It’s the first time since 1939 that job losses have exceeded 600,000 for three consecutive months, as revisions for December and January showed an additional loss of 161,000 jobs.

The record for monthly job losses was set in September 1945, when nearly 2 million people lost their jobs after the Allied forces won the most destructive war in history and American industry was transitioning from wartime to peacetime, Money Morning reported Monday. Then, in October 1949, 834,000 jobs were lost when almost all the nation’s steelworkers went on strike in the final month of a short-but-brutal recession.

Another strike in July 1956 resulted in 629,000 lost jobs, but the next month the economy bounced back and 678,000 jobs were regained.

The work force is much larger today than it was in 1949 or 1956. But with about 4.4 million jobs lost since the recession began in December 2007, more than 3% of U.S. payrolls have been eliminated. That puts this recession in a category with the recessions of 1982, 1954 and 1949 when 3.1% of payrolls were cut. About 4% of U.S. payrolls were lost in 1958.

“There is not a single sign that points to a bottom yet,” Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. told Bloomberg.  “It is the worst recession in the post-war era.”

Analysts at Wachovia Corp. (WB) estimate that 6.5 million Americans will have lost their jobs by the time the financial crisis finally subsides.

“Employment losses have deepened considerably in recent months,” wrote economists for Wachovia. “With total revenue declining at its worst pace since the late 1950s, many businesses and governments are in survival mode and have no choice but to cut jobs.”

The Labor Department report showed that Factory payrolls declined by 168,000 in February after falling 257,000 in January. Builders shed 104,000 payrolls after dropping 118,000 in the month Prior. Government payrolls continued to be the only bright spot, as Uncle Sam added 9,000 workers in February and 31,000 in January.

The U.S. unemployment rate surged 0.5% to 8.1% in February, the highest level in more than a quarter century.

Source: Job Losses Continue to Mount in February, Unemployment Rate Soars to 8.1%

“We have not disclosed that to the public. We’re declining to,” Thomas Kelly, a spokesman for JP Morgan Chase & Co. (JPM) told The Associated Press, which surveyed 21 banks that received at least $1 billion in federal bailout money, and asked how that capital was being used. JP Morgan received a $25 billion infusion as part of the U.S. Treasury Department’s $700 billion Troubled Assets Relief Program (TARP).

As an ongoing Money Morning investigation has demonstrated, billions in U.S. bank rescue funds are financing buyouts worldwide – instead of lending at home. Some of those buyouts deals are being done in markets as far away as China. Meanwhile, credit remains tight here in the U.S. market, a situation that could be alleviated if only the banks made the bailout money available to consumers in the form of loans.

Money Morning was one of the first news organizations to really examine how TARP money was being misdirected, and wasn’t being deployed as originally intended. More recently, The AP has joined the journalistic posse and published several investigative pieces, including one that looked at executive pay at financial institutions that received bailout money.

Some experts – such as investing icon Jim Rogers – say that bailouts in general are bad deals. They’re even worse if they’re funded by taxpayers who don’t know how their money is being spent [A related story on Rogers' views about the U.S. banking-bailout initiative appeared last week in Money Morning. To access that story, please click here].

The bottom line: Banks won’t say how they’re using the bailout money. That refusal – coupled with the almost non-existent disclosure and oversight of the TARP program – means the country may well never find out how hundreds of billions of taxpayer dollars were spent.

Anatomy of a Survey

In its latest investigative offering, The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings? And what’s the plan for the rest?

According to The AP, none of the banks provided specific answers.

For instance, when Kevin Heine, a spokesman for Bank of New York Mellon Corp. (BK) – which received about $3 billion in TARP money – was asked how his institution was using the emergency infusion, he replied by stating that “we have not disclosed that to the public. We’re declining to.”

The words varied, but the basic message was the same from one bank to another. For instance, Barry Koling, a spokesman for SunTrust Banks Inc. (STI), the Atlanta, Ga.-based lender that received $3.5-billion in taxpayer cash, told the wire service that “we’re not providing dollar-in, dollar-out tracking.”

Some banks actually admitted that they simply didn’t know where the money was going.

For instance, a spokesman for the Birmingham-based Regions Financial Corp. (RF) said the company is not tracking how it is spending the $3.5 billion in TARP money that it received.
“We manage our capital in its aggregate,” said Regions spokesman Tim Deighton.

These answers – or lack thereof – highlight both the secrecy surrounding the TARP program, as well as the lack of oversight by Congress. Given that the entire TARP program is worth at least $700 billion – roughly the equivalent of the economy of The Netherlands – those aren’t small issues.

About half of the $700 billion was earmarked for bailouts. But because the U.S. financial crisis was escalating so quickly – and because the Bush administration pushed Congress to approve the TARP plan quickly – Congress attached virtually no strings to the bailout funds. The Treasury Department has been using the money to buy stakes in key U.S. banks, allegedly hoping that the infusion of cash would enable them to heal themselves and start lending again.

As the deepening U.S. credit crisis has shown, that hasn’t happened.

No Oversight, No Accountability

There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill late last year and implored them to lend the money – instead of hoarding it, spending it on executive bonuses, or for buyouts to get bigger. But there’s no process in place to guide this. And there are no consequences for banks that fail to comply with what U.S. lawmakers are asking.

Even worse: There’s no vehicle that enables taxpayers to find out what banks are doing – at least, not yet.

“It is entirely appropriate for the American people to know how their taxpayer dollars are being spent in private industry,” Elizabeth Warren, the top congressional watchdog overseeing the financial bailout, told The AP. Stating that it takes “a lot of nerve not to give answers.”

Warren said her oversight panel will try to force the banks to say where they’ve spent the money. But she also noted that she was quite surprised to learn that she even has to ask for that information.

“If the appropriate restrictions were put on the money to begin with, if the appropriate transparency was in place, then we wouldn’t be in a position where you’re trying to call every recipient and get the basic information that should already be in public documents,” Warren said.

In fact, the due diligence on the legislation that created TARP was so lax that lawmakers didn’t realize until much later that the bill they passed actually managed to create a potentially illegal tax loophole that grants banks a tax-break windfall of as much as $140 billion. Lawmakers were furious – but possibly powerless, afraid that a full-scale assault on the tax change could cause already-done deals to unravel, in turn causing investor confidence to do the same.

“Those are legitimate questions that should have been asked on Day One,” said U.S. Rep. Scott Garrett, R-N.J., a financial services committee member who opposed the bailout as it was being pushed through Congress. “Where is the money going to go to? How is it going to be spent? When are we going to get a record on it?”

Buyouts Not Bailouts

Nearly every bank questioned – including Citigroup Inc. (C) and Bank of America Corp. (BAC) – recipients of some of the largest TARP infusions – responded to AP inquiries with generic public relations statements explaining that the money was being used to strengthen balance sheets and to continue making loans to ease the credit crisis.

As a Money Morning story detailed Friday, BofA just finalized its buyout of Merrill Lynch & Co. Inc. (MER), creating the largest U.S. bank – as well as the biggest challenge yet for longtime BofA Chief Executive Officer Kenneth D. Lewis. And Wells Fargo & Co. (WFC) completed its $12.7 billion purchase of Wachovia Corp. (WB) – outbidding Citigroup Inc. (C) and making a massive bet that it accurately quantified the still existing risks in Wachovia’s huge portfolio of mortgage and real estate loans.

