Good day… And a Wonderful Wednesday to you! Well… The currencies, for the most part, kept the heat on the dollar throughout the day and in the overnight markets. The euro, did rise to 1.45 and change yesterday, while it is hovering right at that figure this morning, so it did give a little bit back.

There were no big announcements last night like we saw on Monday, so the currencies didn’t have anything to push them further. In fact, there may be a “letting the dust settle” period of time, with the Big Dog, euro, before we see any further advancement, given the euro’s huge gains yesterday…

We did have “Mr. Yen” Sakakibara, tell a crowd of people that he believed the dollar would remain the world’s reserve currency for 20 years… Hmmm… Apparently, the IMF and UN haven’t let him in on the news that they desperately want to do something about the dollar! Not to mention the BRIC countries of Brazil, Russia, India and China, of whom, have already stated their case for a change!

Chinese stocks were up again last night, so that could lead the way to further gains by stocks here in the U.S., which would bring even more risk takers out of the walls… That is, of course as long as the trading pattern that has existed for 9 months remains in place!

I did read something last night about a complete collapse of Consumer Borrowing here in the U.S…. Hmmm… Well, on one hand, if that’s true, that would mean that Consumer spending is down, and saving has replaced it, and that would be a good thing! On the other hand… Consumer Spending is like 70% of our economy… Or was 70% of our economy I guess I should say! And if we’re going to see a further slowing of spending, then you can kiss the thought of a “V” shaped recession good-bye! Bye now… Don’t go away mad… Just go away!

Gold was unable to hold $1,000 yesterday and last night… I was talking to my Publisher for the Currency Capitalist letter yesterday, and I was telling her, that while I’m a firm believer that this stock market rally is going to crash and burn, bringing all risk assets along to the fire, which would adversely affect the prices of currencies, and commodities, including Gold… There’s no mistaking the appearance of a rush to Gold in the past week… And why did the rush occur? Well, to me, as I explained yesterday, it’s simply an understanding that inflation is on the other side of what we are now experiencing, and if you can pick Gold up now at those levels that existed last week (sub $1,000), why not, before it takes off?

So… I was assigned to write a piece on Gold… See how that works in the Publishing biz? You mouth off with your thoughts, and the next thing you know, you’re doing research for a piece that has to be done in 3 days or so! UGH! But… The thing I thought of was simply this… We may, and I’m not sure yet, but we may be getting to a new level, where I used to say I thought it was good to buy Gold when it dipped below $900… That might have to be changed to $1,000… That is, if we don’t have the crash and burn…

Getting back to the crash and burn thing… I know, I know, I’ve been talking about this for a couple of months now… And no sign of crashing or burning… Yet! But, then maybe there won’t be any crashing and burning as long as the markets are manipulated… I was doing some research the other day, and came across something that plays well with my manipulated theory… The stocks of Fannie (NYSE:FNM), Freddie (NYSE:FRE), AIG, and… Oh shoot! I’ve forgotten the 4th one… It’s a Gov’t owned company… SHOOT! Oh well, it doesn’t matter, these 4 stocks were accounting for over 40% of the volume each day in the stock market… Usually these 4 account for about .3%… What’s going on here folks? I’ve got a boat load of conspiracy theories about what’s going on… But I’ll leave that up to your imagination!

The Commodity currencies, that were so strong yesterday, have given some ground back VS the dollar overnight. The only thing that makes sense to me here, is that it is profit taking… For, these Commodity Currencies, (except Canadian loonies) have yield advantage over the dollar… Shoot Rudy, they have yield advantage over all the major currencies… Euro, yen, sterling and dollars! And for the most part, interest rates in these countries will be the first to rise beginning later this year… So, it had to be profit taking!

But, what do I always say, when there’s profit taking? That’s right! It gives us a chance to buy at cheaper levels!

