Consumer price and housing numbers provided the "quick flash" catalyst. Today’s consumer price index (CPI) confirmed what the consensus wanted to hear: Inflation concerns are on the back burner.

The CPI fell a record 1% in October. Like yesterday’s PPI report, energy prices were the driver of the sudden “price deflation.” Gas, for example, fell a record 14% during the month. Food prices in October rose 0.3%, but that was the smallest gain since May of this year.

The “core” consumer price index, which excludes food and energy prices, fell 0.1% — the first decline since 1982. The drop in the core rate caused traders to think “all-clear” at the Fed… rate cuts and more stimulus on the way…

  Housing data sank to a whole new level this morning, too.

Housing starts, the measure of builders breaking ground on new homes, fell 4.5% in October, to an annual rate of 791,000. The Commerce Dept.’s been keeping track of this sort of thing in 1959 — never has the annual rate been this low. Never.

Same with the department’s gauge of building permit applications. They plunged 12%, to an annual rate of 708,000. That’s 1,000 homes worse than the previous low, set in Mach of 1975.

  The National Association of Home Builders sentiment index fell to a score of 9 in November, down from 14 in October and the lowest level ever recorded. If there’s any hope for a housing bottom soon, it’s this: Sentiment can go only 8 points lower.

  “You can’t ignore the massive and limitless inflation schemes coming from the Treasury and the Fed,” urges Dan Amoss.

“Those fearing deflation assume that every American consumer is stereotypical: an overextended, credit card-addicted, house-flipping gambler. This is simply not the case. Many Americans don’t have a mortgage. And most Americans with mortgages are still making their payments. They have, however, temporarily reined in discretionary spending because of falling house and stock prices.

“Those fearing deflation also assume that demand for debt is low and falling. But demand for debt doesn’t always come from businesses or households looking to invest more or spend more. Any business or household looking to refinance existing debt at lower rates — and there are many — is a source of demand for new debt. Banks borrowing at the Fed window at 1% or less will be looking to supply this new debt by make highly profitable loans to creditworthy borrowers.

“Once borrowers refinance, they may not be as aggressive about spending or expanding business as they used to be. But at least they will have access to credit. In the Great Depression, they did not. So the economy fell into a negative feedback loop of asset sales, bank failures and rising unemployment.

“Sure, such an action would guarantee a decade or more of stagnation in housing prices, but it would also slow or flatten the rapid decline in prices. This is the essence of the Treasury and Fed actions: to stop the deleveraging from getting out of control — even at the cost of future economic stagnation.

“Like it or not, I think this is the most likely outcome from this crisis.”

  "There is no wonder the dollar will weaken," Eisuke Sakakibara, Japan’s former top currency official told Asia Times yesterday. "The dollar now looks strong for a technical reason. The money the U.S. financial firms had invested in the world is being repatriated into the homeland, causing dollar buying. But once this conversion into the dollars is done, the currency will head south."

“Faced with the unprecedented growth of the U.S. budget deficit,” the Times explains, “and the prospect of an increasingly weaker dollar compared with the yen reducing the value of Treasury debt held by Japan, economists in Tokyo are calling for the administration of President-elect Barack Obama to issue U.S. Treasuries denominated in yen and other currencies…

"‘The U.S. will be forced to issue foreign currency-denominated U.S. Treasuries in its hour of need,’ said [Tokyo chief economist for Mitsubishi UFJ Securities Kazuo] Mizuno. ‘The U.S. cannot finance its deficit by itself. The U.S. financial system cannot survive without foreign investors. We will see “Obama Bonds” in the future.’"

Great… just what we need. An Obamanation.

  “Keep and eye on the sterling/dollar pair,” notes one of our currency advisers, Bill Jenkins. “I use it as a basis for looking at other currency pairs as well. With the pound at $1.50, we are now approaching, in the sterling, a multiyear low of $1.40.

“From a technical side, that figure has provided a good base for the last 16 years. The pound bounced off this low in 1992, and found it as a base for the end of 2000-early 2002. So if you care to speculate with the pound, you are close to a very good long-term buying opportunity.”

