earnings reports and a weaker outlook across many sectors all had a part to play. Financials, of course, were the main culprit.

“Financials look abysmal, with a 50% drop in earnings expected. Along with consumer discretionary stocks — think trendy retailers and electronic goodies — these two sectors account for the drop in earnings for the market as a whole.

“But look at the other end of the spectrum. The consensus on energy companies is high — anticipating a 22.8% increase. That can be good and bad. If expectations are too high, energy companies are bound to disappoint. But I don’t find that energy companies look expensive, generally. It’s a big sector. It depends on what you’re looking at specifically, but generally speaking, I think energy should be a good place to be.”

For specific recommendations on weathering this tempest in one piece, see Chris’ Capital & Crisis.

Unfortunately, if UBS’ announcement this morning is any indication, the second quarter is likely to bring more of the same.

The European mega-bank says it expects a $12 billion loss from the first quarter. The bank will kick off Q2 with another $19 billion write-down, which it also revealed today. And as if shareholders hadn’t had enough bad news, the bank is seeking $15 billion in emergency capital to cover bad bets that have yet to hit the books.

UBS has written down $40 billion since last July — making it Wall Street’s biggest loser (so far). Upon announcing this latest array of losses, UBS head honcho Marcel Ospel stepped down. No April Fools’ prank here.

The mostly unscathed Deutsche Bank threw its hat into the write-down ring today too. The German bank predicted a first-quarter write-down of $4 billion thanks to “significantly more challenging” market conditions.

Not to be outdone, Lehman Brothers capped off the day’s round of dismal financial earnings news. Lehman says it will need at least $3 billion in emergency funding to stay afloat during this “credit crisis.”

To raise the money, the brokerage will sell 4 million convertible preferred shares; “an endorsement of our balance sheet by investors,” says CFO Erin Callan. Funny… looks more like a sudden, desperate attempt to raise money at the expense of current shareholders.

Two sides to every coin, we suppose.

Naturally, UBS, Deutsche Bank and Lehman stocks rose on the news. In fact, Deutsche Bank was so smitten with UBS’ super-sized write-down, it decided to upgrade UBS shares to “buy” today. Only in the stock market can massive, multibillion-dollar losses be reasons for optimism.

This is precisely why we don’t publish any day trading letters.

The dollar ended up with some big gains after yesterday’s volatile session. The euro climbed up to an tenth of a cent below its all-time high of $1.59 yesterday on high inflation readings and subsequent doubts of an ECB rate cut.

But within moments of swinging toward record lows, the dollar rebounded against nearly every major currency. Profit taking and a weakening resource market seemed to be the catalyst for this latest wave of dollar strength. The dollar index has shot up a full point from yesterday’s low, to 72.4 this morning.

The euro limped all the way back down to $1.56. The yen backed off to 100.

“This is a NOT a trend reversal,” warns Chuck Butler. “We’ve seen this at various times in the past with the euro. Sooner or later, love is gonna get ya, and then the euro will finally climb over 1.58 to on its way to higher ground. The HUGE capital flows that used to come into the U.S. are disappearing, and with the current account having problems with financing, the only give is in the dollar.”

In the first quarter, the dollar managed its biggest quarterly loss versus the euro since 2004. The yen had its best quarter versus the greenback since 1999 and struck its highest level since 1995.

In all, against the euro and yen — arguably, the two most influential currencies outside the dollar — it was a nasty first quarter for the greenback.

Hit the hardest during yesterday’s broad commodity sell-off, oil fell over 6% yesterday and overnight. Oil is now trading just below $100.

Even as oil backs off, prices at the pump have hit new highs. The national average gas price yesterday struck $3.28, another record high.

After pulling itself back up to $940 yesterday, gold sank like a stone, to as low as $890 this morning.

“Gold got mixed support from the usual suspects yesterday,” writes Doug Casey, “with a sinking dollar unable to compensate for sharply lower oil prices. It was also likely caught up in a broad-based commodity sell-off that dragged down virtually everything except corn and natural gas.”

