James Howard Kuntsler (Whiskey & Gunpowder):

“While Dubai is not big enough to set off financial repercussions outside the Middle East, the main fear is that investors could flee risky markets all at once in search of safer havens for their money.” — The NYT, Vikas Bajaj and Graham Bowley, reporting.

Apart from the stark self-contradiction in this quote from The New York Times, you have to love the fatuous ‘it’s all good’ self-assurance where global banking is concerned. No problemo y’all! A mere overdraft incident, a cash-flow hiccup… and yet “the main fear” [among whom?] is that investors [where and in what? Like, everywhere?] could flee risky markets all at once in search of safer havens for their money [WTF?]. Gosh, well, as long as they don’t flee the New York Stock Exchange, the Hang Seng, the FTSE…. And, hey, do you suppose anybody bought any credit default swap “insurance” on the deals that financed scores and scores of super-giant condominium skyscrapers and hotels amounting to the greatest spec construction folly in the history of the world?

Snapshots of the stupid ****ing work-in-progress have been circulating around the Internet for five years, the disbelief was so monumental. I confess, when I first saw the Palm Island I was impressed at what a superb air strike target it presented. And then, when the real estate assemblage of artificial islands arranged like a map-of-the-world came along, I could only imagine the megalomaniacal glee rising in the throat of a jet bomber pilot (nationality unspecified) as he closed in on it.

Whom the gods would punish, they first make completely crazy. That includes us, here in the USA, by the way, but pound-for-pound Dubai is the current champeen. The monstrosity they built in their waterless convection-oven of a city-state makes Las Vegas look like a mere strip mall in comparison. Throw in a few other affronts to nature, such as an indoor ski “mountain,” a beach cooled by an under-the-sand refrigerated pipe network, golf courses that have to be hosed down with acre-feet of desalinated sea-water, and forget about “the gods” — one begins to see the monotheistic hand of “Old Scratch” himself working the levers of the construction cranes out there.

Frankly, I have no idea whether the Dubai fiasco will send seismic ripples thundering through a global banking establishment that is already crippled in more ways than you can count. But it does remind those in thrall to the dazzlement of “green shoots” that debt comes a’creeping, and runs so far, deep, and wide through the broken system of mutual assurances constituting international finance, that Ben Bernanke and his counterparts in central banks ’round the world could drop helicopter loads of paper cash on every rooftop, intersection, parking lot, field, forest, and camel raceway and never make a dent in the fatal web of false obligations we have woven for ourselves.

Click here for the rest of Mr. Kunstler’s analysis at Whiskey and Gunpowder.

Spot gold touched a high of $946.90 in London — last seen in mid-June — up from $938.55 quoted late on Thursday in New York. The metal stood at $946.65 by 1134 GMT.

Global stocks rallied while the dollar fell against a basket of currencies, bolstered by a return to risk-seeking behaviour after remarks by the U.S. Federal Reserve convinced investors that borrowing costs would stay near zero and the debt-buyback programme would continue apace.

The weaker U.S. unit also made dollar-denominated gold cheaper for holders of foreign currencies.

The precious metal, viewed as a potential hedge against inflation, also got a boost from steady oil prices as supply concerns held crude above $70 a barrel.

Analysts said that gold was rallying on the weaker dollar and end-of-quarter deals, despite weak fundamental demand.

“From a fundamental perspective at least, $945 is a very good position for gold to be entering the second half of the year,” said Nick Moore, head of commodity strategy at RBS Global Banking and Markets.

RECOVERY PLAYS

Higher base metal prices, which have soared since the start of the year, could encourage investors to switch out of their holdings in gold to take advantage of higher demand for raw materials ahead of any economic recovery, analysts said.

“I’m concerned there will be more appetite for other things, and gold could get neglected if people want equities, energy and industrial metals,” said Robin Bhar, an analyst at Calyon.

“Next week is a new quarter, which could be associated with fresh investment flows into plays on the recovery,” he added.

Copper prices are up about 60 percent on the year, while aluminium used in transport and packaging is on track for its biggest monthly gain since May 1988.

Inflows into gold-backed exchange-traded funds waned, reflecting weak fundamental demand for gold from retail investors and the jewellery market.

Holdings at the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust , fell 0.5 percent to 1,125.74 tonnes as of June 25, down 5.5 tonnes from the previous business day.

U.S. gold futures for August delivery strengthened to $946.8 an ounce, rising 0.8 percent on the day.

In other precious metals, spot silver firmed to $14.25, against $14.01 quoted late in New York on Wednesday, while platinum climbed to $1,199.00, against $1,186.00 and palladium strengthened to $243.50 from $242.00.