By the way, if you recall, a couple of months ago, we asked if you’d be interested in a currency trading service from Agora Financial. The answer was a resounding yes… so we went to work finding a trader and assembling a strategy we think suits. Bill Jenkins is our man. And we’re proud to announce we’re only a couple weeks away from putting his talents into service.

Stay tuned… we’ll keep you up-to-date.

Tuesday was another volatile, but ultimately uneventful day for equity investors. Stocks swung up, then down, then up again… major indexes finished up about 1%. Tech was the star of the show. HP issued a defiantly good earnings forecast for 2009, while Yahoo CEO Larry Yang announced his resignation, much to the delight of his shareholders.

And like the majority of 2008, banks were the dogs of the day. Despite announcing job cuts exceeding 52,000 employees, Citigroup’s shares fell to $7 a pop, a 13-year low.

  “With equity markets down over 40% peak to trough,” advises Rob Parenteau, “much of the damage is likely done, and if anything, price overshooting to the downside should reveal some selective bargains. Having said that, maximum earnings risk lies straight ahead, and very few portfolio managers have lived through a full-blown recession.

“Deep value investing styles — harkening back to the days of Benjamin Graham, even — may help identify possible buy candidates. High-dividend-yield stocks are only a place to start, since many dividend payments may be reduced as corporate profits are challenged in the quarters ahead. Low-debt, high-cash-holding and high-free-cash-flow companies should be favored, as well as companies with dominant market shares that may be able to take advantage of weaker competitors.

“Steady earnings growers, especially steady top-line revenue growers often found in the consumer staples, health care and utility sectors, are generally better placed to ride out an economic storm of this magnitude.”

  Alas, to Barney Frank’s chagrin, the New York Stock Exchange notified Fannie Mae yesterday that the firm is in danger of being delisted.
 

Put that in your pipe and smoke it

 
Shares of FNM have closed under $1 for over 30 consecutive days, which means it no longer qualifies to play on the Big Board. Fannie has until Nov. 26 to explain itself to the NYSE or else it’s off to the Nasdaq or OTC.
 

  Another of Barney Frank’s pet projects appeared before Congress this week. The CEO’s of the “Big Three” automakers marched to Capitol Hill and begged for a bailout yesterday and today. Oh, sorry, a “bridge loan.”
 

“A bridge to what?” we ask

GM’s CEO Rick Wagoner told Congress that his company has a 50/50 shot at having enough money to stay in business beyond the New Year. Should GM fail, “Societal costs would be catastrophic: 3 million jobs lost within the first year…and a government tax loss of $156 billion over three years."
 

  “The primary purpose of the bill,” said Hank Paulson yesterday, effectively slamming the door shut on an automaker bailout, “was to protect our financial system from collapse. The rescue package was not intended to be an economic stimulus or an economic recovery package.”
 
Votes to pass this proposed “bridge loan” don’t exist. Unless the Big Three can convince (buy?) several key Republican congressmen, it’s not going to happen.
 

  “Bankruptcy would be very disruptive,” Rep. Frank commented on the proceedings, speaking for his prime constituency.

“There is also an assumption that if you do bankruptcy, you could undo labor contracts. Now, the unions, to their credit, have negotiated some concessions. But you know, we already have too much union-busting and too much income inequality for the average worker in this country for us to now say by the way, if you’re a company and you haven’t been able to totally get rid of the unions, then go bankrupt and rewrite, write down the contracts.”
 

  “OK, this is what a nation gets when it screws up its economy and manufacturing base,” comments our former Navy pilot Byron King, who normally maintains an even keel. “Now the Chinese are seriously discussing buying GM or Chrysler… for pocket change.”

“This is more than just IBM selling its PC biz to Lenovo — which was traumatic at the time, if you recall. The strategic implications are immense — essentially causing the U.S. to exit the domestic car business. It’s not just cars… it’s the whole industrial base that supports building cars. From tires to paint to glass to seat belt clickers…. it’s all part of a gigantic industrial ladder that supports millions of jobs and thousands of communities.
 
