There may be money to be made in stocks right now. However, before jumping in consider the following facts (which we’ve plundered from yesterday’s Daily Reckoning):

1) Unemployment has risen to 9.4 million, according to heavily doctored “official” Bureau of Labor and Statistics figures. In reality, the number is much higher. People without jobs don’t spend money. They also rely on handouts from the government. One in every six dollars of personal income in America now comes in the form of federal aid.

2) Housing prices have so far been knocked down 32% since the slump began. Housing expert and Yale economist Bob Shiller reckons we’re a long way off from a recovery. People with mortgages whose house prices are falling don’t have room for discretionary spending – the kind of spending that helped keep US GDP in positive territory for so long.

3) Defaults and foreclosures aren’t confined to the subprime part of the mortgage market. Prime and Alt-A mortgages are now under severe pressure. The contagion is spreading. And it will continue to spread thanks to record job losses and the contraction of credit.

4) The resulting fallout in consumer spending is impacting production. This is evident from the severe fall-off in the transport sector. Traffic in the trucking sector is down 13% year on year – the biggest drop in 13 years. Airlines are carrying 21% less cargo. Cargo rates are down a whopping 90% in shipping.

We could go on… and on… But you get the point. As least we hope you do. The plunge in the economy may be slowing, but the data points are still heading in the wrong direction. Until this changes, we don’t fancy our chances in stocks.

We’re conservative that way: we like to have a reason for investing other than “everybody else is doing it, so it must be right.” That attitude will get you killed. You may make some money on the way to the chopping block. But sooner or later your head will still end up in a basket.

Of course, a bet on stocks right now is a bet on inflation (although not necessarily a good one). This is where the plot thickens, as a good plot always does.

We suspect the reason traders and investors are ignoring economic fundamentals in their flight from relatively safe-harbor investments (think Treasurys) into stocks is because they’re counting on the Fed flooding the economy with liquidity.

As we’ve discussed before, stocks tend to be particularly sensitive to fiscal and monetary stimulus. The problem is such overwhelming stimulus is likely to make the currencies stocks are valued in worthless.

There are better ways to bet on inflation – ways that also allow you to benefit from currency dollar devaluation. At the risk of repeating ourselves, there are two easy ways to do this.

You can go long the SPDR Gold ETF (NYSE:GLD), which has been on a tear since mid-April.

Or you can go long the PowerShares DB Agriculture Fund (NYSE:DBA), which has also been a great performer since mid-April.

However, some critics say they were surprised that the proposal is more ambitious – and more expensive – than initially expected, and includes controversial changes to bankruptcy laws that could cause the mortgage market to freeze up.

In fact, an Obama administration official told Reuters the total plan commits up to $275 billion for housing, including $50 billion from funds already committed in the country’s financial sector bailout.

Headlining the plan is a $75 billion Homeowner Stability Initiative, aimed at helping 4 million to 5 million struggling homeowners refinance their mortgages which are owned or guaranteed by mortgage giants Fannie Mae (FNM) or Freddie Mac (FRE).

A second piece of the program would help 3 million to 4 million additional homeowners cut monthly mortgage payments to sustainable levels by providing incentives to any participating lender to lower monthly interest rates.

Obama billed his two-pronged effort as critical to stanching the relentless run of foreclosures, which is key to turning around the recession-bound economy.
“In the end, all of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to deepen,” President Obama said while announcing his plan in Arizona, a state hard hit by the housing crunch.

But critics feel the proposals will have a minimal impact on homeowners who are behind on their mortgage. And most say Obama’s plan won’t make banks more willing to lend to consumers with less-than-perfect credit scores or meager downpayments.

“It’s like a new captain of the Titanic after it has hit the iceberg,” Guy Cecala, publisher of Inside Mortgage Finance, told MSNBC. “What can he do? Rearrange seating on the lifeboats?”

Housing Crisis Key to Recovery

Obama’s plan was created comes in response to a housing crisis that has acted like an anchor on U.S. growth, spawning a recession that started last December and shows no signs of letting up.

The housing crisis has played a central role in the financial and credit turmoil now spread across the globe, with many U.S. homeowners hamstrung by mortgages they cannot pay.

