The pan-European FTSEurofirst 300 <.FTEU3> index of top shares fell 0.5 percent to close at 973.92 points, breaking a four-day winning streak, and having hit its highest close since early October on Tuesday.

The European benchmark index is still up 50.9 percent from its lifetime low of March 9, as investors have become more confident on the prospects of recovery.

“The market has come a long way, and the economics are still supportive,” said Georgina Taylor, equity strategist, Legal & General Investment Management.

“We’re just seeing a little profit taking. Nothing has been derailed. Housing data is improving. The only area of concern is consumer spending.”

Energy companies were the biggest drag on the index, with crude prices down more than 1 percent to just above $71 a barrel, after the U.S. Energy Information Administration said inventories had risen.

BG Group , BP , Repsol and Total were between 0.9 and 2.3 percent lower.

UK-based oil explorer Tullow Oil fell 3.9 percent after it said interim profits dropped 83 percent on lower oil prices and production.

Other economics news was mostly upbeat. Sales of newly built U.S. single-family homes rose in July to their fastest pace in 10 months, while orders for long-lasting manufactured goods surged, hinting a modest economic recovery was taking shape.

However, some investors chose to focus on orders excluding transportation climbing slightly less than forecast.

Back in Europe, the business climate index of Germany’s Ifo, a Munich-based think tank, rose to 90.5 from an upwardly revised 87.4 in July.

“The Ifo figures did not have a momentum effect, despite them being very good. But one also has to acknowledge that the markets are moving on high levels and that people may be following the strategy of ’selling on good news,’” said Joerg Rahn, chief investment officer at wealth management company Marcard, Stein & Co.

Miners also fell. Copper miner Antofagasta lost 4.8 percent after it posted lower-than-expected earnings in the first half and warned prices were likely to remain volatile in the second half.

BHP Billiton , Xstrata , Anglo American and Rio Tinto were down 1.4 to 4.1 percent.

NATIXIS SOARS

Among individual movers, French bank Natixis soared 38.8 percent after majority owner state-backed BPCE said it will guarantee roughly 35 billion euros ($50.12 billion) worth of toxic assets at the investment bank.

Alcatel-Lucent surged 11.9 percent as traders cited market talk of a possible bid from a Chinese manufacturer of telecom gear and a rating upgrade by Natixis.

Heineken , the world’s third-largest brewer, rose 7.2 percent, after reporting a rise in first-half operating profit, driven by cost savings, beat forecasts.

Guinness maker Diageo rose 2.6 percent, ahead of full-year results on Thursday.

Suez Environnement soared 11.5 percent after the French utility group reported forecast-topping first-half profit despite a sharp drop in waste business.

However, GDF Suez , the French electricity and gas group, fell 1.7 percent, ahead of first-half results on Thursday.

Swiss Life fell 7 percent after saying it is cutting jobs and costs after two investments in Germany failed to yield hoped-for benefits, even as first-half profits beat forecasts.

Across Europe, the FTSE 100 <.FTSE> index closed 0.5 percent lower, Germany’s DAX <.GDAXI> fell 0.6 percent and France’s CAC 40 <.FCHI> was down 0.3 percent.

Aug 26 (Reuters)

Oil hovered around $61 a barrel as worry about the strength of global fuel demand was offset by news of strong economic growth in China.

The U.S. dollar initially fell to a six-week low against major currencies after JPMorgan’s reported record investment banking and trading results, providing further evidence of recovery in the financial system, but weak U.S. manufacturing data and concern about the impact of the possible failure of U.S. lender CIT re-introduced a bid for safer-assets.

CIT’s talks about aid with the U.S. Treasury ended Wednesday night, leaving the lender to its own devices, and endangering the future of some of the one million customers of the lender to small businesses. U.S. Treasury debt prices rallied after three days of falls partly on a resulting flight-to-safety bid

A fall in a reading of the Federal Reserve Bank of Philadelphia’s index of business conditions in the U.S. Mid-Atlantic region to minus 7.5 in July from minus 2.2 the month before also helped push up bond prices.

The benchmark 10-year U.S. Treasury note was up 20/32 in price to yield 3.53 percent. The 2-year U.S. Treasury note was up 4/32 in price to yield 0.96 percent.

“We are in a difficult position at the moment because we are caught on the cusp between is this a sense of sustainable recovery or a possibility of a relapse?” said Richard McGuire, fixed income strategist at RBC Capital Markets in London.

“There’s no real convincing evidence yet on either side,” he said.

European shares hit a one-month closing high on improved sentiment following JPMorgan’s results and data that showed the number of U.S. workers claiming new jobless benefits fell last week.

But U.S. stocks faltered after a run-up this week that pushed the benchmark Standard & Poor’s 500 Index up 6.1 percent, the best three-day rally following a surge after U.S. equities hit a decade low in March.

Shortly after 1 p.m. (1700 GMT), the Dow Jones industrial average was up 3.18 points, or 0.04 percent, at 8,619.39. The Standard & Poor’s 500 Index was down 1.30 points, or 0.14 percent, at 931.38. The Nasdaq Composite Index was up 3.41 points, or 0.18 percent, at 1,866.31.