“Thank you, politicians! Thank you, regulators! Thank you, auto unions! Thank you bankers! And thank you to the top brass for the shortsighted management for all these years! How will the American people react? Just accept this as a matter of orderly globalism? Yeah. Fat freaking chance. People will be looking for heads on a platter, for this one.

“Was this what it was like in old Rome? People strolling on the walls in August 410, looking out, saying to each other… "Hey, who are those funny-looking people camped out on the plains? Alaric the Visigoth? Never heard of him."
 
“Sic transit gloria mundi.”

  “My parents grew up during the Great Depression,” a reader writes. “It was pounded into my head as I grew up. One thing I learned was when a government is bankrupt and no longer can support its paper currency, or has any, it issues script. Scripts value is set by government fiat. It’s worth what the issuing government says it is worth.

“My grandfather was paid with script issued by the city of Detroit when he was a Detroit cop and the city was bankrupt. The difference between Detroit and the federal government is the city of Detroit bought back its script and the federal government hasn’t and won’t. Ever! The Depression never ended. It was alleviated by the wartime production.

“The difference between the Great Depression and now is the Federal Government was quite wealthy then as opposed to the bankrupt government of these modern times. During the Great Depression the Fed pumped money into the economy but never enough to relieve the depression until the WW2 when the US became the war materials supplier to the ‘Free World.”’

Regards,

Addison Wiggin
The 5 Min. Forecast

P.S. Don’t forget, we’re expecting a major announcement tonight, one that could revolutionize investing. Our go-to technology analyst Patrick Cox believes it could do for investors in the 21st century what railroads, cars and computers did over the past 100 years. Learn more here.

P.P.S. We’re also taking requests for the second installment of our Emergency Retirement Recovery Series of Webinars . This one features Chris Mayer and a deeper look into his Chaffee Royalty program… to sign up for free, visit this page.

  “During recessions,” our Rob Parenteau says, explaining the prevailing mentality among economists, policy wonks and Treasury Secretaries in Washington, “the private sector pulls back and tries to move into a net saving position to weather the storm.

“Households and businesses can only save if some other sector is willing to deficit spend. An improvement in the trade deficit would help the private sector, but we are not getting the necessary results on trade yet.

“That leaves the adjustment all on the back of the fiscal deficit, which has regained 2004 lows in a very sharp fashion this year. Without a sufficient turn in the trade deficit, the attempt by the private sector to save will endanger income growth, and thereby worsen the debt default situation.

In other words, the worst thing that can happen right now is that consumers come to their senses and stop spending more than they earn.

“It’s a vicious cycle,” Parenteau concludes. “One a highly leveraged economy can’t afford without severe consequences. Given these pressures, a trillion-dollar fiscal deficit in 2009 is not out of the question.”

  “Barack Obama will restore fiscal discipline to Washington,” his website says.

Heh.

If that were true, he’d step out of the way, let the consumer economy go bankrupt, put tax incentives in place to encourage savings and investment in local productive assets. Unfortunately, “the consensus” doesn’t want to see that happen.

  And thus, with the federal checkbook wide open, everyone has their hand out: The mayors of Philadelphia, Phoenix and Atlanta each sent letters to the Treasury Department asking for $50 billion of the $700 billion Troubled Assets Relief Program (TARP).

Just like Bear Stearns, Fannie, Freddie, AIG, all the banks and now even the big three automakers – the mayors claim that their city’s fiscal standing is dire. Barring federal intervention, they claim, layoffs and taxes will increase rapidly while important infrastructure projects will be canceled. 

Between the three cities, annual budget shortfalls exceed $410 million. All claim they are unable to balance the books without Federal aid.

  We have to “prove that we have our fiscal house in order,” before asking for federal handouts, said Arnold Schwarzenegger. The Governator’s state faces an $11 billion budget shortfall, which he plans to remedy by – heaven forbid – cutting wasteful programs and scaling back spending.

“Anyone that wants to go and think that they don’t have to shift down and make changes — if it is states; if it is local government; if it is the auto industry, or any other industry, as far as that goes - they’re living in a dream world or in a fantasy world.”

