Oy. “The $700 billion financial bailout program,” the New York Times sums up Treasury Secretary Paulson’s speech this morning, “will not be used to buy troubled mortgage-backed assets, as originally intended. Instead, capital would be provided directly to nonbank companies, as well as banks and financial institutions, and that more would be done to prevent home foreclosures.”

Is it any wonder 83% of Americans think the U.S. is “headed in the wrong direction”?

According to a CNN poll released this week — after Obama rode to victory on the audacity of hope, mind you — a record number of respondents think I.O.U.S.A. is in trouble. CNN’s been asking this simple, ambiguous question for 34 years… last week’s was the gloomiest response yet.

A record low 16% think the U.S. is in good shape. Stewards of the study note that optimism was higher during the worst of the Carter years… and the week of the Watergate scandal.

The U.S. economy will likely contract at an annual rate of 3% this quarter and another 1.5% in the first quarter of 2009 , says a slightly more articulate Bloomberg survey. Citing a recent poll of economists, the financial publisher says this current downturn will be the worst since at least 1974.

But never fear, Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) are back, and they’re ready to save the world.

Only two days after Fannie revealed a $29 billion quarterly loss, these two government-controlled mortgage enablers — which as late as December 2007 were involved in 90% of all new home loans in the U.S. — announced, umn, an audacious mortgage rescue plan. We’ll give you a few seconds to digest the irony.

Here’s the new plan: Fannie and Freddie will modify hundreds of thousands of distressed loans. In order to qualify you must be at least 90 days late on a mortgage payment, owe at least 90% of your home’s value, live in the house with the distressed mortgage and have not filed for bankruptcy.

If you fall within this “not a total deadbeat, but still incapable of managing money” sweet spot, congrats! You’ll qualify for a free Fannie/Freddie refi. The companies aim to bring payments down to at least 38% of the monthly household income for at least five years, with interest rates as low as 3%. After five years, the rate will climb 1% annually until it meets the market rate.

Preliminary estimates suggest about half a million homeowners will be eligible. If you are one of the millions of homeowners who took out a traditional mortgage on a house you were able to afford… umm… you get… ahhh… nothing. Enjoy watching your home’s price continue to fall while you pay 6%.

The naysayers are already complaining that the plan will not reach enough of the folks who are facing foreclosure to matter. About 200,000 homeowners will fall into foreclosure by the end of the year, bringing the yearly total over a million. Plus, Fannie and Freddie only control about 20% of America’s seriously delinquent mortgages.

Investors made more sensible decisions in equity trading yesterday. Major indexes in the U.S. fell about 2% yesterday after a choppy day of trading. Energy and commodity stocks suffered the most again, as the hard assets trade is still out of favor.

Cash is still king in today’s market, specifically the U.S. dollar variety. The dollar index is a breath away from its 52-week high this morning. Clocking in at 87.3 as we write, it’s about a half a point from the high-water mark set late last month. Should the index crack 88, the dollar will be at its highest valuation since 2006.

On the other side of the trade, gold and gold stocks are still in the dumps. The spot price is down another $15 today, to $725.

And at $57 a barrel, light sweet crude resides at its lowest level in 20 months. Traders shaved another $3 off the forward futures contract yesterday, mostly in anticipation of the Energy Dept. announcing higher oil and gas inventories today.

That’s bad news, of course, if you’re an oil investor… but good news if you’ve got a daily commute. Retail gasoline prices are now down for the 17th week in a row, with a national average of $2.20 a gallon.

Enjoy it while it lasts. According to the International Energy Agency today, the world will need to cough up a $26 trillion investment in global energy infrastructure over the next 20 years just to keep the status quo.

“The IEA’s findings state,” notes Chris Mayer, picking up where Dan Amoss left off yesterday, “that without additional investment to raise production, output will decline 9.1% annually. Everyone knows that oil production is on a treadmill, on which aging fields produce less oil over time. But that decline rate was faster than previously thought. Even with investment, the annual decline rate is 6.4% per year. These are big annual declines in a market that already wobbles along a knife edge of supply and demand.

“That’s a good backdrop if you own oil shares. Demand probably will continue to taper off as we get into this recession. But supply is falling also, and it’s not as if there is a lot of unsold oil lying around. The Economist reports ‘Official oil stocks [or inventories] are well below their average of the past five years.’

“And we can’t forget that most of the world’s oil reserves are in the hands of governments who use the cash for political purposes and social spending programs. They are not making the needed investments to keep these oil fields producing at current levels.”

