– Saudi Arabia, meanwhile, has announced it will pour $2.3 billion in loans to low-income borrowers.

– There are also signs of trouble in boom town Dubai. The WSJ reports that real-estate brokers there say they are seeing signs of “price weakness” there. We can only presume this is real-estate broker speak for “Nobody’s buying.”

– Over the weekend, “Dr. Doom,” aka New York University economics professor Nouriel Roubini, told The Times that the world economy was “at a breaking point” and that global stock markets are now “essentially in free fall” and “are reaching the point of sheer panic.” On Thursday, Roubini predicted hundreds of hedge funds would go bust and stock markets would soon be forced to shut down in order to stem the panic selling. On Friday, NYSE circuit breakers triggered a temporary halt on futures trading after futures droped 550 points. It was the first time the NYSE had to halt trading since 1997.

– U.S. stock futures are in the ditch again today. MarketWatch reports that “S&P 500 futures fell 34.3 points to 831.70 and Nasdaq 100 futures fell 43 points to 1,148.50. Dow industrial futures dropped 246 points.”

– Newsweek is calling it a “full-blown crisis.”

Last week seemed to be the nail in the coffin of “decoupling,” a theory that said increasingly savvy and solvent emerging markets would no longer march in economic tandem with more-developed nations. As the global financial crisis deepened, South Korea announced a $130 billion bailout for credit-starved banks and companies, Ukraine canceled elections amid a growing national crisis over frozen credit markets and a plummeting currency, and Pakistan asked the International Monetary Fund to arrange emergency financing amid the country’s worsening economic meltdown. All this came after a torrent of ratings and outlook downgrades by agencies like Fitch and Moody’s on former shooting stars such as India, Vietnam, Hungary and Argentina.

So much for emerging markets saving the world from recession.

– Bloomberg reports today that “equity indexes in India, China and the Philippines tumbled more than 6 percent, while Indonesia’s rupiah fell 4.4 percent versus the dollar, leading developing nations’ currencies lower.”

– Oil prices are at 17-month lows. A barrel of oil is now selling for below $62 a barrel in Asia, despite OPEC’s announced cut in supply.

– Gold is also down in Asian trader this morning as investors seek cash. Bloomberg reports that “gold for immediate delivery fell as much as 1.5 percent to $723.78 an ounce, and was at $725.28 at 3:22 p.m. in Singapore.”

– What worries us here at ContrarianProfits more than the rout in stock and commodities prices is the steadily growing belief that government intervention is the way to ‘fix’ the financial markets. The common wisdom, according to a great essay by Larry White picked up by the Cafe Hayek blog, is now as follows: “No. 1: Banking and financial markets are inherently unstable. No. 2: Government intervention into banking and financial markets can only stabilize (never destabilize).” In fact, says White, the opposite is true. “Over the broad sweep of history, banking systems with few legal restrictions have been more stable than systems with more intervention.“

On May 9, retired CIA operative Philip Giraldi posted an item on the American Conservative magazine’s blog: “There is considerable speculation and buzz in Washington today suggesting that the National Security Council has agreed in principle to proceed with plans to attack an Iranian al-Qods-run camp that is believed to be training Iraqi militants.” Defense Secretary Robert Gates, according to Giraldi, is the only senior decision-maker who’s not yet fully on board. The final decision rests with the president, and while there’s no evidence he’s ready to issue the order, there’s also no evidence he’s not.

Yesterday morning, Giraldi mused on why his reporting hadn’t been picked up by more mainstream media sources. Hours later, Israeli Army Radio reported that Bush was determined to attack Iran before the end of his term, the Likud-leaning Jerusalem Post picked up the story, and it was quickly plastered at the top of Drudge. Not exactly the New York Times or CNN, but it was enough to draw a non-denial denial from the White House. A very quick one. So quick that the story was instantly lost amid the anticlimactic primaries in Kentucky and Oregon, Sen. Ted Kennedy’s cancer diagnosis, and curiously enough, the news that oil was approaching $130 — an increase in which the Iran story evidently figured not at all.

As usual, it bears watching where the U.S. aircraft carriers are located. And as near as we can tell, the Navy spokesman who said late last month that the presence of two carriers in the Persian Gulf was a short-term situation was telling the truth. The Truman has been sailing the Mediterranean for the last ten days or so, leaving the Lincoln alone among the carrier fleet in the Gulf.

