“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures,” the Fed said in a statement. “Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports.

“Moreover,” the statement added, “the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”

The Fed also lowered its discount rate – the rate at which it lends directly to banks and Wall Street firms – by a half-percentage point to 1.25%.

A wave of failures among banks and financial institutions have stymied lending and roiled global credit markets. The world economy faces a significant uphill battle as a result.

The U.S. economy expanded by 2.8% in the second quarter, but that expansion was largely the product of government stimulus checks and a weak dollar. The federal government returned roughly $168 billion back to American taxpayers in the form of rebate checks earlier this year. The tax rebates, which were mailed through May, kept U.S. consumers afloat, while a weak dollar accelerated a torrent of exports out of the country.

Since then, consumer spending has been undermined by rising unemployment and the dollar has strengthened substantially.  The advance estimate for third quarter gross domestic product (GDP) is to be released today (Thursday), and most analysts anticipate the U.S. economy shrunk during the three months ended Sept. 30.

“The growing reality is that this is not just a slowdown, but a true recession,” Joel Naroff, president and chief economist of Naroff Economic Advisors said in an interview with Money Morning.

“U.S. GDP contracted significantly in the third quarter,” said Naroff, who believes the economy may have contracted by 2.5% to 3.0% in the quarter. “Such a sharp slowdown is not expected.”

Citigroup Inc. (C) analysts Geoffrey Dennis and Jason Press said last week that they now expect an entire year of contraction before the economy gets back on track in the second half of 2009.

“We are now expecting one of the sharpest recessions in the post-war period,” Dennis and Press wrote in a report to clients on Oct. 21.

The Fed statement said the rate cut “should help over time to improve credit conditions and promote a return to moderate economic growth,” but noted “downside risks to growth remain.”

This is the ninth time that the central bank has lowered rates since September 2007. The Fed has also loaned hundreds of billions of dollars to banks through a new lending program and earlier this week began loaning money directly to major businesses by purchasing commercial paper.

The Fed yesterday lowered the interest rates it will charge to buy unsecured commercial paper to 1.84%, down from 1.89% on Tuesday. It lowered the interest rate on asset-backed commercial paper to 3.84% yesterday, down from 3.89% the day prior.

The central bank created its program to buy 90-day commercial paper directly from issuers on Oct. 7, meaning it’s now three weeks old.

The Fed’s new loan programs have expanded assets on its balance sheet by 104% during the past year to $1.804 trillion, or 12.6% of GDP, Bloomberg reported.
Rate Reductions Around the World

While the Federal Reserve struggles to keep the U.S. economy from sinking into a second Great Depression, central banks in Europe and Asia are also on the defensive and could soon join the Fed in slashing rates – if they haven’t already.

The British Office for National Statistics last week said that, after a flat second quarter, the U.K. economy contracted 0.5% in the three months ended Sept. 30. It’s likely that Germany, France and Italy have already entered into a recession, as their second-quarter GDP fell 0.5%, 0.3% and 0.3%, respectively.

The International Monetary Fund (IMF) said last week that the economy of the 15-country Eurozone would grind to a virtual standstill in 2009.

The European Central Bank (ECB), which raised rates as recently as July, backtracked and cut its benchmark rate by half a point on Oct. 8, dropping it down to 3.75%. ECB President Jean-Claude Trichet said Monday that the central bank’s Governing Council could take additional steps at its next meeting, currently scheduled for Nov. 6.

“I consider it possible that the Governing Council would decrease interest rates once again at its next meeting,” ECB President Jean-Claude Trichet said yesterday. “Taking into account the recent substantial decline in commodity prices together with a substantial weakening in demand which has emerged lately, upside risks to price stability have diminished.”

Nick Parsons, head of markets strategy at nabCapital (OTC: NABZY) in London, told The Guardian that the Bank of England (BOE) could also follow the Fed’s move with a one-point cut of its own. That would leave the BOE’s rate at 4.5%

China, on the other hand, wasted no time in following the lead of the U.S. Fed. The People’s Bank of China cut its interest rates yesterday, reducing its key one-year lending rate from 6.93% down to 6.66%.  The rate cut was the central bank’s third reduction in two months.