When this guy says you’re living in a “dream world”…

  The original purpose of the TARP “is to stabilize financial institutions and strengthen the financial system, promote lending and so on,” reiterated Treasury Secretary Paulson Friday.

While Paulson’s latest TARP adjustment proves the methodology of the program is hardly set in stone, he’s been going out of his way to hint that unless you’re one of this old banking buddies, you aren’t getting a slice of the pie.

  “The secretary essentially took some scissors, cut it out and threw it away,” complained Rep. Dennis Kucinich of the Treasury’s TARP switcharoo. “All of a sudden, the Treasury sent a signal to the banks: `Forget about it. We’re going to give you the money you want and you do what you want with it.’”

We try to pay as little attention to House Oversight hearings as possible, but Friday’s grilling of TARP chief Neel Kashkari was particularly funny… in a pathetic way. If you are a senior Congressman in the mood for whining, Friday was your day.

“Every decision that you make,” Rep. Elijah Cummings told Kashkari, “you think about those folks who are losing their jobs and who are in pain and who are not going to have a decent Christmas… They’re going to probably be sitting under the Christmas tree with no presents.”

Soon after, Cummings called Kashkari a “chump.”

  Against this backdrop of politics and plunder, personal bankruptcy filings in the U.S. jumped 8% from September to October. Filings exceeded 108,000 in the month, the highest number since 2005, when the government enacted laws that made filing more difficult and expensive.

Personal bankruptcies are up 37% from this time last year.

  And consumer confidence remains as low as any time since voters sent Jimmy Carter packing back to his peanut farm. The latest reading of the Reuters/U of Michigan consumer sentiment index scored a 57.9 for the current month – a bit higher than October’s 57.6… and better still than June’s 28-year low of 56.4.

According to a Bloomberg survey, this gauge of consumer sentiment will retest previous lows by the end of the year.

  Despite the Fed’s best attempts to re-inflate the economy, U.S. GDP will “grow” a mere 0.2% in 2008, according to the National Association of Business Economics.  96% of all economists surveyed by the group say the U.S. economy is in recession now. Over 75% say the current contraction will stretch beyond the first quarter of 2009.

For all of 2009, NABE respondents slashed their GDP estimates. In the beginning of October they were calling for 2.2% growth next year. Now they predict 0.7%.

  Japan is “officially” in recession, too. While we’ve declared it a few times in these pages, the Nipponese government finalized the third quarter GDP contraction of 0.1% today. Coupled with the second quarter’s 0.9% contraction, Japan is now in its first textbook recession since 2001.

Factor in the European Union’s admission of recession this month, and the world’s first and third and laregest economies are both “officially” shrinking.

Isn’t deleveraging fun?

  Banks are still canning people in Lower Manhattan. Citigroup announced today it will be cutting up to 52,000 more jobs. That’s about 15% of its already trimmed down workforce.

And JP Morgan Chase is expected to cut another 3,000 jobs for its integration with Bank of America. That’s nearly 10%.

  Still, despite all the trouble here in the U.S., the dollar booms. Investors were racing out of equities again this morning, and they wanted cash. Thus the dollar index remains at a lofty 87.

  Oil has fallen, accordingly, to $57 a barrel. The sector seems particularly vulnerable today, as Japan’s declaration of recession implies reduced oil consumption from one of the world’s largest economies.

  Gold is floundering too. It’s been stuck between $700 and $750 for the last three weeks. Today, an ounce goes for $735.

 “I am excited about the values that I see out there,” says our gold stock advisor, Ed Bugos. “And even if gold makes another lower low, I think the gold share sector has bottomed.

“Historically, the market discounts the in-ground resource of an established and diversified producer by some 75-85%… the exact amount depends on a whole myriad of variables. However, the reason for the discount is simply economic: It costs money upfront to get it out of the ground and to the market in the future.

“In any case, if gold is worth $750 per ounce, the market would historically attribute a value in the range of $110–185 per ounce of gold in the ground for your average miner, or about $150 on average. That’s where we are right now.

