** The dollar’s down, but it’s certainly not out.

• From mid-July to the end of November, the U.S. Dollar Index rose a whopping 23%. This tracks the value of a dollar against six major currencies.
• Anyone who knows anything about currency trading knows it’s not normal for a currency to move 23% in such a short time. Forex traders consider a one percent daily move to be big news.
• So it would make sense that the U.S. Dollar Index would have to see a rapid price decline after rising 23% so quickly. It has to go back to the mean, after all. And that’s exactly what happened. The dollar fell 11% between mid-November and mid-December.
• But this drop doesn’t necessarily signal the beginning of a new downtrend. As of now, it only signals a correction. We can see this by looking at a chart below

• As long as the dollar stays above its 200-day moving average, the recent uptrend will stick. But that’s not to say we won’t see dollar weakness ahead.
• It’s possible for the dollar index to trade between 78 and 88 for the next two or three years. It could even move past 88. But betting that it will move under 78 is premature. If you really want to capitalize on a drop in the dollar, wait for a confirmation of the downtrend by allowing the U.S. Dollar Index to trade under 78 before shorting.
• At that point, you could make some good money buying up the Rydex Weakening Dollar 2x Strategy H ETF (MUTF:RYWBX) . For every one percent the dollar losses, you gain two percent. And with Bernanke dropping money from helicopters, it is only a matter of time before the dollar starts seeing bigger drops.

** The Congressional Budget Office estimates that the 2009 budget deficit will reach $1.2 trillion.

• That was one day after President-elect Obama said, “Potentially we’ve got trillion-dollar deficits for years to come, even with the economic recovery that we are working on at this point.”
• The government has already backstopped the financial markets to the tune of over $8 trillion. Now our politicians are starting to spend obscene amounts of money in a failed effort to “jump start” our economy.
• If the markets continue to suffer, the government will have to cover losses for years in the future. This means they will continue to create funny money to cover those losses. And inflation should become a big concern.

** According to Bloomberg, General Motors said it has enough government loans to cover its worst-case forecast for U.S. auto sales and won’t need more if the economy holds up.

• It’s extremely difficult to believe that a one-time loan to GM would be enough to fix their problems. A former Merrill Lynch auto analyst has said that GM’s plan “all depends on a lot of difficult-to-forecast factors, like the size of the market.” And during congressional testimony, another analyst said Detroit would need up to $125 billion to become whole again. This is very different from the less than $20 billion that GM and Chrysler got from the government in December.
• The truth is that GM is taking a big fat guess on the amount of taxpayers’ money it needs to stay afloat. And to make matters worse, it seems GM’s management is far too detached from reality to make a good business decision.
• Considering GM’s current predicament, why would anyone believe GM to be right about its super-ambitious forecast? Don’t believe a word of it. GM will ask the government for more money this year… more losses will force the government to create more money… and the politicians leading us will be “forced” to spend more to try and “buffer” a recession in vain. Buy gold.

Briefings for top congressional Democrats were to start either over the weekend or today (Monday), a senior transition-team official told The Associated Press late last week. President-elect Obama is slated to meet today with House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., in a Democratic strategy session that is likely to focus on the economic recovery package.

It’s time to look forward, not back. The 111th Congress meets tomorrow (Tuesday), and a comprehensive economic stimulus package is at the top of its agenda.  Hopefully, the lawmakers can put partisan bickering aside (fat chance) and have a bill in place for President-elect Barack Obama’s signature soon after his Jan. 20th inauguration.

Experts are looking for a stimulus package of $800 billion to $1 trillion (“pork-barrel” projects included), although the Obama administration officials claim they will trim away any unnecessary fat.

Don’t expect much joy from retail-land as a trade group projected that December sales plunged by more than 1% with J.C. Penney Co. Inc. (JCP) (-11%), Kohl’s Corp. (KSS) (-10%), and Target Corp. (TGT) (-8%) among the primary victims.  As Money Morning predicted in a recent “Buy, Sell or Hold” column, discounter Wal-Mart Stores Inc. (WMT) is believed to have benefited most from the economic weakness with sales projected to have risen by 3% in December. While the holiday numbers seem dire at best, gift card sales don’t show up in the data until they are redeemed so retailers have one last opportunity for positive news in January (and beyond).

Unemployment data highlights this week’s news reports and a 12th straight month of labor contraction is a foregone conclusion.