“Gold is up 9.7% year to date, and 38.2% for the past 12 months,” James Turk reminds us. “Silver is up 16.7% year to date, and 29.0% for the past 12 months. By any measure, these are spectacular results, and they place gold and silver among the best performing asset classes. Meanwhile, the U.S. dollar index has dropped 6.4% year to date and 13.4% over the past year, making it one of the worst performing asset classes.

“There has not been any meaningful or fundamental change to take the dollar off its present path, which leads to the fiat currency graveyard. In the absence of that action, one can only assume that over time, the dollar is going lower, and gold and silver are going higher. Therefore, continue to accumulate gold and silver, while minimizing your holdings of dollars, and, for that matter, any national currency.”

Following last year’s record number of acres planted, the USDA reported yesterday that farmers in the U.S. expect to plant some 86 million acres of corn this year. Soybeans will see a planting boost this year, too — up 18%.

“Yesterday’s USDA report,” beams Kevin Kerr, like an expectant father, “was as I expected, bullish corn and bearish soybeans. The planting intentions came in far below what was expected, and carryover stocks did, too. We see strong evidence that demand from ethanol combined with increased input costs for farmers is having the expected impact.

“In addition, the flooding and cold weather in the Midwestern Corn Belt could also have a major impact if planting is delayed dramatically. The bad news for consumers is that this likely means even higher food prices, with little end or solution in sight.”

Accordingly, Kevin is long corn in his Resource Trader Alert. If you would like to play these trends, you could have no better mentor than Kevin… he learned to trade these markets at the feet of renowned billionaire Paul Tudor Jones. Check out RTA here.

“I was surprised you did not express alarm over the Fed’s imminent takeover of all U.S. financial institutions,” writes a reader. “After all, it is a private banking corporation no more a part of the U.S. government than FedEx, whose true owners have never been revealed — and which has never been audited. How can the Treasury legally turn over everything to it? It’s like giving the fox the keys to the henhouse!”

The 5 responds: We’re no less alarmed than if we’d witnessed a car wreck heading south on I-95 at 4 a.m. in a rainstorm. But since we’ve been driving all night with kids in the car… the horror registers only on the inside. The rest is just action: We either attempt to get out of the way or slow down to see if we can help, preparing all the while to get wet.

For what it’s worth, the chairman of Federal Express is not appointed by the president, nor was the transportation company created by an act of Congress. In fact, to insinuate they are similar is an insult to Fred Smith, the company’s founder, whose antics and success are studied in business schools… ironically, of course, given that he flunked out himself.

Cheers,

by Addison Wiggin & Ian Mathias

The 5 Min. Forecast

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Swiss bank UBS makes front-page news on The Wall Street Journal for its thumping quarterly loss of more than $12 billion on write-downs of $19 billion. The losses have claimed chairman Marc Ospel.

– USA 2008: The Great Depression

Brit newspaper The Independent leads with “dismal projections” that in the fiscal year starting in October, 28 million people in the US will rely on government food stamps to survive, the highest level since the food assistance programme was introduced in the 1960s.

– Paulson plan will be DOA

Paulson plan will be “dead on arrival”, according to The New York Times, as “lawmakers and lobbyists from an array of industries” oppose to the plan to create a new financial regulatory system in the US.

– London stocks lift despite UBS writedowns

Shares in UBS and British banks Barclays, Royal Bank of Scotland and Alliance & Leicester rise in London, despite heavy writedowns for the Swiss banking giant.

– Worst month for hedge funds since LTCM collapse

Figures from Chicago-based Hedge Fund Research show that the average fund tracked by its HFRX index was down 2.4% in March, its worst month since the collapse of Long Term Capital Management in 1998.

– Gas prices at record high

High crude oil prices are being passed on to US consumers. From Rueters: “The U.S. retail price for gasoline set a new high of $3.29 a gallon after rising 3.1 cents over the last week, the federal Energy Information Administration said on Monday.”

– Oil slides, dollar climbs

Oil is back at $101 a barrel as the euro fell to a six-day low against the greenback.

– Gold falls for fourth day

The yellow metal fell for the fourth consecutive day to $896.75 a troy ounce.