One currency that continues to baffle me and probably many others with its rise from the ashes, is pound sterling… (cable, as currency traders call it) I’ve had quite a few readers send me notes asking me about sterling’s strength, given the fact that the U.K. is probably in more dookie than the U.S…. There are two things I can think of that probably explain it… But even these don’t do that good of a job explaining this rise in sterling…

1. the talk of using SDR’s… SDR’s currently consist of: euro, yen, sterling and dollars. So, if SDR’s get wider use, then more sterling will have to be bought by the IMF (who issues the SDR’s)
2. The crosses… Because most of the currencies are rallying and have been rallying against the dollar since March, sterling gets dragged higher in the crosses…

I’ve explained these crosses many times in the past, so I’ll just touch on it here… Whenever you buy a currency, you have to sell a currency… So the two currencies that make up that trade are called a “pair”… These are also called “crosses”… Here in the U.S. we only think of dollar VS a currency… But all over the world, people are crossing euros for yen, and vice versa, Swiss francs for Aussie dollars, etc. A lot of those crosses, have sterling in them, and therefore, sterling gets dragged higher… Not a fundamental thing…

But we’ve seen this over the years, especially with yen… And the dollar of course!

Well… You might have missed this news yesterday… But the U.S. Senate is going to have to raise the federal debt limit beyond $12.1 Trillion by mid-October! Hmmm… Anyone have a guess as to who blocked the raising of the debt ceiling in 2006 and said… “Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren”? It’s the same person that is now that same person is asking Congress to raise the debt ceiling to $13 Trillion…

But, the reality of this is that our Budget Deficit this year will be $1.6 Trillion, by Gov’t accounting standards… By Chuck standards, it will be $2.5 Trillion when it’s all said and done… And we just keep finding more ways to spend money we don’t have, don’t we? I’m going to stop here, because this all just ticks me off, and I don’t want to say something that will fill my email box with name calling emails…

Did you see the story in the Washington Post regarding the resetting of ARM’s? and I’m not talking about the arms that get broken on the playground and have to be reset… I’m talking about Adjustable Rate Mortgages… Here’s the skinny from the Washington Post story…

“Between now and 2011, roughly 70% of option ARMs, with a total value of about $189 billion, will reset.” The rating agency, Fitch, put together the numbers and did the research… And none of spells good times for home owners that are already stretched to make mortgage payments.

Here’s how I believe they work… Option ARMs, also called pick-a-pay loans, allow borrowers to choose how much to pay each month. Nearly all the borrowers who took out this type of loan from 2004 to 2007 chose to pay less than the interest due. Sometimes they paid as little as 1 percent interest. But the loans eventually require the borrowers to start paying the principal and full interest rate, so the payments shoot up.

So… This mortgage meltdown will continue to remain in the news, eh? $134 Billion of these ARMs will reset in the next two years, and the monthly payments are expected to jump 63% on average, or $1,053 per month, for loans adjusting this year and next… Can you imagine getting that letter in the mail? Dear Homeowner, your next mortgage payment will be xxxxxx…

That’s a really sad thing… Very sad…
But… Another reason why I say this is a depression and not a recession! It’s going to carry on, and on, and on…

There was more Happy Days (NOT!) news in the Washington Post yesterday… “There is little chance U.S. taxpayers will recover all of the billion spent on rescuing Chrysler and General Motors, according to a report by the Congressional Oversight Panel.”

Great! But in reality, we didn’t expect to recover it did we? I know I didn’t! The Gov’t doesn’t have a good track record of preventing losses much less recovering them.. And I’m not just talking about the current brand of Gov’t… It goes back many years…

My friend, David Galland, gave a quick history lesson in his letter this past weekend… While this may be depressing, it does give what I said above, credence…

A Quick History Lesson

The U.S. Post Service was established in 1775. So they’ve had 234 years to make it work. It is broke.

Social Security was established in 1935. They’ve had 74 years to make it work. It is broke.

Fannie Mae was established in 1938. They’ve had 71 years to make it work. It is broke.

Freddie Mac was established in 1970. They’ve had 39 years to make it work. It is broke.

The War on Poverty started in 1964. They’ve had 45 years to make it work. About $1 trillion of taxpayer money is confiscated each year and transferred to “the poor.” It hasn’t worked.

Medicare and Medicaid were established in 1965. They’ve had 44 years to make it work. They are both broke.

AMTRAK was established in 1970. They’ve had 39 years to make it work. Last year it had to be bailed out and today continues running at a loss.

