This from Whiskey and Gunpowder:

The bell of American finance has cracked. It was a long time coming, as I’ll show you. The biggest change in the American economy in the last generation or so has been the rise of finance at the expense of making things. This seemed to work for a while, but like a boxer who has a habit of dropping his hands, America finally caught one on the chin.

Every crisis, though, brings opportunity. In this one, investors will go back to investing in simpler, more durable things (at least until forgetfulness kicks in). For instance, investing in a company that supplies grains to hungry people looks like a better bet than investing in one that sells mortgages to people who can’t afford them. The focus will shift to things we need, rather than things we want.

~~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~~

Your Next Check Arrives Oct. 26

That would be the case if you were part of the “Endless Paycheck Portfolio.” It’s a steady stream of cash flow that is automatically added to your bank account.

There’s no work involved, hardly any risk, and barely any reason not to become a part of it yourself. Click here to start your new income stream as soon as possible…

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Sometime over the past few decades, we abandoned the old-world notion of making things. We turned to making shuffling paper our stock in trade. Precisely when and why this happened will be something for historians to debate. But sometime in the 1990s, the percentage of corporate profits from finance passed that from manufacturing.

It was the first time that had happened, and the gap has only grown wider since. Before the great credit crisis hit, profits from financial firms made up nearly half of corporate profits. Only 10% came from the manufacturing sector. As recently as the mid-1960s, it was the other way around.

Mortgages, before the crisis hit, made up 60% of total bank loans and the financial sector grew to become our biggest sector — bigger than health care, retail or manufacturing.

~~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~~

The Fed’s Handout Line Open to All Failing Companies

Who will be the next failing company to come to the Fed with hands out ready for a handout? It’s hard to tell…unless you have the right information.

One quick look at the secret 100-F document of Lehman Bros. and AIG would have predicted last week’s events. Find out which company will be next by clicking here.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Replay the 1970s — Only Bigger…

To a smaller degree, we had a similar crisis in the 1970s, Kevin Phillips tells us in his new book, Bad Money. Mortgage debt doubled from 1960-70. The Dow crashed, losing 36% of its value from 1969-70. Hedge funds blew up. The top 28 funds lost 70% of their assets, and about 100 brokerage and financial firms disappeared — by either acquisition or outright failure. Seems a lot like the outlines of the present day, does it not? The 1970s also had two major oil price spikes. The first in 1973-74 and the second in 1979-80. We’ve already had one oil spike now, and a second one is in the cards.

The neglect of making things is perhaps most evident in the oil business. Phillips says the U.S. has a “dated, ghost-of-glories past petroleum infrastructure.” He writes that the major oil companies “are wealthy, but aging behemoths, hard-pressed to maintain production levels, despite large exploration outlays, and no longer enjoying access to overseas oil fields they once commanded.”

Exxon Mobil (NYSE:XOM), once the largest oil company in the world, now ranks 25th by booked oil reserves. The top 10 are all state-owned national oil companies (NOCs). The top 13 NOCs own four-fifths of the world’s known oil reserves. They don’t share them cheaply.

A look at where we get our oil is not encouraging, as the chart below shows. Most of these sources of supply are not particularly reliable. As Phillips opines (the table below comes from his book): “Of the eight principal 2007 suppliers of petroleum to the United States as of August, only one, Canada, could be called secure and reliable.” Mexico seems secure, but exports have been falling since 2004, as Mexican production has fallen. It could become an insignificant source of oil by 2012.

And we are not alone in competing for these oil reserves. China became a net oil exporter in 1993, and its appetite grows every year. It is now the world’s second largest consumer of oil, behind only the U.S. China actually imports more oil from Saudi Arabia than the U.S. This partnership is not surprising, given the dynamics of the New Silk Road.