The FTSEurofirst 300 index of top European shares ended 0.4 percent higher at 866.81 points, fourth straight advancing session.

The number of U.S. workers filing new claims for jobless benefits fell last week to their lowest since January, but the seasonally adjusted government data was again distorted by earlier layoffs in the automotive industry.

“There’s a lot of conflicting data here, and I think that the market is reflecting that,” said Kim Caughey, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

Asian shares across the region outside of Japan rose 1.3 percent to their highest since mid-June, while Japan’s benchmark Nikkei underperformed with a rise of 0.8 percent.

China reported economic growth quickened to 7.9 pct in the second quarter, beating forecasts.

The U.S. dollar was down against a basket of major currencies, with the U.S. Dollar Index off 0.02 percent at 79.299.

The euro was up 0.14 percent at $1.4124, while against the yen, the dollar was down 0.74 percent at 93.56.

Crude oil prices fell as investors tried to decide how high oil prices can rise given a still fragile global economy, said Mike Fitzpatrick, vice president at MF Global in New York.

U.S. light sweet crude oil fell 49 cents to $61.05 a barrel.

“$60 is the fulcrum balancing the price lever that tips whenever one contention or another is bolstered by news or economic data,” Fitzpatrick said.

Gold slipped as the dollar pared losses against the euro, with lacklustre demand for physical stocks of the metal also pressuring prices. Spot gold prices fell $1.20 to $937.25 an ounce.

NEW YORK, July 16 (Reuters)

Euro zone economic sentiment improved more than expected in June, data showed on Monday, as the European Commission predicted the worst could be over for the 16-country currency area.

“The ECB will find themselves affirmed that the economy is bottoming out and that the worst is over,” said Joerg Angele, analyst at Bayerische Landesbank.

“It’s bad, but it’s not getting worse.”

The FTSEurofirst 300 index rose 1 percent, led by energy companies and financials.

The MSCI world equity index edged up 0.12 percent towards 12-day highs hit on Friday. However, the index is down over 4 percent from the year’s highs set earlier this month.

U.S. stock index futures indicated a slightly higher open on Wall Street.

World stocks have shuffled sideways in the past few weeks as investors have questioned how quickly the global economy will return to growth, giving a boost to battered government bonds and pushing yields lower.

U.S. employment data are due on Thursday ahead of a U.S. holiday on Friday, and the European Central Bank and Sweden’s Riksbank issue policy statements this week.

“With the payrolls coming up, and the ECB and Riksbank, I don’t think there’s a great appetite to take on big risk this week,” said Maurice Pomery, managing director of Strategic Alpha.

Many investors are also sticking to the sidelines as the second quarter winds down and ahead of U.S. and European summer holidays.

CHINA WATCH

The dollar index, a gauge of its performance against six major currencies, dipped 0.05 percent to 79.833, but held off a two-week low struck on Friday.

The euro inched up 0.07 percent to $1.4059 , recouping losses earlier in the session, and the dollar was up 0.16 percent against the yen at 95.35 .

The dollar fell last week after China, which holds nearly $2 trillion of reserves believed to be concentrated in dollars, repeated its calls for an end to the dominance of a single currency in global finance.

China and Brazil said on the sidelines of a weekend meeting of central bankers in Basel they were discussing a currency arrangement to allow exports and importers to settle deals in local currencies, thereby avoiding the dollar.

Pressure from emerging market countries to seek an alternative to the dollar as reserve currency has contributed to weakness in the U.S. currency in recent weeks.

Crude oil rose 0.74 percent to $69.89 a barrel on supply concerns after Nigeria’s main militant group said it attacked a Royal Dutch Shell oil platform.

Euro zone government bond futures rose 20 ticks , helped by strong gains in UK gilts on month-end buying and weak UK data.

LONDON, June 29 (Reuters)

World stocks fell on Monday as optimism after Britain’s multi-billion rescue plan gave way to concerns about the banking sector after Royal Bank of Scotland reported the biggest ever loss in UK corporate history.

The euro tumbled after Standard & Poor’s cut Spain’s credit rating, following its downgrade of Greece last week. Oil fell 6 percent below $35 a barrel, hit by worries about weakening energy demand in a slowing economy.

Britain will allow banks to insure against steep losses and guarantee their debt to stop the credit crunch pushing the economy into a deep slump. The plan raises the government’s stake in RBS, which said it lost over 20 billion pounds last year, sending shares down nearly 70 percent.

“Whilst today’s measures will be widely welcomed, significant risks remain,” said Keith Bowman, equity analyst at Hargreaves Lansdown.

“All in all, should these measures fail, a further ratcheting-up of bank sector nationalization in order to force lending would appear to be the next step, a conclusion seen beyond all possibility just 12 months ago.”