Source: The “X” Factor

Paulson’s New York-based hedge fund, Paulson & Co., manages about $28 billion.

They have been doing so well that he out-earned long-time hedge fund king, George Soros, last year. Soros ranked second in the 2007 hedge fund earnings league with a measly $2.9 billion.

Paulson pulled it off by acting on a hunch that U.S. property prices were overvalued since early 2006.

So, his fund took positions in esoteric mortgage-related instruments such as credit default swaps and collateralised debt obligations to profit when the property bubble burst.

And now they have cashed-in massively.

His Credit Opportunities Fund, through which many of the deals were structured, delivered a whopping 590% return last year!

That’s the kind of performance for which rich investors pay millions in fees. But as I’m about to show you, you needn’t pay any fees at all!

A huge opportunity is opening-up

You see, Paulson isn’t a one-hit wonder. He started his firm in 1994 and his real speciality is focussing on the debt of distressed companies and securities of firms going through mergers and restructurings.

His merger fund gained 52% last year.

So, you can almost see the chaps at Paulson & Co. rubbing their hands in glee at the opportunities opening up as the credit crunch continues to wreak havoc across the business world.

The credit crunch has already caused $324 billion of losses and write-downs. And it left the banks saddled with $230 billion of loans.

Banks have been desperate to sell those loans to raise the funds that they need for their operations. The only way that they have been able to do that is to sell them at a steep discount.

They now say that they’ve managed to cut the backlog of loans to about $93 billion since August. But they’ve had to sell their loans for as little as 63 cents on the dollar to do that.

The upshot: There’s a ton of money to be made from buying good loans on the cheap. But you have to have ready money to do that.

One company has money in abundance…

One of the main reasons we at Profit Hunter are invested in this play is because we believe the ongoing financial turmoil in the West will give the Gulf merchant bank a chance to snap-up undervalued Western assets with its access to the Gulf’s vast petrodollar reserves.

And that’s exactly what we are seeing right now. We’d love to send you all the details of this potential explosive investment.

This canny merchant bank already manages more than $15 billion in funds. It’s now setting-up a multimillion-dollar fund to buy distressed loans and bonds. And John Paulson is going to help invest it.

It will raise money for the fund from its deep-pocketed clients and invest in through partner companies, including Paulson & Co.

The latest fund is a perfect example of what we at Profit Hunter love about this company. Its access to the Gulf’s vast pool of petrodollars gives it all the funds that it needs to take advantage of the opportunities being created by the credit crunch.

About 80% of their clients are high net-worth individuals and companies from the Persian Gulf. As long as the petrodollar boom continues, this company remains a brilliant investment.

And that means there’s plenty of room for further gains to come…

The petrodollar story isn’t over

You see, even if the price of oil falls significantly – say even to $70 per barrel – the amount of money flowing into the Gulf would be colossal.

At $70 per barrel, McKinsey estimates that the oil exporting countries would have so much excess cash on hand that they will acquire $6.9 trillion of foreign assets by 2012. But the chances of us ever seeing $70 oil again for a prolonged period don’t seem very high to me!

So, there are going to be plenty of petrodollars for this brilliant little compnay to keep hoovering up to invest in undervalued Western assets.

Most of the Gulf States set their budgets based on an estimated oil price of about $40-$50, so there is an ample cushion for economic growth in the region. That’s good news for this firm’s Gulf investment fund as well.

Goldman Sachs’s latest estimate is for the price of oil to be $141 per barrel in the second half of this year. And Goldman and OPEC both see $200 oil over the medium-term as a very real possibility.

But prices are obviously volatile and there are too many unknowns out there.

That’s why I believe this is the single best way to profit from the tide of petrodollars that are going to keep flowing to the Gulf without actually going for a direct oil play.

You can get all the details here.

Regards,

Manraaj Singh
Editor
Profit Hunter

Source: How to Invest With the World’s Greatest Hedge Fund Manager

If you want to see how a gold standard would work in practice, look no further than the famous board game, Monopoly. I got the idea for this from Junior Mogambo Ranger (JMR) Rebecca H., who sent an un-attributed quote that ran, “Which paper money held up the longest? Don’t know. But the one paper money that held its value the BEST, I believe, is the monopoly money”, because “You can still buy Boardwalk and the railroads for the same amount. No inflation with monopoly money.”