London, June 26 (Reuters)

But in May of 2008, the answer was not as obvious as it is today. And so we wondered aloud, “How much is one trillion anyway?”

We answered the question from a variety of perspectives. For example: “One trillion seconds equals 31,546 years. One trillion dollar bills placed end to end would reach 96.9 million miles, far enough to reach the Sun. The average new car costs $28,400. $1 trillion would buy more than 35 million cars.”

Why did we bother trying to quantify the sum, one trillion? Because just a few weeks earlier, the International Monetary Fund had estimated that the global banking crisis would produce about $1 trillion of losses. Shortly thereafter, then-President George Bush delivered America’s first $3 trillion budget. Suddenly, the kind of arithmetic that required twelve zeros had become an exercise of national importance.

One year later, this exercise has become vastly more important. The IMF has doubled its estimate of banking sector losses to $2 trillion (while many private economists put the number between $3 and $4 trillion). Furthermore, the U.S. government of 2009 does not merely count its budget in the trillions of dollars, it counts its budget DEFICITS in the trillions of dollars. According to the latest estimates, President Obama’s very first budget will produce a deficit of $1.8 trillion in 2010. And that’s the OPTIMISTIC guess.

So where’s the shock over this shocking development? Where’s the awe? Where’s the national outrage over the mind-numbing cost of bailing out Wall Street’s self-serving speculators?

There isn’t any. No shock. No awe. No outrage…and the reason is very simple: almost no one gets it…literally. The numbers are simply too large.

“The scale of what President Barack Obama proposes to do to the American economy is so enormous, so far-reaching and so potentially disastrous that the [Republican] party is having a hard time describing it,” writes Byron York, chief political correspondent for the Washington Examiner.

“GOP message mavens are struggling with something that academics call ‘insensitivity to scope,’” York continues. “It affects us all; we can understand something on a small scale but have a difficult time comprehending the same thing on a massive scale. Insensitivity to scope is a major obstacle to understanding the Obama administration’s $3.6 trillion 2010 budget. People simply have trouble understanding a number so big. A recent poll asked Americans how many millions are in a trillion. Twenty-one percent of respondents got the answer right — it’s a million million. Most people thought it was a lot less.”

So that means that four out of five respondents got the answer wrong…and most of them guessed too LOW. No wonder a $2 trillion deficit doesn’t seem like a problem.

“[One GOP pollster] tries to explain it,” York goes on, “by asking people to think of a dollar as a second — one dollar, one brief tick of your watch. A million seconds, the pollster explained, equals eleven days. A billion seconds equals 31 years. And a trillion seconds equals 310 centuries…After a review of the Obama budget’s numbers before formal submission to Congress, Budget Director Peter Orszag said this year’s deficit will be $1.841 trillion — $89 billion more than previously estimated. If you’re listening to the ticks of your watch, that’s about 570 centuries.”

And let’s not forget that the Obama budget assumes the economy will be growing at a 3.5% annual rate by the end of this year. That’s a good number in GOOD times. In bad times, such as we are now enduring, a 3.5% growth rate is nothing short of delusional. So we’d guess that the actual budget deficit is likely to be much larger than the already-large numbers the Obama camp is tossing around.

What does all this mean for investors? Hard to say exactly…but not that hard to say inexactly. A $1.8 trillion funding shortfall is a great big hole to fill. Indeed, it is a hole so large that tax receipts could not possibly fill it. Foreign capital and/or domestic savings could theoretically fill it. But in the real world, that’s not likely – not at meager 3% and 4% rates of interest over ten to thirty years. So the most probable “solution” to the funding shortfall is also the most expedient one: the government will buy bonds from itself.

This ancient remedy to fiscal imprudence used to go by the name of currency debasement. But today this process comports itself with an air of sophistication by wearing the title, “quantitative easing.” Different name; same result: inflation.

The financial markets are picking up the scent already. Ever since March 18, when the Federal Reserve announced its intention to purchase $300 billion of Treasury debt, most financial markets began pricing in an inflationary threat. Gold, commodities and bond yields have been moving higher, while the dollar’s value has been moving lower.

“We are experiencing a deleveraging on a scale in the world that is absolutely breath-taking in its scope,” warns John Mauldin, editor of Outside the Box, “And to balance that, governments are going to have to issue massive amounts of sovereign debt to deal with their deficits. But who will buy it, and at what price? And in which currency? Even though we can see the challenge, it is not clear what the final outcome will be, other than stressful volatility as the market reacts.”