The FTSEurofirst 300 index of leading European shares fell 2 percent, reversing gains of more than 1 percent earlier. The MSCI world equity index fell 0.8 percent, after making its biggest weekly loss since late November last week.

Emerging stocks fell 0.6 percent. UK banking woes knocked sterling to a two-week low of $1.4452 .

EURO AND DOWNGRADES

S&P cut Spain’s long-term sovereign credit ratings to AA+ from AAA, after it downgraded Greece last week and gave recent warnings on Ireland and Portugal. Worries about European government debt burdens have been growing as countries fund packages to boost local economies.

“It’s a theme in general … and it will continue to run for a while. Looking at the fiscal balances in Europe, that’s where the economic crisis is hurting at the moment – Ireland and Southern Europe,” said Niels From, chief analyst at Nordea in Copenhagen.

The euro fell 1.4 percent to $1.3139 . The dollar fell 0.7 percent to 90.31 yen while it rose 0.7 percent against a basket of major currencies.

The yield premium investors sought for holding the 10-year Spanish benchmark bond compared with the more liquid German government bond held at 114 basis points, having hit a record 122 bps earlier.

U.S. crude oil fell 6.2 percent to $34.25 a barrel, pressured by concerns about weakening oil demand, as well as signs of a resolution of a gas row between Russia and Ukraine and a ceasefire between Israel and Hamas in Gaza.

The March bund future fell 52 ticks.

LONDON, Jan 19 (Reuters)

U.S. stocks fell sharply on Friday in response to a grim U.S. jobs report that sent bond prices higher in Europe and pushed the price of crude down to $42 a barrel as prospects for the world’s economies darkened.

European shares extended losses in afternoon trade as investors reeled at U.S. government data showing a loss of 533,000 jobs in November, the weakest performance in 34 years.

Oils and bank stocks led the decline in Europe, while oil and defense stocks pushed the Dow down in the United States.

The dollar fell to a seven-week low against the yen but rose against the euro as investors once again sought shelter in the U.S. currency.

“When you see such a shocking employment number, you realize the devastating effect that can have on household demand,” said Henk Potts, equity strategist at Barclays Stockbrokers in London.

Shortly after opening, the Dow Jones industrial average was down 67.30 points, or 0.80 percent, at 8,308.94. The Standard & Poor’s 500 Index was down 6.59 points, or 0.78 percent, at 838.63. The Nasdaq Composite Index  was down 10.73 points, or 0.74 percent, at 1,434.83.

The pan-European FTSEurofirst 300 index was down 3 percent at 797.26 points.

Euro zone government bond futures extended gains to a fresh session high, pushing the 10-year cash yield below 3 percent after the worse-than-expected U.S. jobs report.

The 10-year Bund yield fell to the session low of 2.988 percent, down 9 basis points on the day.

However, U.S. government debt prices fell after the dismal labor report in a sign investors are reluctant to buy government debt with yields at the lowest in over 50 years.

The benchmark 10-year U.S. Treasury note was down 19/32 in price to yield 2.62 percent. The 2-year U.S. Treasury note fell 3/32 in price to yield 0.86 percent.

“We’re already at (yield) levels we’ve never seen before. It’s just difficult to continue buying Treasuries at these prices,” said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco.

November’s job losses were the steepest since December 1974, when 602,000 jobs were shed, Labor Department data showed, and were much worse than forecast by analysts polled by Reuters who had predicted a reduction of 340,000 jobs.

The dollar rose against a basket of major currencies, with the U.S. Dollar Index up 0.61 percent at 87.142. Against the yen, the dollar fell 0.01 percent at 92.16.

The euro fell 0.66 percent at $1.2686.

U.S. light sweet crude oil was off 54 cents at $43.13 a barrel, after earlier touching $42 at one point.

Many dealers and analysts expect oil to test the psychologically important $40 a barrel level fairly soon as evidence mounts of a significant decline in oil demand in all the major developed economies.

Spot gold prices fell $13.85 to $751.80 an ounce.

Asian shares edged higher overnight, with the MSCI index of Asian shares outside Japan  rose 0.2 percent, but trimmed gains after the U.S. employment report. The Nikkei average slightly lower, down 0.1 percent.

By Herbert Lash
NEW YORK, Dec 5 (Reuters)

Pop quiz: The biggest company in the world? Nope, not Exxon Mobil, not today anyway. Would you believe…

Oh, how twisted the markets have become.

In European trading this morning, shares of Volkswagen AG leapt 93% when word leaked that Porsche would be upping its stake from 49% to 75% — a controlling stake of the company. Buyers rushed in, short sellers were squeezed (big-time) and, for a moment, VW’s market cap crested $370 billion — greater than the beaten-down value of the world’s most profitable company, Exxon Mobil.

The moment was fleeting, but for a moment there, VW was the largest company on Earth… the Leper King during the worst of credit epidemics.

The short squeeze on VW was so extreme today the automaker was momentarily trading for 100 times projected 2009 earnings. Rumors abounded that Goldman Sachs was caught up in the short squeeze… which it quickly denied. Still, the stock fell over 10%. Morgan Stanley dropped over 12%.

