In the near term, we think the prospects for job growth look incredibly bleak. Banks aren’t lending. Companies aren’t hiring or investing heavily in R&D, and corporate profits are up only because of cost cutting measures, like layoffs, rather than bottom line revenue growth.

In the long term, however, certain industries look primed to blossom like plastics did in the 70s and semiconductors, personal PCs, and telecom did in the 80s and 90s. Barry Ritholtz at The Big Picture points out ten niche industries he thinks will fill in the gaps and push the world economy forward. Here are his top ten (listed in order of biggest near term potential.)

1. Nano Technology

2. Green Energy

3. Battery technology

4. Genomics/Stem Cell Research

5. Web 2.0/3.0

6. Robotics

7. Life extension Technologies

8. Bio-Agriculture

9. Atmospheric Engineering

10. Terra forming/Extra Planetary Colonization

Another one we’d add to his list is human computer interaction technology (HCIT). HCIT is a new breakthrough technology that is set to change the way we interact with computers. It works by using tiny chips installed under the surface of electronic devices. When activated, the chips deliver a “touch” response that you can actually feel.

So let’s say you had an HCIT-enabled computer mouse – and you moved the cursor over the picture of a beach. Even though you’re actually touching a flat mouse button, this technology makes it feel like you’re touching sand… or even rolling waves. The chips send the message to your fingers like a speaker sends a message to your ears.

It’s pretty incredible technology. Microsoft, BMW, Sony and Samsung have already jumped on board. So how can you make money in this emerging multibillion dollar market. Karim Rahemtulla of Mt. Vernon Research outlines exactly how to profit from the coming boom here.

China has once again set the tone for our Monday market forecast. Roll the videotape:

Chinese traders dumped shares early this morning after a popular magazine rumored that the booming Chinese loan market is cooling off. Caijing magazine guessed that the Chinese loaned about $29 billion in August, a 43% crash from July. While that number isn’t official, traders around the red nation raced for the exits. The Shanghai Composite closed down 6.7%, its worst day in over a year. 16% of the stocks on the Shanghai Composite fell 10%, the daily limit down.

Thus, as we charted above, Chinese stocks are in a textbook bear market. In fact, down 23% since its 2009 peak earlier this month, the Shanghai Composite will be the worst performing major national index in the world for the month of August.

But still up around 50% for the year, is this the time to pile back into China — the great hope of the global market rebound? With the Shanghai Composite still priced 29 times earnings, it’s hard to be too enthusiastic. According to Bloomberg, the MSCI Emerging Markets Index is going for 19 times earnings.

If you’re debating buying this dip, you should check this out: Earlier this year, Addison Wiggin penned a report that spelled out a “triple timebomb” that would derail the global rebound… one of which was a faux boom in Chinese stocks.
China’s sell-off has hit just about every asset class today, especially commodities. You know the drill by now: Commodity traders of the world have pinned hopes on China’s rise, and every time they falter, oil and copper hit the bid. Light, sweet crude is down over 3% as we write, to $69 a barrel. Copper shed about 3% as well.
Gold took a little hit this morning. Traders raced out of stocks and into the dollar. Thus, the spot price shed about $10 at the New York open, and now rests just below $950 an ounce.
China frazzled the U.S. market too. The S&P 500 opened down 1%.

“This rally is on borrowed time,” opines Dan Denning. “We don’t know when. We don’t know why. But we do know what. And the what is that stocks are going to price in much lower earnings and investors are going to pay less for those earnings. Expect a lot of fall volatility.

“Energy investors ought to take heed, as well. Lately, there’s been a nice correlation between the oil price and stocks. The better the economy, the better it is for oil and earnings. Both have gone up.

“We’re still bullish on energy for a lot of reasons. But if the party ends sometime in September/October/November, you can expect lower oil and energy prices. That means if you have gains in energy stocks, you’d want to think about trailing stops and profit taking. In fact look for profit taking on the share market as a precursor to a new move lower.”
Oil service giant Baker Hughes bought fellow oil field tech company BJ Services today. The transaction will cost BHI about $5.5 billion.

“I’ve said over and over that there are only a small number of world-class firms that have the technology to find, drill and extract the world’s hydrocarbons,” says Byron King, who holds Baker Hughes in theOutstanding Investments portfolio. “Now there is one less.”

“BHI’s goal in this deal is to expand its international presence, and to leverage on BJ’s pressure pumping expertise. Now BHI can compete for the growing market for large integrated projects, by incorporating pressure pumping into the firm lineup.

“I expect that this acquisition will be good for the long term prospects for BHI. And it illustrates that there are other opportunities out there, smaller firms that are candidates for a takeout.”
While the Chinese growth story is faltering today, India is forging ahead: The Indian government said this morning that its economy grew 6.1% in the second quarter, narrowly beating Wall Street estimates. That’s really pittance compared to its typical 9% or greater growth over the last three years… but hey, we’ll take 6% these days.