We’re guessing the volatility will be much less stressful for those folks who hold a significant amount of their assets in gold and commodities. And the stress might even morph into pleasure for gold-holders if, as we expect, the governments of the world enthusiastically pursue the stealth larceny of currency debasement. You can dress the debasement process in Harvard B-school jargon, surround it with Federal Reserve White Papers and re-christen it, “quantitative easing.” But after all that, you’ve still got the same old process of currency debasement, which produces the same old results: inflation and loss of purchasing power.

Source: The $1.8 Trillion Question

Wall Street sustained heavy losses, extending a global stock market rout as the Dow opened below 7,000 for the first time since 1997, while the dollar hit its highest level against a basket of six major currencies since early 2006.

European Union leaders’ rejection of a mass bailout for Eastern Europe pushed the euro below $1.26, as did a survey showing euro zone manufacturers had their worst month in 12 years.

But the biggest blow came from American International Group , which announced a $61.7 billion fourth-quarter loss, the largest quarterly loss in U.S. corporate history. Earlier, Treasury threw a new $30 billion lifeline to the company.

Analysts said the news reaffirmed suspicion that more turmoil lies ahead, spurring investors to sell stocks for safer, dollar-denominated alternatives such as Treasuries.

“With all the negative news lately — today from the U.S. insurance sector and the European summit — the market is just not prepared to take on a lot of risk,” said Dustin Reid, senior currency strategist at RBS Global Banking & Markets in Chicago. “So you’re seeing people pile into the dollar.”

In New York, the euro was down 0.7 percent at $1.2578 , after hitting a session low of $1.2547, according to Reuters data. The dollar fell 0.3 percent to 97.19 yen .

The euro was hit hard after EU leaders rejected calls, led by Hungary, for a 180-billion-euro aid package to rescue Eastern European countries suffering through a deep recession. The EU agreed only to help countries on a case-by-case basis.

“It keeps alive the story that sovereign risk in Europe is marching higher as there’s still no coordinated package” to address the problem, said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York.

If not for heavy selling of the British pound against the euro, he said, the common currency would be vulnerable to a push toward the $1.2330-$1.2350 area last seen in late October.

Sterling tumbled to $1.3959, its lowest level since late January, before edging back to $1.3988 , still 2.2 percent weaker on the day.

‘ROLL CALL OF REASONS’ TO AVOID RISK

HSBC’s 12.5 billion pound ($17.7 billion) rights issue, launched at a deep discount after annual profit more than halved and bad debts soared in the United States, also weighed on risk appetite and pushed European stocks lower.

“There’s a roll call of reasons to stay risk averse — the news from AIG, HSBC and worries about Eastern Europe and that is benefiting the dollar,” said Geoffrey Yu, a currency strategist at UBS in London.

Outside the U.S. dollar, only the yen was seeing a bid among major currencies on Monday as it attracted moderate safe-haven buying as equity markets turned lower. The euro fell 1.1 percent to 122.24 yen.

“The global slump in equity prices appears to be offering a lingering lifeline to the Japanese yen, (though) quite why we’re unsure,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut.

The yen used to be seen as a safe-haven alternative but has lost some of its luster as data showed Japan’s economy shrank in the fourth quarter as exports fell sharply.

NEW YORK, March 2 (Reuters)

To those who have followed his career, that’s not a huge surprise. After all, while 2008 was a year that Wall Street would very much like to forget, for Fitz-Gerald it ended up being a year to remember.

Fitz-Gerald, a longtime market professional who has been investment director of Money Morning since 2007, made a number of key investment calls last year and has watched as the market continues to prove his forecasts correct. For instance:

• When crude oil was trading listlessly at less than $90 a barrel, Fitz-Gerald predicted in a Money Morning Outlook 2008 investment story that “black gold” would move well into the high triple digits – and months later saw oil prices soar to an all-time high of $147 a barrel,
• When analysts and elected officials in Washington were attempting to soothe American taxpayer fears by saying the cost of fixing the financial crisis could be capped in the “billions,” Fitz-Gerald dismissed the prognostications and warned that the cost would be well into the trillions. He also warned that the crisis would involve the global banking community in a contagion that would spread well beyond our own borders.
• Predicted – within a few points – what’s so far proved to be the interim market bottom in the Standard & Poor’s 500 Index.
• Warned investors that China’s stock market was in for a correction, but told investors to swap out of China stocks and into stocks of global companies doing business in China as a means of minimizing risk – a market call that brought Fitz-Gerald a “speaker of the year” award from a prestigious group of high-net-worth private investors.
• Predicted – when America’s “Big Three” automakers appeared to be working through some issues with onerous union contracts and retirement benefits – that the heyday of the U.S. auto company was already over and that the car companies would soon be fighting for their actual survival.