The London interbank offered rate (Libor) — the rate at which banks lend to each other — is down again today. The introduction of the Fed’s new Commercial Paper Funding Facility (CPFF) helped the three-month Libor fall another 5 points yesterday, to 3.47%.

The mist rising off the frozen credit markets is still causing a heavy fog, but there’s hope the sun may come out again and burn it away. Coupled with some more European Central Bank injections this morning, the Libor is on track to have fallen 13 days in a row.

Still, according to the Bank of England today, global credit crisis losses now exceed $2.8 trillion. In its semiannual Financial Stability Report, the BoE reported global banks are financially unstable and losing money. Really.

Cheers, mates, thanks for the update.

“It’s a great contraction,” notes Chris Mayer, “a historic liquidation in the stock market and a mad dash to grab cash wherever you can get it. Across the world, the goal is to build up cash reserves and cut back. The Financial Times reports that 5-10% cuts in capital spending are common. In the commodity world, it’s more like 10-20% — as mines shut down and projects freeze. Most expect more cuts of one kind or another. As the FT opined, ‘The hoarding of cash is likely to intensify.’

“This slowdown also comes with a complete shutdown of the credit spigot. It’s tougher to raise money no matter who you are. If you a smaller miner or resource company, forget it. A lot projects that looked good at higher commodity prices are just bleeding money at current levels. Yesterday Russia’s Ufaleynickel, the third largest producer of nickel in Russia, said it would shut down nickel production entirely. It costs it $26,000 to produce a ton of nickel that it can sell for $8,000.

“And so the commodity markets begin to correct. Some will correct more quickly than others. The survivors on the other side, though, stand to make fortunes. I think we’ll have a bunch of those, but it certainly looks bleak today in a big-picture sort of way.”

“The ability to generate new earnings off net tangible assets,” Dan Denning adds from down under , “is what you’re after in this market. Alcohol, tobacco, farmland, food… all these are good, recession-insulated businesses for the future. But more importantly, run properly, the capital structure of these businesses means you’ll get increased earnings, despite tighter access to credit in the global economy.”

For Chris Mayer’s play on Saskatchewan farmland, be sure to read your latest issue of Mayer’s Special Situations.

The S&P/Case Shiller continued its swan dive in August, the group reports today. Annual declines in home prices are down by another annual record, 17.7% for its 10-city composite, 16.6% for the 20-city.

Nine of the 20 regions report record annual declines. The last region to report a positive change in annual home prices was Charlotte, in April.

But we must admit, the housing picture in August isn’t looking as bad as previous months. The two composites were only slightly worse than their July scores, and the chart is starting to look like the very beginning of a bottom. But until we start seeing some data for October… we’re reserving judgment.

Is anyone (with a brain) surprised to see consumer confidence plummet in the first half of October?

Oh wait, some were. Pundits on CNBC exclaimed, “WOW!” when they reported the Conference Board’s latest reading today, which showed consumer confidence had been effectively cut in half over the last three weeks. Wow? Really… sometimes we wonder if we’re covering the same market as these guys.

The Conference Board’s gauge of confidence crashed to 38 in October, from a score of 61 in September. That’s just a bit worse than the 52 mark economists expected, and easily the lowest score since the report’s inception, in 1967.

The Dow ended down Tuesday, nearly 2.5%. We’d love to say there were compelling reasons to buy and sell stocks Tuesday, but really… it doesn’t seem like anyone knows what the hell they’re doing, day to day. The index traded in another 400-plus-point range during the day and crossed between positive and negative territory 60 times.

The VIX remains above 80, just shy of another record high.

Either way, at 8,175, the Dow put in a new five-year low. Any blue chip investments you’ve made since April 2003? Probably gone.

Nevertheless, and true to form, the stock market is rallying today. The Dow opened up over 200 points. We’ve yet to see any shockingly putrid news this morning. And since the markets have been getting decimated all week… can you blame traders wiping away debris looking for value?

“Most of the rest of the world’s stock markets also tumbled to new multiyear lows,” notes Eric Fry of yesterday’s market. “Many of the year-to-date declines look like misprints: London’s FTSE is down 53%, Hong Kong’s Hang Seng Index is down 60%, Russia’s RTS Index is down 76%.

“Down 76% is more than just a bad year; it’s a disaster. ‘That’s not going to happen here!’ we tell ourselves, as we cross our fingers, knock on wood and light a candle to St. Martin of Tours. ‘The U.S. is not an emerging market, after all.’

“More than likely, the beleaguered Dow Jones industrials’ 38% loss year to date will not ‘do a Russia’ and double to 76%… at least not immediately. But the line between ‘developed markets’ and ‘emerging markets’ has become very blurred. Nearly every stock market in the world has become a ‘submerging market.’

“When will this global financial trauma come to an end? Probably not for many years. At least that’s our guess.”

After peaking at a remarkable 87.8 yesterday,more than a 2-year high, the dollar index has backed off a point this morning. As we write, it’s back to around 87 even.