“However, in light of the poor monsoons, the possibility of the growth of this magnitude continuing for the rest of the year looks remote,” write our Indian partners at equitymaster.com. “There are some who argue that manufacturing and services are fully capable of filling in the void left by agriculture, and hence, growth may not be as badly impacted. With rural India accounting for half of India’s consumption, such an assumption for the time being looks a bold one, indeed. Furthermore, if the central bank starts tightening monetary policy in the wake of high inflation that food prices are likely to bring, it may hurt growth prospects further. All in all, things point to a growth in the region of 6% with a downward bias.”
It’s Monday… time to find out which banks kicked the bucket over the weekend: With failures in California, Minnesota and our home state of Maryland, the FDIC has bumped the yearly total of failed banks to 84. The three shuttered banks had about $1.9 billion in assets, which ended up putting a $446 million dent in the FDIC’s deposit insurance fund.
“More than one in four banks announced an unprofitable quarter,” notes Dan Amoss, referring to the FDIC’s latest quarterly report, which we mentioned Friday. “There is still a long road of pain ahead for bank shareholders… here’s the crux of the FDIC report:

“Nonperforming loans now make up 2.77% of the entire banking industry’s assets. This is up from 1.4% in June 2008 and 0.47% in June 2006. As these loans get ‘worked out’ in today’s credit environment, the market will start to realize how severe net charge-offs will be.

“The FDIC published updated figures for the combined noncurrent loans and loan loss allowance at all FDIC-insured institutions. Here is an updated version of the chart we published in an Aug. 14 Strategic Short Report alert. The new figures — the moves from December 2008 to June 2009 — are highlighted in the dotted lines at the far right of this chart:

“You can see how problem loans are increasing at a much faster rate than the rate at which the banking industry is adding to its loss allowance. This means that published capital ratios are misleadingly high.”
The FDIC has put the government (read: taxpayer) on the hook for another $80 billion in potential future losses,The Wall Street Journal reports today. That sum is the totality of the FDIC’s “loss share” agreements — in which the FDIC promises to take a huge amount of possible future losses if another bank agrees to take on a failed financial’s assets.

The FDIC currently predicts the $80 billion in backstops will end up costing the insurer “just” $14 billion… $4 billion over the present balance of its deposit insurance fund. We’ll keep an eye on this one.
The Fed has made $14 billion in paper profits from emergency loan programs, the bank quietly announced today. Since the start of their unusual programs about two years ago, itty bitty interest rates and fees on loans worth hundreds of billions of dollars have actually netted the private/public bank an embarrassment of riches.

So where’s the money? Which banks owed what? What about the other programs, like the AIG bailout? Who knows… no one can audit The Fed. They just wanted you to know this morning that they’ve made a freaking killing bailing out the risky bets of their Wall Street buddies.
While it’s a little off our beat, we’d be remiss not to mention this: If given the chance, 57% of Americans would vote to remove every single member of Congress. A Rasmussen poll released yesterday gave participants two rhetorical choices: Either let ’em all stay or throw the bums out. When the dust settled, 25% said they would maintain the status quo, 57% would want a clean slate and 18% weren’t sure… or perhaps afraid they would end up on some “dissident database.”
Last today, another sign of the times… looks like capitalism will remain an easy target for a while. Here are the two feature films at this year’s Venice Film Festival:

Capitalism: A Love Story — Michael Moore’s new flick. While we trust this guy as far as we can throw him, the trailer looks like he spends a bunch of the movie making Wall Street execs and Congress people squirm, which is usually fun.

The Informant! — Matt Damon plays Mark Whitacre, the Archer Daniels Midland exec who exposed the companies lyin’ and cheatin’ in the ’90s.
“I agree with Bill Bonner,” a reader writes, referring to our issue on Friday, when we suggested, with Bill’s help, that many depression hurdles are still ahead. “We will be going through a lot of suffering and adjustments. My expectation is that we’ll probably come out of this crisis around 2016. This is based on the 17-year economic cycle.

“With 84 bank failures and 416 banks on the list about to go kaput, and the TBTF zombie banks, we have a long way to go. BTW, check out theBankrate.com’s star ratings on banks. They have replicated the FDIC’s CAMELS rating very successfully. All the three banks that failed last Friday already had a 1-star rating (the lowest rating).

“As we all know, we will see more banks, retailers, restaurants and companies catering to conspicuous consumption fail. I have started comprupt.com, a site where you can predict which company is going to implode next and when. Heck, this may just be Monopoly 2.0… at least trying to have some fun with the destruction all around us.”

The 5: That’s the spirit.
“Robert Prechter’s analysis indicates that we are in for a major retracement similar to what your graph shows,”writes an Elliott Wave fan, responding to the same edition of The 5. “He is also predicting deflation, instead of inflation, which will affect the prices of oil, gold and silver to the downside. The other contrarian prediction is the dollar will strengthen through all of this mess.”