Fitz-Gerald has some ideas. A longtime energy bull, and an avowed expert on China, Fitz-Gerald says he’s now tracking some trends that could lead to the best profit opportunities of our lifetime. Money Morning recently caught up with Fitz-Gerald at his home in Oregon, where he was working between speaking engagements. Here is a partial transcript of that discussion.

Money Morning:  You’re acquired a reputation over the years as a sharp market analyst, in large part because of a series of public market calls that he’s made over the past couple of years – market calls that were ultimately proven correct. What’s your secret? What advice can you give to investors?

Keith Fitz-Gerald: Most investors make the classic mistake of being more concerned with being proven right or wrong than they do with what actually happens with their money. That’s why we see such a “herd” behavior in the markets today. I’m more concerned with “possibilities,” and with structuring profitable investment opportunities around them. I really don’t care if I’m right or wrong as long as the strategies I assemble are flexible enough to deal with both contingencies and profit at the same time.

MM: This sounds complicated. Can you give us an example?

KF: What I do is actually very simple. I use a highly specialized branch of mathematics based on fractal theory to identify the underlying nature of the financial markets. This allows me to find relationships in data that would otherwise appear random and that others can’t see using traditional analytical techniques. And I simply recommend high probability investments based on that understanding.

MM: I know this is at the heart of the Geiger Index. Is this also the key to your newest service, Time Trader Pro?

KF: Yes. In fact, there’s a little fractal theory in everything I recommend, and in every forecast I make. But when it comes to the Time Trader Pro, there’s a twist. The Geiger Index is set up to scan for probabilities associated with directional moves. The Time Trader Pro, which uses similar calculations, is set up to determine the relative lack of movement.

The advantage is that while the Geiger sets up the big gains that will carry investors forward into the eventual recovery I see building even today, the Time Trader Pro allows investors to potentially capture gains and high-probability profits in the directionless markets we’re experiencing now. The two are designed to complement one another and, indeed, to also help establish the core positions we highlight in The Money Map Report.

MM: Do the numbers tell you everything?

KF: Not in my opinion. To be a really effective forecaster, I think you really have to combine firsthand knowledge with accurate analytics. To me, that means having “boots on the ground” and seeing stuff with your own eyes. The way I see it, there’s simply no substitute for that personal observation. That’s why I travel extensively every year.

For example, years ago, when oil was trading at $20 a barrel, I was tromping all over Asia and Europe, and was seeing the beginnings of a terrific ramp up in demand. At the same time, I was doing work that suggested severe supply constrictions. That led me to forecast oil at $100 within a decade. It got there far faster than that, of course, but the fact that I had planned for such contingencies paid off more than the actual price level, itself.

Incidentally, I have to tell you, I was laughed out of more boardrooms than I can count at the time. But that goes with the territory: You have to have the courage of your convictions to make such forecasts.

MM: Well, oil did go to $100 a barrel. Then it dropped back into the $80 range. And that’s when you said that oil prices were going to head much higher.

I like to remind people that this was a “real” call – it’s on the record in an oil story that was part of our yearly “Outlook” series. The story ran in late December, when oil was starting to move again. But you’d actually made the prediction a month or so before, while Money Morning writer Jason Simpkins was still researching the article. You said oil could “spike” to prices as high as $187 a barrel, and would then settle back down.

Oil didn’t quite hit the $187 level you forecasted, but it did run up to an all-time high of $147, before settling back to where it is now. Did this surprise you?

KF: Given that we didn’t get a major geopolitical shocker, I’m not surprised that we didn’t hit $187. But I’ve been very candid in stating that the dramatic fall we’ve seen has been much deeper than I’d expected.

MM: Could oil prices stay this low for much longer?

KF: Anything is possible. The real question is: What’s probable.

People are chalking the fall in prices up to lower global demand, but I think that’s a mistake. What’s really going on here is that, at lower prices, hedgers and speculators haven’t had the need to hedge their contracts as extensively and this, more than any single factor, has helped pull down futures prices – which are tied to delivery – and keep them there.

The other factor that’s affected oil has been the relatively rapid rise in the U.S. dollar. Oil is priced in dollars, so it’s important to remember that a substantial portion of the fall in oil prices can simply be accounted for by that increase in the dollar.

MM: What about the long term?

KF: Longer-term, the world won’t realize that global demand is rising all along – despite what the statistics say – until the economic recovery stimulates oil demand again. Probably no more than five years from now. Eventually, the fundamentals of declining production, growing demand, and thin inventories will overwhelm today’s low prices. Which is why I think oil will be back at $212 dollars a barrel … a figure that’s downright conservative compared to Matthew Simmons [peak oil pundit and author of "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy"], who’s on record predicting that oil prices will reach $500 a barrel.