There’s still time to get a free DVD and companion book with your subscription to Chris’ Capital & Crisis… details here.

We’re also polishing off the final details on a special report that addresses this matter directly… stay tuned.

Russia is taking the oil correction hard. For starters, check out the slide in the country’s currency:

The ruble got a nice bump as oil soared through the stratosphere this summer, but its retreat, the global credit crisis and a crashing Russian stock market has put the ruble in the doghouse.

The MICEX, the ruble-denominated major Russian index, fell 12.6% Tuesday. The decline was so swift, regulators shut down the exchange until tomorrow. The index is down a remarkable 67% since May.

“There’s some huge news coming on the medical front,” forecasts our tech adviser Pat Cox.

“I predict that real stem cell therapies will be offered offshore within the year. Currently, there is a billion-dollar industry offering stem cell snake oil, but real lifesaving and life-extending therapies are already available in the laboratory. These therapies are relatively inexpensive to produce and will revolutionize medicine. Even the FDA will come around when wealthy early adopters begin reporting true rejuvenation results. By the end of Obama’s first term, we will see S.C. and other therapies that will radically cut the cost of treating horrendously expensive illnesses.

“Obama already announced yesterday that he plans on reversing current bans on embryonic stem cell research funding. The market has already begun to lift stem cell companies, but mostly the wrong ones. We’ll be adding to our stem cell portfolio soon, and I’ll have much more on that in my next monthly issue.”

If you’re looking to capitalize on this breakthrough technology, be sure to read Pat’s latest report, here.

“I’m wondering,” ponders a reader, “why a financial institution that accepts tax dollars in order to be able to loan money to other business does not step up to loan to the automakers. Was that not Paulson’s argument for TARP?

“I mean the banks have received $3.4 trillion-plus in tax bucks… they can’t spare a dime to help out the economy… like preserving jobs so there will be someone left to borrow from them or pay on their mortgages?

“Two-10 million more laid-off workers and untold business failures like plastic plants, steel mills, etc., can’t be good for the bankers. Banks would fail also, causing all them bucks we spent bailing them out to be a waste.”

The 5: What a mess…

“It is true,” writes another, “that the American consumer should be able to buy any automobile that he can afford, domestic or foreign. It is also true, at least the last time that I checked, that Toyota (NYSE:TM), Mercedes-Benz, Nissan (NASDAQ:NSANY), BMW and the like have no obligation to pay for the American consumer’s unemployment benefits, Social Security, Medicare and Medicaid. So I will not feel sorry for those buyers of foreign cars when there are no more funds at the national or state level to satisfy these financial promises.”

The 5: So… you recommend before buying a car one should check to see whether the maker contributes to entitlement programs? You’ve lost us already. But let’s continue…

“Ah, but you say that it makes perfect sense that Americans should buy Japanese and German autos when they are clearly more reliable and of higher quality. Wrong! If you had cared to do some minimal research on this subject, rather than mouthing long-outdated facts and uneducated opinions, you might have stumbled upon some interesting, accurate and pertinent information. J.D. Power has at least for the past five or six years pointed out in its annual Vehicle Dependability Study that though Lexus has ranked No. 1, it has consistently been followed by Buick (this last report finds Buick TIED with Lexus), Cadillac and Lincoln. So three American makes have routinely scored higher than Infinity, Toyota, Acura and Honda. As for BMW and Nissan, they have rated well below Ford (NYSE:F), Chevrolet, Mercury (NYSE:MCY) and Dodge. And as for such makes as Mercedes, Mitsubishi and Volkswagen, they were ranked well toward the very bottom of the list for most of the time.”

The 5: We’re not saying you should buy Japanese or German cars per se, but that the choice is up to the person spending the money. As a consumer, I’ve always been under the impression the J.D. Power and Associates is just a shill for American automakers. But that must also be our mouths stating another uneducated opinion.

“Do you and other automobile buyers know or even care that to know other salient facts about the industry, such as the recent imprisonment of the head of Mitsubishi for failing to initiate safety recalls of his company’s cars, as mandated by Japanese law? It amuses me to see the smug looks on the faces of drivers of such luxury makes as Infinity and Mercedes when I contemplate that my Cadillac CTS-V has higher build quality and reliability than their much-overpriced status symbols.”