The 5: Not a bad forecast at all. Bill Bonner shared a similar sentiment during his presentation this year at our Investment Symposium. To paraphrase him: Betting on inflation is starting to feel too easy.

Source:  China Sets the Tone, FDIC Falters, Fed Makes a Profit, India’s Surprise and More!

U.S. gross domestic product (GDP) shrank 1% in the second quarter, following the first quarter’s 6.4% drop. The $787 billion Obama stimulus package, smaller decreases in business spending and slowing erosion of the housing market all helped to slow GDP contraction, according to the Bureau of Economic Analysis. A poll of 78 economists surveyed byBloomberg News showed a median estimate of a 1.5% decline in GDP.

“The recession is slowing but we still need to get households and businesses to start spending again,” said Joel Naroff, president of Naroff Economic Advisors, Inc.

With such a dramatic drop in the rate of contraction, the third quarter could sport the first expansion in more than a year. The last time the GDP grew was the second quarter of last year, thanks in large part to the $112.4 billion in stimulus payments to taxpayers.

Despite rising unemployment and a looming jobless recovery, Naroff is optimistic about consumer spending.

“Vehicle sales were actually up from the first quarter and are likely to be even better this quarter, so consumer weakness should not be a major concern,” Naroff said, adding that he’s optimistic that strong growth isn’t far off. “[GDP growth] could be either the third or fourth quarter and could approach 5%.”

Still, until there is real growth in consumer spending, any recovery will be difficult to sustain.

“We’ll get more support from government programs in the second half, but if you want a strong recovery, you need a strong consumer, and we are not seeing that,” Nigel Gault, chief U.S. economist at IHS Global Insight Inc. told Bloomberg.

A recovery may have to rely on business and government spending. Business investments, while still falling, slowed to a rate of 8.9% in the second quarter, a far cry from the first quarter’s 40% drop. The decline equipment and software purchases also slowed, falling a modest 9% compared to 36.4% in the previous quarter.

On the government side, federal officials – including U.S. President Barack Obama – say less than a quarter of the stimulus package has been spent so far.

“You just can’t push [funding] out that quickly, partly, not just because the federal government has to process applications but also because states and local governments have to gear up to get these projects going,” President Obama said in an interview with Fox News earlier this month.

Without consumer spending, which makes up more than two-thirds of the economy, any recovery will likely be agonizingly slow.

“We’re going from recession to recovery, but at least early on, it’s not going to feel like one,” said the chief economist at Moody’s Economy.com, Mark Zandi in an interview with The New York Times. “For economists, this is a seminal part in the business cycle, but for most Americans, it won’t mean much.”

Indeed, the unemployed or the underemployed struggling to make ends meet it’s hard to be optimistic, even as the markets, corporate profits and other economic data show improvement.

“At some point it becomes Obama’s economy, not Bush’s economy anymore,” said Dean Baker, co-director of the liberal research group Center for Economic and Policy Research told The Times. “He made a big mistake in overselling the first stimulus, and then in celebrating all the ‘green shoots.’ That just opens the door for people to say, ‘Where are my green shoots? I still don’t have a job.’ ”

Source: U.S. GDP Contraction Slows, but the Road to Recovery Will Be Rocky

Like Japan did in the 1990s to get itself out of its own economic morass, China is splurging on massive public infrastructure programs. China’s banks are lending like crazy to fund these projects. In the first six months of this year, they loaned Rmb7.4 trillion (just over $1 trillion). That’s over three times the amount loaned out in 2008 and the biggest six-month lending surge on record.

Is China’s spending spree setting the global economy up for another leg down? China’s surging investment accounted for an unprecedented 88% of Chinese GDP growth in the first half of 2009.If that’s not a dangerous bubble in the making, we don’t know what is.

What we do know is that the quality of Chinese bank lending will suffer. And as Stephen Roach recently pointed out in the Financial Times, this is a trend that “could sow the seeds for a new wave of non-performing bank loans.”

We’re not economists, dear reader. And nor do we want to be. But that doesn’t mean we can’t spot a bubble in the making. This week, investors paid 40 times earnings for China State Construction Engineering Corporation. As Will’s father, Bill, points out in the Daily Reckoning , these investors have learned nothing from the crash of 2007-08.

As Bill says, it’s a secret of the underground that this kind of hyped investing rarely works out.

The rest of the world seems unaware of how the investment markets work…and they think credit is Miracle-Gro for the economy.But markets are not mathematical… nor mechanical; they’re moral. Their purpose is not to make people wealthy, but to make them wise. And then… only for a while.

It they were mathematical you might make people richer by adding zeros. But it’s not that simple. Zimbabwe tried it; it doesn’t work. A Dear Reader gave us a $10 TRILLION dollar bill – real money printed by the Zimbabwean Treasury. That – and about $5 US dollars – will buy you a cup of coffee in Harare… if they have any.

If they were purely mathematical, you might be able to anticipate price movements with computers and PhDs in math. Many have tried it. As far as we know, none has ever really succeeded.