Oil is taking a break from the norm today by rallying a buck to $64 a barrel. It fell as low as $61 yesterday, a 17-month low.

Gold is up, too… a mere $10, to $740 an ounce.

This morning, we have further proof this is not the time to be in the newspaper business. As if you needed any.

Combined circulation of all 507 daily print newspapers tracked by the Audit Bureau of Circulations fell 4.6% last month. Combined circulation of all those rags averaged about 38 million in the six months ending in September, down 2 million from the same period in 2007.

“Mr. Wiggin, that was a bit harsh for a reply to a subscriber,” writes a reader of yesterday’s issue. “I know The 5 Min. Forecast is a free publication, and I also have a number of paid subscriptions to various Agora services through a number of their companies. Even high-priced ‘premium’ ones… and think subscriptions might even provide some of your cash flow.

“I did listen/watch the Webinar and got much the same opinion, that it was an advertisement. So much so that I hit delete when I received the e-mail pertaining to the Strategic Short Report. These are trying financial times for many of us: rich, moderate or poor. They have left me poorer than I was. How about you? Is it possible that the other subscriber that you referred to has been badly hurt?”

“Sounds to me like your Agora Reserve member is a little ticked,” suggests another, “about their lost principal and took it out on those who could be trusted the most with such emotion… your team!

“I would like your readers to know that I phoned in after the Webinar and was honestly told that purchasing Strategic Short Report was not in my best interest, due to my personal circumstances, and was advised that perhaps a subscription to Outstanding Investments was better suited for me. I appreciated that I had a conversation with an understanding person who was not just interested in getting my credit card number. I am a current subscriber to Strategic Investment and will be forever thankful for having found you a year ago. My situation is too complex to go into, yet I want you to know that the philosophies of Agora Financial resonate with me so well.

“In fact, in September 2007, I had just placed my home on the market and ultimately took it off in November 2007, after studying your newsletters. I remember distinctly telling my real estate agent and her mortgage broker that we were ‘in for a global meltdown of epic proportions,’ based on what I had learned. They looked at me like I was crazy, especially since we live in Seattle, a city considered to be removed from the rest of the country’s economic pains (Ha! Can you say WaMu?). I wonder what they think of my comment today? Because of all you do, I am one single mother of six children, who is still a current homeowner and continuing to make positive changes every day because I have read and taken heed to all you share…

“I saw the movie I.O.U.S.A. and was amazed that I was only one of seven in the theater. I have full faith in the integrity of your company. My future and that of my children’s is and will continue to become more beautiful and abundant because of Agora Financial. Thank you.”

The 5: You’re welcome.

When you begin an e-mail “I dare you,” what kind of response do you suppose he’s expecting? We’ve noticed when people write by e-mail, they dispense with civility a lot faster than they might if they were to speak to us in person.

Regarding the film: The economics of releasing a documentary about the national economy — even during an epic financial crisis — are rather complicated. We’re releasing to 35 additional markets starting this Friday, but most of the push is being funded by the Peterson Foundation , rather than high attendance numbers.

Still, our experience with the film has been extremely positive. We just finished a stretch of media in screenings in Toronto and New York City. They were all well attended and the conversations that the film provoked are exactly what we wanted to see happen. As happened after our screening before the National Board of Review yesterday at the Disney Screening Room on Park Avenue, the audience wants to know immediately what we’ll be doing to get the film into high schools and universities. “We’re working on it,” we reply. The film is now in the hands of the foundation. They’re setting up programs to help teachers screen the film and conduct discussions with their students.

Source: Senseless Markets, Companies to Consider, I.O.U.S.A. on DVD, and More!

Japan’s Nikkei 225 Index set a record one-day gain today, soaring 14.2%, or 1,171.14 points, to close at 9,447.57, after being closed Monday for a holiday. Hong Kong’s blue-chip Hang Seng Index extended its 10% rally from yesterday with a 3.2% gain this morning, adding another 520.72 points to close at 17,832.88.

Stock markets in the Philippines, South Korea and Australia also saw gains today.

“The U.S. and Europe now seem to be promising unlimited support to remove the deep-rooted disbelief in the financial system,” Yoo Byung Ok, who oversees the equivalent of $3 billion at Mirae Asset Investments Co. in Seoul, told Bloomberg News. “The key issue here is whether these market gains can be sustained or not. I believe more time is needed to dispel worries about the ripple effect on global economies.”

Europe enjoyed similar strong results, with the FTSEurofirst 300 Index closing up 2.8% for the day after earlier being up as much as 6.8%. The Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posted triple-digit gains.

Russia’s Moscow Interbank Currency Exchange, or MICEX, where the bulk of Russian trading occurs, climbed 11.2% before regulators halted trading, The Associated Press reported.

These global gains were a response to international efforts to recapitalize banks, as well as some easing in the short-term credit markets. The dollar-denominated three-month London Interbank Offered Rate (LIBOR) fell slightly today, down 0.12% to 4.64%. LIBOR’s euro and pound counterparts also fell, albeit by slightly smaller amounts.