The 5: If the dude broke the law, he should go to jail. We’re not quite ready to indict all foreign carmakers because of one guy. You clearly have a lot of emotion invested in your own choice of status symbol.

“I am disappointed in you for not performing the same kind of research in this area that you so highly recommend that the consumer perform before making investments in the stock and bond markets.”

The 5: Uh… we would say we’re disappointed in you for expressing such a bizarre xenophobic affinity for American cars, but we happen to agree with your point. People should make big-ticket purchases with care. But if they choose badly… isn’t that their problem? When did it become a federal issue? Let’s see, (NYSE:GM) GM’s share price has fallen to a 65-year low and banks refused to lend them any more money. If that isn’t enough evidence of a broken business model, what more do you need?

Wow,

Addison Wiggin
The 5 Min. Forecast

Source:American Optimism, Russia’s In Trouble, But Good News For Oil, Breakthrough Med Tech, And More!

That’s why here at Money Morning we’re more interested incompanies that can secure a lot of smaller contracts on a consistent basis – and that can transform those deals into predictable, double-digit growth.

We refer to these modest-contract specialists as the “Masters of the Small Bid.”

Let me explain…

As we’ve stated, the companies we’re targeting aren’t characterized by headline-grabbing mega-contract wins, but by their proven ability to land smaller, more-stable deals. You see, by spreading their risk across many smaller deals rather than just swinging from the heels every time, the companies we follow are able to generate a consistent stream of earnings – despite a slowing economy, a wrenching credit-crisis and damaged investor confidence.

In short, our “masters” have kept themselves in front of paying customers at a time when other firms are simply worried about having customers.

Let’s look at several strong examples.

A Sample of Strong-Bid Masters

It’s no coincidence that our first example – defense-contractor and aerospace expert Lockheed Martin Corp. (LMT) – has been around for decades, and is a proven survivor. Remembered as the designer of the P-38 Lightning fighter of World War II fame – an aircraft so deadly that Nazi leaders ruefully dubbed the twin-boomed airplane “The Fork-Tailed Devil” – Lockheed Corp. went on to build the graceful Lockheed Constellation airliner in the 1950s and the cutting-edge F-117A Nighthawk Stealth Fighter in the 1980s.

A disastrous foray into commercial jetliners – in which only 250 airplanes were sold, even though the program lasted from 1968 until 1984 – would have likely bankrupted many companies. But Lockheed’s been a survivor. Indeed, back in the 1990s, to keep pace with a wave of defense-sector consolidations that created a smaller group of bigger players, Lockheed linked up with Martin Marietta Corp. to form Lockheed Martin.

Lockheed Martin re-established its fame with the so-called “Skunk Works” advanced-technology unit, and even today remains a defense-sector heavyweight. But it’s also a Master of the Small Bid. For proof, just look at some recent deals.

Lockheed roared into April, landing a $50 million contract for the U.S. Navy on April 1, and a $234 million Air Force contract on April 2. A week later, the company landed a deal a day for four straight days, in the process rolling up $725 million in total business from the U.S. Army, the Turkish military, and Japan’s Mitsubishi Heavy Industries Ltd.

The rest of the month saw still more action as the Navy signed on Lockheed for a one-year, $15.5-million contract for continued program management and engineering services for the United Kingdom’s Trident II D5 Fleet Ballistic Missile (FBM) program. The company closed the month in a decisive manner with two more major deals on April 30. The National Aeronautics and Space Administration (NASA) signed a $39.5 million contract modification with Lockheed Martin Space Systems to implement an employee-retention program, while the Navy supplied a contract boost worth up to $190 million to supply tooling and special test equipment for its new F-35 Joint Strike Fighter.

Not a bad month’s work. And it’s certainly representative of how Lockheed generates a predictable earnings stream. Because of deals such as these, the company’s share price rose nearly 8% in the month of April alone. In May we’ve been seeing even more deals, and the stock is advancing again.

Clearly, small deals can have a big impact on a company’s bottom line.

The Gamer That Doesn’t Play Games

At a time when other gamers are worrying about the next best thing, Japan-based Konami Corp. (ADR: KNM) retooled one of their most successful releases, Metal Gear Solid, adapted it for mobile phones, and then built up a lot of buzz as they pushed it out to customers of the Verizon Wireless unit of Verizon Communications Inc. (VZ).

Not only did Konami save a lot of money because it wasn’t developing a new platform from scratch, it also kept its audience smaller to produce bigger returns per person.