The “New Silk Road” is a term I use for the boom in trade between countries from the Middle East to China. In matters of energy, you see a lot deals inked on the New Silk Road. Saudi Arabia and China get together regularly like newfound pals. Sinopec, a Chinese oil company, recently got the OK to explore the Saudis’ Empty Quarter for oil and gas. Saudi Aramco, the big oil company, put $750 million toward a huge plant in China.

Just as interesting to me is what I like to call the “New Burma Road” — after the road of World War II fame that linked China and India via Burma. The New Burma Road identifies the booming trade between India and China. As Phillips writes, “China has already made a six-lane highway out of its portion of the road from Chinese Kunming to India’s state of Assam… The demographics of a Sino-Indian entente would make it especially momentous.” Yeah, I’d say so, given the strengthened ties between more than two billion people.

~~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~~

Two Words: Buying Opportunity

Gold is hovering around $800, and it looks poised to shoot straight up any minute.

There are a lot of ways to take advantage of this buying opportunity, but this one seems to be the best.

We urge you to get in on it before gold hits $1,000. Click here to read more.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

As you know, there is an awful lot going on in the world today, and it’s all far more complex than I can get into here. But this is where we are, in brief: The U.S. economy faces a crisis in its biggest sector — finance. The neglect of making things is finally taking its toll, a fact most apparent in the oil and gas world, but also apparent in infrastructure across the spectrum. And the world is less U.S.-centric than it has been in a long time. We see this, too, in the oil and gas sector and in the flurry of deal making along the New Silk Road (and its “momentous” segment, the New Burma Road.)

The implication of this post-finance U.S. economy is a theme we’ll explore more in this letter. As an early conclusion, though, I believe the spread between finance and manufacturing has reached millennial extremes, like a rubber band at its limits. Now begins the snap back.

Source: Finance, Meet Manufacturing…

Corn is the problem. The June floods in Iowa wiped out 2% of the U.S. corn crop, and corn prices spiked to more than $8 a bushel – four times the average corn price of the last 30 years. With corn at $8, it costs $150 to fatten a hog. But the meatpackers only pay $100 per hog. So the finishing farms lose $50 on every pig they raise.

———- Advertisement ———-
Would You Let the British Government Pay for your Retirement?

Thanks to the good will and deep pockets of the British National Gov’t, there’s an easy way for Americans like you and me to have all the money we need for retirement – without ever leaving home or stepping foot overseas.

For more details, click here…
———————————–

Right now, finishing farms are liquidating their herds and going out of business.

So farmers are getting stuck with piglets. When I went to Iowa a few weeks ago, I heard of farmers throwing piglets in the trash… or using them as compost. For the first time in his life, the farmer doesn’t have enough money to make his interest payments.

So the farmer contacted his lender and explained the situation. The loan officer advised him to sell all his land, liquidate the sows, and look for a job.

But Tom says this is a short-term trend. Once a shortage of hogs begins, the price of pork will follow corn to record highs. And this is when investors stand to make a big profit…

When corn goes to record highs, pork must also go to record highs. That’s because pork is corn refined. You could say a pig is just a sack of corn with four legs.

But there’s a lag. Right now, everyone’s selling hogs. The finishing operations are selling their herds, and the farrowing operations are dumping their sows. It is pushing down live hog prices.

But in nine months – when the market has worked through the excess – hogs will be in short supply. And that’s when hog prices will start setting records. This shortage will last for two years, because that’s how long it takes to bring a commercial hog operation from scratch to production.

In 1998, the last time the hog business washed out like this, live hog futures jumped from 10¢ to 70¢ in two years. I expect we’ll see something similar this time around…

The hog ETF is the easiest way to invest in hogs. It trades in London. The symbol in Yahoo Finance is HOGS.L. Experienced traders should look at the futures market. A lean hog contract trades in Chicago on the CME.

“We are in the early stages of what will become a big mess for producers” of food products, including meat-and-dairy offerings, Greg Wagner, a senior analyst at Ag Resource Co., told the Dow Jones News Service. Over the next few years, retail food prices “will rise like never before.”