“We are now seeing solvency being dealt with, we are seeing huge amounts of liquidity being thrown at the market,” Simon Ballard, a senior portfolio manager at Fortis Investments, said in a Bloomberg Television interview. “Banks will little by little start to face one another in the interbank market.”

In Japan, the central bank pledged unlimited dollar funds to shore up capital positions, according to a Washington Post report.  The Japanese government will also relax rules that prevent companies from buying their own stock, Finance Minister Shoichi Nakagawa said. The government will immediately cease the sale of any of the $33 billion in bank stocks it acquired during that country’s “Lost Decade,” Nakagawa added.

Europe announced its bank recapitalization plan yesterday, while the United States announced its own $250 billion plan this morning.

Source: Strong Gains in Asia and Europe as Governments Act to Instill Confidence in Global Banks

Many look like they’ll have to find more capital to shore up their balance sheets, and there was much speculation in the weekend papers about investment banks ganging up behind the scenes to prop the sector up.

With housing sales in freefall, builders aren’t building anymore. It now looks as though just 100,000 homes will be built this year compared to a Government target of 240,000. That would be the lowest number built since 1945.

David Sutherland, chairman of housebuilder Tulloch, tells The Telegraph: “The UK housing target does not have a cat in hell’s chance of being met this year or next. Somebody at central government needs to do something.”

Two questions immediately arise in response to this plea. “What can the Government do?” and “Why should anything be done?”

Housebuilders are calling for government aid now that the housing market has gone into self-destruct mode. The Home Builders Federation is calling for stamp duty to be suspended and interest rates to be cut.

Sales are down 60% on this time last year, says Roger Humber of the House Builders Association. “No business or industry can survive that.”

The housebuilders are indeed facing terrible times ahead. They’ve had their boom – a boom never seen before, the likes of which they could never have dreamed of. Now they’re having the bust that was always certain to follow that boom. Just as the boom was better than they could have hoped, so the bust will be worse than they’d ever imagined.

This is why housebuilders usually trade on low price to earnings ratios, by the way. It’s because they are so brutally cyclical. Once the market turns, it turns badly, and the ‘e’ part of the p/e ratio drops off a cliff.

When activity drops off, the builders find they are left with assets plunging in value (their land banks) and they have to rapidly lay off workers to slash costs as sales dry up.

So – no surprise that they now want someone to save them.

But this is capitalism, remember? This is the way it works. Throughout the boom, no one in the property industry was particularly keen to have the state intervening in the market any more than it already does. Home Information Packs (HIPs) for example, which started out as a broadly sensible idea, were ripped apart by the property industry until they were introduced in their current, worse than useless, state.

More to the point, there’s nothing the Government can do. Stamp duty cuts? House prices are falling by about 2% a month at the moment. That’s your stamp duty right there. Interest rate cuts? In case the builders hadn’t noticed, rates have already fallen by three quarters of a point, and it hasn’t made a bit of difference.

That’s because banks still aren’t keen to lend. There’s been a curious reaction to this in the press recently. One leading property writer seems to be blaming Halifax among others for the seizure in the housing market, complaining that they are causing the house price crash by refusing to lend to creditworthy borrowers. Meanwhile, in The Telegraph, a reader’s letter cites amazement at banks greedily ignoring the BoE’s interest rate cuts.

It’s important to understand that the banks aren’t doing this out of spite or greed. This is not a matter of simply persuading them to start dishing out the readies again. The banks – for anyone who didn’t notice Northern Rock or Bradford & Bingley’s travails – are undergoing a bit of a crisis themselves. Halifax parent HBoS is right now crossing its fingers for its £4bn rights issue, while Royal Bank of Scotland has just raised £12bn.

To put it bluntly, the banks are skint. They gave too much money to people who couldn’t pay it back, and now they’re paying for it. They need all the money they can get. They don’t care how good a credit risk you are – they simply aren’t in a position to be as profligate as they were before.

Sure, it’s their own fault they got into this mess. But if you want to blame the banks for their reluctance to lend now, you also have to acknowledge that they were wrong to have been so free and easy with the credit in the first place. And that’s something I suspect most property pundits would be reluctant to admit.

Anyway – back to the point in hand. There’s nothing the Government can do – short of actually giving the housebuilders money (don’t rule it out) – to save the construction companies.

The good news is that with the free and easy access to credit that created the boom in the first place now gone, house prices will settle back to a level that genuinely reflects supply and demand. And with builders unable to build more houses (bye-bye to Gordon Brown’s eco-towns, thank goodness), and foreign workers heading off back home in their droves, we’ll soon see just how much of a housing shortage Britain really has.

I think we’ll find it’s less of a problem than the bulls have been making out.

Turning to the wider markets…

The FTSE 100 recovered on Friday to rise 12 points to 5,802. HBoS was the biggest riser along with other banks as investors closed out short positions.