$700 billion bailout of 2008. It has yet to create a single new private-sector job.
Cash for Clunkers in 2009 went broke after 80% of the cars purchased turned out to be produced by foreign companies.

Now that it’s put like that in black and white, it sure doesn’t look good does it?

I really got on a roll today regarding the goings on in the U.S. and didn’t pay much attention to the currencies… But, that’s because they are trading in yesterday’s clothes this morning… With no data to talk about yesterday, and so on…

The data cupboard only yields the Fed’s Beige Book for us this afternoon… For those of you who don’t know what this entails… The Fed’s Beige Book is a summary of Commentary on Current Economic Conditions by each Federal Reserve District. It’s printed 8 times per year, and usually about two weeks before a FOMC meeting. (Federal Open Market Committee) It was once believed that the Fed Heads would use the findings in the Beige Book to help them make their decisions on monetary and fiscal policies…

I say, “It was once believed” because… After reading Bill Fleckenstein’s great book about Ignorance at the Fed Reserve, Greenspan’s Bubbles, I was scratching my head asking, but I thought the Beige Book was used to help make those decisions that Big Al Greenspan made?

So… Again, no real data today… So the currencies will get their direction once again from stocks… And like I said above, the Chinese stock markets was good to go overnight…

OK… So… Before I go to the Big Finish, let me recap today… The currencies held onto gains, albeit giving back small amounts in what appears to be profit taking. The Senate needs to raise the $12.1 Trillion debt ceiling. $189 Billion in Option ARMs are coming due in the next three years, and no data today should leave currencies to be directed by stocks, that is if the trading pattern holds.

Currencies today 9/9/09: A$ .8615, kiwi .6969, C$ .9245, euro 1.45, sterling 1.6505, Swiss .9560, rand 7.5525, krone 5.9375, SEK 7.0575, forint 186.70, zloty 2.84, koruna 17.60, RUB 31.18, yen 92.40, sing 1.4260, HKD 7.75, INR 48.50, China 6.8285, pesos 13.35, BRL 1.8290, dollar index 77.29, Oil $70.90, 10-year 3.48%, Silver $16.36, and Gold… $996.35

That’s it for today

Chuck Butler

Source: Currencies Hold Their Gains…

It all boils down to COLA — the government’s cost-of-living adjustment. Since consumer prices are — in theory, at least — deflating, the Social Security administration announced this weekend that they do not plan on a COLA for the next two years. Should that forecast come true, it’ll be the first time that’s happened since at least 1975, when automatic increases were first implemented.

That will probably equate to a net monthly loss for millions of beneficiaries. Medicare prescription drug premiums are on track to bump up a few bucks next year — a major cost for most retirees. And until the Obama administration jams through their health care reform, medical expenses will continue to rise, as well. Who knows… they might go even higher after Obamacare. Either way, tens of millions of seniors are about to face stagnant income and rising monthly costs… could get politically interesting.

Source: Seniors Beware: Deflation Hits Social Security

Misguided government policies have already dealt vicious body blows to our economy, but that hasn’t stopped politicians last week from launching two new kicks to the recovery – a national health insurance plan and a carbon emissions regulation system called “cap-and-trade.”

Even if these plans could achieve their desired ends, which is highly unlikely, I would have hoped Washington would refrain from throwing more monkey wrenches into the economy until it shows some signs of resurgence. The last thing we need right now is to further encumber our economy with higher taxes and additional regulations.

The meteoric rise in healthcare costs, which has become an unending nightmare for U.S. businesses and consumers, is not an accident. This painful condition arose from excess government involvement in the system, tax provisions that encourage the over-utilization of health insurance, and government support of an out-of-control malpractice industry. Rather than allowing more bad policy to drive healthcare costs further upward, we should be looking at ways to allow market forces to reign them back in.

If left alone, the free market drives quality up and costs down. Government programs produce the opposite result. Despite the president’s claim that a federal plan will bring costs down, there is no historical precedent for such faith.

Simply providing more widespread health insurance, as the Obama administration plan offers, is not a solution. In fact, it will aggravate the problem. Since consumers no longer pay for routine medical expenses out of pocket, comprehensive health insurance creates a moral hazard for both patients and doctors. To maximize the value of the health insurance “benefit,” most workers opt for low deductibles and co-pays. Therefore, doctors learn that their patients are not concerned with the cost of care, and so they are free to bill insurance companies at the maximum allowable rates.