This explosion in prices that’s hitting the U.S. consumer right in the pocketbook is due to spiraling global demand, a nose-diving greenback, soaring energy costs and a big surge in the price of grains that are used both to feed meat-and-dairy herds and as a raw material in ethanol, the crude-oil alternative for which demand also is escalating.

Meat-and-Dairy Prices Meet the Global Commodities Boom

U.S. consumers are finally feeling the pinch of the global commodities boom – especially when it comes to meat-and-dairy prices. Indeed, after decades in which food prices rose at a very predictable average-annual pace of 3%, U.S. consumers in the past two years have suddenly experienced the kind of food-price uncertainty that’s long been a hallmark of less-developed economies.

In the past two years, retail milk prices have spiked more than 20%, cheese has jumped by nearly the same amount, and Grade A eggs have rocketed nearly 70%. Beef, pork and poultry prices all have escalated sharply.

And don’t expect your grocery bill to go down anytime soon.

In fact, in a study released only two weeks ago, former ConAgra Foods Inc. (CAG) Chief Economist Bill Lapp predicted that food prices will advance at the record-breaking pace of 9% a year from 2009 until the end of 2012. At that rate, food costs – once 10% of the budget of a U.S. household – could rise by 40%-50% or more over the next couple of years.

Lapp, now with Advanced Economic Solutions, says the U.S. government mandate for ethanol production is “the most significant factor driving corn and other agricultural commodity prices to record levels.”

(The U.S. ethanol initiative relies on corn as a key ingredient – unlike Brazil’s very successful ethanol-fuel program, which is based on sugar cane. As Money Morning has reported, scientists in the United States and other countries are looking at ways of developing ethanol from cheap-and-plentiful prairie grasses).

The expenses that go into bringing a food product to the supermarket shelf right now represents about 19% of each dollar a U.S. consumer spends on food. Over the next five years, that number is expected to jump to 29.9%, Lapp says.

And the single-biggest expense of food production is corn.

Lapp also points out that today there is no grain stock buffer in storage—in the United States or around the world—to mitigate the explosion in corn prices, which have hit a record $7 a bushel.

Almost half of U.S. produced corn goes to feed livestock, which means the prices of meat and dairy products are highly correlated to the price of corn.

Growing global demand helped cause corn prices to escalate from less than $2 a bushel in 2005 to $3.40 a bushel last year – and then to double to nearly $8 a bushel this year. In fact, the most popular corn-futures contract hit a record price of $7.9925 a bushel last Friday, before skidding back on Monday. Even so, corn prices were up 26% in June alone, the single-biggest monthly gain in 20 years, according to Bloomberg News.

“Corn costs have doubled, from $4 a bushel to $8, while energy costs have gone through the roof,” economist Glen Langan told BloggingStocks.com. “This will force many producers out of the market”

“Only the most efficient, modern producers will survive, with a few exceptions,” Langan added. That will “easily push meat and poultry prices 20% higher or more from current level… Dairy is harder to predict, because it’s more localized, but there will be dairy price increases, too”

Beefed Up Meat & Dairy Prices

The high cost of feed has also strained the markets for such dairy-product prices as milk, cheese and yogurt. And with good reason, since 65% to 75% of dairy farmers’ production costs are for feed, Chris Galen, a spokesman for the National Milk Producers Federation, told The AP.

The USDA’s June issue of the “Livestock, Dairy and Poultry Outlook” confirms that view.

“Milk production is forecast to rise only fractionally (about 0.5%) in 2009, as higher feed costs are expected to slow growth in milk per cow and as cow numbers decline slightly,” the “Outlook” read.

Meat producers also are watching their shares get tenderized by higher costs.

Even at current prices, U.S. beef producers already have to allocate 60% to 70% of their operating budgets to feed costs, The Associated Press reported. The huge costs are putting some of the smaller operations out of business, and others are cutting back on the number of cattle they hold. Cattle futures touched record highs last month as a result.

