U.S. employers cut far more jobs than expected last month and the unemployment rate hit 9.5 percent, the highest in nearly 26 years.

While analysts caution that jobs data is a lagging indicator and unemployment can still rise when the economy is turning around, it was enough to prompt investors to reduce their risk assets especially before a long weekend in the United States.

Furthermore, signs of a recovery in the euro zone’s dominant service sector took a backwards step in June with the final services purchasing manager index coming in at 44.7 in June, down from May’s seven-month high of 44.8.

This marks the thirteenth consecutive month the index has been below the 50.0 mark that divides growth from contraction.

“Payrolls were a wake up call,” said Jacques Henry, analyst at Louis Capital Markets, in Paris.

“The data showed that the economic recovery remains fragile and more downbeat data is to be expected, particularly on the jobs front. Stocks are ripe for a consolidation period.” MSCI world equity index fell 0.2 percent on the day, having hit the 1-1/2 week low earlier.

The pullback comes after the MSCI world equity index rose more than 21 percent in the second quarter, its biggest ever quarterly gain in its 21-year history.

“The equity rally hasn’t ended, but it is moving into a new phase. We’re moving from a period of very cheap equities and extreme risk aversion into one where equities are more fairly valued,” Bill O’Neill, portfolio strategist at Merrill Lynch Global Wealth Management, said in a note to clients.

“Future advances will be driven by earnings upgrades, rather than the recovery of investor demand that we have seen over the past few months.”

The FTSEurofirst 300 index was down 0.4 percent, led by mining shares. while emerging stocks were steady on the day.

U.S. markets are closed for a holiday on Friday.

U.S. crude oil fell 0.3 percent to $66.53 a barrel.

After the employment report, U.S. short-term interest rate futures jumped, trimming chances of rate hikes from the Federal Reserve this year.

“The BLS (Bureau of Labour Statistics) sprayed weed killer on our green shoots,” RBS said in a note to clients.

“Weaker-than-expected payrolls were a dose of grim reality for financial markets and expectations of US rate hikes and general optimism in markets can correct further.”

The September bund futures fell 11 ticks.

The dollar rose a quarter percent against a basket of major currencies while the euro rose 0.4 percent to $1.3997 .

LONDON, July 3 (Reuters)

Gold hit two historic milestones in 2008. First, it hit its all-time high of $1,030 an ounce in early March.

Just three months later, the price of gold for December delivery fell to $681 an ounce, a 21-month low and 33.9% drop from its record high.

Most gold bugs were equal parts heartbroken and puzzled. Global stock markets tanked alongside the world’s biggest economies. But so did gold, which is widely considered to be a safe haven investment when everything else in spiraling south.

However, Money Morning Contributing Editor Martin Hutchinson- an investment banker with more than 25 years’ experience on Wall Street and Fleet Street and leading expert on the international financial markets- understood perfectly.

“Gold is not a safe haven against recession,” said Hutchinson. “It’s a safe haven against inflation.”

In the past year, commodities prices across the board skyrocketed- especially oil, which hit a record high $147 a barrel. Corn, wheat, and soybeans all hit record highs, as well.

That tightened household and corporate budgets, and was a primary reason why the U.S. economy walked backwards over the third-quarter finish line with -0.3% annualized growth. It was the first quarter of what most economists believe will be the nation’s first recession since 2001.

However, the inflation epidemic that preceded it- and arguably contributed to it- has waned significantly, as global demand for raw materials has slumped.

Prices for staple foods such as corn, soybeans and wheat have all come down from their record highs in near tandem.

Corn futures are down nearly 50% from their summer high of $8 per bushel. The same is true of soybeans and wheat, as each have lost roughly half their value. In fact, wheat hit a 16-month low in mid-October.

As most of us noticed, gas prices have fallen 48% from their July 17 high of $4.114 a gallon.

And not coincidentally, gold has fallen 22% in that same time frame.

However, this report examines the pending “re-re-correction” of commodities- the slow and steady rise of commodities after the roller coaster of record-high inflationary highs and a sudden breakneck fall below real value- to find the charted path of gold prices in 2009.

But it also reveals another wild card inflationary indicator that Hutchinson believes carry gold prices to $1,500 an ounce by the end of 2009…

Two Catalysts For Gold’s Climb

The U.S. Department of Agriculture’s Oct. 10 Crop Production Report said acreage for a handful of staple food commodities has shrunk:

• Corn acreage fell 1.2%.
• Soybean acreage dropped 1.4%.
• Canola acreage dropped 1.9%.
• Sunflower acreage shrank 0.8%.
• And acreage of dry edible beans fell 0.7%.