And that is exactly the way it would work in real life, too, with gold money; under a fixed money supply there is never any inflation in the general level of prices! In fact, most prices would tend to drift down, down, down over time while quality would drift up, up, up, as that is what competition in the marketplace does when paid for by competition between producers to borrow scarce savings, mediated by the banks, which makes only the best projects get funding.

But, I regret to say, we have squandered it all in favor of another of history’s ludicrous experiments in Big Government Through Deficit Spending; in this case the federal government borrowed gobs and gobs of money by issuing more bonds for sale, and the Federal Reserve (like the obedient little traitor that it is), created the money so that investors and pension funds and insurance companies could borrow it to buy all the government debt! On margin! Hahahaha! We’re freaking doomed!

And it is not just us Americans that are being eaten alive with more and more, and evermore expensive, governments in the thrall of Marxist stupidities, as we learn when Joel Bowman “reporting from the Persian Gulf” here at The Daily Reckoning writes, “I found it interesting to note that the Saudis, perhaps the most expansive central planners in terms of intervening in individual’s lives, now spend $55 of every barrel of oil sold just to provide welfare for their citizens. This is a country with the largest reserves of the hottest export around and it requires a price seen less than two years ago just to balance the books! The only thing outpacing the rise in crude price, it would seem, is the over-reaching arm of the planners.”

I note from the Economist magazine that year-over-year inflation in consumer prices in Saudi Arabia is running at 7%. Oops!

This brings up Junior Mogambo Ranger (JMR) Patrick, who writes that inflation is hitting the people pretty hard. He writes, “I’m working on the edge of the Sahara desert on a gas processing plant in Tunisia. And whuddya know… People are selling their cars because they cannot afford the petrol, while food and fuel prices have risen dramatically even with government subsidies. The government is really stretching itself to pay for all its subsidies and will soon have to allow prices to rise at a faster rate. I don’t think it’ll be too long before food riots start breaking out.” Yikes!

And to show that it can get worse than that, Mr. Bowman adds that “Venezuela, according to a report someone forwarded me recently, needs an astonishing $97 per barrel of oil to meet Hugo’s financial obligations… Iran and Nigeria require something like $75.”

Currently, consumer prices in Venezuela are rising at 25% a year, Iran about 8% and Nigeria probably 15%. Oops!

In short, apparently these countries need the price of oil to stay high to pay for their welfare expenses as he notes that “the margin between profit and just covering their expanding welfare buttocks is getting rather thin”, which means that they will necessarily be raising oil prices again pretty soon, as inflation in prices is making these government welfare costs go up, which means that oil will be going up in price! This investing stuff is easy!

And if it is welfare that they are providing, then the news couldn’t be worse when the Economist magazine reports, “Soaring prices for products like rice and wheat are causing headaches for aid agencies and politicians.”

And it will soon get really bad for Mexicans, as if it wasn’t bad enough as it is, as Petroleos Mexicanos (PEMEX), Mexico’s state-owned oil conglomerate, has admitted to a 6.4% decline in oil production during just the first two months of 2008! Yikes!

You will understand the significance of the seemingly gratuitous use of the word “Yikes!” when you learn that this is the same oil field that reportedly provides the vast majority of Mexico’s revenue! And production has been going down and down for years already. But not – Yikes! – at this terrifying rate!

And lest you think that we Americans are going to escape the carnage, think again, as from the Independent.co.uk we get the headline “USA 2008: The Great Depression” with the subhead, “Food stamps are the symbol of poverty in the US. In the era of the credit crunch, a record 28 million Americans are now relying on them to survive – a sure sign the world’s richest country faces economic crisis.”

So one in 10 Americans is already on food stamps, one in eight residents of Michigan is on food stamps, “double the level in 2000″, and it is all getting worse, as “At least six states, including Florida, Arizona and Maryland, have had a 10 per cent increase in the past year.”

And with the monetary spigots wide open in response to the terrible consequences of the fatal failures of the Federal Reserve descending upon us, taking the concept of “deluge of money” to whole new realms, it will just keep on getting worse. And worse. And worse.

Which brings us to gold and silver. Ahhhh! I feel better!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor’s Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it.