As for stocks, the so-called “January Effect” states “as the first five days of January go, so goes the market for the year.” Let’s hope the full week sets a nice tone for 2009 (not a bad start).  The first trading session of the New Year on Friday got things off to a fine start. The Dow Jones Industrial Average soared 258.30 points, or 2.9%, pushing the 30-stock blue-chip index back up over 9,000 to its highest close in two months. The Dow ended trading on Friday at 9,034.69.

Many investors closed their books on 2008 a few weeks early, but took some opportunities to rebalance their portfolios for 2009.  The Dow experienced its worst year since 1931 and the Nasdaq and S&P 500 indexes have fallen almost 45% since their 2007 highs. Foreign markets suffered similar fates, for instance, with Japan’s Nikkei having plunged 42% last year.

On Friday, trading was thin and the economic backdrop was dour, but it still felt “good to get off to a good start on the first trading day of the year,” Fred Dickson, chief market strategist at the investment firm D.A. Davidson & Co. told The Washington Post. “Even though all the economic data is discouraging, I think there’s a psychological lift to starting off the year on solid footing.”

Investors actually shrugged off a report from the Institute for Supply Management that showed that manufacturing activity contracted to a 28-year low in December. All but one of the stocks in the Dow posted gains – JP Morgan Chase & Co. (JPM) being the only loser. General Motors Corp. (GM), Alcoa Inc. (AA), The Boeing Co. (BA) and Citigroup Inc. (C) posted the biggest increases in the Dow.

Citigroup shares rose 6.4% to close at $7.14 after the bank revealed it would not be paying bonuses to its top executives [For more details on the Citi announcement, check out this related story in today’s issue of Money Morning]. Financial stocks also got a boost from a report that the U.S. Treasury Department said it would consider insuring toxic assets at large firms from unlimited future losses, just as it did for Citigroup in November.

General Motors shares soared 14% to close at $3.65 a share on Friday after financing company GMAC LLC said that as part of its $6 billion federal bailout and decision to become a bank, it will no longer have the exclusive right to provide low-interest loans to borrowers who buy General Motors cars and trucks. The change may help GM sell more vehicles, and rely less on GMAC’s ability to provide credit. GM sales fell 41% in November after GMAC had significantly tightened credit the prior month, leaving many prospective buyers unable to borrow.

The Standard & Poor’s 500 Index advanced 3.2%, or 28.55 points, to close at 931.80, while the technology-heavy Nasdaq Composite Index climbed 3.5%, or 55.18 points, to close at 1,632.21.

The Dow has now risen for three consecutive trading sessions. But the market still has a long way to go to recover from a year that handed the Dow a 34% decline, its biggest drop since 1931, and left the S&P down 38% for its worst performance since 1937. The Nasdaq was down more than 41% for the year.

“We still think the market bottomed on Nov. 20, and 2009 will show a continuation of the 25% rally we’ve seen the past six weeks,” Phil Orlando, chief equity strategist with Federated Investors, told The Post. “The economy will start to improve by mid-2009, and stocks are starting to discount that now.”

Market Matters

Though the year-end fanfare and fireworks were lackluster at best, investors put a disastrous 2008 in the rearview mirror and looked forward to better times ahead (or more of the same). While many had hoped for a last minute Santa Claus rally, the fat man did make an appearance over the last two weeks of the year, though results were modest and contributed little to overall holiday cheer.

Amid light volume, investors seemed content to take some time off to lick their collective wounds, analyze what went right (a very short list, indeed!) and wrong (much too long a list to reproduce here), and set their sights on 2009 (or update their résumés).  As has become the norm, the news headlines were dominated by the usual suspects: The bailout deals (financial and auto), the Bernard Madoff scandal, retail, and energy prices.

While much of the financial crisis has involved residential loans, Foresight Analytics predicts that commercial mortgages will become the next ax to fall as property developers take their place in line for the next federal bailout.  The continued freeze in credit and a vast recession could set the tone for an array of hotels, shopping centers, and office complexes to move toward default.

The afore-mentioned GMAC represented the latest non-bank to become a bank as the U.S. Federal Reserve approved its charter and the U.S. Treasury Department opened its Troubled Asset Relief Program (TARP) pocketbook to the tune of $5 billion (and another $1 billion for parent GM).  Soon after, the financing company (rather bank) announced plans to offer 0% loans for certain GM models in an attempt to jumpstart the auto sector  (Now, that’s what TARP was designed to do).