Given our current tax code, the simplest way to bring down medical costs would be to fully tax healthcare benefits as wages and simultaneously increase the personal deduction by an amount significant enough to neutralize the effect of the tax increase.

This would do two things: First, the uninsured would get a huge pay increase, enabling them to buy reasonably priced catastrophic policies. Second, those currently insured could opt out of expensive employer-provided plans, trading premiums for extra wages, then buy a more economical plan. The savings would go right into their pockets.

The bottom line is that aggregate medical costs won’t come down unless services are rationed more wisely. Rather than being used as a pre-payment plan for routine care, insurance should only cover unpredictable, catastrophic costs.

As a comparison, homeowners often carry fire insurance, but seldom maintenance insurance. You buy fire insurance to guard against a catastrophic loss, which is a low probability but high cost event. As a result, fire insurance is relatively affordable, since premiums paid by all those homeowners whose houses do not burn down more than pay for the losses on those few whose houses do.

On the other hand, no one carries home maintenance insurance to pay for a clogged drain or broken garage door. If insurance paid for the plumber visit every time a toilet overflowed, we would now have a plumbing crisis, and Congress would be looking to reign in runaway plumbing bills with “national plumbing insurance.”

In his press conference, U.S. President Barack Obama claimed that government insurance would not drive private providers out of business. This is absurd. As the government provider will not have to produce a profit or accurately account for its contingent liabilities, it will provide insurance on an actuarially unsound basis.

With taxpayer subsidies, the government provider can run losses indefinitely. If private insurers did this, they would either be shut down or go bankrupt. Therefore, the cost of government provided health insurance will not be confined to the premiums paid, but will include the taxpayers’ bill to continually bail out the government provider.

When Medicare was first proposed back in 1966, it cost $3 billion per year, and the projection was for inflation-adjusted annual costs to rise to $12 billion by 1990. The actual cost in 1990 was $107 billion, and the 2009 estimate is a staggering $408 billion! So much for government estimates on health care.

As if this were not bad enough, the House of Representatives voted to pass the American Clean Energy and Security Act, otherwise known as the “cap and trade” bill. Disguised as an environmental bill, this proposal is merely another gigantic tax.

The lion’s share of the new revenue is already committed to politically connected special interests that will reap windfalls at everyone else’s expense. To make matters worse, the bill before Congress amounts to a blank slate, with the Environmental Protection Agency (EPA) empowered to draft the details in any manner they see fit. If Congress is going to shoot the economy in the knee, they should at least be required to pull the trigger themselves.

“Cap and trade” will do nothing to reduce pollution, yet it will drive up production costs throughout the economy – rendering us even less globally competitive than we are today. In addition to the huge cost of paying the tax, its enforcement involves the creation of an entire new bureaucracy, the costs of which will be borne by American consumers in the form of higher prices.

Years of reckless borrowing and spending have left us in a gigantic hole. Getting out of it requires that we make the most effective use of all available resources. We need labor and capital to operate as efficiently as possible so we can save and produce our way back to prosperity.

Unfortunately, national health insurance and “cap and trade” are two steps in the wrong direction. Rather than getting us out of this hole, they will merely cave in the walls around us.

Source: With National Health Plan and Carbon-Emissions Regs, Administration Aims Two More Punches at the U.S. Economic Recovery ]]> http://www.contrarianprofits.com/articles/with-national-health-plan-and-carbon-emissions-regs-administration-aims-two-more-punches-at-the-us-economic-recovery/18517/feed 0 http://www.contrarianprofits.com/articles/your-share-of-the-debt-gm-dies-silver-still-a-buy-a-pivot-point-and-more/17405 http://www.contrarianprofits.com/articles/your-share-of-the-debt-gm-dies-silver-still-a-buy-a-pivot-point-and-more/17405#comments Tue, 02 Jun 2009 18:32:27 +0000 Ian Mathias http://www.contrarianprofits.com/?p=17405 Brother, can you spare half a million? Your family’s (new and improved) share of U.S. debt… GM officially kaput… the dirty details and a brief rant, below… Markets hit a critical “pivot point,” says Rob Parenteau… The one number from China that’s boosting stocks, commodities and currencies today… Plus, two good reasons to buy a precious metal… especially silver

Your family’s share of the government debt is now over half a million dollars. A record $546,668, to be exact.