It’s not a mechanical system either. When prices go down, there are no screws you can tighten…no levers you can pull… Nor can you add more fuel or slather on more grease. It’s not that simple.

What Bill understands better than most is that you’ve got to learn to take your lumps if you want to make money in the markets. And no matter how hard government tries to avoid what’s coming… the market will eventually give us what we deserve…

Instead, markets are complex natural systems. Like mistresses, they can be jiggled and jived… but they can never really be controlled or predicted. That’s what makes them so interesting, of course.

The markets are always teaching us… always correcting us… always giving us a kick in the pants. These are moral lessons…in the broad sense. That is, if you do the wrong thing you get punished for it. Step on a rake; it hits you in the face.

The purpose of a bear market is to correct the errors of the preceding boom. Most prominent among those errors is to think you can make money by speculating in the stock market. When this idea takes hold, good sense goes out the window. People will buy dotcoms with no business plans…and house builders at 40 times earnings!

But that’s how we’ll know when the correction is over – when people give up on the stock market… when they want nothing more to do with it. Judging by today’s news… we’re still a long way from there.

China has once again snatched the leadoff spot in our daily lineup. And once again, they’ve knocked the cover off the ball.

The Chinese economy expanded at a dizzying 7.9% in the second quarter, their government announced yesterday. That far exceeds analyst expectations and China’s still-impressive 6.1% first-quarter growth. Conveniently, the second-quarter jump — plus revised GDP growth expectations of 8% in the third quarter and 9% in the fourth — puts China perfectly on track for the 8% annual growth they promised earlier this year.

Looking through the fine print of today’s data… oy, these are some la-la land numbers:

• New lending in the first half soared 201% compared to the year before
• First-half property sales up 53% per annum
• Chinese home prices are growing at a 10% annualized pace
• First-half auto sales up 17% per annum
• Retail sales up 15% in the first half
• Inflation down 1.1% from a year ago.

Of course, not all is well over there. Exports, the backbone of the Chinese economy, are down 22% so far this year. Construction starts, another staple of Chinese growth, just ended 11 straight months of decline. But still, today’s numbers show nothing short of a V-shaped recovery for China. Too good to be true? Maybe.
But here’s one more amazing Chinese stat for today, one we don’t doubt: China’s official foreign reserves now exceed a record $2.13 trillion. At least $763 billion of this sea of money is pure U.S. debt. In spite of all the global turmoil and market ups and downs, China has remained the world’s steadiest accumulator of sovereign debt — namely American Treasuries… a fact of life that will surely haunt us one day.

Another Chinese debt auction failed this morning. That’s the third time in the last two weeks that the Chinese government was unable to sell as much debt as it planned. In order to continue financing their rabid growth, maybe they’ll have to start selling some assets — like, call us crazy, American IOUs.
By the way, despite China’s unwavering appetite, global demand for American Treasuries fell by the most this year during May. According to yesterday’s TIC flow data from the Fed, the global community was a net seller of U.S. debt back then. Net selling exceeded $22 billion, the lowest demand for American debt since November.

Mexico is in deep trouble. The Mexican economy might shrink 7% in 2009, the U.N. forecasts.

“Mexico is the biggest concern in the region,” said Alicia Barcena, head of the UN’s Economic Commission for Latin America and the Caribbean. “It’s an economy that depends very heavily on exports to the U.S., it’s one of the countries with the biggest fall in remittances and it’s also being hit by swine flu. Recovery for Mexico will be difficult and highly complicated.”
Back in the U.S., here comes another financial systemic risk crisis. The drama du jour is at CIT, a commercial lender not to be confused with Citigroup.

CIT is a small-to-midsize business lender that actually has a lot more in common with Lehman Bros. Like Lehman, the company’s business model is reliant on debt and easy credit — CIT relies on money borrowed from capital markets to finance its loans. And also like Lehman, CIT is saddled with debt of its own — about $35 billion worth.

Having already bailed out CIT with $2.3 billion in TARP bucks, the Obama administration gave the company the cold shoulder (thank heavens) when CIT came knocking for more earlier this week. Evidently, their moronic board was counting on renewed government aid. Now the company has just a matter of days to raise as much as $3 billion. Fat chance, says the market:

This time last week, we compared some eerie similarities between 2008 and 2009… investor attitudes, market behavior and economic indicators are lining up a bit too close for comfort. And now this — what would be the biggest banking failure since Lehman. Oy, could get interesting. Most media outlets are downplaying CIT’s peril, but we’re not so quick to brush it off. Its bankruptcy won’t likely produce a Lehman style meltdown, but on Monday, tens of thousands of businesses might not have a primary source of financing. In this credit environment, do you think it’ll be easy for them to get fast loans from someone else?
CIT’s plight isn’t helping the dollar one bit. Coupled with the stock rallies this week, the dollar index fell as low as 79.3 yesterday, its lowest level since June 11. As we write, it’s at 79.5.
Sounds like a good day to by some gold, eh? You wouldn’t be alone today, or this month, for that matter… the spot price has risen to $935 this morning, up about $30 from early July.
“The idea that Chinese yuan could replace the dollar strikes us as ridiculous today,” writes Chris Mayer. “I am sure the typical British subject in 1922 — when the Empire ruled over 458 million people and a quarter of world’s land area — would have found equally ridiculous the idea that in two decades, his cherished pound would play second fiddle to the U.S. dollar of the former colonies.