In fact, production levels for beef, pork and chicken are all being outpaced by consumption, according to the “Livestock and Poultry: World Markets and Trade” report from the U.S. Department of Agriculture. And that has strained the bottom line of many meat producers.

“Corn is in trouble because of the wet spring that has drenched the midwest,” says Justice Litle in Taipan Daily.

Yesterday, the USDA said in a report that American corn output will be down significantly from last year’s estimate.

And that forecast was put together before the biblical drenching the Midwest suffered in the past week, when another 12 inches of rain flooded already saturated fields.

All this is sending corn futures soaring. Looking at the chart, you can see how corn has gone ballistic. Also, on the bottom of the chart, RSI (a momentum oscillator) has just given a bullish buy signal.

After this latest rainout, many corn farmers will switch to soybeans, which can be planted until the end of June with less impact on yields. And that means the corn that does grow will be much more valuable.

Jurojin already recommended our subscribers go long corn last week — after it bounced higher off of its 50-day moving average. Now, they’re racking up nice open gains, and our first profit target looms dead ahead.

Is it too late to get in on corn? Not by a long shot. We’ve seen this kind of horrible start to the crop year before — in 1993. Then, traders were slow to react to massive flooding.

The best way to play this is corn futures or options on corn futures. If you aren’t in the futures market, you could try the PowerShares DB Agriculture ETF (DBA), which tracks a basket of corn, wheat, soybeans and sugar.

“Corn is going to go higher,” says John Mauldin in his Outside the Box.

Bad weather has meant that not enough got planted, and that will probably hurt yields in the fall. This is going to mean even higher meat prices and ethanol prices. Corn ethanol is such a bad idea. This is what happens when government decides to mess with the market.

Anecdotal inflation note: I eat two chicken fajita pitas without cheese from Jack-in-the Box for lunch about three times a week (after the gym!). I throw away the pita bread and just eat the chicken at my desk. The last three days the price has been the same, but the amount of chicken is noticeably smaller, perhaps 25% smaller. Where’s the hedonic price adjustment in the BLS statistics for that? A friend of mine notes that the filet from his favorite steak house is now seven ounces instead of eight. But the steak is still the same price. Maybe portion control will finally get America to go on a diet.

“Soaring prices of grains, dairy and meat have been grabbing global headlines,” says Jennifer Yousfi in Money Morning, “but other commodities have been on the rise as well.

“I’m not talking about the increases in daily staples that make the front page, but those little extras that make daily life just a little bit sweeter – coffee, cocoa and sugar. We might not need them, but we definitely want them. And inflation is putting upward pressure on the price of these soft commodities just as it is on oil and grains such as wheat and rice.”

As demand for food increases, it’s a great time to invest in a livestock ETF, says Ian Davis in The Growth Stock Wire: “Hog farmers are not running charities. When the input costs for hog producers soar, the price of hogs must also rise. By buying hogs, we are piggybacking (excuse the pun) on the uptrend in agriculture and crude oil.

“So when the uptrend finally begins, how should we play it?”

Read on how to profit when this upswing kicks in with this livestock ETF.

“When the gold price rises, jewelry gets more expensive,” says Tom Dyson in DailyWealth. It’s the same way with farm animals. When the corn price rises, livestock must get more expensive. Corn has doubled in the past 18 months, but livestock prices are still in the same range they were six years ago. They will catch up with corn.”

Tom also recommends that his readers invest in a livestock ETF.

“Two trade in London under the symbols CATL.L and HOGS.L,” says Tom. “They track the Dow Jones AIG sub-indexes for live cattle and hogs.”

Production will increase 17 percent from a year earlier to 1.78 billion bushels, the most since 1998, the U.S. Department of Agriculture forecasts. About 4 percent more acres were seeded from September to November, the agency said. Wheat prices have tumbled 45 percent from a record $13.495 a bushel on Feb. 27.