While the pumped-up adolescent males soak up this stealth shooter game, Konami hasn’t forgotten to take care of the over-moneyed and under-served teenage-girl market with its recent new game, “Diary Girl.” The Nintendo Co. Ltd. (OTC ADR: NTDOY) Nintendo DS game provides girls of all ages the ability to interact with friends, while also organizing a calendar and address book in their own, password-protected electronic journal.

A month ago, Konami announced an agreement with Win Systems International Holdings Inc., to use Konami content in certain of Win’s pending lottery and gaming projects in Europe and Latin America.

Deals like this have caused Konami’s shares to seek higher ground. With a 19% gain over the past three months, the only thing that could help this company even more is if it had a highly awaited Sony Corp. (ADR: SNE) PlayStation 3 game coming in the near future – which just happens to be the case. Metal Gear Solid 4, the highly awaited PlayStation 3 game, will debut June 12.

More than 30 years after Japan’s only airliner program since World War II ended as a commercial failure, the country is making a multi-billion-dollar bet that it can succeed in the jetliner market.

Japan’s Mitsubishi Heavy Industries Ltd. (PINK: MHVYF) has unveiled a plan to develop a “regional” jetliner for use by airlines all around the world. The controversial project gained global credibility in recent weeks after analysts began to speculate that Toyota Motor Corp. (TM) – the world’s No. 1 automaker by sales – would join the development team. Toyota subsequently confirmed its involvement, announcing plans to take a 10% stake in the venture and injecting $67 million to help get the initiative off the ground. The Japanese government is backing the program.

It’s a big gamble for Mitsubishi and its partners: The regional airliner market is right now dominated by Bombardier Inc., of Canada, and Embraer (Empresa Brasileira de Aeronautica SA) (ERJ) of Brazil. And firms in both Russia and China – each with a major U.S. corporation as a partner and co-pilot – already have targeted this market, and have a solid head start on the Mitsubishi team.

Still, the potential payoff is hefty enough to warrant the risk. Such key global trends as rocketing fuel prices, soaring global travel, fast growth in Asia, Latin America and the Middle East, and ongoing problems with major air carriers across the world are stoking worldwide demand for efficient, economic regional jets. And that demand could persist until 2030, many experts predict.

“In terms of the macro picture, demand is there for this type of jet,” Mizuho Investors Securities Co. Ltd. senior analyst Yuichi Ishida told the Reuters news service. “Money-losing regional routes could turn profitable by using them. But the real question is whether there is room left in this market for Mitsubishi Heavy.”

To date, the so-called NAMC YS-11 – a turboprop airliner built by a Japanese consortium – is the only commercial aircraft made in Japan in the post-World War II era. The program was initiated by Japan’s Ministry of International Trade and Industry in 1954. The aircraft was rolled out in 1962 and production ended in 1974 – hardly qualifying it as a “success” from a financial standpoint.

Toyota’s Desire to Fly

Toyota said its motivation was primarily patriotic – the Mitsubishi jet is being backed by the Japanese government, which is searching for ways to for its smallish aerospace business to become more of a global player, especially after losing other industries to South Korea and China.

Toyota – which edged ahead of General Motors Corp. (GM) in the first quarter to become the world’s top-selling automaker – said it also would be looking for ways to adapt the technological know-how developed in its aerospace activities to its core automaking business. That’s not just an empty claim made to justify its diversification into the aerospace sector: The Mitsubishi MRJ70 (70 seat) and MRJ90 (90 seat) jetliners are to be the first regional jets to make extensive use of high-strength/lightweight “composite” materials, such as those found on the new 787 Dreamliner being developed by U.S. aerospace giant, The Boeing Co. (BA).

Although it hasn’t built a commerical aircraft in decades, it is an experienced subcontractor in that area, and is a veteran defense contracting firm. For example, Mitsubishi already is a key manuacturing partner on the long-range Boeing jet. And it has experience building such military aircraft as the F-1 fighter, T-2 trainer – both supersonic jets that the company built on its own – and the F-2 fighter, a Japanese-built version of the U.S. F-16 Fighting Falcon that was produced in partnership with Lockheed Martin Corp. (LMT)., the No. 1 U.S. defense contractor.

Toyota, too, has some experience, and already operates a small aerospace research team. Analysts say that venture could easily take flight and become a major business operation. That’s just what happened with Toyota’s robotics business, which started out as a fairly tiny research operation, but today is one of the company’s better-known businesses outside its core auto operation.