Those were just the latest in a long series of buyout deals being funded at least partly by TARP money, the ongoing Money Morning investigation has shown.

In response to The AP survey questions, a few banks detailed company-specific programs, such as a JP Morgan plan to lend $5 billion to nonprofit organizations and healthcare companies over the next year. Marshall & Ilsley Corp. (MI), said the $1.75 billion bailout infusion it received allowed the Wisconsin-based bank to temporarily stop foreclosing on homes, said Senior Vice President Richard Becker.

This “foreclosure moratorium” will run through the end of March, the bank announced in December.

No Real Answers

But no bank provided even the most basic accounting for the federal money. Some even said that the money couldn’t be tracked.

The bailout money “doesn’t have its own bucket,” said Bob Denham, a spokesman for North Carolina-based BB&T Corp. (BBT).

Denham said taxpayer money wasn’t used in BB&T’s recent purchase of a Florida insurance company. When asked how he could make such a statement – after stating that TARP money couldn’t be tracked – said BB&T would have made that deal even without the infusion.

Interestingly, a spokesman for BB&T told the Charleston (W.V.) Daily Mail newspaper just before Christmas that the bank doesn’t like the federal government’s $700 billion financial rescue plan – and actually didn’t want to participate – but took the $3.1 billion because competitors are participating and because the Treasury Department urged it to.

According to the newspaper, BB&T – the largest bank in West Virginia – has been asked how it justifies participating in the federal government’s Troubled Asset Relief Program, or TARP, in light of BB&T Chairman John A. Allison IV’s promotion of the late author Ayn Rand’s philosophy of free market capitalism.

The reticence banks displayed when it came to discussing their use of TARP money bordered on the absurd. Most banks wouldn’t even say why they were keeping the details secret.
“We’re not sharing any other details. We’re just not at this time,” Wendy Walker, a spokeswoman for Dallas-based Comerica Inc. (CMA), which received $2.25-billion from the government, told The AP.

One didn’t even want to say they wouldn’t say, the wire service reported.

Heine, the New York Mellon spokesman who said he wouldn’t share spending specifics, added: “I just would prefer if you wouldn’t say that we’re not going to discuss those details.”
Morgan Stanley (MS) offered to discuss the matter with reporters on condition of anonymity. When The AP refused, Morgan Stanley spokeswoman Carissa Ramirez sent the wire service an e-mail saying: “We are going to decline to comment on your story.”

Lawmakers say they want to tighten restrictions on the second half of the TARP money, the yet-to-be-released block worth $350 billion. U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. said the federal department is trying to build up its monitoring of bank spending.

“What we’ve been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we’re doing this,” Paulson said at a recent forum in New York. “So we’re building this organization as we’re going.”

But that may all be too late, says Garrett, the New Jersey Republican congressman. Indeed, it’s entirely possible that U.S. taxpayers will never get a clear answer on where hundreds of billions of dollars went.

Source: U.S. Banks Refuse to Detail How They’re Spending Federal Bailout Money

Editors Note: This is the fifth installment of an investigative series in which Money Morning examines how U.S. banks are using federal bailout funds.

And Wells Fargo & Co. (WFC) completed its $12.7 billion purchase of Wachovia Corp. (WB) – outbidding Citigroup Inc. (C) and making a massive bet that it accurately quantified the still existing risks in Wachovia’s huge portfolio of mortgage and real estate loans.

The deals are the latest examples of how billions of dollars in U.S. bank rescue funds are helping fuel buyouts worldwide, and not lending at home, as a Money Morning investigative report demonstrated.

By closing its buyout of Merrill Lynch, Bank of America reaches $2.7 trillion in assets, and bypasses both JPMorgan Chase & Co. Inc. (JPM) and Citigroup in size (as measured by assets). To finance the merger, BofA had expected to issue 1.71 billion common shares, equal to $24.1 billion, plus 359,100 preferred shares. Merrill Lynch shareholders received 0.8595 of a Bank of America common share for each of their Merrill common shares.

The transaction, originally valued at $50 billion, was announced in the early morning hours of Sept. 15, about an hour before Lehman Brothers Holdings Inc (LEHMQ.PK) went bankrupt. The deal ends more than 94 years of independence for Merrill, but very likely saved the investment bank from a fate similar to Lehman in a year in which five top Wall Street banks were bought, went bankrupt, or changed their business structures.

By acquiring Merrill, BofA’s Lewis is swallowing Merrill’s so-called “thundering herd” of 17,000 brokers, which he has labeled as the “crown jewel” of the buyout deal. The Charlotte, N.C.-based Bank of America also will absorb Merrill’s big investment bank, which by volume ranked fifth in debt and equity underwriting and third in merger advice in 2008, Thomson Reuters reported.

The combined company’s brokerage, credit card, investment banking, mortgage and wealth management operations, plus its deposit base, will make it the nation’s largest, or close to it.

Bank of America also takes over Merrill’s nearly 50% stake in the powerful money manager BlackRock Inc. (BLK).
“We are now uniquely positioned to win market share and expand our leadership position in markets around the world,” Lewis said in a statement on Thursday.

Big Challenges for the Big Bank

The Merrill Lynch transaction creates new challenges for Bank of America, whose shares fell 66% last year as the worsening economy led to soaring loan losses, including from Countrywide Financial Corp., which BofA bought in July. A big challenge: Lewis must find a way to stem defections of top performers and key executives even as he slashes at least 30,000 jobs in a cost-cutting initiative that should save the big bank $7 billion annually by 2012.

That won’t be enough, however. While Bank of America and Merrill together raised $25 billion of capital from the U.S. Treasury Department’s $700 billion Troubled Asset Relief Program (TARP), and BofA halved its dividend, analysts believe another dividend reduction is inevitable. And it may have to raise additional capital, too.

BofA has managed to navigate the banking mess – and has tried to capitalize on it.

Before buying Merrill, Lewis had spent close to $110 billion to buy FleetBoston Financial Corp, credit card issuer MBNA Corp., LaSalle Bank Corp., the wealth-management business of U.S. Trust, and Countrywide Financial.

Now Bank of America is generally viewed as being “too big to fail.” For his efforts, American Banker, the banking industry trade journal, last month named Lewis “Banker of the Year” for the second straight year.

However, the competitive landscape Lewis faces going forward is changing radically – as is evidenced by Wells Fargo’s $12.7 billion buyout of Wachovia, a Charlotte-based rival of BofA.

John A. Thain, who became Merrill’s chief executive after losses in mortgage-related investments led to the October 2007 ouster of Stanley O’Neal, agreed to run the merged company’s global banking, securities and wealth management businesses. If he remains with the merged entity, Thain will be a prime candidate to eventually replace Lewis, who is 61 and became Bank of America’s CEO back in 2001.

Wachovia Closes Deal, Too

The Wells Fargo/Wachovia merger closed yesterday and more than doubles Wells Fargo’s size, making it the No. 4 U.S. bank as measured by assets. Wells Fargo now also has the nation’s largest retail brokerage operations, as well as its largest branch network, with more than 6,600 offices in 39 states and Washington, D.C.