A Credit Suisse Group AG (ADR: CS) analyst quickly put a damper on these “positive” developments by downgrading GM to an “Underperform,” and claimed the company could still fall into bankruptcy.  Bernard Madoff turned over a list of his personal assets to the U.S. Securities and Exchange Commission as the befuddled agency attempted to track down that missing $50 billion.  Meanwhile, those “lucky” Madoff investors who managed to take distributions may be forced to give that money back as lawsuits apply a six-year “claw back” provision on past redemptions.

While Amazon.com Inc. (AMZN) reveled in the unexpected delight of its best holiday season ever, MasterCard Inc. (MA) predicted that most retailers were not so fortunate.  Its SpendingPulse unit projected that total holiday sales declined by 2.5% to 4% from last year’s levels and the International Council of Shopping Centers (ICSC) predicted more store closings in 2009.

Turmoil in the Middle East and a dispute between Russia and Ukraine served to advance the energy markets as oil prices jumped above $46 a barrel on the first trading day of the New Year.  For the most part, traders (and speculators) continued to take their cues from the weak global economy (and sluggish demand) as oil prices have fallen more than $100 a barrel since mid-July.

Economically Speaking

The economic data of the past two weeks did little to instill confidence that the U.S. recession will be short-lived or to promote an expectation that a rebound is imminent.  The manufacturing sector remained weak as durable goods orders fell for the fourth straight month and the ISM purchasing managers’ survey revealed widespread pessimism as it hit its lowest reading in 28 years.

Consumer confidence dropped to an all-time low, as individuals remained worried about their jobs and were hesitant to spend on much beyond the bare essentials (bad news for retailers).  Third-quarter gross domestic product (GDP) was again reported as down 0.5%, and most analysts expect a far worse showing for the fourth quarter.

On the housing front, both existing and new home sales continued to decline in November and median prices tumbled on a national level.  The drop in mortgage rates, however, prompted a surge in refinancing activity and borrowers may soon have a few extra bucks in their pockets to contribute to the economy.

On that note, all hope is not lost. As the government continues to pour money into the mortgage markets, the most optimistic of analysts believe that the same housing sector that started the downturn eventually will lead the economy out of its doldrums.  Home prices are affordable; mortgage rates are extremely low; and the incentives are there for those who can take advantage, meaning there’s perhaps a slightly brighter light at the end of the tunnel.

Weekly Economic Calendar

Source: Obama Stimulus and January Effect Will be the Week’s Top Stories

Silver suffered at precisely the same times. Funny how that works, isn’t it? But silver really took off once its bottom was in at 7:45 in N.Y. However, JPMorgan (NYSE:JPM) showed up shortly after the price passed through $11.00, and that was it for the day. In the last three or four months, it has become common knowledge that JPMorgan (with the Federal Reserve in tow) has become the biggest short in both gold and silver. More evidence to that effect is posted further down.

Open interest for gold on Monday increased another 3,241 contracts to 298,306…but silver o.i. only rose 199 contracts to 85,753. Unlike gold, the silver price has being moving around a lot lately on razor-thin volume, which is very constructive. I’d be really unhappy if all these price movements were on big volume. It’s alarming enough that gold open interest is deteriorating as much as it is. Maybe JPMorgan is going to smash gold to blow out all these new silver longs. I sure hope not. But both Ted Butler and I are fearful of that.

In gold news today, the usual N.Y. commentator had the following to say…”Today’s European Central Bank weekly statement indicates consolidated ‘gold and gold receivables’ fell by €117Mm, 5.8 tonnes at current book value. Only one captive CB was involved. The previous week, the fall was 6.12 tonnes. Reported disposals have picked up somewhat recently, but of course are still well below the 9.6 tonnes notionally needed if the WAG2 quota were to be evenly sold throughout the year…Courtesy of thebulliondesk.com, Chinese gold production for the first eleven months of 2008 was reported at 246.51 tonnes…up 2.14% over the same period in 2007.”