MM: I know that your expectations for China have a lot to do with this. And India.

KF: Yes, they do. From a macroeconomic standpoint, both nations are growing by leaps and bounds – even with the problems posed by the global financial crisis. Sure there’s a short-term contraction, but let’s get that off the table right now. Longer-term, the trend is clearly for higher oil prices.

Both China and India have huge populations that are using increasing amounts of petroleum and petroleum-based products. And both have millions of drivers and middle-class consumers who have never known lower prices – so they don’t think twice about paying more.

From a technical standpoint, oil is dramatically oversold to the point where much of the industry is unsustainable. History suggests that these stunningly low prices will result in diminished capital investment, declining exploration efforts and a reduction in rig counts. When the stimulus programs of the United States – and other key countries – ultimately take hold, these factors will combine to reflect net shortages and, logically, will force prices higher.

MM: We’ve seen this cycle before …

KF: Absolutely.

MM: Speaking of China, Keith, what’s next for the Red Dragon? What do you see there this year? How about over the next five years?

KF: At this stage of the game, China is literally the only player on the field with enough muscle to pull the rest of the world out of hock. This means the rest of the world will have to play ball – whether they like it or not. Ironically enough, that’s exactly what the G7 concluded recently when its members noted that China can use its huge trade surplus to spend it’s way out of this mess at a time when the rest of the world is busy borrowing it’s way out. There’s a big difference between the two scenarios. I’d rather invest in growth, rather than borrow to grow, any day of the week.

MM: What else do you see, here?

KF: The view from 30,000 feet is this: I don’t think there’s an asset class on the planet that won’t be at least indirectly affected by their China’s actions within the next decade. In that sense, every investor needs some sort of China strategy, especially now.

MM: What about the stimulus?

KF: [U.S. Federal Reserve Chairman Ben Bernanke and his minions have decided upon a course of action and are taking it. And while I’m as hopeful as the next person that it’s ultimately successful, history paints a different picture.

No nation in recorded history has ever bailed itself out of a hole by debasing its currency, and debasing their currencies is precisely what the United States (and many other nations) are doing right now – at least for anything other than short periods of time.

The bottom line is this: The U.S. Federal Reserve, the U.S. Treasury Department, and the elected officials in Washington all believed they could spend the crisis into submission. But, ironically, all they’ve done is prolong it and I think that history will show that the cost of preventing the crisis actually exceeded the potential costs of simply letting it unfold and play itself out. What’s more, history supports my contention.

I also think that history will show that there are all sorts of unanticipated consequences from all the spending and the debt that’s now choking our country.

What really stinks to me is that a relatively small number of people drove the rest of us to the brink of financial oblivion, and that huge numbers of people who have tried to be responsible with their assets, who paid their mortgages on time, who own up to their debts, are now being involuntarily saddled with the bailout.

MM: What you’re saying, Keith, is that lots of innocent American taxpayers and conscientious individual investors have paid with their homes and even their jobs for the misdeeds of others.

KF: That’s right.

You know, during the early days of the financial crisis, there was a lot of conjecture on the Internet that the federal government should simply hand out a few trillion dollars to U.S. consumers. Most experts dismissed that as fringe thinking. It didn’t seem so fringe to me then, and it certainly doesn’t seem so now. The vast majority of the American people would have been far better off being able to put cash directly in their pockets to stimulate the economy than they will be now with government programs that reward bad business decisions and that throw good money after bad.

We may not have liked how it would have felt had the government held back and allowed some of these institutions to just fail. History has shown us time and again that the financial markets have a remarkable ability to deal very swiftly with such adverse financial situations – and with a surprising cost effectiveness. Why would this situation be any different?

MM: What will the fallout be here? For the economy? For the U.S. dollar? For gold?

KF: Let’s start with the dollar because that drives everything else. In the extreme short term, the dollar has proven to be a safe haven, which is largely responsible for its rise. At some point, however, this is going to have to change. You cannot put the printing presses in overdrive and expect things to remain the same. But that’s exactly what Team Fed has done to date.

MM: What about inflation?

KF: Well that’s the big unknown. Right now, the markets are pricing in deflationary expectations – based on the global downturn. In the long run, however, history demonstrates that the markets eventually must deal with this. What’s more, the embers that are only smoldering now could easily ignite and turn into one of the hottest inflationary conflagrations we’ve ever seen.