That has led to record foreclosures in the past year, swelling the glut of properties on the U.S. market, forcing down home values and crimping the wallets of homeowners unable to refinance or sell their homes. For instance:

• The housing market lost an estimated $3.3 trillion in value last year and almost one in six owners owed more than their homes were worth, according to online data provider Zillow.com.
• At the end of last year, slightly more than 9% of all home loans in the United States were in arrears, or already in foreclosure, according to the Mortgage Bankers Association, Reuters reported.
• A total of 8.1 million U.S. homes, or 16% of all households with mortgages, could fall into foreclosure by 2012, according to a report by Credit Suisse Group AG (ADR:CS).

The President says his program will finally stop the bleeding and help turn around an economy staggered by a withering recession.

“It will give millions of families resigned to financial ruin a chance to rebuild,” Obama said. “By bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

The plan exists in several key parts.

Boost Funding for Fannie & Freddie

The first part of the President’s plan calls for the Treasury Department to double its financial support for Fannie and Freddie to allow them to refinance homeowners with mortgages valued at more than 80% of the homes’ values.

The Treasury plans to provide as much as $200 billion in capital to ensure that Fannie and Freddie, the government-sponsored enterprises (GSEs) that guarantee home loans for millions, can stabilize markets and hold loan rates down.

In order to assure adequate funding, the Treasury said it was increasing its preferred stock purchase agreements with the two government-controlled companies from $100 billion to $200 billion, Bloomberg News reported.

It also said it was taking the limit on the size of the mortgage portfolios the two companies can hold and boosting the cap on each to $900 billion, an increase of $50 billion. It’s also increasing their debt ceilings.

This part of Obama’s plan is designed to give relief to homeowners struggling with deflated property values and/or interest-rate “re-sets,” by allowing the big mortgage companies financing leeway.

“The plan I’m announcing focuses on rescuing millions of families in traditional mortgages who are under water or close to it … and to keep mortgage rates low so that families can secure loans with affordable monthly payments,” Obama said.

$75 Billion Incentive for Lenders

A key second part of the plan involves providing $75 billion in incentives to lenders, making them responsible for lowering interest rates so a borrower’s monthly mortgage payment is no more than 38% of his or her pre-tax income.  After that the government program would match the amount reduced by the lender to bring a homeowner’s payments down to 31% of their pre-tax income, MarketWatch reported.

If a lender is unable to get a homeowner’s payment down to 31%, it can also lower the principal owed on the mortgage and take advantage of government assistance.

As part of the initiative, servicers will receive $1,000 for each loan modification, as well as additional government funding for each month the borrower stays current on the loan. Homeowners can also receive $1,000 annually for five years as part of the program, as long as they stay current on their loan payments.

Funding of $50 billion for this part of the program will come from the Troubled Asset Relief Program (TARP) and $25 billion will come from Fannie Mae and Freddie Mac, said a Treasury official.

Overall, the Obama administration’s summary of the plan said the plan could offer a buffer of as much as $6,000 against declining value on the average home.

Fight in Congress Looms Over Bankruptcy Law Changes

One controversial part of the plan is a proposed law that allows judges to rewrite the terms of a mortgage for homeowners who land in bankruptcy court – changes in law that can be made only by Congress.

Without such a law, people are being forced into foreclosure, even though they would be “potentially … better off, and the bank would be better off, and the community would be better off, if they’re at least making some payments, but they’re not able to make all the payments necessary,” President Obama said.

But some in the mortgage industry – and many on Wall Street – say that such a law, known as “cram down” in bankruptcy lingo, would cause the mortgage market to seize up, because investors would stop buying mortgage-backed securities out of fear a judge could unilaterally change the terms of the deal the securities were created around, MSNBC reported.

“It could significantly destabilize the marketplace,” Steve O’Connor, the Mortgage Bankers’ senior vice president of government affairs, told reporters.

Builders Confirm Need for Action

Meanwhile, as if to underscore the timing of Obama’s plan for an ailing housing market, U.S. builders broke ground in January on the fewest number of houses on record, as housing starts plunged 17% last month to an annual rate of 466,000, Bloomberg reported.