That naturally translates to higher prices because a squeezed supply increases demand, especially from the growing economies and populations in China, India and Latin America.

But Hutchinson believes another caveat in the cracks of our economy’s recovery will spell a sharp rebound in gold prices… one that could catapult it to $1,500 by the end of 2009.

“The government is pumping money in so many banks, and that money has to come out somewhere,” Hutchinson said.

The U.S. government’s historic bailout pumped $700 billion into its failing banking system… all to give banks back the capital they squandered in doling out defaulting loans.

Since September 2007, Ben Bernanke and the Federal Reserve have cut interest rates nine times- from 5.25% down to the current 1.0% rate- to increase bank-to-bank lending and bank-to-consumer lending.

“The government is pumping money in so many banks, and that money has to come out somewhere,” Hutchinson said.

And by the time is does, food prices should begin ticking upward, adding another set of thrusters to gold prices.

“Everybody thinks that because we’re having a horrible recession, we’re not to go have inflation. I think that’s probably wrong,” Hutchinson said. “I think gold has quite good hidden-store value.”

Should gold reach Hutchinson’s top-range price of $1,500 an ounce, it won’t be its real value. Just like how its deflated price now doesn’t reflect real value either.

Rather, $1,500 an ounce would be the marked-up price caused by another inflation-fueled investor flood into the yellow metal.

“As gold goes up, it gets more popular and investors start piling into it,” Hutchinson said.

And if gold gets anywhere near the $1,500 mark, sell. Prices that high will likely fall back or plateau as the Federal Reserve begins raising interest rates and strengthening the U.S. dollar, Hutchinson said.

Five Ways to Play Bottom-Basement Gold

Before we get too far ahead of ourselves, let’s first look at five ways to play bottom-basement gold.

SPDR Gold Trust ETF (GLD)- formerly StreetTracks Gold- is a fund whose shares are intended to parallel the movement of gold prices. Since gold prices started falling along with gas prices, SPDR Gold Trust has stayed within a 0.5% margin of gold prices. This ETF eliminates any investor concern over storage and delivery while giving them exactly what they want- gold.

Toronto-based Barrick Gold Corp. (ABX) has 27 mines, mostly in North America and South America, and is developing or exploring 11 more. With a market cap of more than $20 billion, it has considerably more liquidity than most mining companies. Barrick is primarily a gold miner, but it also has copper and zinc mining operations. As far as investors are concerned, there are two ways to look at that: It’s not a pure play, per se, but then again, this is a company stock not a brick of bullion. Also, having operations other than gold can help stabilize the company’s bottom line in case problems arise at a gold mine.

Denver-based Newmont Mining Corp. (NEM) is primarily a gold producer with operations in the U.S., Australia, Peru, Indonesia, Canada, New Zealand and Mexico. Its reserves are hovering around 86.5 million ounces. Like Barrick, this is a mining stock play, and it subject to market swings on top of fluctuations of gold prices. That can be a significant tailwind, especially if you believe the stock market has bottomed out or is close to doing so. Hutchinson- forever a value-minded investor- warned that Newmont might be a little too pricey now. Investors may want to wait for the company’s stock price to settle before getting in.

Hutchinson thinks the best value for a gold mining stock can be found in Yamana Gold Inc. (AUY), another Toronto-based company that’s small now, but has rapidly expanding production. 

But for investors who just want gold- not an ETF or stock- the best avenue is an EverBank Select Metals Account: EverBank accounts has a minimum deposit that is 98% lower than its competitors, and its commission costs are up to 86% lower than other metals’ brokers and bullion banks. It offers two types of gold accounts: Unallocated (Your purchased gold is pooled with that of other investors, eliminating storage and maintenance costs. $5,000 minimum deposit.) and Allocated (You directly own the gold you purchase, held in your own private account. $7,500 minimum deposit.) Both types of accounts can be set up 24/7 online. But if you prefer the phone, call 866-326-6241, and be sure to give them the code 12608 when setting up an account.

We should point out that the publisher of Money Morning has a marketing relationship with EverBank, but that’s because its products are best in show.

Source: Outlook 2009: Five Ways to Play Gold’s Steady Advance

Oil pared losses on Tuesday after an earlier fall to a new 3-1/2-year low below $48 a barrel, weighed down by heavy losses in global stock markets after confirmation that the United States was in recession.