The San Francisco-based Wells Fargo agreed on Oct. 3 to buy Wachovia, beating out a smaller bid by Citigroup, which was planning to only buy a portion of Wachovia. Citigroup’s bid included government backing, while Wells Fargo’s did not. Wells Fargo said Wachovia branches will keep their brand name – or they will at least for the “near future,” Reuters reported.

Regulators pushed Wachovia to find a buyer after it was pushed to near ruin by zooming losses from “option” adjustable-rate mortgages (ARMs) that it took on back in 2006 when it bought California lender Golden West Financial Corp.

In November, Wells Fargo announced that it expected it would have to write down $71.4 billion of Wachovia’s $482.4 billion loan portfolio, including $36 billion of option ARMs and $9.6 billion of commercial real estate.

According to Reuters, analysts have said Wells Fargo was cautious in its assessment of the risks Wachovia’s mortgage portfolio, but the U.S. economy and housing market have continued to deteriorate so quickly that those estimates might now be out of date.

“We’re not at the end” of the housing slump, Wells Fargo CEO John G. Stumpf said on Dec. 10 at a conference. “But we’re starting to see some early signs that maybe we’ve reached the bottom in housing or close to it.”

Wells Fargo is the nation’s No. 2 mortgage lender. It remained profitable by avoiding many of the risky loans that plagued Wachovia, caused the failures of Washington Mutual Inc. and IndyMac Bancorp Inc. and drove Countrywide Financial into the hands of BofA.

Wachovia shareholders received 0.1991 of a Wells Fargo share for each of their shares, valuing the bank at $5.87 per share. That’s down from $59.39 when the Golden West merger was announced in May 2006, a level never again reached. Wachovia shares closed Wednesday at $5.54, down 85.4% in 2008.

Shares of Wells Fargo closed Wednesday at $29.48, down just 2.4% for the year. The KBW Bank Index, which includes Wells Fargo, fell 50% last year, Reuters said.

Wells Fargo expects the merger to result in at least $5 billion of annual cost savings, and to boost earnings per share by 20% or more in 2011 and higher amounts thereafter.

Including Wachovia, Wells Fargo has about $1.4 trillion of assets.

Source: Bank of America, Wells Fargo End Year by Closing Major Buyout Deals

The rally was a no-brainer. There is a strong line of support at $700, which was resistance during 2006 and the first half of 2007. Moreover, the market was, and is, oversold.

The catalyst was news that the U.S. government had to bail out Citigroup (NYSE:C), the world’s largest bank by revenues. The event has given way to new concerns about the economy, which weighed on stocks and gold this week, or at least provided an excuse to take some profits in the latter.

The big question now is whether it was just a retracement rally that ultimately gives way to new lows or whether we have seen the bottom in gold, with this rally being only the first of many to come.

I don’t think the chart can answer that question alone. Technically, the structure of the market is healthy now, and as far as the fundamentals go, gold should not remain under $1,000 for very long.

Indeed, I sense the market is building up for a very bullish move.

Allow me to touch on some of the bullish factors coming into play.

Deflation Scare Past Its Apex

“Notwithstanding the many developments on the bailout front during the past six weeks, The New York Times, like other media outlets, continues to quote Wall Street insiders who report” [that] “‘You have a market that is frozen.’ What planet do these guys live on? It certainly is not the same one to which the Federal Reserve’s data apply. I’ve been singing this song for many weeks, but I’m going to keep singing it until somebody in the news media wakes up and realizes that these ‘frozen credit market’ tales are pure hooey. Look at the data, for crissake.”

– Robert Higgs, author of Crisis and Leviathan, in a recent essay on the bailout programs

The fundamentals are significantly bullish for gold. I’d like to say they are bearish for the dollar, but in truth, they are increasingly bearish for all paper currencies. Outside of the Bank of Japan, everyone is inflating madly. In the G-7, narrow money (M1) is growing at 7-10% on a year-over-year basis in the U.S., Canada, the U.K. and Australia — more in developing countries like China. And this rate is picking up now.

October’s data are not in yet for the ECB. Its balance sheet increased by some 400 billion euros during the month, which is the first big change since the second quarter, and will probably reflect in M1. The Bank of Japan started inflating M1 again in September too, after holding it steady for most of the year.

The broader monetary aggregates (i.e., those determined by the banking system at large) are growing briskly everywhere but in the U.S. and Japan, though even the latter are still growing.

Broad money in the U.S. is growing between 5-10%, depending on whether you rely on TMS or MZM or higher, if you like M3 (I don’t).

The U.S. data are good through October. Up till the end of September, as far as we are updated, the year-over-year growth rate in broad money approached 20% in Australia, its highest rate in almost 20 years. In the U.K., the broader monetary aggregates are growing at close to 14% on a year-over-year basis, which is its highest growth in almost a decade.

These growth rates are almost as bad as China’s, which is approaching 20% year over year too, again. Given these numbers, it is no surprise to me whatsoever that the yen is the strongest currency, followed by the U.S. dollar, or that the Aussie and the pound are taking the greatest beatings, along with all the other riskier currencies.

The actions governments are taking now are bearish for stocks and bullish for inflation. But they are not just bullish for inflation — they are remarkably bullish.

I don’t mean to sound happy about it. It’s just an observation that the market has yet to come to terms with. Since September, the Fed has expanded its balance sheet a total of $1.3 trillion. Of that total, it has created about $600 billion in reserves out of thin air.

Most of that is not counted in money supply, because it excludes deposits held by depository institutions. Total money supply is about $6 trillion, if you rely on the Austrian School definition (I do). It has, nevertheless, translated into growth of about $100-200 billion in new money created by the banking system since September already. Deflation is a no-show so far, and I don’t think it will arrive at all. I think history will see this as just another scare.

The Federal Reserve just announced two new programs that commit it to another $800 billion, and that is even before President-elect Obama puts his stimulus package together.

Reuters cited (NYSE:WB) Wachovia’s chief economist:

“Some, however, are worried the mounting costs of the measures, which have the potential to reach several trillion dollars, could eventually fuel a troubling inflation.

“‘It may mean (a) longer-run issue with inflation and inflation concerns,’ said John Silvia, chief economist at Wachovia Securities in Charlotte, N.C. ‘It may be too much of a good thing is a bad thing.’”

Ya think?

Even more inflationary, in my opinion, is the fact that the talking heads think the Fed’s latest facilities are simply not enough. They are complaining the programs do not include direct purchases of credit card debt and mortgages in the secondary market and that the Fed isn’t going to buy mortgages with maturities of more than one year. Not long ago, the Fed never bought anything but Treasury notes.

Source: Gold Looks Bullish as Dust Settles

More from The Daily Reckoning:

The late November rally in gold prices wasn’t quite as spectacular as mid-September’s gain, but it was still impressive. There was good follow-through too, though the momentum softened as bulls knocked on resistance near $850.

The rally was a no-brainer. There is a strong line of support at $700, which was resistance during 2006 and the first half of 2007. Moreover, the market was, and is, oversold.