If nothing else, the new housing program signals the Obama administration plans to take a more aggressive stance on foreclosure relief than the Bush administration, which supported voluntary efforts by the mortgage industry to ease the housing crisis.

“The problem with the build-up in inventory is coming from the increasing number of foreclosures,” Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts, said in a Bloomberg interview. “It’s about time the government intervened so directly in the problem.”

Source: Bankruptcy Law Changes Part of Obama’s $275 Billion Housing Plan

Obama as Prime Mover will have to turn the chaos in America’s housing and mortgage market into harmonious order. Then He has to single-handedly leap a tall legacy of toxic assets in a single bound, freeing up banks to lend by buying all of their dodgy assets.

It’s a big ask. But if anyone can do it, He can. Especially when He’s got America’s credit rating to abuse!

Reordering the financial universe is not cheap. It takes a lot of energy and a lot of matter in the form of new U.S. dollars. Reuters reports that, “Goldman Sachs estimated that it would take on the order of $4 trillion to buy troubled mortgage and consumer debt. That number could shrink if the program were limited to only certain loans or banks, but it could also grow if other asset classes such as commercial real estate loans were included.”

How much is $4 trillion? “At $4 trillion, that would be the equivalent of nearly 1/3 of U.S. gross domestic product. If the government had to fund that amount by issuing additional debt, it would intensify investor concerns about massive supply scaring off demand.”

Yes. You can imagine the world’s main owners of dollar-denominated reserve assets (China, Japan, the Petro states) would be intensely concerned about a $4 trillion increase in dollar denominated debt. But wait a tick…

It’s one thing to say you might need to float as much as $4 trillion in debt to fund your bad bank. It’s another thing to sell that debt? Who will buy it? Even these days, $4 trillion is a lot of capital to loan. Maybe that number has been floated to make a smaller number, say $2 trillion, look small by comparison.

Good news everyone! The Bad Bank is going to cost us half as much as we thought!

If the ‘big bang’ goes off this week, what will it mean for Planet U.S. Dollar? Or Planet Gold? Well, as our friend Steve Belmont in Chicago reported on Friday, gold is moving toward a day of reckoning after trading in a range for the last ten months. It will either break out much higher, Steve says, or buckle. We’ll be watching.

Did you notice the obnoxious change in political rhetoric this weekend? You knew Barrack Obama was going to give it to Wall Street, calling executives “shameful” for getting bonuses while their firms received TARP money. Remember, by the way, the TARP money was forced on some firms in an effort to boost confidence in the overall plan.

We normally try to keep a reserved, ironic, and sceptical air when reading the statements of politicians. Most of them are not worth taking seriously. But every once in a while, you get the scent of something so noxious and dangerous that you have to put aside humour and call it what is. Today is one of those days.

Now, the populist shame game is to be expected. That’s not a big deal. What’s more alarming is the bilge and claptrap spilling from Kevin Rudd’s gob and what it may mean for your ability to preserve and create wealth in the coming years.

In The Monthly, Rudd plants a Neo-Marxist flag in the ground of the current debate with the kind of jargon-laden elitist preening that makes academic critics of the free market (who’ve never spent a day in the business world creating value) so nauseating.

Specifically, Rudd writes that, “The time has come, off the back of the current crisis, to proclaim that the great neo-liberal experiment of the past 30 years has failed, that the emperor has no clothes. Neo-liberalism, and the free-market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy.”

Why not proclaim, since he is apparently in the position to make such proclamations, that the experiment in paper money and the deliberate policy of inflation it implies is theft? It is bureaucratic lust for power and authority disguised as monetary policy? It’s also, at its heart, the belief that one or a few people in government know better than you how you should lead your life.

Leave it to Rudd and the resurgent global Left to use the present crisis as an occasion to expand their political ideology of government power and wealth confiscation. Despite the fall of the Berlin Wall in 1989, Marxism never really went away. It ensconced itself in Western universities and colleges, and in the careerism of the political class, which believes it is entitled to govern by virtue of its intellectual superiority and the moral justness of its anti-market position.