But a rally in European shares and expectations of a bounce on Wall Street helped oil move up from its lows.

U.S. light crude for January delivery was up 3 cents at $49.25 a barrel by 1300 GMT. It earlier touched a new 3-1/2 year low of $47.36, its lowest since May 2005.

Prices had dropped nearly 10 percent on Monday.

London Brent crude was up 5 cents at $48.02 a barrel after touching a low of $46.02, its lowest since February 2005.

“Today’s equity market rebound is preventing oil from going lower,” said Olivier Jakob, of consultancy Petromatrix.

“The equity market has been a main input for oil,” he said. “Because the slowdown in oil demand is linked to the global economy – that’s why the correlation is very strong.”

Oil prices had tumbled on Monday after OPEC decided to wait until later this month to take more supply off the market to try to defend prices.

“OPEC was the key reason for the sell-off at first and then the poor performance on equity markets helped it follow through,” said Rob Laughlin, oil analyst at MF Global in London.

A key economic research body found on Monday that the United States economy had slipped into recession in December 2007.

The Organization of the Petroleum Exporting Countries is ready to cut production by a significant amount when it meets later this month in Algeria to try to shrink rapidly building stocks, OPEC’s secretary-general said on Monday.

Top exporter Saudi Arabia has highlighted $75 a barrel as a “fair price” for oil.

But OPEC’s existing cutbacks of about 2 million barrels per day have so far failed to bolster the price, which has dropped nearly $100 a barrel from a peak of more than $147 in July.

More bearish news could be in store on Wednesday, with U.S. crude oil inventories likely to have risen by 1.8 million barrels last week, a third consecutive weekly build, as imports continued to increase, a preliminary Reuters poll of analysts showed.

By Christopher Johnson
LONDON, Dec 2 (Reuters)

This from The Sovereign Society:

Put simply: If things don’t start improving quickly in South Africa, it’s poised to become the next – and perhaps most noteworthy – failed state in all of Africa. Think Zimbabwe, but multiply the chaos as South Africa has long been the best and last hope for Africans striving to build and maintain a modern and efficient market economy.

1. Global economies, most specifically emerging global economies, have been brought to a halt by declining levels of demand. South African resources are particularly exposed to demand destruction as the global recession spreads. Frozen credit markets have tied the hands of economies once turning heavily to South Africa for its natural resource production.

Declining commodity prices alone will certainly send tremors throughout South Africa. Accessibility of credit will put a damper on new South African projects, and sharply lower commodity prices will make such projects increasingly less profitable.

This ultimately means a severe drop off of capital inflows. Up until this point, South Africa’s appealing growth story was still in its infancy.

The country made hay off the commodity bull market and South Africa’s currency is stamped with a fairly attractive yield. But the collapsing global financial system will stop South African growth dead in its tracks. At that point we’ll learn just how improved the booming global economy allowed South Africa to become.

Unfortunately, there are plenty of pieces that still don’t fit together. To that point…

2. Political and social unrest has frequented the African continent. Though South Africa is considered a democracy, it’s effectively a one-party state ruled by the African National Congress (ANC). Political and social pressures are quickly encroaching.

The ANC is a Marxist-like organization that has aggressive redistribution policies. It has instituted a draconian affirmative action program to increase black employment. But this has led to massive incompetency in key sectors of the economy and a “brain drain” out of South Africa.

The reality is, unemployment for many black workers in the townships has not improved much at all. And these efforts to empower more nonwhites will likely unwind dramatically as the economy deteriorates like it did a decade ago.

In fact, life of squalor and poverty for many South Africans has gotten worse over the past several years. Social stability has spiraled downward and crime is rampant throughout all levels of society. But because the poor don’t have the wherewithal to hire private guards, they are victimized repeatedly by roving gangs of thugs. It is a sad awful existence that has not improved despite the ANC guaranteeing it would.

And as the business cycle turns down, we expect the ANC to try to ramp-up its efforts to redistribute wealth in an attempt to damper rising social unrest. The impact of which will only hollow out South Africa’s economy even more, further weakening what once was a vibrant and efficient economy.

Given these items, we think the South African rand is extremely overvalued. It represents a crisis currency in the making. This is truly big game territory. For when the market finally recognizes this country’s deep and profound economic, political and structural problems, South Africa’s currency will face a world of pain.