“At $1,000, the range is $150–250 per ounce, or $200 on average. That’s part of the reason that gold stocks in general have fallen so much, and the reason they have performed so sluggishly relative to gold: They have been on the expensive side since 2004.

“At their heights, stocks like Kinross were fetching $270 per ounce, even Newmont was getting $240 per ounce, while Barrick and Goldcorp saw values closer to $400 per ounce. Such values suggest a gold price of $1,200–1,400 before taking the effects of cost inflation into account. That is, when gold hit $1,000, gold stock investors imputed a $1,200–1,400 price target.”

If and when gold rebounds, Ed tells us, a similar spike should occur again amid the miners.

  As if we needed it, today we have further proof the U.S. housing fantasy has come to an end: even the freakishly eccentric Michael Jackson can’t afford to keep the lights on.

No more Neverland? Probably for the best…

Late last week, the King of Pop gave up the infamous Neverland Ranch. He owed about $24 million on the property. He apparently handed the debt, the deed, and the keys to the Ferris wheel over to some LLC with whom he shares a shady financial connection. The same company, Colony Capital, rescued him from foreclosure in May… now it seems he’s given up on the prospect on luring youth with petting zoo’s and carnival rides all together.

  “As can be seen on this chart,” writes a reader, “the Dow closed Friday by coming to rest almost exactly on the 200 MONTH moving average - not to be confused with the 200 day moving average. The closing value of the Dow was 8497.31 and that of the 200 mma was 8500.31.

 
“The Dow is at a major ‘reckoning point’ and today and the next few days (especially through the end of November) will be crucial in determining which way it resolves. Right now the Dow is the "last soldier standing", as the S&P 500 and the NASDAQ Composite are already substantially below their respective 200 mma’s.”

The 5: The Dow tested that moving average today.  It fell through, then bounced back. As we write, it’s right on the precipice. We’ll keep an eye on it for you.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. This morning we did an hour-long interview with a gentleman in St. Louis who said he was born in 1922. He remembers the Great Depression like it was yesterday, he said, but doesn’t remember it being all that great. The government seems to be just as out to lunch now as it was then. And remember… the last Depression ended in a World War. We paraphrase, of course, but you understand, right?

“When you get to a point,” former Treasury Secretary Paul O’Neill says in I.O.U.S.A. “when you can no longer service your debt – you’re finished.”

You can still pick up your copy of the DVD and book, along with a subscription to Capital & Crisis, right here.

  “History has shown” the lame(st) duck president said yesterday in a speech at the Manhattan Institute, “that the greater threat to economic prosperity is not too little government involvement in the market, it is too much government involvement in the market."

Curious words for one who has presided over the largest government intervention since Franklin Delano Roosevelt made it illegal for ordinary Americans to own gold.

"If you seek economic growth, if you seek opportunity, if you seek social justice and human dignity, the free market system is the way to go."

Extraordinary.

So does that mean he’s calling off the dogs at the Treasury and the Fed? Of course not, Dubya was just philosophicatin’.

  Even so, a wave of nostalgia gripped traders while Bush 43 was speaking , and together they helped the U.S. stock market stage a defiant rally.

Phew! Earlier in the day, the S&P 500 had fallen below 839 — a new credit crisis low. The crash flag was flying high and whipping in the wind.

  But by the time Bush was finished, stocks were soaring. The Dow staged a 911-point swing, or over 10% from valley to peak. When the dust settled, major indexes were up 6.5-7%.

Was it Bush’s speech? The mysterious “plunge protection team”? Nah… it was likely a technical correction to the upside. Pre-election volatility is still in full play. Look for the markets to test new lows again soon. We’re a long way from capitulation in this bear market.

The following list of economic data points doesn’t help matters much…

  The markets started out the day in a sour mood because of a historically bad jobless claims number. 516,000 Americans filed for jobless benefits last week, the most since the Sept. 11 attacks.

Even worse, the total population seeking unemployment handouts now exceeds 3.9 million, the most in 25 years. You can expect more news of this vile ilk in the months to come.