The catalyst was news that the U.S. government had to bail out Citigroup (NYSE:C), the world’s largest bank by revenues. The event has given way to new concerns about the economy, which weighed on stocks and gold this week, or at least provided an excuse to take some profits in the latter.

The big question now is whether it was just a retracement rally that ultimately gives way to new lows or whether we have seen the bottom in gold, with this rally being only the first of many to come.

I don’t think the chart can answer that question alone. Technically, the structure of the market is healthy now, and as far as the fundamentals go, gold should not remain under $1,000 for very long.

Indeed, I sense the market is building up for a very bullish move.

Allow me to touch on some of the bullish factors coming into play.

“Notwithstanding the many developments on the bailout front during the past six weeks, The New York Times, like other media outlets, continues to quote Wall Street insiders who report” [that] “‘You have a market that is frozen.’ What planet do these guys live on? It certainly is not the same one to which the Federal Reserve’s data apply. I’ve been singing this song for many weeks, but I’m going to keep singing it until somebody in the news media wakes up and realizes that these ‘frozen credit market’ tales are pure hooey. Look at the data, for crissake.”

- Robert Higgs, author of Crisis and Leviathan, in a recent essay on the bailout programs

The fundamentals are significantly bullish for gold. I’d like to say they are bearish for the dollar, but in truth, they are increasingly bearish for all paper currencies. Outside of the Bank of Japan, everyone is inflating madly. In the G-7, narrow money (M1) is growing at 7-10% on a year-over-year basis in the U.S., Canada, the U.K. and Australia – more in developing countries like China. And this rate is picking up now.

October’s data are not in yet for the ECB. Its balance sheet increased by some 400 billion euros during the month, which is the first big change since the second quarter, and will probably reflect in M1. The Bank of Japan started inflating M1 again in September too, after holding it steady for most of the year.

The broader monetary aggregates (i.e., those determined by the banking system at large) are growing briskly everywhere but in the U.S. and Japan, though even the latter are still growing.

Broad money in the U.S. is growing between 5-10%, depending on whether you rely on TMS or MZM or higher, if you like M3 (I don’t).

The U.S. data are good through October. Up till the end of September, as far as we are updated, the year-over-year growth rate in broad money approached 20% in Australia, its highest rate in almost 20 years. In the U.K., the broader monetary aggregates are growing at close to 14% on a year-over-year basis, which is its highest growth in almost a decade.

These growth rates are almost as bad as China’s, which is approaching 20% year over year too, again. Given these numbers, it is no surprise to me whatsoever that the yen is the strongest currency, followed by the U.S. dollar, or that the Aussie and the pound are taking the greatest beatings, along with all the other riskier currencies.

The actions governments are taking now are bearish for stocks and bullish for inflation. But they are not just bullish for inflation – they are remarkably bullish.

I don’t mean to sound happy about it. It’s just an observation that the market has yet to come to terms with. Since September, the Fed has expanded its balance sheet a total of $1.3 trillion. Of that total, it has created about $600 billion in reserves out of thin air.

Most of that is not counted in money supply, because it excludes deposits held by depository institutions. Total money supply is about $6 trillion, if you rely on the Austrian School definition (I do). It has, nevertheless, translated into growth of about $100-200 billion in new money created by the banking system since September already. Deflation is a no-show so far, and I don’t think it will arrive at all. I think history will see this as just another scare.

The Federal Reserve just announced two new programs that commit it to another $800 billion, and that is even before President-elect Obama puts his stimulus package together.

Reuters cited  Wachovia’s (NYSE:WB) chief economist:

“Some, however, are worried the mounting costs of the measures, which have the potential to reach several trillion dollars, could eventually fuel a troubling inflation.

“‘It may mean (a) longer-run issue with inflation and inflation concerns,’ said John Silvia, chief economist at Wachovia Securities in Charlotte, N.C. ‘It may be too much of a good thing is a bad thing.’”

Ya think?

Even more inflationary, in my opinion, is the fact that the talking heads think the Fed’s latest facilities are simply not enough. They are complaining the programs do not include direct purchases of credit card debt and mortgages in the secondary market and that the Fed isn’t going to buy mortgages with maturities of more than one year. Not long ago, the Fed never bought anything but Treasury notes.

Gold bulls are going to attempt to raid Comex’s vaults by forcing delivery on their December futures contracts (Dec. 19). Who can tell how that will go? I can’t. But it’ll be interesting to watch.

Facts: The open interest in futures contracts on the Comex has fallen to its lowest level since summer 2005, breaking a general uptrend in place since 2001. From a contrarian standpoint, the short-term bottoms in these data tend to favor the buyers over the sellers. However, the statistic went into orbit during the last half of 2007 – it broke away from the upper channel on the charts, creating a bubble in appearance. The current extremity could simply be a symmetrical reaction to that extreme.

Nevertheless, this is a bearish fact, technically speaking, if it represents a lasting new trend.

It is tempting to suggest that the threat of a raid in futures contracts is causing a short squeeze.

It is true that the commercials are liquidating their short positions promptly. But the funds are increasing their short bets, and the liquidation of longs is such that the net short ratio has hardly budged off its mid-September low – which, incidentally, is a level that has coincided with strategic buying points at seven other junctures since the bull cycle began in 2001.

However, the record of this statistic in gold is unique in that during bear markets, the commercials tend to be net long (wrong) most of the time.

So the fact that they are covering their short interests on net does not necessarily presage a rally if a bear market has set in. A bear market would mean that gold prices could fall as far back as US$500.

Fundamentally, the conditions just don’t look ripe for a bear.

I don’t believe the COTs (Commitment of Traders report published by CFTC) have any real predictive value. They tell us only whether the market is too much extended one way or another; they don’t tell us how long those conditions will last. Right now, the structure of the market is healthy. The commercials are covering their shorts, the funds are getting short and the numbers basically favor the bulls. The contraction in open interest worries me a little, but it could be explained in terms of a collapse in spread trades linked to various index products.

In its most recent report on gold demand, the World Gold Council said as much in trying to explain the drop in the gold price in the context of soaring physical demand. In its third-quarter report on gold demand, the WGC noted growth in both jewelry and investment demand across the spectrum relative to both the last quarter and the year-ago quarter. I don’t want to go into a critique of the method here, except to point out that it chronically understates investment demand and overstates jewelry demand.

The inclusion of ETFs all but proves the point.

In just one year, investment demand has grown in importance from under 15% to over 30% of total gold demand, causing the deficit (supply shortfall) to grow nearly tenfold. The WGC interprets this deficit as supply coming from speculative sources, like futures trading or changes in inventories at the various exchanges – like at Comex. Thus, it calls it “inferred investment.” Formerly, it called this the “balance.” But as it grew, the WGC decided it meant something. What is causing it to grow, aside from growing demand in general, is that while the WGC is “identifying” new kinds of demand, it has not kept up with the various sources of supply. Gold bugs have argued for years that the supply of gold is not limited to mine production, officialdom or scrap…that it is not like other consumable commodities.