“I don’t know what currency will be the currency of choice two decades hence. I will be surprised if it is the U.S. dollar alone. And not knowing is a good reason to own some gold.”
California’s lousy economy and gold’s worthy valuation has caused a second gold rush. We’ve heard more than one report lately of way more prospectin’ activity than normal in Southern California. For example, Keene Engineering, which makes gold-finding equipment for the average Joe, reported recently that business has doubled in 2009.

It makes sense. Times are tough, jobs are sparse, wages are low, taxes are rising… and here’s perhaps the one true “free lunch” in America. Good luck, fellas.
“If you’re American and are going to be storing things,”writes Doug Casey, “you probably can’t go wrong building a stash of cigarettes.” Of course, Mr. Casey advocates a healthy private stash of precious metals, but when pressed for what else we should stockpile, he said this:

“They keep raising the taxes on cigarettes — a pack now costs $10 in some places in the U.S. That’s 50 cents per individual cigarette. Even if you don’t smoke — or perhaps especially if you don’t smoke — every time you return to the U.S., you should buy the maximum amount of duty-free cigarettes allowed and store them.

“The other thing Americans should do is buy a lot of shotgun shells, 9 mm, .45, .223 and .308 ammo. Even if you don’t shoot, you can set those aside and store them too, because they’re going to be taxed and regulated to the nth degree. And properly stored, they keep for a very long time.

“In fact, anything regulated by the Bureau of Alcohol, Tobacco, Firearms and Explosives — one of the most corrupt, dangerous and useless of all federal bureaucracies — is likely to go up considerably in both price and value. It’s perverse that the U.S. has a bureaucracy to regulate the things you need for a hunting trip or a good party. Maybe their next trick will be to convert the DEA into the Bureau of Sex, Drugs and Rock ’n’ Roll.’”

That’s vintage Doug, for sure. Hearing him talk about stockpiling cigarettes reminds us of last year’s Investment Symposium, when Mr. Casey lit up during his presentation — not because he really wanted to, but because the (very accommodating) people at the Fairmont told him he couldn’t. What followed was an onslaught against Uncle Sam, the TSA, investment bankers and others who likely deserved it. We expect no less from Doug when we meet next week… stay tuned.
But market makers aren’t too concerned about all we’ve mentioned above. Earnings season is front and center, and blue chips are beating expectations left and right.

Most indexes climbed over 1% yesterday, driven mostly by an earnings beat from JP Morgan. Their $2.7 billion in profits gave hope to Bank of America and Citigroup — which both topped earnings estimates before the opening bell this morning. We also saw GE, Google and IBM print better-than-expected earnings after the bell. Most of their earnings beats look to have been priced in yesterday. Thus, the market is at a standstill as we write.
Stocks also got a boost yesterday from the latest jobless claims report. New claims fell by 47,000 last week, says the Labor Department, to 522,000. That’s the lowest level since January. Continuing claims fell by a whopping 642,000, to 6.2 million… a record decline so large, it’s hard to believe.
Oil’s back on the rise, thanks to this week’s sudden stock optimism. Light sweet crude is at $62 a barrel as we write.
“I am sick and tired of people going on and on about the poor and health care,” writes a reader of our recent health care debate. “I’ve been poor. I’ve been ‘trailer trash.’ And you know what? I even got sick a few times. For the most part, unless you have a bone sticking out, blood gushing or some terminal illness, a person generally gets over it. Most anyone, even with a government indoctr- , er, education, can figure out to take some NyQuil, eat the lost days’ pay and sleep it off. On the rare occasion I had to see a doctor, I worked (what a concept!) and paid cash for the office visit. And if I had been unfortunate enough to be in a traumatic accident, the hospital would have patched me back together, insurance or not, because they have to by law. Granted, I might have still been working to pay off the debt even now, which is why I found myself being really freakin’ careful not to put myself in any accidents. Funny how that works.

”If people feel so obligated to help the poor, by God, give to charities. I, like most people who are grateful for the opportunity to earn a living, believe firmly in tithing and giving to charities regularly, even in this economic misallocation. Yes, that’s right. I didn’t say crisis, or downturn or anything else. Every problem we are now facing can be narrowed down to two things: the government legislating activities counter to what the market would normally do and the people who took advantage of it.”

The 5: It’s been fun bouncing these reader mails back and forth this week. Per usual, we’ll bump this one to the blog to make space for whatever evokes rabid response from you next week. If you’ve got more to say on health care, take it to the blog.