Their strategy, as always, is to control the rhetorical high ground by framing the discussion in populist terms and making an enemy of “greedy capitalists.” Don’t get us wrong. There are plenty of greedy capitalists to go around, or to go to jail. In fact, many more of them would be going out of business if the government would quit propping them up with taxpayer money. This generation of corporate executives shares plenty of blame for playing fast and loose with the corporations they were supposed to be stewards of. They over-levered, over-speculated, and over-paid themselves.

But Rudd is an ignoramus of the lowest order to say that current events somehow negate the last thirty years of globalisation, or three hundred years of economic growth and the division of labour. Tens of millions have been lifted out of poverty. Hundreds of millions have more economic and political freedom than ever before.

These results can only be the product of a system in which risk taking entrepreneurs have access to capital and savings, allocated through competitive markets where firms that deliver real value to consumers thrive and those that don’t fail. That system has worked for 300 years of Western history to create wealth, choice, and opportunity.

Shame on Kevin Rudd for calling that “market fundamentalism”, as if belief in the institutions that create wealth and liberty is akin to the same kind of religious fundamentalism that permits suicide bombing. If there is a more offensive use of rhetoric to equate two vastly different things, we haven’t seen it.

But the Neo-Marxists are back on the march. And they are probably coming for your wages and pension sometime soon. Make no mistake about it. 2009 is the year the Neo-Marxists have been waiting for.

It is their chance to undo all the perceived evils of Thatcher and Reagan. There would be plenty of those to undo, of course, not least the idea that deficit spending is morally permissible. But the real push by the Neo-Marxists is to use the present occasion to expand the scope and reach of government power into your private life, so they can tell you what to do, what to watch, what to eat, what car to drive, and ultimately, what to think or say.

This will be disguised as better more “parental” regulation to achieve more equality and social justice. But behind the false populist outrage and the elevated language of idealism, it’s just another push for government elites to expand their ability to compel you to live the life they think you should lead.

The simple regulatory response to all this is to reduce the amount of leverage available to financial players. Reduce margin lending in shares. Let bankers get back to making prudent loans in the housing market based on what a buyer can actually repay, rather than letting the government subsidise subprime lending because it’s politically desirable.

There are other sensible regulatory responses to the mess. But they will be discarded in favour of grandiose and over-reaching plans to redesign the entire world in some utopian image. A “big bang”? Really. Does that mean they’re going to blow things up and call it a “fix?”

What we’re getting at is that it’s going to be a tremendous challenge to withstand this push in the next few years, mostly because it will have so much popular support from people with no brains who believe in fine sounding speeches and appreciate getting tax rebates/credits/handouts from the government. The first battle in the war on wealth creation is wealth redistribution, whether you like it or not.

It would be more honest if the Left just came out and said something like, “The last ten years have been a huge wealth transfer from the middle class to Wall Street and from the developing world to the developed world. We’re going to try and reverse all that now because we know it’s our best shot in the last thirty years to get some back. So here we come! Open your wallet and shut your mouth!”

Neo-liberalism isn’t the culprit in all this. What does that word even mean? Isn’t Rudd using it because it sounds like Neo-Conservatism? And everyone knows that Neo-conservatism is evil, therefore Neo-Liberalism must be evil too!

The real evil of the last thirty years is the vast expansion of credit in the world that changed personal and corporate incentives. The plunge in the cost of capital-encouraged by governments and Central Banks-set of an orgy of bad risk taking, quietly condoned by regulators and politicians who all benefitted in some way from housing/commodity/trade booms.

But now the credit cycle has turned. The Credit Depression is upon us. And Comrades Rudd and Obama will try and use it for the next great push in the Neo-Marxist dream, one world government with one world currency. More on that tomorrow!

Source: Marxism Marches On

The cuts are on top of the 23,000 jobs eliminated so far this year. Chief Executive Officer Vikram Pandit plans to whittle the company’s workforce down to 300,000. By the time Pandit puts down the machete, he’ll have lopped off about 20% of the company’s headcount since Citigroup’s peak.

Just last week, Citigroup announced the release of 10,000 employees in addition to hiking interest rates an average of 3% for about one-in-five of its credit card holders.