In a Wall Street Journal story, they report that “the Treasury Department has committed nearly $10 billion more than the $350 billion Congress has authorized to date…That suggests Treasury is tapping into the second half of the $700 billion set aside in October before it has been released by Congress. “They are pushing the envelope here,” said Sen. Bernie Sanders (I., Vt.), a critic of the bailout. “What they are trying to do is create a situation to put pressure on [President-elect Barack] Obama and the Congress to provide the next $350 billion.” In a Reuters story I see that U.S. home prices plunged a record 18% year/year in October…and down a hefty 2.2% from the previous month! (Please call me in 2013 and we’ll talk about the bottom of the U.S. real estate market then. – Ed) And, in another Reuters story, the headline read “U.S. consumer confidence at record low in December”. I see in a Bloomberg story that now that GMAC has been bailed by the Fed, they are offering 0% financing up to 60 months. This basically means that the U.S. taxpayer is financing all of (NYSE:GM) GM’s new car buyers. (Can 0% financing on homes be too far behind? – Ed) And lastly, from Frank Veneroso yesterday…”China must be in a significant outright contraction, which the 24.9% annual rate of decline in China power output over the last 6 months has been indicating.”

click to enlarge

Three stories again today. All three are must reads. The first is a Reuters story filed from Chengdu, China. “The biggest migration in human history has gone into reverse…an ocean of China’s blue-collar workers is streaming back to the country’s farming hinterland…as they fall victim to the global economic crisis.” The link is here.

The next article is silver analyst Ted Butler’s latest commentary. It’s a ‘must read’ because of the following e-mail that arrived in my in-box yesterday. Please read this e-mail very very carefully…then read Ted’s latest very very carefully as well…”Silvercorp Metals came out after the close and announced that it is suspending its TLP and HPG mines, as well as scaling down mining at the LM mine in China. The miner also expects its newly constructed Ying mill to be put on care and maintenance. A sign of things to come, Silvercorp says that smelters in China are shutting down or reducing their capacities, resulting in less demand for concentrates and a change in smelter terms. Silvercorp ended the day unchanged at C$2.95. As a Silvercorp shareholder, I am very puzzled. Why would they do this? Silver is moving higher, and the byproduct people are shutting mines. One would think that pure silver producers would be champing at the bit. I don’t get it. Any ideas?” Yep! Ted Butler has the answer. Click here.

And lastly, here is a GATA release entitled “Morgan Chase’s gold derivatives soared as gold was floored.” The article (with wonderful graphs and charts) is prefaced by comments by GATA’s secretary treasurer, Chris Powell, and this is worth the read as well. I mentioned earlier in my rant that JPMorgan was the big gold and silver short on the Comex. Here’s some more proof. With this in mind, it’s easy to see why the SEC and CFTC do nothing, as they are there to protect the big shorts, including JPM…and by extension, the Federal Reserve. The link is here.

That’s it for another year! As bad as 2008 was, I’m expecting 2009 to be worse…much worse. And on that happy note, all of us at Casey’s Daily Resource Plus wish you…our loyal readers…a happy, prosperous and Golden New Year!

See you on Saturday morning.

Source: And Then There’s This…Wednesday, December 31st, 2008

Like a crackhead kicking a trash can reverberates through your hangover headache, the folks from the S&P/Case-Shiller Home Price Index updated their data this morning:

“Home prices are back to their March, 2004 levels,” reports David Blitzer, one of the index’s stewards. “Both composite indices and 14 of the 20 metro areas are reporting new record rates of decline. As of October 2008, the 10-City Composite is down 25.0% from its mid-2006 peak, and the 20-City Composite is down 23.4%.”

Phoenix, Las Vegas, San Francisco, Miami and LA remain the worst housing markets in the country, in that order. Dallas and Charlotte are the “bright” spots, having fallen only 3-4% annually.

The entire financial world had placed a wild bet that house prices in the U.S. would go up indefinitely. The year 2008 will go down in history as the year that proved them wrong… and then all hell would break loose.

The reverberations will continue to reach far and wide in 2009. As a sign of things to come, the first post-Christmas retail bankruptcy occurred Monday. “Parent Co.,” an ironically named retailer of children’s products, filed Chapter 11 yesterday. Our bold, out-on-a-limb forecast for the day: They will not be the last.

Parent Co. joins the ranks of well-known bankrupt retailers like Circuit City, Boscov’s, Sharper Image, Mervyn’s, Linens ’n Things, Whitehall Jewellers and Steve & Barry’s

“If some miracle doesn’t happen,” notes Bill Bonner, “this will go down as the worst year in Wall Street history. Worse than ’29? A lot worse.