Source: Markets Sink Again, and Best Opportunities Still Reside on the Short Side…

Here’s the thing… Jim Rogers has a gift for exploiting sleepy markets no one else has thought of. He’s made money in Ghana, Botswana, Zambia, and Zimbabwe.

He put money into Uruguay before people “even bothered with shares,” Bolivia when the stock market was less than two years old, and Peru while it was still in a civil war.

And in Austria, Rogers made one of his biggest coups of all. In 1984, he noticed Germany was becoming an industrial powerhouse and was dumping its socialist politics. Austria is next to Germany. Rogers figured the Austrian stock market was ready for a boom…

He called a manager at Creditanstalt – Austria’s largest bank – and asked him how to invest in Austria’s stock market. The bank manager told Rogers Austria didn’t have a stock market. Austria’s market was so obscure, the manager of the country’s largest bank didn’t know about it. His ignorance was a buy signal for Rogers, who made 500% gains in three years.

———- Advertisement ———-
What “60 minutes” didn’t report…

On January 22, 2006, millions of Americans were exposed to one of the biggest discoveries of the 21st century…

A 60 minutes news team announced the discovery of a billion-dollar treasure buried in Northern Alberta.

But they missed a critical part of the story… which is about to make some investors a lot of money over the next few months. Click here for full report.
———————————–

“You have not really been to a country,” he says, “until you have had to cross the border physically, had to find your own fuel, a place to sleep, until you have experienced it close to the ground. My success in the market has been predicated from seeing the world from a different perspective.”

Rogers thinks China will become the world’s next superpower. Last year, he sold his house in New York and moved his family to Singapore. He wanted to move to China, but said the pollution was too bad there. He’s using Singapore as his Asian base instead. “It’s like moving to New York in 1907 or London in 1807,” he says.

Rogers thinks the Chinese are the most capitalist people on earth. They save almost 35% of their income and don’t worry about how many vacation days they might get. Instead, they worry about how many days they are allowed to work.

“I recommend you all start to learn Mandarin,” he always tells audiences at investment conferences. “And tell your children and grandchildren to do the same.” Jim’s daughter has a Chinese nanny, who speaks only Mandarin.

In 2006 and 2007, Chinese stocks rose 500%. It was one of the most memorable bull markets in history. Newspapers published stories every day of Chinese taxi drivers and hairdressers making fortunes in the stock market. We read about queues of people waiting to open brokerage accounts.

Then the market collapsed…

Now I’m starting to get excited about China. I’ve been researching Chinese stocks that trade on North American exchanges. I call these “Chimerica” stocks.

I found some interesting agriculture companies. They do all their business in China, but they report in English and conform to U.S. regulations. These stocks have better valuations than Shanghai-traded stocks because so few people know about them. They even have better valuations than most of their American and Canadian peers.

Yesterday the papers announced Jim Rogers is buying China again. “All the panic looks like a bottom,” he told an audience at a conference in Beijing. “I have bought in the last four to five weeks. I’ve been buying shares in China for the first time in a long time.”

Jim Rogers is rarely wrong about these trends. We need to get our money into China soon. I’m going to wait for the Shanghai Composite to form an uptrend before I invest… It’ll improve my odds of making a profit. In the meantime, I’m going to keep researching Chimerica stocks, and I suggest you do the same.

Good investing,

Tom

The rally comes despite heavy writedowns from Swiss banking giant UBS.

The uncertainty about the markets’ direction reflected the fact that stocks rose after another round of bank writedowns and capital-raisings – developments that might have been expected to send prices lower.

However, UBS added to the previous session’s 12 per cent advance sparked by news of the departure of its chairman. The Swiss bank said Marcel Ospel was standing down in the wake of $19bn of new writedowns and plans for a SFr15bn ($15bn) rights issue. Its shares rose a further 0.4 per cent to SFr32.9 on Wednesday.

In New York, Lehman Brothers, the US investment bank locked in a battle with short-sellers betting on its demise, surged 18 per cent after it said it was increasing Monday’s $3bn capital-raising by $1bn.

Forget the big bank, says Steve Sjuggerud. Small banks are where the profits are at.

“The good part about the small banks is, they generally stick to their knitting – taking deposits and then making loans. They simply earn a spread… They charge more interest on the loans they make than they pay out as interest on their deposits.

“Small banks are generally not like the big banks. Big banks do try to get fancy, with derivatives trading, massive leverage, and such.”