Since the subprime market caved in last year, bank and brokerage firms around the world have shed nearly 160,000 jobs, Bloomberg reported. Citigroup’s plan to let go 50,000 is the largest workforce reduction in the U.S. financial industry since it first started to unravel.

Since the crisis started in June 2007, Citigroup’s shares have dropped like an anchor, falling more than 83%.

Still, that’s not enough to shake Pandit’s confidence that his executions will produce results and redeem the company’s stock. Last week, Pandit and another top manager scooped up about 1 million shares between the two of them. Pandit bought 750,000 shares at prices between $8.92 and $9.45, Dow Jones reported.

In Citigroup’s presentation, the company pointed out that it has the lowest exposure to U.S. consumer mortgage market of the country’s top four banks. Citigroup has $218 billion in U.S. mortgages, Bank of America Corp. (BAC) has $461 billion, Wells Fargo & Co. (WFC) has $340 billion, and JPMorgan Chase & Co. (JPM) has $302 billion.

Other banks are expected continue cutting jobs. The London Times reported over the weekend that JPMorgan is planning to cut thousands. Goldman Sachs Group (GS) is planning to cut 10% of its workforce.

Fidelity Investments, the world’s largest mutual fund manager, plans to shed 1,700 jobs in the first quarter – in addition to the 1,300 it cut last week.

Source: Citigroup Whacks Another 50,000 Jobs; Cuts Expenses by 20%

We finally had some data releases here in the US which look to steer the markets, so I’ll just get right to it.

The dollar continued to strengthen yesterday after another round of bad weekly employment figures. Initial jobless claims increased to 516k during the first week of November, and last weeks numbers were revised up to 484k. The employment picture continues to darken here in the US, and it doesn’t look like it will improve any time soon. This is just what the US consumers don’t need right now. Not only are most consumers living paycheck to paycheck, but now many of those paychecks are being ripped out of their hands.

Personal bankruptcies are heading into record territory, and job losses will only make this worse. While the total size of the consumer credit market is dwarfed by the size of the mortgage market, with home loans there is an underlying asset providing some base from which banks can work. Credit card debt is different, the banks and investors who hold this debt have no underlying assets to fall back on. This fact has not been missed by the current administration, and Treasury Secretary Paulson is now looking to spend some of the bailout package to try and help out the consumer lenders. Unfortunately it looks like we will be taking another step into the deep dark area Chuck has continually talked about.

This morning we got the retail sales numbers here in the US which showed a further deterioration. Retail sales less autos were down 2.2% in October, almost double economist’s expectations. This fall is the largest monthly drop ever, and is just one more sign the US economy is heading for a doozy of a recession!

We did get some good news yesterday morning as the trade deficit narrowed somewhat, a result of a stronger dollar and lower oil prices. But even after the narrowing, we are still running a deficit adding to our need to attract foreign investments. Chuck let me have a sneak preview of December’s Review and Focus the other day before he sent it to the printer. In the latest issue, he talks about our need to finance the twin deficits which the US continues to amass. This financing need is one of the factors convinces me the US dollar will have to get weaker. The current dollar strength will not last, and once the ‘flight to quality’ buying of US Treasuries subsides, we will see the US currency return to its long term decline.

As I said earlier, the dollar continued to strengthen yesterday morning as the stock market fell. But both reversed course early in the afternoon after Paulson started talking. The Treasury Secretary said the big 3 auto makers should receive some government help, but he isn’t willing to take any of the funds already approved by congress to help them. Instead, he urged congress to come up with additional funds to help the car makers. He also said he would look to try and spend some of the already approved rescue package on ‘non-traditional’ lenders who give loans directly to consumers. Looks like Paulson is finally realizing what we have been saying for a while now, that the next big crisis is the consumer credit crunch.

Anyway, just after the news came across the wire about Paulson’s remarks, the stock market jumped 400 points and the euro bounced up over two cents in the matter of a few short minutes. The dollar has really become a contra indicator for the risk appetite in the market. The dollar index and the stock market have moved in opposite directions 88 percent of the time since the beginning of September. As investors feel more comfortable with risk, they sell the short term dollar holdings and invest them into other markets. The Europeans have started to take the dollar back up this morning, but it remains lower than at this time yesterday.