“1929 had been a big winner for investors before the crash began in the last quarter. When the champagne was finally poured on New Year’s Eve, investors were less than 10% below where they began the year.

“This year has been all bad. Investors are looking at a loss over 40%. The typical investor in the stock market has probably lost half his money.”

U.S. indexes showed no indication of a year-end miracle yesterday. The Dow inched down steadily as the day progressed, fueled mostly by Middle Eastern news — Kuwait’s broken deal with Dow Chemical and the war in Gaza.

Without any compelling reasons to buy, most major indexes drifted down about 0.3%.

History suggests sluggish and lame markets can — and do — last for much longer than most investors believe is possible. Exhibit A: The Japanese stock market closed out 2008 this morning — its worst year ever – long after its equity and real estate bubbles popped in the early ’90s.

Despite the Nikkei 225’s 1.3% rise today, the index fell 42.1% for the year. The closest comparison would be the 39% annual dive in 1990, after the great Japanese stock bubble popped so magnificently. Still, even compared to that incredible fallout, 2008 takes the cake.

The Nikkei closed today at 8.859. Another 10% or so, and the Japanese market will be flirting with a 25-year low. How does one say “ouch” in Japanese? Itai!

Rather than commit hari-kari… let’s do something unusual and try to think, umn, positive… it is the holidays, after all. How will we know when the bear market is bottoming? And what should we buy when it does?

“Normalized earnings for the S&P 500 could be $60-70,” Agora Financial’s managing editor, Chris Mayer, opined this morning, taking a shot at an answer.

In layman’s terms, that’s a possible low of 600-700 for the S&P 500… 30% lower than it is today.

“The S&P at 600 is entirely possible,” Mayer continues. “So we could have more room to go. But it doesn’t have to go there. Signals to watch — when earnings stop falling quarter to quarter. I actually think we’ll see a big rally early 2009 a la 1930, when the Dow was up 48% from its bottom by April. Big rally coming, and that will be your last chance to dump your weaker holdings.

“If you are going to invest in stocks in 2009,” Mr. Mayer suggests, “stick with hard assets, management teams with proven track records, strong balance sheets and businesses with good disclosures (i.e., no black boxes or funny business). Ag-related stocks will have a good year, I think — fertilizer stocks, in particular. Oil stocks will come back, too, particularly oil field service stocks.

“Natural gas stocks will do even better, particularly the low-cost producers.

“I think now is a good time to pick up India’s blue chips, if you can sit with them for a while. I like emerging markets still. This is a pause, and not the end, of the emerging market growth story. It’s much bigger than most people think. India has less exposure to exports than China, has a lot of savings, little debt, a very young population (half under the age of 25) and some leading companies dirt-cheap…

“Lots of problems, to be sure, as all emerging markets do, but India will come back.”

Of the 100 biggest companies in the world by market value, only 29 are in a net cash position — more liquid assets than debt.

Here are the top four, as listed by the Financial Times:

Berkshire Hathaway — $106 billion in net cash
Bank of China — $101 billion
Industrial and Commercial Bank of China — $89 billion
China Construction Bank — $82 billion

If this isn’t a sign of the times, we don’t know what is.

But “the Chinese growth miracle has reached its pinnacle,” opines our Byron King, contrary to the evidence above.

“During the run-up to the Olympics, the Chinese government closed tens of thousands of factories in and around Beijing, just to control the air emissions and help to create blue skies for the Olympiad. It seemed to work as pageantry. By the time the marathon runners were trotting past the Great Hall of the People, Beijing looked like a picture postcard in its splendor.

“But how many of those closed factories have not yet reopened? All across China, we now learn, several hundred thousand factories are closed, with numerous millions now unemployed. All across the Middle Kingdom, owners and investors are closing factories faster than they are opening new ones. The export-led model of development has hit the rocks. Exports are down, incomes are falling, labor strife is up. This is bad for social harmony.

“It will doubtless get worse in 2009. Yet the larger truth is that China’s problem is part of a global phenomenon. From New York to London to Dubai to Shanghai, trillions of dollars of global capital have vanished — wrecked by deleveraging and associated market losses. The global banking system is in ruins. Trust is ofttimes gone, and scarce in the best of cases. Capital flows are being interrupted by new Chinese Walls the likes of which not even ancient emperors could have dreamed.