Honda Motor Co. (HMC), Toyota’s chief rival in Japan, already has expanded into the aircraft business; its futuristic seven-seater HondaJet light business jet has garnered heady praise for its advanced design and elegant lines. The company was supposed to start taking orders for the airplane sometime this month.
Toyota’s investment in the Mitsubishi jet is the largest of any company outside the Mitsubishi corporate network, or “keiretsu” of related companies. Other backers include domestic Japanese trading companies and the government-supported Development Bank of Japan. Foreign suppliers also will be involved.

To Market, To Market

Why is Mitsubishi – Japan’s largest producer of machinery – getting into the airliner business? In a word: Opportunity.

Over the next 20 years, Boeing itself is forecasting that air carriers worldwide will need to acquire 28,600 commercial aircraft of all types – with a potential value of $2.8 trillion. The Boeing forecast is generally viewed as the world’s best analysis of the future global market for commercial airliners and cargo aircraft.

The huge revenue potential in the global airliner market – combined with the low number of viable competitors and the high barriers faced by new potential entrants – is a big reason that Money Morning’s investment gurus have repeatedly mentioned Boeing as a promising global investment for years to come.
During that same 20-year stretch addressed by Boeing’s market forecast, China will have to buy 3,400 airliners, a requirement worth $340 billion. That will make China the fastest-growing airliner market in the world, and will also rank it as the biggest market outside the United States for new commercial airliners. In fact, if you average it out, from China alone you’re talking about sales of $17 billion a year for the next two decades.

This staggering shopping list will include the globetrotting tarmac queens being built by Boeing and European rival Airbus SAS.

But global forces also are revving up demand for regional jetliners, like those being dreamed up by Mitsubishi.

According to Mitsubishi, the world’s airlines will order 5,000 regional jets over the next two decades as global carriers seek out fuel-efficient airplanes for shorter routes and developing nations expand their airliner fleets to fuel economic growth.

That’s not an arbitrary figure, either: The company spent several years analyzing the market and projecting the potential demand for the jet, and designed the specifications specifically around its findings. The plane will be:

• Small, so it can fly out of regional airports.
• Made of lightweight composites to make it strong and fuel efficient.
• Fast (with cruisng and maximum speeds of between 0.78 and 0.82 times the speed of sound, according to published reports).
• Profitable to operate, carrying 70 to 90 passengers, depending upon the model.
• And with a good range – 920 nautical miles for the base model, although extended-range (1,400 nm) and long-range (1,960 nm) versions will be available.

“Mitsubishi Heavy has always been just a partner of Western aircraft makers,” Mitsubishi Heavy President Kazuo Tsukuda said at a news conference that talked up the company’s pet project. “Now we want to take advantage of changes in the marketplace such as high fuel costs and a greater need for environmentally friendly aircraft.”

“We are in a recession, this report doesn’t change that,” Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, told Bloomberg News. Zentner had forecast a payrolls cut of 25,000. “What it does is support the idea that the downturn will be mild. Consumer spending isn’t going to tank.”

Compared to the 240,000 jobs the domestic labor market shed in the first three months of the year, 20,000 is a marked improvement. The continued slump in the housing market and waning consumer confidence affected sectors tied to the housing market and consumer goods.

“Employment continued to decline in construction, manufacturing, and retail trade, while jobs were added in health care and in professional and technical services,” the DOL statement read.

The report was universally better than expected, as many economists had expected a slight increase in the unemployment rate to 5.2%. Many saw the moderation in job losses as affirmation that the U.S. Federal Reserve should pause in its rate-cutting campaign.

“For now, this employment trend is validating signals sent by the [Federal Open Market Committee] earlier this week to take a pause in rate cuts,” wrote Stephen Gallagher, economist for Societe Generale SA (OTC: SCGLY), MarketWatch reported. The report “lessens the fears of a deep, or prolonged downturn in the economy.”

In an unrelated report, the Commerce Department announced that domestic factory orders increased 1.4% in March on the heels of a 0.9% decline in February due largely to strong international sales. The weak dollar is helping to boost exports and offset weakening demand at home.

“The cross currents of a weak domestic economy and a strong export sector continue to keep activity from faltering sharply,” Jonathan Basile, an economist at Credit Suisse Holdings Inc. (CS) in New York, told Bloomberg.

Again, the report was better than anticipated, as economists’ had expected an increase of only 0.2%.