That cheery Monday stat comes courtesy of a USA Today study, which claims that each American family’s share rose 12% in 2008. That’s $55,000 in new government debt last year for every U.S. household — thousands more than the median household annual income. Here’s…

Americans have just lost over $10 trillion in wealth in the housing crash, stocks are still about 40% off their highs and there’s a strong likelihood of inflation and higher taxes on the way. This is bad news for anybody interest in protecting their savings and retiring in comfort.

Here at Notes, we have no intention of hanging around and waiting for this onslaught. We are putting together a team of financial and legal experts to head up a wealth protection program for people who don’t intend on surrendering their cash to pay for the clean-up costs of the crisis.

This program will provide top-level money management and tax planning advice. If you’re serious about checking out of the welfare state for good, this program may be for you. We intend to keep the amount of members extremely low. If you’re interested in finding out more, send an email with the subject line “Family Office” to info@contrarianprofits.com.

However dire you think U.S. government’s fiscal condition has become… today we learn it’s even worse. For starters, would you invest in this business?

2008 fiscal year net operating cost: $1 trillion. Triple that of 2007. And those aren’t funky alternative accounting methods… today’s charts and numbers come directly from the 2008 Financial Report of the U.S. Government, issued yesterday.

What is “net cost”? It is “computed by subtracting earned revenue from gross cost,” the GAO explains on Page 29 of the government’s 194-page release. A layman might even call it a deficit. A layman who reads The 5 might notice it’s more than double the “official” 2008 federal deficit of $454.8 billion.

And how about this balance sheet?

God bless America!

And here… we saved the best for last … this chart, exactly as it appears in the Treasury’s report:

Our balance sheet shows a $10.7 trillion mountain of debt. In the same report, the Treasury suggested unfunded liabilities like Social Security and Medicare now exceed $43 billion. Put the two together, as we did for I.O.U.S.A., and the U.S. is in the hole for at least $53 trillion.

Late yesterday, John Williams estimated it was closer to $66 trillion. Still want to buy those 10-year notes?

By the way, “The federal government did not maintain effective internal control,” noted the GAO in the same report, “over financial reporting (including safeguarding assets) and compliance with significant laws and regulations as of Sept. 30, 2008.”

Not to worry, just some “serious financial management problems at the Dept. of Defense” and other unlawful accounting happening in Washington. But we can still trust them, right?

Oy. We encourage you to read the report yourself, which you can find here.

Fear of deflation is what has brought the Fed balance sheet so low. Unfortunately, today, U.S. officials got more ammo for defense of their spending plan:

The Labor Dept.’s consumer price index (CPI) fell 1.7% in November, the government reported today. That’s the biggest seasonally adjusted monthly fall since the department started those adjustments in 1947. Filter out adjustments, and CPI dropped 1.9%, the greatest fall since 1932.

As you’d guess, energy and gasoline prices led the way, falling 17% and 29%, respectively. On an annual basis, the government says consumer prices are up just 1.1%.

New housing starts crashed 18% last month, the Commerce Dept. said today. Now at an annual rate of 625,000, starts have slumped to their slowest pace since at least 1959, when the government started keeping track.

And yesterday, the National Association of Home Builders’ gauge of builder sentiment stayed at its record low score of 9… as in 9 points above the worst sentiment possible.

What a mess.

At least the stock market is breathing a sigh of relief this morning. The intricacies of Goldman Sachs’ balance sheet interests it far more than the government’s.

Goldman lost $2.1 billion in their fiscal fourth quarter ending Nov. 28… a notable departure from the $3.2 billion profit they pulled off this time last year.

Despite being worse than expected, Wall Street seems relieved by the news. Goldman earnings per share came in $1.24 below the Street’s expected $3.73 a share loss… but traders are buying GS anyway.

The stock popped 4% on the news and helped push major indexes up this morning. The Dow opened 75 points higher than yesterday’s loss of nearly 1%.