It is more useful to assume that most of the gold ever produced is held as a reserve, or store, aboveground. And if this is true, then investment demand must be much larger than the WGC calculates, or the price would, frankly, never go up. If the WGC is smart enough to include producer hedging (or dehedging) in the equation, it should also include a measure of demand that expresses itself through all the exchanges and bring itself up to speed on all the sources that supply the market. It assumes that jewelry demand dominates the market, which is incorrect, but even if it were, it still has the wrong idea.

Jewelry demand may be price sensitive in the short term, yet it has grown every year, at successively higher prices, since the bull market began. Despite my objections, however, I am in total agreement with the council’s explanation why gold prices have fallen despite the evidence of soaring gold demand:

“Notably, the selling captured by the [inferred] investment category was mainly by investors with a short-term focus. It largely reflects the fact that gold was caught in the downdraft of other commodities and other assets – it does not reflect a questioning of gold’s value or role as a safe haven. The strong buying in the ETF and bar and coin markets during the quarter, which reflects investors with largely a longer-term focus, suggests that investor belief in gold’s role as a safe haven and store of value is stronger than ever.”

No wonder the commercials are covering. The establishment is getting hot for gold.

JP Morgan’s gold analysts “urged” investors to stock up on gold this month, citing counterparty risk and tight supplies.

Citigroup’s foreign exchange group also put out a bullish tout.

Well, that’s an understatement, actually. “[Gold] continues to look like a bull market to us. We continue to believe that a move of similar percentage to that seen in the 1976-1980 bull market can be seen, which would suggest a price north of $2,000,” Citigroup’s FX group said last week.

What I found particularly intriguing, besides the timing of these calls, was that they both discounted the dollar. That is, they noted, as I have in the past, that the foreign exchange value of the dollar may not be important at this stage. Morgan said, “It is not an absolute given that a rally in gold means a falling U.S. dollar,” while Citigroup pointed out, as I also have, examples of just such a situation during the 1970s.

Anyway, it’s not a sure thing yet, and it all makes great fodder for the bull market in gold.

Source: Gold Looks Bullish as Dust Settles

This from Money Morning:

U.S. consumers are already losing their jobs at an accelerating rate.

The same thing is now set to happen to their credit lines.

But with so many Americans already losing their main source of income – their jobs – at an ever-spiraling rate, will an economy that derives two-thirds of its power from consumer spending end up mired in its worst funk in decades because those same consumers are now losing their charge accounts?

Before you dismiss the possibility, consider this: The U.S. economy weakened across all regions since the middle of October as it became tougher to get loans and demand for credit shrank, the U.S. Federal Reserve said in its regional economic survey report yesterday (Wednesday). The so-called “Beige Book” report – published just two weeks before central bank policymakers are to meet and consider interest-rate changes – said that retail sales, tourism spending and manufacturing declined in most places, labeled housing markets as “weak” and concluded that the commercial real estate sector “weakened broadly,” Bloomberg News reported.

“We are looking at an economy that is not only in a recession, but a recession that is deepening rapidly,” former Fed Governor Lyle Gramley, now senior economic adviser at Stanford Group Co.,
told Bloomberg Television. “It certainly is a gloomy report, but not, I guess, worse than what you would expect given the data [we’ve seen] coming in.”

The United States has already been in a recession for a year, the National Bureau of Economic Research (NBER) reported this week. This economic one-two punch could generate a much-bigger financial crisis “aftershock” than many experts realize. Only two of the last 10 recessions to take place since the Great Depression have lasted a full year. But this one could last well into 2010.

$2 Trillion in Credit Lines on the Chopping Block

More than $2 trillion in consumer credit could be cut in the next 18 months, as credit-card companies pull back credit lines in anticipation of credit funding problems and regulatory changes, said Meredith Whitney, an Oppenheimer Holdings Inc. (OPY) banking analyst who’s well-known for her gutsy and prescient (and ultimately correct) market calls.

Throughout the week, Whitney has warned that the entire mortgage market will contract for the first time ever in the months ahead. More importantly, however, Whitney says the credit card market will be 18 months behind, as credit-card companies pull back more than $2 trillion in credit lines, taking away consumers’ second major source of liquidity, following jobs.

“What you haven’t seen yet digested by the market is banks pulling lines from consumers,” Whitney said in an interview with CNBC. “And across the board you saw the big banks that command so much of the market share of key products like mortgages and credit cards start to pull lines in the third quarter and that’s going to continue in the fourth quarter. And that’s going to continue into 2009.”

Although some experts note that consumers reduce their spending during recessionary periods — and, needless to say, after they lose their jobs — it’s important to not confuse spending and credit. During dire times, many consumers can boost their use of credit even as they cut overall spending, using the credit cards, home-equity lines and other forms of borrowing as a lifeline to tide them over. For those consumers, a credit line cut can be disastrous personally, and can aggregate into an even-steeper downturn in spending.

Roughly 70% of U.S. households have access to credit cards, and 90% of those people use those credit cards as a cash-flow management vehicle, or revolve payments at least once a year, Whitney says.

A surprisingly small number of national companies dominate the major lending arteries – including credit lines, mortgages and credit cards – that have sustained the U.S. consumer for so long, including mortgages and credit cards. Mortgages have already hit a wall with the collapse of the U.S. housing market and wave of subprime defaults. But credit cards could be next as companies raise interest rates, tighten lending standards, cut credit lines, and even close millions of accounts in an effort to insulate themselves from consumer defaults.

Bank of America Corp. (NYSE:BAC), Citigroup Inc. (NYSE:C), and JPMorgan Chase & Co. (NYSE:JPM) – which controlled more than half of U.S. credit-card lines at the end of the third quarter – have all discussed reducing their credit-card exposure or scaling back growth, according to Whitney.

“You’re going to start to see the consumer get really strained on their credit card lines,” said Whitney. “People think the next shoe to drop is the credit card credit costs – the charges going up. No, it’s the credit card lines being pulled by bank lenders in anticipation of worsening credit funding problems, and then regulatory changes on the horizon.”

Whitney expects the credit-card market to begin to shrink by mid-2010, a time when the unemployment rate could be as high as 9.0%.

“Just when the consumer is losing their job that’s their first source of cash, their first source of liquidity, then they lose their second big source of liquidity, which is their credit card line,” she said.

Indeed, as unemployment rises, so too will credit-card delinquencies. David W. Nelms, chief executive of Discover Financial Services (DFS), told Reuters that card write-offs could be in the mid-5% range in the fourth quarter and near 6% in the first quarter of 2009.

Delinquencies “will tend to track with unemployment,” Nelms told Reuters after a speech to the Executives Club of Chicago. “Most agree that things will tend to get worse next year.”

Lenders, still reeling from losses tied to subprime mortgages, can’t afford another round of defaults on credit cards. So they’ve begun pulling lines of credit, leaving the consumer out in the cold. And it’s only going to get worse, Whitney says.

Crisis Expert Sees Change in Consumer Psychology

Investment expert R. Shah Gilani – a retired hedge fund manager who’s been chronicling the credit crisis as a Money Morning contributing editor – isn’t surprised by Whitney’s predictions.

“This is already happening in a big way,” Gilani said referring to Whitney’s assertion that credit lines have been put in jeopardy. “I have already talked to people who have had their credit lines reduced, even cut in half. So I wouldn’t be surprised if $2 trillion turns out to be an accurate figure.”