Source: China Booms, The CIT Crisis, A Bizarre Commodity Worth Stockpiling, Vancouver and More!

Conveniently, the second-quarter jump — plus revised GDP growth expectations of 8% in the third quarter and 9% in the fourth — puts China perfectly on track for the 8% annual growth they promised earlier this year.

Looking through the fine print of today’s data… oy, these are some la-la land numbers:

• New lending in the first half soared 201% compared to the year before
• First-half property sales up 53% per annum
• Chinese home prices are growing at a 10% annualized pace
• First-half auto sales up 17% per annum
• Retail sales up 15% in the first half
• Inflation down 1.1% from a year ago.

Of course, not all is well over there. Exports, the backbone of the Chinese economy, are down 22% so far this year. Construction starts, another staple of Chinese growth, just ended 11 straight months of decline. But still, today’s numbers show nothing short of a V-shaped recovery for China. Too good to be true? Maybe.

But here’s one more amazing Chinese stat for today, one we don’t doubt: China’s official foreign reserves now exceed a record $2.13 trillion. At least $763 billion of this sea of money is pure U.S. debt. In spite of all the global turmoil and market ups and downs, China has remained the world’s steadiest accumulator of sovereign debt — namely American Treasuries… a fact of life that will surely haunt us one day.

By the way, another Chinese debt auction failed this morning. That’s the third time in the last two weeks that the Chinese government was unable to sell as much debt as it planned. In order to continue financing their rabid growth, maybe they’ll have to start selling some assets — like, call us crazy, American IOUs.

Source:  China Booms… Too Good to be True?

U.S. crude oil for August delivery fell 49 cents to $61.05 a barrel by 1745 GMT after hitting a low of $60.29 a barrel. London Brent crude slipped 43 cents to $62.66 ahead of the August contract’s expiry later on Thursday.

The losses come amid lingering worries about global energy demand, contracting for the first time in a quarter century under the weight of the economic recession.

The global slowdown has cut world oil demand by as much as 2.5 million barrels per day, according to the International Energy Agency.

Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois, added that recent government data showing increases in U.S. refined fuel supplies added to bearish sentiment in the oil market.

The U.S. Energy Information Administration said on Wednesday that gasoline and distillate supplies rose last week despite increased domestic refining activity, while crude inventories dipped more than expected.

Oil’s losses were limited by news that China, the world’s second largest energy consumer, saw surprisingly strong growth of 7.9 percent in the second quarter, fuelled by state spending and bank lending.

In the United States, data showed new jobless claims fell to their lowest level since January, but the Labor Department was keen to emphasise an unusual pattern in automotive layoffs had amplified the drop.

JPMorgan and Chase & Co reported a 36 percent rise in quarterly profit, topping Wall Street forecasts. But the bank warned that credit quality in consumer mortgages and credit cards was deteriorating faster than expected.

Also highlighting the ongoing problems facing the world economy is the looming bankruptcy of CIT Group Inc , a lender to hundreds of thousands of small and mid-sized U.S. businesses, after bailout talks with the U.S. government fell apart.

LONDON, July 16 (Reuters)

The closest fellow they’ve got is Wen Jiabao – China’s prime minister and a man intent on spending his way out of the country’s economic problems. He might just succeed, too. More on him in a minute.

While millions of Irish revelers (and wannabe Irish) were no doubt nursing ugly hangovers this morning, China has one of its own: A record 25.7% plunge in exports during February.

With the Chinese New Year holiday having occurred in late January this year, economists expected February’s numbers to look better than January’s 17.5% drop from a year earlier – or to at least stabilize. But instead, it highlighted a country with a split personality.

Let’s look at China’s Jeckyll and Hyde economy…

February Flop

On the one hand, it’s evident that China having a very hard time selling its goods to the rest of the world, which (like China) is in the midst of a sharp economic slowdown. For example, deep recessions have hit major export consumers like the U.S. and U.K., plus widespread weakness across Europe.

For a country whose massive export growth has formed the foundation of its economic explosion, it’s no surprise that with this pivotal sector having steadily declined since November, so too has China’s economic growth.

A government forecast puts China’s first quarter GDP growth at 6.5%, compared with the 6.8% fourth quarter figure. And as exports tumble, the World Bank now estimates 6.5% growth for 2009 overall, the weakest since 1990 and a sharp cut from its earlier 7.5% projection.

But on the other hand, there are signs that China’s stimulus program is working, with internal investment rising.

China Hopes For Some Bang For Its Yuan

While its export market is flagging, China’s government is trying to boost its prospects in a way that it can directly control: Spending.

And with a $585 billion stimulus package rolling through its economy, China is adhering to the notion that if you want the best results, you have to spend a bit to get them. China’s banks have lent more money over the past three months than in the past year, according to the New York Times. The number of loans in February alone quadrupled to just over one trillion yuan ($157 billion).

A large portion of the money is going towards repairing and rebuilding China’s aging infrastructure. The National Bureau of Statistics said fixed-asset investment spending shot up by 26.5% to 1.03 trillion yuan over the first two months of 2009, compared with the January-February period in 2008. That thrashed estimates by 5%.