What people don’t understand is that consistent currency manipulation is merely staving off inflation; it isn’t removing the threat of it. Most people also don’t understand that this is being done at the expense of people’s savings. They’ll soon see this is the case. Knowing this, I don’t see how any rational investor can afford to avoid preparing for inflation.

MM: So how does this play out with gold? With other commodities?

KF:  Contrary to what people believe, gold has never been statistically proven to be an inflationary hedge. But it is a great crisis investment that does have a direct correlation to interest rates and bond prices. So gold should really be tied, proportionately, to fixed-income investments because it helps stabilize them – and to provide an inflation hedge at the same time.

As for other commodities, the markets tend to run in 17-21 year cycles, and if we look to 2000 the beginnings of the latest one, that suggests we have until 2017, or so, before commodities lose their luster. In general, I’m a commodity bull, but clearly we have to time our selections carefully, because now’s not the time for indiscriminant buying.

MM: One final U.S.-related question. What’s the outlook for U.S. stocks right now? I know your models recently showed that the U.S. indices were nearing the “sweet spot,” where valuations made them compelling enough to buy. Has that changed?

KF: No. We’re still closing in on what could be the buying opportunity of our lifetimes, but there are a lot of things that have to lock into place to make that happen. The most important off all is that banks have to again begin lending to consumers and to each other. Taking TARP money and hoarding it, or using it for buyouts – something our ongoing Money Morning coverage has chronicled – just isn’t acceptable. If the banks won’t play ball, the government should force them to … or take the money back and let them fail.

Now is not the time to play partisan politics either. This crisis is serious enough that we need to concentrate on just being Americans and work through this as quickly and expediently as possible. Washington is only just beginning to understand how serious this crisis is, which means as investors we have to take our personal financial security into our own hands. The unfortunate reality is that the government may not get around to protecting our personal financial security – despite our elected officials best intentions.

MM: In a bit of financial irony, you’ve pointed out to lots of folks that China will actually benefit from this financial crisis, using it to enhance its stature in the global financial community. And no one is better positioned than you to understand how China will fare … you run an annual investment trip to that country each year and you have a substantial network of contacts there. Given that perspective, tell us how China can benefit from this situation.

KF: Absolutely. First of all, China has $2 trillion in reserves … the most in history and the highest stockpile as a percentage of GDP on the planet. This gives China not only the clout to spend its way out of this mess, but the muscle to work with the rest of the world in a controlled, measured fashion that helps maintain global financial balance. Clearly, a lot of people on Wall Street won’t like the fact that they don’t call the shots anymore, but they had their chance. Now they need to let someone else lead.

From an investment standpoint, I think it’s particularly ironic that the global financial crisis – more so than any other factor – may be the catalyst that ultimately transforms China into the investment of a lifetime. Even during the depths of the Asian Financial Crisis a decade ago, I don’t’ recall seeing Chinese markets this undervalued relative to the upside profit potential.

MM: What about Japan? The Japanese yen has traditionally been a safe haven during troubled times.
KF: Yes it has, but I think that could come crashing to an end this time around.

Japan bailed itself out the last time around through a massive stimulus program aimed at exports. But it did little to stimulate the domestic economy and that’s costing the country dearly this time around, because now it’s behind the proverbial eight ball. In fact, there are some indications that Japan may be sinking into another “Lost Decade” that’s even worse than the malaise we face here in the United States. It’s not illogical to assume the yen could fall off the cliff and crash as a result.

I’ll be home again in Kyoto shortly and will update you on what I find when I get there.

Source: Financial Crisis May be Creating the Best Investment Opportunities of our Lifetime, Money Morning Expert Says

• Manufacturing in the U.S. shrank again last month and consumer spending recorded an unprecedented sixth monthly decline in January. The Institute for Supply Management’s factory index was 35.6 in January; readings of less than 50 signal a contraction. Meanwhile, the Commerce Department said personal spending fell 1% in December, offering no sign the economy has hit bottom.

• Macy’s Inc. (M), the second-largest U.S. department-store company, said it is cutting 7,000 jobs, or 3.9% of its workforce after slashing prices failed to lure shoppers during the worst holiday season in 40 years, Bloomberg reported.  The retailer also cut its quarterly dividend to 5 cents a share from 13.25 cents.  Sales at stores open at least a year have dropped in 10 of the past 11 months.

• A majority of U.S. and foreign banks tightened lending standards to businesses and households over the past three months, despite government efforts to spur banks to increase lending, Reuters reported.  In its January senior loan officers report, a closely watched quarterly survey of lending conditions, the U.S. Federal Reserve said the number of banks that tightened lending remains “elevated.” The central bank also said demand for loans from both businesses and households continued to weaken.