And according to Gilani, the evaporation of $2 trillion in credit could be the death knell for the American consumer.

“A number that high makes you gasp, just considering the quantitative effect on consumer spending,” Gilani said. “There’s a strong chance that the American consumer is not just down on the canvas, but has been knocked out of the ring.”

American consumers cut spending by 1% in October, the biggest drop since the last recession in 2001, the government said last week.

U.S. retail sales plunged 2.8% in October – the largest monthly drop since the Commerce Department began tallying monthly retail sales in 1992. The sales drop marked the fourth consecutive monthly decline and the first retrenchment since 1992. And few have any hope left for the Christmas season as consumer confidence is also waning. The Reuters/University of Michigan consumer sentiment index clocked in an ultra-low 55.3 for November, down from 57.6 the month before.

The reading fell well short of the projected 57.7, Reuters said, and – even worse – had deteriorated since the middle of the month, even though lower gasoline prices were seen as a bright spot for consumers. The University of Michigan confidence index dates back to 1952. Its record low was 51.7, which it hit in May 1980.

Once again, jobs, liquidity and confidence were the key issues, the survey report said.

“Consumer confidence fell in the last half of November due to mounting job losses, falling incomes and the evaporation of household wealth,” the report said. “Consumers were unanimous in their recognition that the economy was in recession, and nearly three-in-four expected the recession to deepen in the months ahead.”

However, Gilani, who is also editor of the Trigger Event Strategist – a trading service specifically designed to help investors maneuver through this economic malaise – also believes that what investors are witnessing is yet another “aftershock” of the ongoing global financial crisis.

“What is actually taking place is a shift in consumer psychology that has been driven by factors such as the socioeconomic climate – as well as the environment – and that’s now being compounded by credit conditions,” Gilani said. “This is about banks and credit companies de-leveraging and forcing the American consumer to do the same.”

The trouble is, he said, this can become a cycle that’s hard to stop once it takes hold.

“Whether Americans have lost confidence in the market or simply can’t afford to repay loans, money flows have simply dried up” Gilani said. “So banks have been forced to raise their lending standards to a point that many Americans are now unable to meet. It becomes a vicious cycle.”

PS. This is an excerpt from the latest installment in Money Morning series on the “financial aftershocks” of this crisis.

Source: Will the Loss of Consumer Credit Serve as the Next Economic Aftershock to Further Fuel the Financial Crisis?

This from Today’s Financial News:

With $700 billion on the table, all sorts of companies are looking to get their hands on some cheap money. The way I figure it, every company that made the SEC’s recent no-short list has a shot at the bailout funds.

That means [a company like] General Electric (NYSE:GE) has a chance at a significant shot in the arm over the next few weeks as checks are written and put in the mail.

A lot of companies need the money. Some of them will use it just to keep in business. And others will take it and still manage to fail. But a handful of the best-managed companies will use the money as a springboard to larger profits down the road.

General Electric will be one of these companies.

Officials recently told us if bailout money was offered to GE, it would seriously consider taking it. Essentially, that is press-release code for, “Give us some money please.”

Fortunately, General Electric does not need the money to survive. It does, however, need the money to create lots of new jobs and get back to the double-digit growth rate investors are accustomed to. That is why the government will be willing to write the behemoth conglomerate a sizeable check.

General Electric is not the only company that will benefit. There are dozens of companies that are drooling over the handout opportunity that do not necessarily need extra capital to survive, but will take it in an effort to get the economy soaring once again.

Investors that take advantage of these artificial cash flows will profit handsomely. I already recommended buying shares of GE last week and readers that followed my advice are up by more than 15%.

There will be more companies like GE, so keep an eye on the markets and stay tuned to this site. I will let you know the moment I see another profit opportunity arise.

Source: The Fed hired who?

This from Today’s Financial News:

All across America, huge companies are selling at deep discounts. One of those companies is General Electric (NYSE:GE). It is one of the most prominent, well-known and successful companies in the world, yet its shares are selling for prices just shy of half what traders were getting one year ago.

In fact, GE has not been this cheap in over a decade. The last two times shares of General Electric were this cheap, investors more than doubled their money in the following few years.

Imagine having the opportunity to purchase shares of the company for just $22 this time last year when shares were peaking at $42.

Investors would have pushed their own mothers out of the way for that kind of opportunity.

Let’s face it. General Electric has been in business for a long, long time. And it will remain in business for an even longer period of time. Because the company is such a diversified mega-conglomerate it has the power to withstand immense turmoil.

A Wall Street panic like the one we saw recently is nothing new to this Blue Chip. GE has endured huge price declines many times in its past. Each and every time it did, share price rebounded dramatically higher than where it started.

As I write, GE’s fundamentals are in ranges we have not seen in a very long time. With a reading of just 9.6, the company’s price-to-earnings ratio is insanely low. It should be twice that figure, at least. The downturn has created the ultimate value play.

That is why Warren Buffett recently wrote the company a check for $5 billion so he could get his hands on the profit potential. You do not become the nation’s richest person by paying too much for something. Follow his lead.

Shares of GE are priced at levels we should not see except during the most catastrophic economic events. We are nowhere close to that situation. Granted, the company’s earnings will suffer over the next few quarters. But the decline will not be anywhere close to justifying this huge share price decline.

General Electric is oversold. Warren Buffett knows it. I know it. Now you know it.

Buy shares of the company and wait for the rebound. In just a year or two, when shares are once again trading for $40 and more, you will be very, very glad you did.

Discover what it is like to be rich

Since we are following in the footsteps of Buffett, how about we take another piece of his sage advice…

Buffett is constantly discussing his investment philosophy: buy what you know and use. This theory is why Campbells Soup and McDonalds have remained relatively unscathed by the credit crunch.

To learn about the next undervalued superstar, all you have to do is open your wallet. I bet you have a few credit cards stashed in there.

All of the major credit card companies – names like Visa (NYSE:V), Mastercard (NYSE:MA), and American Express (NYSE:AXP) – have seen their valuations drastically reduced during the recent bear market. None of them are as undervalued as Discover Financial Services (NYSE:DFS) and its powerful Discover Card brand.

Selling for less than $11, down from over $32 less than two years ago, shares of the company are a downright steal.

Again, this company and its products are in a very strong position. No matter what happens in this economy, people will still use their credit cards. And even if every American cuts their cards to shreds, Discover still has a strong network in 184 other countries.

Like I mentioned above, all of the major credit card companies have been hit hard in recent weeks. And all of them have created fantastic buying opportunities. But only Discover adds a powerful technical investing layer to the mix.

Over the next few weeks and months, we are bought to hear the mainstream media discussing record-breaking delinquency rates. More people than ever will be late with credit card payments as the economic machine grinds to a halt.

For the nation as a whole, folks that cannot afford to pay their credit card bills is a terrible thing. But for credit card companies, like Discover, that are allowed to charge huge annual interest rates and levy fees for just about everything, late payers create a wealth of revenue streams.

Shares of the company are trading right at all-time lows. It means no investors have ever bought shares of this company at prices this cheap. It also means if anybody wants to sell, they would have to do it at a loss. It puts a solid floor under share price and is a phenomenon technical investors love.