“No banks could ever be high quality” investments, Jeremy Grantham recently told Forbes. Grantham, if you recall, predicted early last year a “global bubble” in essentially every asset class.

Grantham was an “alarmist perma-bear” then… but the “smartest money” today.

“The most difficult decision we’ve had to make in a long time was when we started our quality fund four years ago — the question was whether banks could ever be considered high quality. All the quants in the shop were saying, ‘What do you mean? They’ve got high, stable returns.’

“But all the historians were saying, ‘Yeah, but every 15 or 20 years, the market takes half of them out and shoots them. That doesn’t happen to the Coca-Colas.’”

Today, Grantham says the big blue chips are “the cheapest part of the market.” His fund’s top holdings are Coca-Cola, Procter & Gamble, Microsoft, Wal-Mart and Johnson & Johnson.

“When stocks have managed a small rally, it doesn’t amount to much,” notes our John Wayne Burritt. “In fact, any move higher is quickly zapped by tough resistance. That’s why the S&P 500 has had little success moving outside its 12-day moving average — the red line on the chart (below) — for months.

“The downward pressure on the U.S. equity markets is still intense. It’s so intense, so deep, that it’s tough to find any real reason to even think about buying call options on stocks.

“Frankly, I wish it weren’t so. I’d like nothing more than to tell you, ‘The bottom is in,’ and that the colossal downdraft we’ve had to suffer through is finally over. But the facts simply don’t bear that out.”

“Now, there’s a chance the markets will meander around until the holidays are over. That’s usually the case, since traders and investors alike are busy with other things. And while I think that bias will certainly be to the downside, don’t expect a huge downdraft until the beginning of the new year.”

Mr. Burritt’s Easy Money Options traders are well positioned to take advantage of the pressure piling up on the broader market — the retail sector in particular. To get his advice, learn about Easy Money Options here.

Don’t forget, as a Reserve member, you get his service for free.

The U.S. dollar got shelled yesterday in anticipation of today’s super-sized rate cut by the Fed. Traders rushed out of the dollar the moment U.S. markets opened, selling the dollar index down over a point and a half, to 82.

The euro is now at a two-month high of $1.37. The yen is still strong at 90, just off a 13-year high.

“We saw a massive move in both the sterling and euro yesterday,” writes our currency trader Bill Jenkins. “The sterling was carried higher on a sympathy move as the euro began its takeoff. Both were aided by stunning Treasury info (as if the above charts above weren’t bad enough, ugh), which was released at 9:00 a.m. EST.

“October showed a dismal drop in the foreign purchases of U.S. securities. October numbers came in at $1.5 billion purchased… down from $65.4 billion in September!
Foreign investors were not interested in buying our paper in October.

“At the same time, U.S. investors pulled back on their purchases of foreign paper as well. In times of crises, everyone wants their money close to their wallet.”

A barrel of oil is up a buck, to $45, this morning. But that’s not high enough, says our oilman Byron King:

“The recent drop in oil prices to the $40s is the worst of both worlds. Consumers lose that price incentive to save, economize, be efficient, drive smarter, reorder their energy priorities. And the political will to ‘do something’ about energy declines.

“Plus, the fact that at $40-or-so per barrel, the energy industry is faced with a bunch of uneconomic investments in next-generation energy projects. Canadian tar sands development, for example, is decelerating fast. E.g., Petro-Canada’s decision last month to defer $17 billion in new investment in just one tar upgrading project. And that’s just one example out of about $30 billion total of announced cancellations and deferrals.

“You see the deceleration in offshore projects as well. There are numerous deep-water projects — from the Gulf of Mexico to Nigeria — that are getting scaled back, slid to the right on the calendar, deferred, placed in abeyance, etc.

“In many respects, we are set back a decade. If projects were marginally economic at $40-or-so oil 10 years ago, they are marginally economic today at $40-or-so oil. It’s just that we’ve spent 10 years draining out the other, older reserves that were discovered in the 1950s and 1960s (North Sea, Alaska, western Siberia, Mexico, even the OPEC fields.) The projects that got built in the last decade are now operating at break-even, or even at a loss. That’s not how you capitalize the next phases of development, now, is it?”