China’s economy registered a solid GDP expansion of 9% in the third quarter – a noticeable step down from the 11.9% pace set in 2007.  Beijing is clearly worried about the effects a global recession would have on its economy and wants to ensure growth does not slow any further.

Of course, lowering rates will also help keep the Chinese currency, the yuan, from appreciating against the dollar and the euro as central banks in the West pull out all the stops in dealing with the credit crisis.

“This cut was driven by the slowdown in the third quarter and the likelihood that the U.S. and other central banks will cut rates,” Xing Ziqiang, an economist at China International Capital Corp. in Beijing, told Bloomberg.

GDP growth in China has slowed for the past five quarters but so long as the nation keeps inflation in check it should be able to maintain a “reasonable” economic expansion of at least 8% next year, said Liu Erh-fei, managing director and chairman for China at Merrill Lynch & Co. Inc. (MER).

Whether Chinese banks were “wise, lucky, or better regulated,” they avoided exposure to the risky subprime mortgages and derivative products that caused the current financial firestorm,” said Liu. “There is no systemic risk in China’s banks that could spill over into a full blown financial crisis.”

China has more than enough economic weapons at its disposal to ensure strong growth going forward, including a world-leading $1.9 trillion in foreign currency reserves. China also has a budget surplus of 2% of GDP, according to Stephen Green, of Standard Chartered PLC. And public sector debt is just 16% of GDP.

Earlier this year, Beijing shifted the focus of its policy to growth rather than inflation – a choice analysts say is now paying dividends.

Inflation in China, and worldwide, is beginning to ease alongside commodities prices. Inflation in China receded to 4.9% in the year to August, from 8.7% in February. And Goldman Sachs Group Inc. (GS) forecasts that it will fall as low as 1.5% in 2009.

Source: Federal Reserve, Bank of China Cut Interest Rates as Financial Crisis Deepens

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

Oh, how twisted the markets have become.

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

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

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

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

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

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

Cheers, mates, thanks for the update.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The 5: You’re welcome.

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

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

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

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

“Once the global economy emerges from the current financial crisis, which it will, the countries that do well on our index are those that are best prepared to bounce back and perform well in the longer term,” Jennifer Blanke, director of the WEF’s global competitiveness network told The Financial Times.

And the United States is at the top. That’s the good news.

The bad news is that the safety of U.S. banks dropped to 40th this year from 26th in the WEF’s 2007 – 2008 report.

“Despite rising concerns about the soundness of the banking sector and other macroeconomic weaknesses, the country’s many other strengths continue to make it a very productive environment,” the report said of the United States.

But such a fall in the rankings for bank safety is a bit frightening for U.S. banking customers already spooked by the collapse of investment bank such as Lehman Brothers Holdings Inc. (OTC: LEHMQ) and regional banks such as IndyMac Bancorp Inc. (OTC: IDMC).

Summing a Country’s Competitive Balance Sheet

The WEF analyzes 110 economic indicators in 12 different categories for each of 134 countries to come up with its overall GCI ranking. One of those 12 areas is financial market sophistication, which is made up of factors such as “venture capital availability,” “strength of investor protection” and even “regulation of securities exchanges.”

But perhaps the most important factor in this category is the soundness of banks.

Confidence in a nation’s banks is what keeps citizens from stuffing dollars under a mattress. Banks need deposit assets to keep the wheels of U.S. industry turning, as deposit assets are used to fund the short-term credit markets that are so vital to the daily operations of many corporations.

And it’s an area where the United States ranks a disappointing 40.

Coming in behind such well-developed nations as Canada, which tops the list, or even Hong Kong in the 11th spot, might not seem so bad. But even the small African nation of Namibia ranks in at 17, illustrating the United States has some definite room for improvement.