“High prices beget low prices,” said Dan Kuechenmeister, a manager of the commodities department at RBC Dain Rauscher in Minneapolis. “We’ve seen a lot of wheat planted, and we’re finally going to get a decent harvest.”

Prices will rise again, so now is a great time to invest in a livestock ETF, says Ian Davis in The Growth Stock Wire: “Hog farmers are not running charities. When the input costs for hog producers soar, the price of hogs must also rise. By buying hogs, we are piggybacking (excuse the pun) on the uptrend in agriculture and crude oil.

“So when the uptrend finally begins, how should we play it?”

Read on how to profit when this upswing kicks in with this livestock ETF.

“When the gold price rises, jewelry gets more expensive,” says Tom Dyson in DailyWealth. It’s the same way with farm animals. When the corn price rises, livestock must get more expensive. Corn has doubled in the past 18 months, but livestock prices are still in the same range they were six years ago. They will catch up with corn.”

Tom also recommends that his readers invest in a livestock ETF.

“Two trade in London under the symbols CATL.L and HOGS.L,” says Tom. “They track the Dow Jones AIG sub-indexes for live cattle and hogs.”

According to a report by Bloomberg, cattle prices may rise 13% by the end of the year on the Chicago Mercantile Exchange and Brazil’s Bolsa de Mercadorias e Futuros. More from this story:

Not since 1996, when corn reached what was then a record $5 a bushel, have cattle been this cheap relative to their primary source of feed. Cattle are the seventh-worst performer of the 26-member UBS Bloomberg Constant Maturity Commodity Index in the past year, a time when soybeans, oil and copper jumped to records. After adjusting for inflation, cattle are down 27 percent from their 1988 peak.

“It’s pretty certain that we’ll see a decline in domestic supply in the U.S.,” Joesley Batista, chief executive officer of JBS SA, the world’s biggest beef producer, told reporters in Sao Paulo on May 15. “As a result, we’ll have price hikes and improved margins.”

Production also is dropping or failing to keep pace with demand in China, Brazil and the European Union, mostly for grain-fed beef, analysts and government data show.

“We expect meat prices, especially beef prices, to rise this year,” said Peter Weeks, chief economist at Meat & Livestock Australia, a trade group in Sydney. “We’ve already seen big increases in beef prices in China, Russia, India and throughout Southeast Asia.”

Now is a great time to invest in a livestock ETF, says Ian Davis in The Growth Stock Wire. And hog prices are set for a similar upswing to cattle prices.

“Hog farmers are not running charities. When the input costs for hog producers soar, the price of hogs must also rise. By buying hogs, we are piggybacking (excuse the pun) on the uptrend in agriculture and crude oil.

“So when the uptrend finally begins, how should we play it?

Read on how to profit when this upswing kicks in with this livestock ETF.

“When the gold price rises, jewelry gets more expensive,” says Tom Dyson in DailyWealth. It’s the same way with farm animals. When the corn price rises, livestock must get more expensive. Corn has doubled in the past 18 months, but livestock prices are still in the same range they were six years ago. They will catch up with corn.”

Tom also recommends that his readers invest in a livestock ETF.

“Two trade in London under the symbols CATL.L and HOGS.L,” says Tom. “They track the Dow Jones AIG sub-indexes for live cattle and hogs.”

Food prices have undergone a paradigm shift and will not drop back to pre-crisis levels for at least the next 10 years, putting long-term pressure on governments facing the food crisis, according to a forthcoming report.

The report, by the Organisation for Economic Co-operation and Development and the UN’s Food and Agriculture Organisation, will say food prices have moved to a “higher plateau” because of rising demand from the biofuels industry and developing countries such as China.