Gold got a $20 kick from yesterday’s dollar sell-off, and sells for around $835 today … a critical point of resistance, according to Ed Bugos.

We were on a call-in radio program in Toronto this morning. The callers were all freaking out that the Canadian government is learning bad habits from the U.S. brand of federal finance… and that eventually the U.S. would go bankrupt and take the Western world down with it.

“If the entire world is going broke,” one guy wanted to know, “where is the U.S. getting all that money?”

One of the places the U.S. borrows its money is from the oil-exporting nations. From their behavior, one could argue, we could do worse than spend their money. For example, here’s one way petrodollars are being employed on the other side of the planet: Refrigerated beaches.

Despite the biggest global slowdown of our lifetimes, “smart money” in Dubai has chosen to invest their petrodollars in heat–absorbent pipes and wind blowers that will cool the beaches of the Palazzo Versace Hotel.

“We will suck the heat out of the sand to keep it cool enough to lie on,” explained Soheil Abedian, president of Palazzo Versace. This is the kind of luxury that top people want.”

“I was rather amused,” writes a reader, “by the reader yesterday who stated that they would place a stick of the good stuff in the cord wood.

“A neighbor in England had his firewood raided quite often. His remedy was to drill a hole in a particularly knotty log, which would not be chopped into kindling, put a friendly gesture in and patch over the hole and cover it with mud and then place it on the pile of logs so that it would be one of the first to be lifted.

“We waited, and sure enough, the culprit was identified when the chimney inside the house disintegrated. He knew where he got the wood, and we knew who had taken what wasn’t his!

“Really appreciate your writings and books.”

“Whatever happened,” writes another, “to all those yoiks that used to write in accusing you of being anti-American? I never knew ignorance and bile ever stopping anyone’s mouth (or e-mail) before. Where’d they go? Or have you simply (as I advised you years ago) stopped responding to them?”

The 5: Not at all, in fact: We’ve been noticing, too… your hate mail has been remarkably supportive. Except maybe this one:

“I am a loyal reader of The 5,” the reader wrote, “and enjoy your snarky commentary on macroeconomics. However, I was appalled at the sexism displayed in Friday’s 5 in reference to the White House press secretary. If she were a good-looking man, would you have called her a ‘resident hottie’? Readers of your newsletters are not only men, and even if they were, I would hope a forward-thinking company like Agora would refrain from perpetuating the inequality of professional women in our society.

”Thanks for listening.”

The 5: You’re right. Of course, it’s a total coincidence that Bush chose Ms. Perino — an attractive, articulate young woman — as his press secretary during the depths of his unpopularity. Shame on us.

All apologies,

Addison Wiggin
The 5 Min. Forecast

Source: Redefining Deficits, Inflation Plummets, Market and Oil Forecasts, The Dububble and More!

In my blog I said that misses the main point. Factories make things. They add to the material wealth of the country. Hospitals don’t. You visit a hospital. You get better (or you don’t). The GDP goes up by $50,000 to $150,000, which is nice for politicians to point to. But the economy doesn’t have anything tangible to show for it.

True, hospitals are hard assets. But you need to understand this important fact: Operators that invest their own cash in hospital real estate never generate revenue from the investment. The hospital gets nothing out of owning it. No rental fee. No usage fee. They make money from using that space to offer additional services…

But, at a fraction of the cost, they could have rented out that empty building on Main Street and offer those same additional services. Hospitals are the very definition of a non-earning asset.

But now I’m having second thoughts. If hospitals are just so much deadweight on the economy, then what about other entities that cater to health? What about spas? They’re like new-age hospitals, aren’t they? If we’re including spas, then are hotels that much different? And aren’t hotels just big restaurants with beds?

Really, it comes down to the fact that hospitals are in the service industry. Should we condemn them for that? At least they try to improve or prolong valuable earning assets … namely, us. Doesn’t that count for something?

I think I owe the Wall Street Journal an apology. Hospitals popping up all over the country are no better or worse than Starbucks appearing on every other corner. Starbucks already had their run when they made investors a ton of money. It’s hospitals’ turn now.