Meanwhile, in Europe, the German Xetra Dax climbed 50 to 6,765, while in Paris the French CAC 40 rose 10 points to close at 4,682.

In the US on Friday, stocks made strong gains as inflation data was in line with expectations and the dollar continued to rally. The Dow Jones rose 165 points to 12,307. The S&P 500 climbed 20 points to 1,360. And the Nasdaq rose 50 points to end at 2,454.

In the forex markets today, sterling was trading at 1.953 against the dollar and 1.2677 against the euro. The dollar stood at 0.6493 against the euro and 108.31 against the Japanese yen.

In Japan, stocks were higher as the weaker yen boosted earnings at car and electronics manufacturers. The Nikkei 225 climbed 380 points to close at 14,354.

Brent spot was trading this morning at $133.70, while in New York crude was trading at around $134.10. Spot gold was at $867 an ounce. Silver was trading at $16.49, while platinum was at $2,019.

This morning, Barclays’ share price has risen after it said that it is actively considering selling shares to prop up its balance sheet. Profit for May was “well ahead” of last year’s figure. Reports at the weekend suggest that any money raised would come both from sales to sovereign wealth funds and to existing investors.

Source: The Good News About the Housing Crash

It was the brainwave of John Shepherd-Barron, then CEO of banknote maker De La Rue plc. He “hit upon the idea of a chocolate bar dispenser, but replacing chocolate with cash”. Barclays was quick to take up the innovation and the rest, as they say, is history.

When interviewed by the BBC last year in celebration of its 40 th anniversary, Mr. Shepherd-Barron predicted the demise of cash altogether in 3-5 years noting a problem that hasn’t escaped even bank robbers: “money costs money to transport”. That day looks to be getting closer, according to a Sunday Times report at the week-end. Once again Barclays is the innovator.

Barclaycard has been testing out a system of “contactless” cards that will, if adopted by retailers, permit secure payment on items up to £10. The card is also an Oyster card meaning it can be used on London’s transport network. Barclays has an ambitious roll-out plan and counts EAT, Coffee Republic, Books Etc, Krispy Creme and Yo Sushi amongst outlets already adopting the technology.

Cappuccino, doughnuts, sandwiches and sushi…a useful start for the City worker.So, just as the Royal Mint unveils proudly its new coin design range, the creative destruction of coinage itself probably means this the last time it does so for anything other than commemorative purposes. So much for the future cashless society. The present is looking increasingly cashless too in another sense. The rapid evaporation of credit is testing the strongest nerve and causing big problems. A third of housing deals are falling through, reports the FT at the week-end, because even willing buyers can’t get a mortgage. What a difference a credit crunch makes. In the pre-crunch days of July 2007 there were 15,599 mortgage deals to choose from. Today there are little over a quarter of that number – 4,270.

If it’s tough for the buyers out there it’s certainly no time to be an estate agent. The number of estate agents closing their doors has doubled to 10%, according to Rightmove, and blue chip agency Hamptons has asked investors to stump up £5m to tide it over during the sales drought. Over at national chain Countrywide, their takeover generated debt is now being trading at 50% of face value, reports the Sunday Times.

And this week the subject of interest rates will be centre stage again as both the Bank of England and the European Central Bank decide to stick or twist with 5.25% and 4% respectively. The Institute of Economic Affairs dubbed the “shadow” monetary policy committee – which has a pretty good track record with its calls – has voted 6-3 in favour of a twenty five basis point cut, writes David Smith in The Sunday Times. CPI inflation at 2.5% – half a point over target – is the drag, but slowing growth should mean slowing inflation shouldn’t it Mervyn? Let’s hope so. Certainly if you take out the pesky volatile elements that play with the numbers but just happen to be the basics we cannot do without – food and energy – core inflation should be sliding along with the fortunes of the UK consumer.

Over in the Euro zone, Jean-Claude Trichet has done a great job in scaring the pants off the financial markets about inflation, now 1.5% above target, says Marco Annunziato, economist at Unicredit, so no change is expected this time around. Though Unicredit think Euro zone inflation peaked last month at 3.5% – its highest rate since the inception of monetary union – and will fall to 2.5% by year end so paving the way for monetary easing in the second half. Currency traders will likely be positioning for a cooling euro.

For all the gloom in the credit and housing market, stocks have continued to rally. European markets are all positive this morning with the FTSE 100 just 22 points shy of recapturing the 6,000 level. This may yet prove to be a bear market rally but for sharp-eyed value investors it looks to have thrown up some opportunities.

Charles Stanley noted recently the prospective PE of the FTSE 100 is 10.9x against a historic average of 14x. And the latest issue of the Investors Chronicle finds a stock that even the godfather of value investing – Ben Graham – might have liked. (Warren Buffett was a keen pupil of Ben Graham’s ideas.) Graham liked to build in a “margin of safety” to his stock purchases. Ideally he would like to pay no more for a company’s shares than the value of its current assets minus all its debt. At that bargain basement price the investor picks up all the company’s fixed assets – plant, property and equipment – for free. Usually such stocks are rare if not impossible to find these days, but these are interesting times and the IC unearths one. Unsurprisingly, it’s in a bombed out sector – house building. Still the house building business should have a future, no?