Bill Bonner in The Daily Reckoning says, “Capitalism had already pronounced its verdict on corn-based fuel: it was a bad idea. Later, environmentalists came to the same conclusion; it actually caused more damage than petroleum. But the US Congress, in its majestic wisdom, saw something in ethanol that capitalists and environmentalists had missed – campaign contributions and votes!

“And so it came to be that a large portion of the US corn crop is diverted into fuel tanks. And so it comes to be that a large number of the world’s people – including Americans themselves – find their food much more expensive than it used to be.”

“Hogs, like most commodities, went nowhere for 30 years,” says Ian Davis in The Growth Stock Wire. “In 1977, hogs sold for about 55.5 cents per pound. Today hogs sell for only about 79 cents per pound. That’s a rise of 42% in 31 years, or an annualized return of 1.1%… well below the inflation rate.

“Why are hogs so cheap? One reason may be that an overabundance of cheap corn for decades led to an oversupply of hogs. According to the Iowa Farm Outlook produced by Iowa State University, corn accounts for about 80% of hog feed. But now, the brutal combination of pricey corn, increased energy costs (for processing and shipping), and cheap hogs is wreaking havoc on hog farmers worldwide.

“This trend cannot continue. Hog farmers are not running charities. When the input costs for hog producers soar, the price of hogs must also rise. By buying hogs, we are piggybacking (excuse the pun) on the uptrend in agriculture and crude oil.”

Read on how to profit when this upswing kicks in with this livestock ETF.

Tom Dyson in DailyWealth agrees with Ian’s read on livestock: “When the gold price rises, jewelry gets more expensive. It’s the same way with farm animals. When the corn price rises, livestock must get more expensive. Corn has doubled in the past 18 months, but livestock prices are still in the same range they were six years ago. They will catch up with corn.”

Tom also recommends that his readers invest in a livestock ETF. “Two trade in London under the symbols CATL.L and HOGS.L,” says Tom. “They track the Dow Jones AIG sub-indexes for live cattle and hogs.”

MarketWatch reports that corn stocks are set to suffer because US farmers are cutting back corn acreage this spring to grow more soybeans.

Corn futures for July delivery today closed down 1 cent at $6.2925 a bushel. The contract had ended Thursday’s session at $6.3025 a bushel, an all-time high.

Meanwhile, the price of hogs has barely inched its way higher in the last two years — it’s risen by a measly 17% since the beginning of 2006. When you adjust for inflation, hogs are only up 9.9%. So it’s not difficult to see how spiraling corn prices will play havoc with livestock prices — particular hogs and cattle.

“The prices of all commodities – and corn in particular – have soared, but hogs remain as cheap as ever,” says Ian Davis in The Growth Stock wire.

“Hogs, like most commodities, went nowhere for 30 years. In 1977, hogs sold for about 55.5 cents per pound. Today hogs sell for only about 79 cents per pound. That’s a rise of 42% in 31 years, or an annualized return of 1.1%… well below the inflation rate.

“But now, the brutal combination of pricey corn, increased energy costs (for processing and shipping), and cheap hogs is wreaking havoc on hog farmers worldwide.

“This trend cannot continue. Hog farmers are not running charities. When the input costs for hog producers soar, the price of hogs must also rise. By buying hogs, we are piggybacking (excuse the pun) on the uptrend in agriculture and crude oil.”

Read on here to find out what livestock ETF Ian recommends to his readers to profit from corn’s upswing.

Tom Dyson also thinkswe’re approaching a major bull move in hogs and cattle.

“When the gold price rises jewelry gets more expensive,” says Tom in DailyWealth. “It’s the same way with farm animals. When the corn price rises, livestock must get more expensive. Corn has doubled in the past 18 months, but livestock prices are still in the same range they were six years ago. They will catch up with corn.

“Here’s how you play it: Buy a livestock ETF. Two trade in London under the symbols CATL.L and HOGS.L. They track the Dow Jones AIG sub-indexes for live cattle and hogs.