While there are plenty of surprises at the type of the bank safety list, there aren’t many such surprises at the bottom. Algeria comes in dead last with Libya just above it.

Of the “BRIC” nations – Brazil, Russia, India and China – most moved up the list this year against better-developed nations. China landed in the top 30 for the first time as it moved up four spots to reach 30, but China’s banking system is still near the bottom of the list at 108. India, however, slipped two spots to 50 from 48 due to a widening budget deficit. India’s banks also slipped, falling to 51 from 46.

Meanwhile, Brazil was the biggest mover with an eight-spot jump to 64 on the overall list, and also tops the United States when it comes to the soundness of its banks with its 24th spot on the banking safety list. Oil revenues gave Russia a gain of seven to move to 51 from 58 the year prior, but Russia’s banks clocked in at 107 on the soundness rankings.

Slipping Bank Titans?

The United States wasn’t the only nation to find its ranking slipping in the bank safety category. The United Kingdom made a stunning plunge from 4th in the 2007 – 2008 survey, to 44th in the current one, after the emergency nationalization of banks such as Northern Rock PLC (PINK: NHRKF).

Even Switzerland, synonymous with banking to many, was hit hard by the global banking crisis, as it slipped from its top spot in last year’s banking soundness rankings to 16th this year. Swiss giants such as UBS AG (UBS) got caught with over-exposure to U.S. subprime mortgage-backed securities that necessitated government intervention while #2 rival Credit Suisse Group AG (ADR: CS) was forced to raise fresh capital.

Nations from Sweden to the United Kingdom to the Netherlands have all introduced government-sponsored packages to help support ailing domestic banks and avoid the fate of nearly bankrupt Iceland and Pakistan.

The United States $700 billion bailout package is by far the largest, but even that might not be enough to return the domestic banking industry back to safety.

The U.S. financial landscape has been changed forever as firms such, as Lehman Brothers – old enough to have weathered the Great Depression – toppled under the crushing weight of a credit market. The strong – Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) – have bought out the weak.

Bank of America bought both mortgage lender Countrywide Financial Corp. (CFC) and former standalone investment bank Merrill Lynch & Co. Inc. (MER). JPMorgan bought both regional bank Washington Mutual Inc. (OTC: WAMUQ) and the failed Bear Stearns Cos. Inc. Wells Fargo is buying Wachovia Corp. (WB).

But in the wake of such massive acquisitions, the United States is left with huge nationwide banking complexes dangerously close to the 10% regulator’s cap any one bank is allowed to have of domestic market share.

And with 117 financial firms on the Federal Deposit Insurance Corp.’s (FDIC) “Problem List” at the end of the second quarter, more bank acquisitions and rescues could be on the way. The FDIC’s list for the third quarter won’t be published until November.

The FDIC’s coffers have already taken a hit from the rescue of IndyMac and with the recent bailout law raising the cap for FDIC-insured deposits, it doesn’t seem like much of a stretch to imagine the nation’s banking insurance coming up short if one of the largest banks were to fail.

Bank Safety Plays

The FDIC doesn’t publish the names of the banks on its watch list, but luckily there are some simple ways to help ensure your banking deposits are safe. Here are three quick and easy steps from Money Morning Investment Director Keith Fitz-Gerald that you can take to determine if your bank is safe or not:

1. Click over to Bankrate.com’s Safe & Sound ratings page. There you can plug in your bank’s name and see how it scores on the basis of 22 objective measures designed to gauge the capital adequacy, asset quality, profitability and liquidity of thousands of banks. “If your bank doesn’t make the cut with a higher rating, then switch to one that does,” says Fitz-Gerald.

1. Use the FDIC’s electronic deposit insurance estimator to see if your assets are covered in full. With the recent signing of the bailout legislation into law, the FDIC now covers accounts up to $250,000 at any one bank in any single account or $250,000 per co-owner for joint accounts. Traditional and Roth IRAs, SEPS and other retirement accounts on deposit at an FDIC-insured bank or savings institutions are insured up to $250,000 separately from any other deposits you may have at the same institution. “But remember,” said Fitz-Gerald, “this is mainly deposit accounts and doesn’t include stocks, bonds, mutual funds or life insurance policies.”