The Europeans are taking the euro down after it was confirmed that the European economy fell into its first recession in 15 years during the third quarter. Germany had already reported a third month of negative growth, and the European Union confirmed the GDP shrank .2% in the 15 euro nations during the third quarter. France, Europe’s second largest economy, unexpectedly grew in the third quarter as consumer spending gained and exports rebounded. I am still convinced that while things are bad across the pond, Europe’s economies are still in better shape than the US economy. And while some here in the US have given the ECB trouble about not lowering interest rates as quickly as the US; I believe they have done a better job navigating the current crisis, and Europe will be able to recover more quickly than the US.

And finally, the RBA was in the markets protecting the Australian dollar again. Lately, the RBA is intervening to hold the AUD$ up while there are rumors the Bank of Japan may start intervening to stop the appreciation of the yen. Officials at the Swiss National Bank have also been complaining about the rise of the Swiss franc. Both the Japanese yen and Swiss franc continue to strengthen as investors reverse carry trade positions. So we have a couple central banks intervening to hold their currencies down, and others who are intervening to try and keep theirs from falling further. Crazy Times!!

Currencies today 11/14/08: A$ .6585, kiwi .5595, C$ .8188, euro 1.2671, sterling 1.4738, Swiss .8409, ISK (No Quote), rand 10.152, krone 6.890, SEK 7.894, forint 213.42, zloty 2.9408, koruna 20.015, yen 96.39, baht 34.97, sing 1.5184, HKD 7.7501, INR 49.01, China 6.8250, pesos 12.97, BRL 2.30, dollar index 86.89, Oil $58.25, Silver $9.65, and Gold… $747.24

Source: Data Shows Just How Bad Things Are

More are likely to follow, at least until normal conditions are resumed. Unclogging the mortgage market would be numero uno on an estate agent’s wish list. Something the Bank of England is working on. They’re look for a way to squirt more cash into the system without adding to the £100bn gorilla dropped on to the taxpayer’s already aching back with Northern Rock.

The Treasury is about to OK a plan for banks and building societies to swap their mortgage-backed assets for government bonds as opposed to cash, reports The Times. Though they don’t say why, but I think we can guess. The BoE can get its treasury bonds back more easily than slippery cash. It’s essential the taxpayer doesn’t shoulder any more risk, says LibDem Treasury spokesman, Vince Cable. Agreed. Otherwise we might as well give old Wedgie Benn a call, nationalise the lot of them and be done with it. Just when we thought we were Thatcher’s spawn, a Socialist utopia muscles in through the back door and repossesses our mortgaged home in the name of the Council.

A deal with the UK banks is pending within the fortnight and London bank shares are having a good day on the back of it. What also came to light today is that Libor, the measured rate at which banks lend to one another, may not be giving an accurate read. Commercial banks may be being a little “economical with the actualite”, say reports, of exactly what they’re having to pay for funding. The fear is that if everyone knew just how bad it was, it wouldn’t help much, not least them. The British Bankers Association is so concerned it has brought forward its review of the Libor rate system in a bid to shore up its credibility.

Over in the US, “real estate is getting worse,” JP Morgan CEO Jamie Dimon told investors yesterday. He expects US house prices to fall by another 9% this year. Others see peak-to-trough falls of around 20% or more.

Another banker, CEO of Wachovia Kennedy Thompson, doesn’t see the economy recovering until late 2009. “Until housing prices find a bottom, capital markets are going to be frozen.” His counterpart at the Bank of America, Kenneth Lewis, would appear to agree. He doesn’t see the US housing bust bottoming before 2009 either.

Former Fed chief Alan “it’s not my fault” Greenspan said this thing won’t be over until the housing market stabilises, but is a little more optimistic that it will come sooner. When that day comes what percentage of the economy will be consumer spending we wonder? It was around 70% before the roof collapsed on the EZ money house-as-a-cash-dispenser economy.