“With the export model broken, the mercantilist money machine is also perturbed. This will impact — negatively — Chinese willingness to continue to buy U.S. Treasuries. Which will impact — negatively — the U.S. ability to fund its chronic national deficits and long-term debts.”

The other hallmark drama for the year continues unabated. The U.S. Treasury piled us all deeper in debt last night when it threw GMAC a $6 billion life preserver.

Turns out the auto loaner couldn’t wait for its “bank holding company” upgrade from the Fed. Thus, Paulson and company were “forced” to pull another $6 billion from the TARP to keep GM’s financial arm afloat. $5 billion will be loaned straight to GMAC, and the government will get an 8% coupon. The other billion goes to GM, which has been ordered to increase its 49% stake in GMAC.

The results of GMAC’s huge debt-to-equity exchange Friday are still a mystery. Judging by the Treasury’s sudden injection, it didn’t go so well.

Unfortunately, the initial phase of Paulson’s bailout plan, the clunkily acronymed TARP, is already out of money. The $6 billion going to GMAC is actually money that’s already been allocated toward the bank recapitalization project.

If Congress does not approve the second half of the TARP bailout, the Treasury will bounce some pretty large checks.

Following events from a safe distance, a former Russian KGB analyst says the outlook for Americans is dire. And predicts the breakup of the United States by mid-2010.

“There’s a 55-45% chance right now that disintegration will occur,” Igor Panarin told The Wall Street Journal this morning. “One could rejoice in that process. But if we’re talking reasonably, it’s not the best scenario — for Russia.”

“Mr. Panarin posits,” according to the WSJ, “that mass immigration, economic decline and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the U.S. will break into six pieces — with Alaska reverting to Russian control.”

But the professor is not necessarily happy about it. “Though Russia would become more powerful on the global stage,” he says, “its economy would suffer because it currently depends heavily on the dollar and on trade with the U.S.”

Hmmn… we’re trying to imagine some cowboy from Bakersfield submitting to Chinese rule. Or a Texan taking his orders from Mexico City. Heh.

After briefly falling below 80 yesterday, the dollar index has stabilized around 80.6 today.
The euro and pound are on the verge of parity for the first time ever. The pound, slammed by a large U.K. recession, housing crisis and lower-than-normal rates, has weakened to 98 pence per euro. Year to date, it’s down 25% versus the multination currency.

The approaching parity is reflected in the dollar exchange, as well. A euro today goes for $1.40… the pound a “mere” $1.45.

Commodity traders are taking profits today after Monday’s rally. Oil jumped as high as $42 a barrel, before retreating to $38.

Ditto with gold. It rose as high as $885 yesterday, but goes for just above $870 as we write.

“I believe oil and gold are the places to start getting well positioned in for 2009,” writes a reader, “if one hasn’t already. Oil especially is being primed for a V-shaped recovery. If investors are paying attention, they understand that the unrealistically low price of oil is just that — unrealistic.

“Many oil and gas exploration and production projects have been shelved due to the financial crisis and falling price. Some major oil exporters have exhausted their reserves, Mexico being one. Oil exploration and production require oil prices to be over $100 to be profitable. OPEC drastically cut production levels, due to falling demand. Problems of shortages and spiking oil prices are looming.

“Gold is also primed for a spike as the bailouts and stimulus package get under way. Great way to make up for the losses in 2008 if you’re ready for the ravages that will come along with this!”

“I believe 2009,” writes a reader with his own year-end forecast, “is going to be the beginning of a ‘rich get richer’ story that will reach levels never previously even imagined. This is how I see it playing out. There are many solid companies that have more than sufficient cash to get through the upcoming tough times, but are trading at huge discounts to their historic value. At the moment, the real estate- and energy-related sectors seem to have more of these companies than some other industries, but they exist everywhere. As is often the case, Mr. Market has overreacted and taken down the good with the bad.

“I predict that once there is even a hint that the economy is starting to turn around, there will be a flood of leveraged buyouts whereby those with access to cash will be buying the best companies for a fraction of even their future one-three-year value. And the banks will rush in to provide the financing with the cash they got from the Fed and currently have sitting on the sidelines.