Even if the economy were to take a strong downward slide, Discover’s firm price floor would help avoid any serious share-price decline. It will also create a catapulting function as the market and the economy rebound.

As long as you buy shares below $12, your position should create some fantastic profits.

The coal industry cannot die

While we are on the subject of investing in what we know and use, let’s discuss another product that we are both using right now, electricity.

Electricity is the commodity this world depends on every second of every day. And chances are the electricity your computer is using as you read this report was created by coal. It is a good bet because about 50% of this nation’s electricity is generated by burning coal.

If you have heard any of the presidential debates, coal is going to be a major energy focus over the next four or eight years. Both candidates are pushing for increased growth in the clean-coal industry.

That means coal is not going away anytime soon. But if an outsider were to look at the prices for the raw material or the share price of the companies mining and selling the indispensable fuel, they may be inclined to believe coal’s days are numbered.

They would be dead wrong.

Coal will play a vital role in the global economy for decades, if not centuries, to come. Thanks to new technologies, coal can be burnt in an ultra-efficient, super-clean process. It can even be used to make the fuels that power our cars, trucks, trains, and planes. Coal is the next “super fuel.”

One company poised to take advantage of any growth in the coal-producing industry is James River Coal Company (NASDAQ:JRCC). It is yet another company with shares trading for just a fraction of what they were a few months ago.

Right now, you can get your hands on shares for just less than $20.

In June, they would have cost you over $60. This time next year, they will likely cost you at least that much.

There are two important facts to understand about the coal industry.

First, there is a global coal shortage. Demand far outstrips supply no matter where in the world you go. China, India, Australia, and Russia are desperate to get their hands on more fuel. Fortunately, the United States has over a quarter of the world’s coal supply in our own backyards. Finally, we have the power in our hands.

The second thing you need to know is that once a coal-fired generating plant goes online, it cannot afford to shut down. It will need a continuous supply of coal for decades to come. It is just the opposite of nuclear-operated facilities. A nuke plant only needs fuel every twenty years or so. Coal plants are addicted to fuel.

Combine a nearly constant demand stream with a lack of supply and every economist will say you have a perfect recipe for profits. Throw in a stock price that has been unduly beaten down because of unfounded fears of an industry slowdown and you have an opportunity to score big time as share price rebounds.

James River Coal Company is trading well below dirt-cheap territory. Take advantage of Wall Street’s mistakes and buy shares under $22 while you still can.

An American classic

Finally, there is one more all-American company investors absolutely must know about. This one is truly a Blue Chip selling at penny-stock prices.

Take a look at a chart of Ford Motor Company (NYSE:F) and you will see a history of ups and downs. The company is in the heart of a highly cyclical industry constantly expanding and contracting. But no downturn has ever been as big as this one.

A decade ago shares of Ford were selling for over $37. Today, you can get them for less than $3.

It is the price of a mere cup of coffee at Starbucks and is a price Ford shareholders have not seen since the Reagan administration.

Granted it may be a long time before the company sees shares trading for over $35, but it certainly will not be long until we see them at $10 or even $15.

The domestic auto industry has reached its bottom. It is impossible to argue any other way.

Just look at the deal General Motors (NYSE:GM) and Chrysler are working to create. Obviously, if it can get its hands on Chryslers strong Jeep and minivan lineup, plus billions of dollars in desperately needed liquidity, General Motors will be a major benefactor. But so will Ford.

The auto industry will consolidate. There will be one less major competitor. Prices will begin to rise and margins will increase substantially. This is a deal that could save Detroit and make a lot of smart investors rich along the way.

But there is even better news.

Just recently, Congress handed Detroit automakers its own version of a rescue package. It came in the form of $25 billion in loans. The deal gives the automakers an insurance policy that will ensure they make it through this latest cyclical downturn. After all, no politician will ever let Ford go belly up on their watch.

Experts agree by 2010, the nation’s car industry is going to embark on a serious upswing. The cars that Americans bought during the last boom cycle will be wearing out, Detroit will have a new, high-tech product lineup, and customers will once again be walking into showrooms with pockets full of cash.

You can wait for the company to start making big headlines and get shares at $10 or more. Or you can invest at penny-stock prices and hold onto the shares as Ford gets back on its feet.

In less than 24 months, we will be entering the fourth-quarter of 2010. This credit crunch and recession talk will be in the history books. Most importantly, your shares of Ford will be worth three or four times more than they are right now.

Investors have an exciting road ahead. We have made it through the worst of the market turmoil. The economy is going to slow but it is finally back to fundamental investing. No longer will we see wild swings wiping out entire sectors. Now the weak will be eliminated and the strong will flourish.

Invest in the strong companies while their prices are dirt cheap and watch your profits grow as Wall Street figures out how to fix this mess. In just a few years, the credit crisis will be behind us and some huge profits will be in your pockets.

Source: Blue chips at penny stock prices

“Once the global economy emerges from the current financial crisis, which it will, the countries that do well on our index are those that are best prepared to bounce back and perform well in the longer term,” Jennifer Blanke, director of the WEF’s global competitiveness network told The Financial Times.

And the United States is at the top. That’s the good news.

The bad news is that the safety of U.S. banks dropped to 40th this year from 26th in the WEF’s 2007 – 2008 report.

“Despite rising concerns about the soundness of the banking sector and other macroeconomic weaknesses, the country’s many other strengths continue to make it a very productive environment,” the report said of the United States.

But such a fall in the rankings for bank safety is a bit frightening for U.S. banking customers already spooked by the collapse of investment bank such as Lehman Brothers Holdings Inc. (OTC: LEHMQ) and regional banks such as IndyMac Bancorp Inc. (OTC: IDMC).

Summing a Country’s Competitive Balance Sheet

The WEF analyzes 110 economic indicators in 12 different categories for each of 134 countries to come up with its overall GCI ranking. One of those 12 areas is financial market sophistication, which is made up of factors such as “venture capital availability,” “strength of investor protection” and even “regulation of securities exchanges.”

But perhaps the most important factor in this category is the soundness of banks.

Confidence in a nation’s banks is what keeps citizens from stuffing dollars under a mattress. Banks need deposit assets to keep the wheels of U.S. industry turning, as deposit assets are used to fund the short-term credit markets that are so vital to the daily operations of many corporations.

And it’s an area where the United States ranks a disappointing 40.

Coming in behind such well-developed nations as Canada, which tops the list, or even Hong Kong in the 11th spot, might not seem so bad. But even the small African nation of Namibia ranks in at 17, illustrating the United States has some definite room for improvement.

While there are plenty of surprises at the type of the bank safety list, there aren’t many such surprises at the bottom. Algeria comes in dead last with Libya just above it.

Of the “BRIC” nations – Brazil, Russia, India and China – most moved up the list this year against better-developed nations. China landed in the top 30 for the first time as it moved up four spots to reach 30, but China’s banking system is still near the bottom of the list at 108. India, however, slipped two spots to 50 from 48 due to a widening budget deficit. India’s banks also slipped, falling to 51 from 46.