Much the same could be said of the UK’s economy too. Consumers, either voluntarily or involuntarily, have been pulling in their purse strings and refocusing on needs at the expense of wants. The implications of this collective behaviour shift have been showing up regularly in the results of publicly listed companies, most notably in the retail sector. New examples today include WH Smith, where like-for-like sales fell 2% on high street “weakness”. And Findel plc, a shopping catalogue business and educational supplier, which issued a profits warning as it upped its bad debt provision. Something of a swift change of fortune after saying earlier in the month it expects a record profit for the year to March.

*** Woah…oil $115!

It keeps going up in leaps and bounds, but Mr Market doesn’t seem to care. His attentions appear focused exclusively on another form of liquidity. The kind that generally is found above ground and sloshes (or did, pre-August ‘07) through financial markets, ensuring everyone it touches is kept in champagne and bonuses.

And yet a few days ago we had the Russian VP of oil giant Lukoil saying Russia had hit peak oil already… Already? And there we were thinking the natural home of autocratic rule was just getting started with the black goo!

And today, the FT does nothing to calm the nerves of a tight market. Nigerian production could fall by a third by 2015, it reports. Reading further we find this is less a supply issue than a financial one. Big Oil, in the shape of Shell, ExxonMobil and Chevron, are finding an unreliable partner in the Nigerian government (why are we not surprised?) which is not ponying up its share. A headache Big Oil one doesn’t need, particularly Shell, given its recent history of the dodgy reserve booking and its ongoing struggle to replace what it’s sucking out of the ground with new reserves.

*** “Don’t talk to me. You want to know why Poles going home? I tell you,” says Simon, who’s been fixing up the bathroom and is returning home (for a visit he assures).

“I come here four years ago. Then 7 to 1”, (7 Polish Zloty to £1).

“Now 4 to 1 and every day going down.”

A trend noticed by “counter eddy” migrant Jim Parton, who thinks there may be money in it. The former City Whiz kid and author of the bestseller Buck Stops Here, is now installed in a Polish castle and asks: where can one buy Polish bonds? A nice 6% yield, an appreciating currency and wage inflation being crushed by migrant workers returning home. Sounds good to us, and with little call on our testosterone levels.

Finally, as basic food supplies cause shortages and price rises around the world, check this “World Clock” for a sobering estimate of how fast we’re adding to our number.

Finally, finally… no news from Bill again today as the concerns of running a multinational publishing empire make for increased demands on his time. He will be back soon, I’m sure. As to when, I’m not.

Regards,

Rob Mackrill
The Daily Reckoning

It was a comment born of frustration. Richard was annoyed that on the very day he’d planned to phone First Direct about a mortgage, they pulled the rug from under him. Faced with a backlog of applications, the lender is refusing to take on new business.

Richard’s not the only ‘real person’ feeling the effects of the credit crunch. Britons everywhere are seeing their finances hit — and they’re resorting to drastic measures. Unsecured personal borrowing shot up in February, by £2.4 billion. To put that in perspective, it rose in January by just £900 million.

This is a symptom of the contracting mortgage market. Mortgage approvals have fallen by 40%, and there are fewer deals available. Last month there were 7,726 products on the market. Now there are just 4,794.

Consumers across the land are raiding the piggy banks, spending their future wealth to keep up with today’s rising living costs. Those without savings are borrowing to the hilt. A comfortable retirement is now seen by many as a luxury they can’t afford.

But one can’t do this forever. Soon the savings are gone, the credit cards maxed out. Those who continue to put something by — and who put it in the right investments — will come out way ahead in the long run.

Bernanke sticks his neck out… a bit

The thing about a recession is you don’t realise when it starts. It takes a few months before the figures are in and we can say “Look! Two consecutive quarters of negative growth. We’ve started a recession.”

So there’s always a bit of guesswork involved as to whether a recession has actually started. We’ve been seeing it in the US for the last few months. Are they or aren’t they?

One by one, investors, commentators and the man in the street come round to the idea that, yes, we probably are in a recession. In the case of the US, the Order of Realisation has gone something like this: nervous Wall Street investors, people who’ve already lost their jobs, sections of the media, more investors, some more of the media, politicians (in private), the mainstream media, most Americans, the rest of the world, the bloke who makes the sandwiches for our office, my sister’s cat, undiscovered life forms on other planets… and yesterday, at last, Ben Bernanke, chairman of the US Federal Reserve.