1. Double-check your ownership. If a portion of your assets is uninsured, getting full coverage may just be a matter of changing ownership or spreading out your accounts to different banks. “Like most things the government doesn’t make this easy, so that means more paperwork,” Fitz-Gerald said.

Source: Global Credit Crisis Takes a Toll on Former Titans of Banking

The current global credit crisis has created distortions that make many investments look bad. These same distortions have made leveraged multicurrency investments better.

Governments and central banks have lowered interest rates in numerous countries, including the U.S. This means that four currencies can be borrowed at Jyske Bank with low lending rates.

Those currencies are the U.S. and Singapore dollar, the Swiss franc, and the Japanese yen.

The rates, depending on the amount borrowed, are:

U.S. dollar: 4.125% to 4.875%
Swiss franc: 4.25% to 5%
Japanese yen: 2.5% to 3.25%
Singapore dollar: 3% to 3.75%

The multicurrency distortion is created because deposit rates on other currencies have risen.

Interesting deposit rates are on Turkish lira, Australian and New Zealand dollars, Icelandic króna, Hungarian forint, and South African rand.

These rates are:

Turkey: 14%
Australia: 6.875%
New Zealand: 8%
Iceland: 5.25%
Hungary: 7%
South Africa:10.25%

If one wished to leverage investments with the least risk (other than Forex), one could simply borrow the four currencies above and invest in deposit accounts in the six high-rate currencies.

Take, for example, an investment of $100,000 leveraged with a $200,000 loan of $50,000 borrowed in each of the four low-rate currencies. This raises $300,000 to invest.

The average loan rate (at the highest rate) is 4.21%…and $50,000 is invested in each of the six high-interest-rate currencies.

The average interest rate earned is 8.56%. The annual interest earned is $25,687.

The loan cost is $8,420. The income after loan payments is $17,267 or 17.26% on the $100,000 invested.

This is not bad. Such a portfolio is well diversified from a currency and geographic perspective. There is still a currency risk and investors should never leverage more than they can afford to lose.

Every investment has risk. The key to good multicurrency investing is to be sure that the premium you are paid for taking the risk is good.

In my opinion, 17.26% is more than a fair premium, but we can do even better with bonds, as I’ve been discussing in my multicurrency education service.

Gary Scott
For International Living

Source: Borrow Low, Deposit High

Jim Rogers, a best-selling author who co-founded the famed Quantum Fund with George Soros back in 1970, told Bloomberg News Thursday that the global credit crisis caused by the subprime mortgage meltdown is nowhere near over.

“I doubt that we’re half way through the financial crisis,” Rogers stated at a Barclays PLC (BCS) news conference Thursday in Singapore, where he now lives with his family. “We certainly haven’t hit the bottom as far as I’m concerned.”

Not only did Rogers’ comments contradict those put forth this week by the heads of several Wall Street investment banks, they even ran counter to statements made by former partner Soros, who said this week that he believed the “acute phase” of the worldwide financial crisis was nearly done – meaning the U.S. economy might soon start displaying the benefits.

Rogers’ downbeat outlook also ran counter to some upbeat observations made by Ronald J. Peltier, the chairman and chief executive officer of investing guru Warren Buffet’s HomeServices of America Inc. real estate company, who told CNBC-TV that the beaten-up U.S. housing market has leveled out and is poised for a move to higher ground.

“I think the real truth is the market has been in a phase of correction,” Peltier said Thursday morning during an interview on the popular financial cable channel. “We are seeing some light at the end of the tunnel.”

So who’s correct?

Rogers, currently the chairman of Rogers Holdings and the author of the new investment bestseller, “A Bull in China,” seems to think that’s a pretty easy question to answer. After all, big global securities firms and commercial banking enterprises have taken about $319 billion in write-downs since the start of 2007 and have slashed away 65,000 jobs in the past 10 months as the financial crisis spread across the globe, Bloomberg reported.