• Renew Energy LLC, a closely held ethanol producer based in Jefferson, Wisconsin, filed for bankruptcy amid falling prices for the grain-based fuel and rising costs for corn, Bloomberg reported. Ethanol producers have idled about 1.8 billion gallons, or 16%, of total U.S. production capacity, according to the Renewable Fuels Association in Washington.  Ethanol plants were forced to reduce capacity in January as volatile corn prices hit profits.

• Morgan Stanley (MS) will cut about three to four percent of its work force, up to 1,880 people, Reuters reported, citing an anonymous source.  Most of the cuts will be in back-office jobs where trades are processed.  The broker has been struggling with spiraling costs and slowing business as stock market volatility has whipsawed investors since the Dow Jones Industrial Average peaked at over 14,000 in October 2007.

• Oil prices fell nearly 4% Monday as gloomy U.S. economic data darkened projections for energy demand. U.S. light crude for March delivery fell $1.60 to settle at $40.08 a barrel on the New York Mercantile Exchange. London Brent crude shed $2.06 to $43.82 a barrel, Reuters reported. News that union and oil industry negotiators in the United States averted a strike that would have cut fuel production put added pressure on oil prices.

• Steelcase Inc. (SCS), the world’s largest office furniture maker, said it will cut base salaries of its North American salaried workforce by about 5% and suspend matching contributions to its retirement plan for 2010, Reuters reported.  The company also will cut the annual salaries of its chief executive and chief financial officer, and its board members will take a voluntary salary reduction of 15% for one year.

Source: Global Investment News Briefs Tuesday, February 3rd, 2009

The dollar rose against the yen on Monday after the Bank of Japan followed last week’s interest rate cut with a warning that the health of Japan’s economy has deteriorated and is likely to get worse.

But investors’ equally dim view of the U.S. economy hurt the greenback against the euro, which rose broadly in holiday-thinned trade. Doubts about whether a U.S. automaker bailout would steer the economy out of recession also hit the dollar.

Traders said volumes were razor-thin in the lead-Up to the Christmas holidays, aggravating even the slightest moves in the currency markets. Still, many said demand for dollars remained low.

“The dollar view is so opaque at the moment, and the risk reward at this time of year is not worth it unless you really have to trade,” said Maurice Pomery, head of foreign exchange at IDEAglobal in London.

The dollar managed to rise above 90 yen for the first time in nearly a week after BoJ Governor Masaaki Shirakawa said yen strength and a global slowdown may force Japanese exports still lower even after a record plunge in November.

“All Asian exporters are at risk in this global economic slowdown, but Japan is at the top of the list,” said Dustin Reid, senior currency strategist at RBS Global Global Banking & Markets in Chicago. “The stronger yen has been playing havoc for Japanese exporters, and the auto companies in particular are likely to be significantly affected.”

So far this year, Japan’s currency is up nearly 20 percent against the dollar and more than 22 percent against the euro.

Early in New York, the dollar was changing hands at 89.85 yen , up 0.8 percent, after earlier rising to 90.23. The BoJ cut Japanese interest rates last week to near zero.

The euro also rose 1.3 percent to 125.79 yen after earlier hitting a session peak of $1.4123. Sterling fell 0.8 percent to $1.4814 , while the euro rose 1.1 percent to 94.35 pence , near a record high of 95.56 pence touched last week.

A move by China’s central bank to cut lending and deposit rates by 27 basis points — its fifth cut since September — shed more light on the scope of the global slump.

GRIM U.S. OUTLOOK

After coming under steady pressure in December, the dollar rallied on Friday after the Washington announced emergency loans for crippled General Motors and Chrysler.

But while the move averted a crisis for now, traders said uncertainty over the companies’ restructuring plans left many doubting the long-term effect it would have on the economy.

Last week, the Federal Reserve cut benchmark interest rates to near zero, underlining the severity of the economic crisis and undermining support for the dollar.

Investors are also looking for the European Central Bank to cut interest rates, currently at 2.5 percent, in January, though ECB executive board member Lorenzo Bini Smaghi warned about the risks of monetary policy being too lax, according to the Rome newspaper Il Messaggero.

Steven C. Johnson, Reuters 12/22/08

The dollar fell to a six-week low against the yen on Friday after government data showed the U.S. economy lost more than half a million jobs in November, the worst performance in 34 years.

The dollar, however, rose against the euro, as investors again sought shelter in the U.S. currency away from European currencies on darkening prospects for economies worldwide.