“Bottom line is that Joe the Plumber will find out about a year from now that the only companies still in his portfolio are the companies that the buyout companies did not want. For buyout firms like KKR and Carlyle, this is going to better than robbing a bank, since it is legal. I suggest you provide some guidance as to how to share in this upcoming M&A activity.

“Even a master list of companies that are beaten down but still are earning good money and have plenty of cash would be a start.”

The 5: We’re on it.

Source: How to Spot the Bottom… Then What to Buy, Home Prices Crash, Has China Peaked? And More!

• Detroit-based finance company GMAC has filed to become a bank, a shot at getting a slice of the $700 billion Troubled Asset Relief Program bailout. Private equity firm Cerberus Capital Management LP owns 51% of GMAC. General Motors Corp. (GM) owns the other 49%, Reuters reported.

• Initial jobless claims climbed to 542,000 in the week ended Nov. 15, close to a 26-year high. “The economic contraction appears to be worsening,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, told Bloomberg. “The stock markets are plunging, people are retrenching and manufacturing activity is virtually falling off a cliff. The increase in layoffs can only worsen the economic downturn.”

• Ricardo Salinas Pliego, a Mexican media and retail mogul, indicated that he may seek a controlling stake in Circuit City Stores Inc. (CCTYQ), Reuters reported. Pliego already has a 28.1% stake in the company, which filed for Chapter 11 bankruptcy protect last week.

• After seven months of negotiations, Banco do Brasil SA, Brazil’s largest government-owned bank, is buying majority control of Banco Nossa Caixa SA for $2.25 billion, “Nossa Caixa has got plenty of liquidity, a decent branch network and judicial deposits of Sao Paulo state which is useful. It’s a good fit and it’s a good asset,” Pedro Fonseca, an analyst at London’s Keefe, Bruyette & Woods Ltd., told Bloomberg.

• Light, sweet crude for December delivery fell nearly 8%, or $4.07, to $49.50 a barrel in afternoon trading on the New York Mercantile Exchange, before settling at $49.65 a barrel.

• JPMorgan Chase & Co. (JPM) the largest U.S. bank, plans to fire about 10% of its investment banking staff, or about 3,000 employees, as the global economy slides into recession, Bloomberg News reported. JPMorgan also plans to freeze base salaries next year for most employees who earn more than $60,000 to $70,000, annually.

• The Dow Jones Industrial Average yesterday (Thursday) shed 445 points, or 5.6%, to close at 7,552.29 – its lowest level since March 12, 2003. Meanwhile, the Standard & Poor’s 500 index lost 54 points, or 6.7%, to close the day at 752.44 – its lowest level since 1997.

Source: Global Investing Roundups Friday, November 21st, 2008

The Dow Jones Industrial Average (.DJI) and the Nasdaq (.IXIC) are skirting 5-year lows.

To date, the 10-year return of the S&P is -16%. If that performance holds until the end of the year, this could be the first 10-year period in which the market has lost money. Your broker’s marketing materials may require some significant edits.

In other news…

Jobless claims surged to a 16-year high, while leading economic indicators erased gains from September. Wall Street has keyed off a stream of seemingly endless negative information. And primetime Senate hearings for the auto industry haven’t helped.

The CEOs of General Motors (NYSE: GM), Ford (NYSE: F) and Chrysler failed to impress Capital Hill during their testimony. Executives were unable to gain the support they needed to get federal bailouts. All three companies could face bankruptcy without help.

Meanwhile, GMAC – the finance arm spin-off from General Motors – was looking for money, as well. GMAC is looking to become a bank holding company to qualify for federal bailout dollars.

Companies mentioned in this article: GM and F.

Source: S&P’s Back To The Future: 1997

But Daily Reckoning editor Bill Bonner says commodities are experiencing a correction rather than fundamental change in direction.

Bill says the bull market isn’t over yet. Firstly, the current commodity cycle has not yet run its historical norm of 15 to 20 years. More importantly, there is no Paul Volcker at the Fed prepared to take on inflation..

Today’s most important story comes to us from the Financial Times:

“Biggest dive for commodities in 28 years,” says the headline. It is important because it is likely to give people the wrong idea.

Oil dropped another $2.74. Clearly, the peak has come and gone. The black goo hit $147 and has been in retreat ever since.

Gold is down too. It rose $10 on Thursday, bringing the price back to $922. For a moment, it looked as though we’d have a chance to buy below $900. But the yellow metal is fighting hard to stay above the $900 mark.