And there’s more to come.

“Most of the European banks and Asian banks haven’t taken a huge write-off yet,” Rogers said. “I suspect there are more write-offs to come in Europe and Asia.”

Echoing comments he made two months ago during an exclusive interview with Money Morning Investment Director Keith Fitz-Gerald, Rogers told listeners in Singapore Thursday that he’s avoiding financial stocks and is betting that the share prices of U.S. investment banks have a lot further to fall. He also sees continued major problems for U.S. homebuilders that very often doled out mortgages that did not require documentation regarding assets or income, and for government-sponsored mortgage financier Fannie Mae (FNM). That’s why he’s expecting housing stocks and Fannie Mae’s shares to decline even more than they already have as investors avoid all but the safest assets – such as U.S. Treasury debt.

Such ongoing uncertainty and fearfulness can’t help but cause overall stock-and-bond prices to fall even further, Rogers told reporters.

Indeed, during his recent exclusive interview with Money Morning’s Fitz-Gerald, Rogers said it’s even possible that the U.S. Federal Reserve could ultimately fail.

As if to defy his gloomy predictions, stocks have rallied since mid-March, when JPMorgan Chase & Co. (JPM), the No. 3 U.S. commercial bank, agreed to buy The Bear Stearns Cos. Inc. (BSC), in a central-bank-sponsored bailout deal. In fact, the MSCI World Index has gained 10% since touching a one-year low on March 17, Bloomberg reported.

While HomeServices’ Peltier agrees that was a problem – a “lot of people bought ahead of themselves,” and speculators damaged the market even more – he told CNBC that he now believes the U.S. housing market has actually returned to its pre-boom times, with home sales running at an annual rate of about 5 million.

“I think that’s a normalized market and I think that’s a sustainable level,” he told an interviewer. But he also divided the market into two distinct parts:

• The primary market of discretionary sellers.
• And the distressed market, which includes some of the regions that experienced the “meteoric” rise in housing prices – and which now are suffering the fallout.

Even after that, however, it’s clear that “housing prices are still within 8% to 10% of all-time highs,” Peltier said. “The markets that have fallen off the most are actually the markets that were the most overheated.”

As the housing market returns to its more-normal operation, Peltier believes stability will return and that prices and sales numbers will return to a point that was sustainable.

There is one wild card that has the executive concerned, however: Will the pressures of soaring fuel costs and a tight credit market put an inordinate amount of pressure on consumers who are attempting to work out their housing problem – as opposed to just walking away?

“A lot of people bought ahead of themselves,” Peltier said in the interview. “Frankly, I think to some degree the lending industry, the mortgage business, lost its moral compass in terms of providing the proper credit standards and qualifications.”

Speculators proved to be the real troublemakers: From 2001 to 2006, a full 25% of sales were made to buyers who believed they could turn a quick profit, and not to people who were planning to live in the houses and make them into a home.

In retrospect, Peltier said it’s clear the U.S. housing market got way ahead of itself from a price standpoint, with the flames of speculation getting fanned by unscrupulous appraisers and lenders who ended up putting lots of consumers into houses that they couldn’t afford.

Industry officials “knew it was an overheated market,” Peltier said. “There were people for the first time ever having opportunity to buy part of the American dream under credit conditions and credit guidelines that were very, very shaky at best … And they were buying at the peak of the market with very low teaser rates, not fully understanding the implications of that adjustable-rate mortgage [re-setting at a much-higher rate] sometime in the future, and the probability that they could not afford that home under the new reset conditions. That’s a travesty, because there are a lot of people that got hurt.”

He called on Congress to find a workable solution to the housing crisis, something that has been elusive as the legislators and President Bush spar over who should benefit from pending legislation.

On the broader political landscape, Peltier said the housing industry generally does better when Republicans are in office, though he did not endorse a specific candidate in the presidential race.