In turn, the improvements could give China a crucial competitive advantage. While others bail out their economies and slide into debt, China is using its strong cash position (ironically borne largely from its export growth) to now help offset export declines and its reliance on that area by improving prosperity from within.

Already, railroad spending tripled over the first two months of the year – much-needed investment for an industry that has struggled to cope with industrial production and demand. That’s in addition to increased spending on the country’s roadways. Construction equipment sales are projected to climb by 20% over the second half of 2009. Education, research and development, and social programs are also enjoying increased spending.

In some ways, the global downturn has forced China to stop relying on its exports and real estate market for growth and instead adopt a wider, more strategic focus.

And there could be more on the way…

Back Up The Stimulus Truck

China’s Prime Minister Wen Jiabao is certainly bullish when it comes to spending money.

Four months after announcing the $585 billion stimulus package, Jiabao pledged to “significantly increase” spending in a speech two weeks ago. He reiterated that more recently in saying that the government has “reserved adequate ammunition” to “introduce new stimulus at any time.”

He may need to, in order to meet his government’s 8% GDP growth target and stem the tide of rising unemployment. With 20 million migrant Chinese workers now jobless and blue-collar job wages falling, it puts additional pressure on China’s fragile pension and healthcare systems – and heightens the prospect of social unrest.

But with all the new money washing through its economy, China is still a viable investment…

In The Year Of The Ox, Should You Be A China Bull?

“As long as the government’s stimulus measures to boost domestic consumption are properly implemented, investment growth will continue to accelerate, making up for the loss of exports.”

So says Ma Jiantang, head of China’s National Statistics Bureau. And given the surprising speed with which many investors have jumped off the China bandwagon, that bodes well for those who still retain some perspective.

Despite cutting its forecast for China, the World Bank says China will fare better than most other economies, driven by its stimulus efforts. In addition to huge infrastructure spending and bank lending, retail sales were up 15.2% over the first two months of the year, with auto sales rocketing 25% higher. And the Shanghai stock market is up 22% this year, too.

Plus, firms like Intel (Nasdaq: INTC) and manufacturers Hon Tai (Taiwan) and IMI Plc. (Britain) are boosting their operations and employment in China.

What’s more, in the wake of the government loosening regulations on Chinese companies wishing to make foreign acquisitions, the commerce ministry is sending a delegation to Europe, specifically on the hunt for buyout targets in a range of industries.

It’s not all rosy in China, of course. The country is suffering at the hands of the global economic downturn like many others. But China is using the wealth and prosperity it’s built up over the past several years to deal from a position of strength.

So while some headlines may play up the doom and gloom, it’s also clear that the China bull is still alive and kicking in some areas.

Source: China’s New Bull Run

Now, having said all that… It doesn’t mean the RBA won’t cut rates again in the future… It just means that they were being prudent, and taking a step back to see what their previous rate cuts had done to the economy, and how the economy would be affected by them. So, the proverbial “pause for the cause”… But, I believe it to be warranted, given the RBA had cut 400 BPS away from their once lofty rate in 7 rate cuts…

Fundamentally speaking, the A$ represents an economy that has fared better than most of its G10 counterparts, with a growth outlook far exceeding that of the G10 nations. Australia’s 2009 GDP growth is expected to reach +1.0%, compared to -2.0%, -2.20%, -5.0%, -2.7% and -2.2% in the US, Eurozone, Japan, UK and Canada respectively. (and we all know that the U.S. growth outlook is a big fat joke! Instead of -2% it should be -4 or -5%!) Then, add in the fact that Australia’s current account deficit is seen at 4.4% of GDP in 2009, its lowest level since 2002. Recall, I kept telling you that their Current Account Deficit was narrowing? Its Budget SURPLUS is expected to hover at 1.0% of GDP–a far superior display than the deepening deficits of the US, Eurozone, Japan and the UK.

So… Like the spotlight that I directed to Norway last week… Here’s another example of a country that could be in the front of the race when this financial turmoil ends…

So… The A$ is stronger this morning, but I wouldn’t go racing to the currency kiosk to buy A$’s because you believe this to be a turn / reversal in the A$’s fortunes… There’s no end in sight to the financial turmoil that has a grip on the world right now, and knowing that, tells me that the risk takers are not participating in the markets right now, and without the risk takers, any run-up in A$ or any other currency for that matter, is not of the “reversal of trend” kind of run-up… But… There will come a day, when all these fundamentals will matter once again…

The Bank of Canada (BOC) will meet today, and they are expected to cut rates again… Don’t look for any RBA-style surprises here… Canada, just fell into a deficit status, and that came as a result of the slowing economy, which fell 3.4% in the 4th QTR… So, you can expect the BOC to cut rates this morning…

Yesterday, we saw everything under the sun trade heavily except U.S. Treasuries… Even Gold has faded in the past 5 days… Sort of like my beloved Missouri Tigers Basketball team did under the bright lights of national TV on Sunday! UGH! But, nonetheless, everything is trading heavy… Stocks, corporate bonds, muni bonds, commodities, and currencies… And I could even go further in that list and say real estate, and housing!