All across the archipelago of commodities prices are falling – from the base metals to the precious metals, from the softs to the hards, with all the mushy in between.

“All these gold bugs are back where they started 28 years ago,” said our colleague Karim Rahemtulla in Vancouver. “The price of gold is barely higher today than it was in 1980. They haven’t made any money at all.”

After gold hit a peak of $850 in 1980, it promptly fell back…and kept falling for the next 20 years. Oil had a similar trajectory. It hit a high in the early ’70s…and it, too, fell for about two decades.

Karim, and a lot of others, expect a replay.

They may be disappointed. The biggest dive in commodities in 28 years could be just a splash, not a sinking.

What marked the end of the last commodity boom was a major change in the monetary picture. Paul Volcker strode onto the scene and decided it was time for something different. Inflation rates were hitting 10%. And a relaxed monetary policy – allowing easy credit and more cash – was making the situation worse. “Stagflation” had become public enemy number one. When the feds tried to stimulate the economy out of the ’stag’ part…they ended up contributing to the ‘flation’ part.

Of course, that is a big part of the picture today too. The feds are desperate to avoid any further bank failures or economic weakness. There are too many voters, too many Wall Street firms, and too many businesses in danger of failing. They’re nationalizing the nation’s housing…bailing out Wall Street…and holding the key lending rate at less than half the rate of consumer price inflation.

What can you expect? Well…stagflation!

Already, one estimate is that 144,000 retailers are expected to close their doors this year. Each time one goes broke, more people are dumped onto the job market. The latest figures show jobless claims reaching a 5-year high. Each month for the last 7, unemployment has gone up.

The ’stag’ part is hitting the nation’s eateries especially hard. Restaurants expanded too fast, say the experts. Now, they’re contracting – releasing more low-income employees from taking orders and scrubbing pots and pans. And the airlines and automakers are suffering too. General Motors plans to lay off 15% of its work force too. GMAC, its credit arm, just reported a $2.5 billion loss.

Naturally, tax receipts are falling too. Net corporate tax receipts are expected to fall by $100 billion in 2009. Net individual tax receipts should fall by $100 billion too. Hey, a billion here…a billion there…pretty soon, the government is running a trillion-dollar deficit…

The economy is growing at a 1.9% rate, according to yesterday’s report. That’s less than economists had expected. The Commerce Departmen says it believes a recession may have begun in the last quarter of last year.

Won’t recession mean lower commodity prices…and the end of the bull market in gold and oil? Is this the end of the trend begun only a few years ago…the trend that took oil from $20 to $147…and gold from $260 to $1,000? Probably not.

Commodity cycles usually last 15-20 years. It takes a long time to open a gold mine or an oil field. At first, people in the business are reluctant to invest the money. They’ve just been through a long down-cycle, in which all their investments during the previous boom phase blew up on them. They’ve still got the powder on their faces and the burn marks on their fingers. When prices turn up, they’re convinced that the upturn is merely temporary. Their models still project low prices. Their hedge books are still crowded with forward sales well below spot prices. And in their garages are still parked the same old cars they bought in the last boom.

But prices climb a “wall of worry,” say the old timers. Then, after they have scaled the worries, they are sans soucis on top…and then so cocksure that they can’t wait for the hand-grenade to explode on its own; they pull the pin themselves – investing and spending recklessly, sure that prices will continue to rise forever. It’s when that last stage comes that you really have to watch out… That’s when gold, oil, and the whole commodity complex comes crashing down…and doesn’t revive for another 20 years.

We doubt we’re there yet. But please don’t confuse us with someone who knows what is going on. If we told you we knew for sure when this bull market would end – you should start reading some other commentary. Because your Daily Reckoning editor would be an even bigger fool than he thinks he is.

All we can do is guess. And our guess is that we are looking at a correction, not a fundamental change of direction. Not only has the cycle not lasted long enough to draw forth substantial increases in most basic commodities (with the exception of the farm commodities), the monetary cycle remains decidedly expansive. There is no Paul Volcker in the picture. Instead, there are Ben Bernanke and Hank Paulson. There are bailouts, deficits, and cheap credit…as far as the eye can see. Plenty of ‘flation’, that is, to go with the ’stag.’ An article in the Economist, for example, says consumer price inflation will rise to 6% before the end of this year…

Source: Cartoon Capitalism