Well, almost.

In his speech to Congress, Bernanke stopped short of saying a recession had arrived, merely saying it was possible:

“It now appears likely that real gross domestic product, or GDP, will not grow much, if at all, over the first half of 2008 and could even contract slightly.”

I’m being facetious, of course, in suggesting the Fed chairman is really so far behind the curve. Privately I reckon he’s as worried as anyone. His position just won’t allow him to say so.

But now he’s done the next best thing, that surely can’t be a good sign.

“The empire is rolling over,” says my US correspondent Bill Bonner. “Now, in its advanced, decadent phase, the imperial government must provide bread — in the form of food stamps — and circuses — in the form of national party conventions, elections and foreign wars. The combination settles the public… and distracts them.”Bill tells me that food prices are up 9% in America, while house prices have slumped 11%. In Denver last year the average foreclosure rate was one in thirty-two. In some neighbourhoods today it’s one in eight.

Not a great time for investors with US exposure. But our resident market maven Frank Hemsley has been following all that money which is fleeing the States… and he’s hit on an interesting alternative to gold for those seeking some safety…

Check out the “Swissie”

Private bank Rothschild, based in Geneva, has seen its shares rise 12% this week, Frank tells me. The reason? Asian, Middle Eastern and Latin American investors seeking a safe haven from the US-led financial crisis.

But if you’re not lucky enough to have a Swiss bank account, you might want to consider their currency.

“The Swiss franc’s getting close to parity with the dollar, for the first time ever” says Frank.

Of course, there’s a risk that America’s economic problems and a weakening dollar could hit Swiss exports to the US. This could cause the Swiss to cut interest rates, which would temper any currency appreciation. But Frank reckons the risk is to the upside.

“Switzerland’s a traditional safe haven. The global financial turmoil could see the Swiss franc break through the one for one level in the not-too-distant future.”

Americans just won’t stop driving!

Some interesting, if not entirely surprising, news from our commodities desk, piloted by our Mr Commodities Garry White.

The Energy Information Administration (EIA) say US supplies of gasoline fell 4.5 million barrels last week.

“It shows demand has stayed strong even though we’re seeing record prices,” says Garry. “And let’s face it, compared with what we pay for petrol, they’re still getting a bargain!”

Despite the media bleating, Garry reckons they’ll get used to it. This demonstration of inelastic demand (i.e. unresponsive to price movements) bodes well for Garry’s oil plays.

Readers of Garry’s Smart Commodities letter could be sitting very pretty in the months ahead…

Time to “unblur” your view on Emerging Markets…

“Old structures are breaking down. New sources of economic power are rising. But our views are blurred by the whirlwind of markets.”

That’s the view of Robert Zoellick, president of the World Bank, who delivered his keynote address yesterday.

Helping us “unblur” our view and see through the whirlwind is our overseas investment expert Manraaj Singh.

“Emerging market shares have been hit badly since the crisis kicked off last August,” he told me this morning. But the long-term growth story is still hot hot hot!”

Indeed, while their markets have taken a wallop, investors remain confident. Debt issued by emerging-market countries tends to pay a higher yield than that issued by the US. That makes sense, as it’s perceived as riskier.

But here’s the thing: despite the turmoil, the spread on this debt — i.e. how much more it pays than US debt — has barely risen.

“This shows that investors don’t think that the current falls in emerging markets are going to lead to financial crisis,” says Manraaj. “You can’t really say the same about America… or the UK for that matter”.

Jérôme Kerviel sues SocGen — but still has time for Facebook

He may not be winning any Nobel Economics prizes, but rogue trader Jérôme Kerviel could be first in line for the Bare Faced Cheek award. This morning it was reported that he’s suing former-employer Société Générale for unfair dismissal. SocGen denies it, but if he goes ahead, it’ll be an interesting case…

Oh, and remember when Kerviel went missing, just after the story first broke? Ever the intrepid journalist, Garry White tracked him down on Facebook, and “poked” him. And Kerviel “poked” him back.

Sadly his profile’s not there anymore, but at least Garry has the memories…

Until tomorrow

Ben Traynor