I’ve gone on record with my feelings about how I believe U.S. Treasuries are the next bubble… And I read a report from one of my fave economists, Brad Setser, yesterday that tells me I’m really on to something with that belief… Here’s a snippet… “That implies, if the Pandey/Setser estimates for official purchases are right, that private investors snapped up more Treasuries than the world’s central banks. Central bank demand accounted for a far smaller share of total issuance than in the past few years. In 2007, for example, central bank purchases easily exceeded total issuance. The big increase in demand for Treasuries in 2008 came from private investors in the US.”

Hmmm… Private investors buying Treasuries… Now that’s something I’ve been telling you for some time now, but Brad has all the facts and figures in his report to prove it, and knowing that Private investors have bought all the Treasuries, that Central Banks didn’t want, tells me that a bubble is in the making…

Speaking of Central Bank ownership of Treasuries… I read yesterday that China used to keep 100% of their dollar reserves in U.S. Treasuries. Today they keep only 70% of their reserves in Treasuries, with the difference in gold, euros, and other Asian currencies. Hmmm… What if they would decide to diversify more?

OK… The devastation the manufacturing sector has experienced in the past 14 months, looks like it might have found a bottom… The February ISM Index, which measures the pulse of manufacturing, registered a slight increase! The index rose slightly to 35.8 from a previous level of 35.6… The employment component of the index though continued to slide… Production was the biggest gainer of the report… So, something is producing a heart beat for the economy…

Speaking of producing a heart beat for the economy… I’m going to go in a different direction occasionally here in the Pfennig, and instead of always beating on the dolts in Gov’t, and the talking about the rot on the vine in the economy… And… I’m going to ask you dear readers to provide the input!

Here’s the skinny… I would like for readers that have businesses that might be doing well in these times, to fire me off an email and tell me of their successes, how they’ve done better than others, or any kind of information you would want to see printed about your company… One to two paragraphs… And if you don’t want to include the name of the company, don’t! But… This will be free advertising for you! But, I only want the “feel good stories”…

The other thing to think about with this offer is that the Pfennig gets picked up by news agencies all around the world… It’s circulation just keeps growing and growing… So… Come on! Send me your stories! pfennigreplies@everbank.com

I just received some “hate mail”… I opened it up, and the guy said he “hated me” because of my call for an “Obama bounce” after his inauguration, that obviously didn’t come to fruition… Yes, I was wrong… How was I to know that Obama would opt for a stimulus package that has more spending in it to produce short term jobs, and start nationalized health care, than shore up financial institutions? He said he was going to “fix the problem”… Unfortunately, his idea of a “fix” is create jobs, when the economists all agree that the banks and financial institutions need to fixed first… Maybe he’ll be right… But right now the markets don’t think so… Especially stocks…

So, the markets are tanking, with no Obama bounce… No reason to “hate” someone! And… I always say… “I’m not even your last choice as a stock jockey”… But, how could we NOT have an Obama bounce? This guy was so popular! Right?

Speaking of stocks… The DOW lost 300 points yesterday to trade below 7,000 at 6,763… The first time below 7,000 in 12 years! But how can the little guy make money in stocks when the greatest investor of all time lost money in 2008? Here’s the skinny as reported by the Wall Street Journal…

“Berkshire Hathaway, the holding company led by famed investor Warren Buffett, reported its worst year ever in 2008, with its net falling to $4.99 billion from $13.21 billion in 2007. Book value per share declined 9.6%, a performance far better than the S&P 500 stock index but only the second negative year suffered by the company since Buffett took over in 1965.

Berkshire predicted the economy “will be in shambles throughout 2009 — and, for that matter, probably well beyond.”

Today, we’ll see the color of the Pending Home Sales, and Vehicle Sales… In addition, we’ll get some verbiage from Fed Head Lockhart speaking on the economy in Tampa, Fed Chairman, Big Ben Bernanke goes before the Senate Budget Committee, and U.S. Treasury Sec. Geithner, goes before the House Panel on Federal Budget… So… Lots of opportunities for these guys to give us a sound bite that sends the markets one way or the other. So, keep your ears to the ground… Or, just turn on cable news!

Currencies today 3/3/09: A$ .6420, kiwi .4975, C$ .7750, euro 1.2605, sterling 1.4040, Swiss .8510, rand 10.4850, krone 7.1575, SEK 9.1375, forint 243.75, zloty 3.7675, koruna 22.2650, yen 97.80, sing 1.55, HKD 7.7575, INR 51.97, China 6.8410, pesos 15.32, BRL 2.4250, dollar index 88.88, Oil $40.75, Silver $12.72, and Gold… $924

Source:  RBA Surprises The Markets!