Regards,

Rob Mackrill
The Daily Reckoning

P.S. Each month we ask your views on a current talking point.
This months question is:

Which out of these precious metals will be the star player in April and have the highest price rise?

Gold, Silver, Platinum or Palladium.

Click here if you would like to have your say

I remember university. When I wasn’t diligently studying economics, that’ll be most of the time, then, I was doing what everyone does at that time of life. Trying to pack as much enjoyment into those three short years before I had to go out into the world and actually work for living.

Naturally that involved a lot of parties. And while they were fun, as much time was spent feeling tired and stressed as actually enjoying myself. Especially as the night wore on, the booze ran out, and you wondered whether you should just quit and go to bed.

But then… someone would turn up, late back from a club, bearing fresh supplies, and the fun would all kick off again!Yesterday felt a bit like one of those moments. Tired and flagging, the markets got a second wind as a mood of optimism engulfed the financial world. The FTSE went up 150 points, while the Dow Jones Industrial Average was up almost 400, the best start to a second quarter since 1938. Wow!

Meanwhile, reporting season is upon us, meaning all those sly banks have to ‘fess up to their losses and the system can finally purge itself of all but the happiest of happy thoughts.

Lehman asked investors for $3 billion and got $4 billion. Lehman’s shares went up 8.5%. Other banks rose too…

They think it’s all over…

So is this the turning point? There are still losses we don’t know about, but some investors feel that they’ve already been priced in.

“We’ve been hearing that argument for the last six months!” says a world-weary Manraaj Singh.

“At some point all the losses will be priced in,” adds Bill Bonner. “Are we at that point yet? I don’t know. A new trend’s not going to announce itself like an 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’s been here until we wake up the next morning and find the silver missing.”

So beware. We could be seeing a ‘value trap’ — a short-term rise that will suck in early optimists. It’s tempting to think a lot of ‘value’ is being uncovered right now. Tempting to try and be clever and pick up what we think are bargains.

But if we get a long-term bear market, shares could get a lot cheaper before it’s all over. You don’t want to be holding them if that happens.

“It’s going to be a real stock-picker’s market,” says Theo Casey, one of our investment panel. “Undervalued shares could stay ‘undervalued’ for a long time yet. There’ll be some shares out there worth buying, but don’t blindly grab onto anything.”

Manufacturing inflation hits 13-year high; pound at all-time low against the euro

Step off the market merry-go-round, and the picture for the UK’s real economy looks less rosy.

Input costs for UK manufacturers last month saw their largest rise since April 1995. Meanwhile, the pound has hit an all-time low against the euro, adding fuel to the inflationary fire.

This makes a case for the Bank of England to keep interest rates on hold. It’s a chance for Mervyn King to look strong, to stick to his role as an inflation fighter, despite a weakening housing market and fears of recession.

He may just take it — the Bank’s credibility could do with a boost, plus Merv may want to keep his powder dry, and unleash a mega-cut when the going gets really tough.

The markets, so one report goes, have already priced in a 70% chance of a quarter-point-cut. We could see a few disappointed faces in the Square Mile next Thursday lunchtime.

Gold falls, but oil stays above $100

Gold is down to $888, but oil has stayed above the magic $100 mark (excepting a short spell yesterday when it poked its nose just below for old time’s sake).

“I find it interesting that gold fell but oil didn’t,” muses Bill Bonner. “Oil has real demand behind it, while gold is monetary.”

“Absolutely,” agrees Garry White. “You make loads of stuff from oil. Plus,” he adds, “there’s a real supply crunch going on. We all seem to focus on US oil inventories, but we should be looking at capacity in producing nations too.”

The Gulf is experiencing a power crisis, and it’s hitting production capacity.

“The fundamentals are in the driving seat now!” says Garry. “And the fundamentals are tight.”

Which is great news for Garry’s oil play, which is looking mouth-wateringly cheap right now. Find out why oil is one of Garry’s Power Trends — 5 trends that could see smart investors make an absolute killing in the months ahead.

Hope for Zimbabwe

Could Mugabe finally go? The opposition Movement for Democratic Change is claiming victory in the country’s elections.

But the Zimbabwe Election Commission still hasn’t announced a result, giving rise to fears that Mugabe’s Zanu-PF party might try to rig the vote.

“It would be fantastic news if we finally see change there,” says Manraaj Singh.

I asked him what he thinks is the investment case for Zimbabwe. If we do see an end to Mugabe’s 28-year reign, will Zimbabweans finally see a stable, growing economy?

“The investment case is very good,” says Manraaj. “The infrastructure is already in place and so are the human resources. What’s needed is legal clarity and a currency that you can actually get your head around.”

It’s good to be hopeful. But until anything happens, I’m wary of tempting fate.

Until tomorrow

Ben Traynor