— Here’s a cheery way to start your week: More than two-thirds of American Gen Xers — those aged 27-42 — don’t think they will ever be able to stop working. And don’t think they’ll ever see a dime from Social Security or Medicare.

“The Gen X group is the most anxious about their finances,” Chris Moloney of Scottrade told Reuters last week.

Of the 1,000 people they talked to who were 18 and older, nearly 40% percent said they had saved less than $25,000 for retirement. Conventional wisdom suggests if you want to live for 20 years on about $50,000 per year — whatever that will be worth at that the time — you’ll need to have $1 million stashed away.

“Gen X is in the middle of a ‘retirement perfect storm’ of very high expectations, low retirement savings and massive concern about the future of Social Security,” Moloney says.

Thirty seven percent said they would like to have between $1-5 million saved for retirement — even if their ability to save this money leaves such sums in the realm of wishful thinking.

Not that we want to reignite the debate among readers about which generation is “to blame” for the state of things, but we also note that 64% of baby boomers say they’re ready to retire — and aren’t worried.

Take that.

Worth the paper it’s printed on…

— Retail sales were up in March…but mostly because gasoline keeps costing more.

The Commerce Department says retail sales rose 0.2% in March, a tad more than the flat reading analysts were expecting. But throw gasoline out of the equation, and they were ruler flat, indeed.

If the figures took inflation into account, which they don’t, the outlook for retailers would be even more discouraging. Still, a 0.2% increase in March looks better than, say, the revised 0.4% decline in February…

— U.S. stock markets began the week moving sideways, taking a breather after GE’s earnings disappointment Friday and before Citi and Merrill reveal whatever they’re going to reveal later this week.

But Goldman Sachs isn’t waiting to make its call: Earnings season has had an “awful” start and stocks will head downward this spring.

“Early signs are awful,” says a Goldman report out today. “We expect generally disappointing results and a swath of lowered profit guidance that will drive the Standard & Poor’s 500 Index lower in coming weeks,” perhaps as low as 1,160, before a rebound by year’s end to around 1,380 — which would put the S&P down 6% for the year.

That’s a remarkably gloomy call for David Kostin, Goldman’s new chief forecaster — at least compared to his predecessor, the ever-optimistic Abby Joseph Cohen.

— Wachovia needs cash, and quickly. Ho-hum. The bank plans to float $7 billion in new shares and slash its dividend by 41%. It’s the second time Wachovia’s had to scramble for capital just this year.

Wachovia jumped into the adjustable-rate mortgage pool with both feet at the most frothy stage of the bubble in 2006 by purchasing Golden West — whose business was focused on one of the most airheaded states, California.

— But that’s just the beginning of the financials’ pain this week, as many of the top firms reveal first-quarter earnings… and probably more write-downs, too. Citigroup will likely write down $10 billion in debt this week…which would add up to a first-quarter loss of $3 billion. Merrill Lynch will likely write down another $5 billion, for a loss of $2.7 billion.

That’s still a drop in the bucket given that write-downs industrywide total $250 billion to date…and that everyone from George Soros to the International Monetary Fund is forecasting $1 trillion, give or take, by the time all is said and done.

— Citi’s announcement last week that it will unload about $12 billion in debt onto private equity at 90 cents on the dollar highlights another problem — one that’s “entirely separate from subprime mortgage lending,” writes Strategic Short Report’s Dan Amoss. “It’s another symptom of the credit bubble disease.”

The $12 billion is money Citi hoped to raise in the credit markets to finance leveraged buyouts. But when the credit markets seized up last summer, Citi had to take the deals onto its own books.

“Investment banks are stuck with an estimated $250 billion worth of this buyout debt on their balance sheets,” says Dan, “or in off-balance sheet entities for which they’ve made guarantees. Until they get rid of it, credit will remain fairly tight.

“Financial stock bulls point to this $12 billion sale as evidence that the leveraged loan sector of the credit markets is thawing. But I remain a financial stock bear, because this sale is only a tiny part of the market and only one of the many other credit-related problems plaguing investment banks.” For ways to play Dan’s skepticism, see the Strategic Short Report.

— Asian stock markets tanked overnight, fearing the worst from U.S. financials this week. Shanghai was down 5.6%, Hong Kong 3.5%, the Nikkei 3%.