“The much weaker-than-expected November result alongside a sharp downward revision to October suggests the U.S. recession underway is going to be a long one,” said Stephen Malyon, chief currency strategist at Scotia Capital in Toronto.

“The U.S. dollar has weakened, indicating that fundamental gravity might finally be weighing on the currency,” he added.

In early New York trading, the dollar fell as low as 91.60 yen , the lowest since Oct. 24, according to Reuters data. It was later at 91.85, down 0.3 percent on the day.

The euro held losses against the dollar to $1.2660. It earlier rose as high as $1.2732, in the wake of the payrolls report.

The dollar rose 1.5 percent against the Swiss franc to 1.2123 francs , while sterling fell 0.4 percent to $1.4615 .

Data on Friday showed U.S. employers cut payrolls by a shocking 533,000 in November, the steepest monthly loss since 1974, as recession in the world’s largest economy deepened. Markets were expecting job losses of 340,000, according to Reuters data.

The unemployment rate likewise rose to 6.7 percent, the highest since 1993.

“The November employment report was staggeringly poor, even for a market increasingly inured to ugly data,” said Alan Ruskin, chief international strategist, at RBS Global Banking and Markets in Chicago.

“Is there any good news? Only in so much as it will be hard to get worse numbers … There are simply no redeeming features in this data. Weakness is evident everywhere,” he added.

The gloomy jobs data further bolstered expectations of another interest rate cut by the Federal Reserve.

Interest rate futures now fully price a 50 basis-point Fed rate cut on Dec. 16, which would take the federal funds rate to 0.50 percent. The implied prospects for a cut to 0.25 percent jumped to 76 percent from 64 percent late on Thursday.

Gertrude Chavez-Dreyfuss
NEW YORK, Dec 5 (Reuters)

Gold edged down on Friday as the dollar firmed against the euro, but trading was quiet as investors awaited the outcome of OPEC’s production meeting this weekend and a spate of data due next week for fresh impetus.

Spot gold was quoted at $810.00/812.50 an ounce at 1310 GMT, down from $814.60 an ounce late on Thursday, as the firmer dollar dented interest in the metal as a currency hedge.

The euro slipped after data showed falling inflation in the euro zone, boosting expectations the European Central Bank will cut interest rates further. [ID:nLS548735]

Falling oil prices are also doing little to help gold, which typically moves in line with crude. Traders are awaiting the outcome of this weekend’s meeting of the OPEC oil cartel, at which production cuts will be discussed. [ID:nSP342706]

“Obviously there is still a correlation between oil and gold,” Wolfgang Wrzesniok-Rossbach, head of sales at Heraeus, said. “If OPEC make a decision which might drive the oil price up, that would also be positive for gold.”

Despite the gold price dip, the precious metal is heading for its biggest monthly gain in nine years as investors spooked by the outlook for the global economy buy into the metal as a haven.

Prices have climbed some $90 an ounce, or 12 percent, this month. Gold is also up 12 percent in euro terms, and 15 percent in terms of the Australian dollar.

“Investment (in gold) is strong because there is huge concern over the economic and financial environment, both in the short and possibly the longer term,” RBS Global Banking & Markets metals strategist Stephen Briggs said.

“The measures being taken to stabilise the situation may lead to inflationary fears down the road, so gold has a double benefit from that.”

Gold is typically seen as a hedge against inflation.

DATA

Traders will also be watching for a raft of economic data due out next week, which could have a significant impact on the dollar. U.S. auto sales are due out on Tuesday, and U.S. non-farm payrolls on Friday.

“Next week, manufacturing indices for all major economies will be released,” Standard Bank analyst Walter de Wet said. “This should indicate the speed at which manufacturing is contracting globally.”

Dresdner Kleinwort said on Friday it expects gold prices to average $870 an ounce this year, falling to $740 an ounce in 2009. For silver, it forecasts an average price of $15 an ounce in 2008 and $9.75 next year.

But Wrzesniok-Rossbach at Heraeus said delegates at a forum on Thursday organized by the precious metals group expected gold prices to hit new highs next year.

“Consensus was that in the long run all the bailouts we are seeing, whether in the car industry, the banking industry or others … will (create) inflation, and that would be positive for gold,” he said.

Among other precious metals, spot platinum was quoted at $860.50/880.50 an ounce, slightly up from $853 late on Thursday. Palladium was at $184/192 an ounce against $187.50.

Silver was at $10.12/10.20 an ounce against $10.31 an ounce.

The industrial precious metals have suffered more from the economic downturn than gold, with platinum and palladium, which are chiefly used in catalytic converters, both dropping significantly from their summer highs.

By Jan Harvey
LONDON, Nov 28 (Reuters)