Priceless irony.

It proves Americans, especially us East Coasters, aren’t the only ones with size-management issues.

As the markets sink under their own weight today, I cannot help but think much the same is taking place on Wall Street. The equities market can only hold so much fat before it gives up support and comes crashing down.

I rarely use technical analysis as a primary analytical tool, but I will use the help of charts and lines to back up my opinion and help find out exactly where trouble may lie in the road ahead. Just like we don’t drive by staring at a roadmap, we can’t invest solely on the charts. But when you’re lost, there’s nothing like a quick glance at a map.

When I wrote to TFN Strategic Trader members this morning, I told them to watch the action of the S&P 500 closely. The key index hit the pivotal 1,150 mark yesterday and almost immediately turned the other direction.

It is a sign that investors need to prepare for a correction. We are seeing the front end of the action today as the markets give up more than 1% of their value.

If you are a frequent reader of Notes, the action is no surprise.

Only an economic fool believes massive government spending, bailouts and increased regulations will lead to a sustained rally.

There is no way current valuations will hold unless we get two things, more jobs and more credit. Everywhere I look, companies are begging for loans and laying off more employees.

Get this. Over the last decade, for every dollar this country saw in GDP growth, we took out $6.02 in additional credit.

Now that that credit has dried up and, even worse, has left massive holes in corporate balance sheets, there is no way we are going to realize higher valuations until we either restore credit or shake out all the marginal players.

According to the front page of my local newspaper, the latter is happening quicker and quicker. Just today we lost another major employer and a local restaurant. Even worse, a local school district is figuring out how to close a $200 million budget gap now that it has raised taxes as far as it legally can.

It’s the same kind of story all over the country.

It’s evident that investors are pulling their money out of stocks and putting it back into the safety of the Treasury market today as the yield on the 30-year plunged by double-digit proportions.  As much as investors hate America’s borrowing habits, Uncle Sam remains one of the strongest protectors of assets.

Until that changes, we aren’t going anywhere.

*** Don’t think the news out of JPMorgan Chase (NYSE:JPM) is any indication that we are on a path to recovery. This bank and its Wall Street brethren are raking in profits as the markets re-inflate after the credit bubble collapsed.

In fact, they’d love to see it pop once again as they hedge away their risk and profit no matter which way the market swings.

As long as they are covering all sides of the trades and have Washington chasing its regulatory tail, we are going to see these financial smartypants raking in huge profits and walking away with mouthwatering bonuses.

But their profits don’t say anything about small-town America’s ability to prosper. Instead, Wall Street’s profits show how volatile and dangerous it is to be trying to make a buck in this country.

If JPMorgan is making money, somebody else is losing it.

That’s why it’s great to be a contrarian investor. We don’t get fleeced with the herd.

For years, the Street has looked at any Chinese economic data with a weary eye. Without the checks and balances of a democratic government, Beijing had plenty of reasons to manipulate its growth figures.

Even though all signs point to a strong, stimulus-fueled recovery, most pundits refuse to believe the country’s tales of double-digit GDP growth.

But the folks at Goldman Sachs are taking the disbelief in a different direction. According to reports from the banking behemoth’s analysts, China likely grew by 13.1% last month.

It is a bold claim in a year when Chinese officials estimate domestic growth of a much more moderate 8.5%. It is also a bold claim for a company whose “book” is filled with Chinese investments. After the action of the past two years, Goldman is obviously just as adept at using its shaky “research” to its own advantage.

But why is China’s GDP debated so ferociously? And more importantly, why do we care how fast the country expands?

It’s all about the currency. Without a yuan that freely floats against the dollar, it is in China’s best interest to put its best foot forward. Right now, with such a large gap between American and Chinese economic growth, it is strategically important for China to appear weaker than its foreign competitors.

Weakness means strength.

For Goldman, perceived strength equals stronger trading profits.

Believe who you want. They’re all liars.

*** It is a different story a third of the way around the world in Iceland. For the country that has become the punch line of banking circle jokes, the government’s recent decision to repay its obligations to the Netherlands and Britain was an important step in the recovery process.

If it were not for the Icelandic president’s veto, the country would be cutting a check for $5 billion to the Dutch and British.

With nearly a fifth of the economically ravaged country’s citizens signing a petition stating their disdain for getting stuck with such a sizeable bill, President Grimsson was compelled to veto his government’s legislation for just the second time in the country’s 66-year history.

Now it is not his constituents Grimsson has to worry about. It is his European brethren.

Obviously, London and The Hague are none too happy. The International Monetary Fund, with its plans to send the troubled country a bailout check worth $4.6 billion, is downright confused. And the European Union doubts whether Iceland will maintain its fast track to joining the pact.

All in all, this is a no-win situation in Iceland that proves even the most expensive of government bailouts and stimulus programs will not erase the far-reaching effects of a global financial meltdown.

What these two stories should tell investors is there is one thing controlling the markets these days… greedy, selfish, economically retarded governments.

China is lying about its economic growth. Iceland is realizing why its government up and walked out. And Goldman is raking in money like never before.

All of the conniving and manipulations adds up to volatility and, more importantly, unpredictability.

By traditional measures, market volatility is on the decline. But let me ask you, do things feel any safer than a year ago? Is the future really that much more clear? Absolutely not.

We’ve got guys trying to blow up planes with their underwear and a congress trying to skirt the democratic process to pass legislation that will rewrite a huge chunk of the nation’s economy.

It is far from safe out there. That’s why gold remains above the $1,100 mark, the dollar remains historically weak and it is why few businesses are willing to seek out growth.

The situation is as bleak as ever.

I am not saying we are going back to Dow 6,000 anytime soon, but all this nonsense about the recession being over and a straight road to recovery awaiting us is pure junk.

I’d rather believe in global warming than a safe and secure economy. And we all know how Al Gore is feeling these days.

*** Since China is a hot topic today, you can add Australia to the list of countries not so happy with Beijing’s antics.

After entering a $20 billion deal to buy liquefied natural gas from Australia’s Woodside Petroleum, China has announced the contract’s deadline has passed and it is backing out of its previous decision.

As natural gas prices have plummeted over the past two years, thanks to massive efforts in drilling technology and recovery techniques, China now realizes the figures in the proposed deal are no longer viable.

This is good news for gas investors across the globe.

If you recall, over at TFN Strategic Trader, we recently locked in gains of 400% by playing the industry’s moves. China’s indecisiveness and a recent surge in prices have created yet another profit opportunity.

The LNG market is on the ropes. With the help of economic recovery, gas exporters may be able to gain enough strength to re-enter the fight. But if traditional fuel sources begin to pay off like they are expected to, there may be no reason to endure the hassle and expense of compressing gas and shipping it across the globe.

This is going to be an interesting industry over the next year. Contrarian investors will be wise to pick up any of the “apparent” losers on dips. What is a loser today is likely to be a winner tomorrow. At least until it’s a loser again.

Got it? That’s trading for you.

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)