Meanwhile, Brazil was the biggest mover with an eight-spot jump to 64 on the overall list, and also tops the United States when it comes to the soundness of its banks with its 24th spot on the banking safety list. Oil revenues gave Russia a gain of seven to move to 51 from 58 the year prior, but Russia’s banks clocked in at 107 on the soundness rankings.

Slipping Bank Titans?

The United States wasn’t the only nation to find its ranking slipping in the bank safety category. The United Kingdom made a stunning plunge from 4th in the 2007 – 2008 survey, to 44th in the current one, after the emergency nationalization of banks such as Northern Rock PLC (PINK: NHRKF).

Even Switzerland, synonymous with banking to many, was hit hard by the global banking crisis, as it slipped from its top spot in last year’s banking soundness rankings to 16th this year. Swiss giants such as UBS AG (UBS) got caught with over-exposure to U.S. subprime mortgage-backed securities that necessitated government intervention while #2 rival Credit Suisse Group AG (ADR: CS) was forced to raise fresh capital.

Nations from Sweden to the United Kingdom to the Netherlands have all introduced government-sponsored packages to help support ailing domestic banks and avoid the fate of nearly bankrupt Iceland and Pakistan.

The United States $700 billion bailout package is by far the largest, but even that might not be enough to return the domestic banking industry back to safety.

The U.S. financial landscape has been changed forever as firms such, as Lehman Brothers – old enough to have weathered the Great Depression – toppled under the crushing weight of a credit market. The strong – Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) – have bought out the weak.

Bank of America bought both mortgage lender Countrywide Financial Corp. (CFC) and former standalone investment bank Merrill Lynch & Co. Inc. (MER). JPMorgan bought both regional bank Washington Mutual Inc. (OTC: WAMUQ) and the failed Bear Stearns Cos. Inc. Wells Fargo is buying Wachovia Corp. (WB).

But in the wake of such massive acquisitions, the United States is left with huge nationwide banking complexes dangerously close to the 10% regulator’s cap any one bank is allowed to have of domestic market share.

And with 117 financial firms on the Federal Deposit Insurance Corp.’s (FDIC) “Problem List” at the end of the second quarter, more bank acquisitions and rescues could be on the way. The FDIC’s list for the third quarter won’t be published until November.

The FDIC’s coffers have already taken a hit from the rescue of IndyMac and with the recent bailout law raising the cap for FDIC-insured deposits, it doesn’t seem like much of a stretch to imagine the nation’s banking insurance coming up short if one of the largest banks were to fail.

Bank Safety Plays

The FDIC doesn’t publish the names of the banks on its watch list, but luckily there are some simple ways to help ensure your banking deposits are safe. Here are three quick and easy steps from Money Morning Investment Director Keith Fitz-Gerald that you can take to determine if your bank is safe or not:

1. Click over to Bankrate.com’s Safe & Sound ratings page. There you can plug in your bank’s name and see how it scores on the basis of 22 objective measures designed to gauge the capital adequacy, asset quality, profitability and liquidity of thousands of banks. “If your bank doesn’t make the cut with a higher rating, then switch to one that does,” says Fitz-Gerald.

1. Use the FDIC’s electronic deposit insurance estimator to see if your assets are covered in full. With the recent signing of the bailout legislation into law, the FDIC now covers accounts up to $250,000 at any one bank in any single account or $250,000 per co-owner for joint accounts. Traditional and Roth IRAs, SEPS and other retirement accounts on deposit at an FDIC-insured bank or savings institutions are insured up to $250,000 separately from any other deposits you may have at the same institution. “But remember,” said Fitz-Gerald, “this is mainly deposit accounts and doesn’t include stocks, bonds, mutual funds or life insurance policies.”

1. Double-check your ownership. If a portion of your assets is uninsured, getting full coverage may just be a matter of changing ownership or spreading out your accounts to different banks. “Like most things the government doesn’t make this easy, so that means more paperwork,” Fitz-Gerald said.

Source: Global Credit Crisis Takes a Toll on Former Titans of Banking

The housing market has been tumbling for some time now, but the squeeze in credit is now making matters a whole lot worse. There are two clear indicators of this: 1) They’re cutting dividends; 2) They’re selling off homes at “fire sale” prices.

The government isn’t stepping in to save these guys. Andrew says now is a good time to short the SPDR S&P Homebuilders ETF (AMEX:XHB)

More from Andrew:

The housing market has been going down for a couple of years. But the monthly numbers keep getting worse.

August housing starts dropped to a seasonally adjusted annual rate of 895,000. That’s the lowest it’s been since back in early 1991, and 6.6 percent of all loans are at least a month past due. And sales of pre-owned homes fell by 2.2 percent in August. OUCH.

Most homebuilders haven’t been profitable since 2006. But it wasn’t until recently that they flashed two clear signs of desperation.

• They’re cutting dividends. Lennar (NYSE:LEN), the biggest homebuilder in the U.S., cut dividends by 75 percent last week. More dividend cuts will come from the sector.
• They’re selling their property at fire-sale prices. That makes them even more desperate than banks. Banks refused to sell their toxic debt at huge discount prices. That’s a big reason why the government had to step in and offer to buy this stuff at higher prices than what they could get from the private sector. Horton, for example, recently sold a San Diego property for 25 cents on the dollar.

Yes they’re getting tax-refund checks from Uncle Sam for the losses they take on these sales. Still, healthy, or even semi-healthy companies don’t sell their property for pennies on the dollar unless they’re in dire straits.Even homebuilders themselves see tough times ahead. Here’s what Lennar said:

“While we expected the housing market to remain constrained throughout the third quarter, the weakness in the market actually accelerated as a result of increased foreclosures, weakened consumer confidence and tightened mortgage lending standards.”

I believe that housing will remain “constrained” much longer than through the third quarter.  I think the third quarter of next year is more like it, especially with foreclosures increasing and driving down prices.

In a middle-class neighborhood in South Florida, not far from IDE’s Delray Beach office, you can buy pre-owned homes in foreclosure for less than $85,000. Why would anyone buy more expensive new homes when they could just buy a foreclosed one at a steep discount?

And the credit freeze that occurred right after Lehman fell is killing home builders. One of these days credit is going to thaw, and I hope it’s sooner rather than later. But banks won’t go back to their free-wheeling lending days, and in the meantime it’s extremely difficult to get home loans.

Morningstar says, “It’s likely that these home builders are going to enter an even more difficult period in terms of cash generation.”

O’Donnell /Atkins, a real-estate advisory firm in California, says, “There’s going to be a rash of builders shedding assets.”

Prudential Realty in California, says, “The downside is they are never going to see the kind of margins when lots were doubling and tripling in value in the time it took to build a house.”

Banks are hogging the headlines but home builders are in big trouble. The 20 percent they’ve dropped so far this year is nothing (the blue line above is the Spyders home builders ETF – XHB). It’s only half of the banks’ drop.

Like every other sector, home builders are having a terrible October. Unlike other sectors, there’s nothing to save these companies from doubling and perhaps tripling those losses.

Most likely, a falling market has taken a big chunk of change from you. Here’s a way to get it back. All you have to do is short these companies or the home builders ETF.

Source: Next Shoe to Drop