  The housing sector was looking as homely as ever yesterday, too . Nearly 85,000 homes were foreclosed upon in October, RealtyTrac reported. A total of 279,561 borrowers received some kind of foreclosure notice during the month — a 5% jump from September and a 25% rise from the same time in 2007.

October was the 34th straight month foreclosure activity increased year over year.

Since August 2007, the month RealtyTrac identifies as the beginning of the end, nearly 1 million homes have been repossessed by lenders.

  And retail sales fell a record 2.8% in October. Retail is now down for the fourth straight month… this time, by the biggest margin ever.

We weren’t at all surprised to see auto sales hit the bricks, down 5.5%. But it was interesting to see gas sales plummet 12.7%, despite the cheapest price at the pump since early 2006.

  Mortgage enabler Freddie Mac lost a tiny bit of money in the third quarter… about $25.3 billion.

Like Fannie Mae last week, Freddie unleashed some horrid earnings numbers today: $14 billion lost in “deferred tax assets”; another $9 billion in mortgage-backed security-related write-downs; $6 billion more for credit expenses.

The government-sponsored entity (GSE) announced that it would also tap the Treasury’s $100 billion emergency fund for $13.8 billion to fill in a gaping shareholder equity deficit. Freddie Mac’s liabilities have overwhelmed its capital cushion to the tune of $13.7 billion.

  The European Union declared a recession for their member nations today. Collectively the 15-nation shrank by 0.2% in both the second and third quarters — the first eurowide recession in 15 years.

  You’ll find this reassuring: Yesterday, Congress interrogated the world’s five highest-paid hedge fund managers in 2007.

Hedgies called to the principal’s office

George Soros, James Simons, John Paulson, Phil Falcone ad Ken Griffin — likely the most wealthy panel ever convened before the House Oversight Committee — each took home at least a $1 billion annual salary last year.

"Hedge funds were an integral part of the bubble." Soros admitted in his testimony. "But the bubble has now burst and hedge funds will be decimated. I would guess that the amount of money they manage will shrink by between 50-75%. Excessive deregulation has inflicted enormous losses on the general public and there is a real danger that the pendulum will swing too far the other way.”

“In my opinion,” suggested Simons, “the most culpable [are] the rating agencies, which allowed sows’ ears to be sold as silk purses."

  Perhaps Congress should spend more time balancing its books than bothering the private sector.

The U.S. budget deficit ballooned a record $237 billion in October, the first month of its fiscal year. That’s four times bigger than last year’s month opener, and more than half the budget deficit for the entire 2008 fiscal year. According to data released this week, total government spending in the month exceeded $400 billion.

The Bush administration’s 2009 budget forecast still reads a deficit of around $482 billion. Good job guys… you’re already halfway there!

Of course, by pointing this out, we’re being alarmist. Better not mention it to your friends.

  The dollar enjoyed a quick sell-off yesterday as stocks surged. The index shed a full point, to 86.2. The Dow, however, was down 275 by midday today… so the index is catching some flight to cash enthusiasm. As we write, it’s closing in on 87 again.
 

  Yesterday’s auction of long-term Treasury bonds may give us an indication of where dollars are headed in the long term, however.

A couple of weeks ago, we noted the 30-year note was paying its lowest dividend since inception. We suspected that once the election was over and there was a clear trend in place in the equities markets, it would get a lot harder for the government to sell these bonds at auction… and interest rates would have to rise dramatically just so they could keep the lights on at the Treasury Building.

Well, yesterday, the Treasury had an unusually hard time unloading $10 billion worth of long-term IOUs. They had to raise interest rates 10 basis points during the auction just to sweeten the deal. In other words, it cost the Treasury another couple hundred million bucks just to get enough interest to sell ‘em all. This, my friend, is how foreign lenders can have a larger influence over interest rates in this country than even the Federal Reserve does

We’ll be keeping a close eye on this trend. A nation addicted to debt cannot afford rapidly rising interest rates.

  Gold got a nice pop from yesterday’s equity rally.  And it’s still rising today. The spot bounce bounced off $700 an ounce yesterday, to above $740 as we write.

  Oil rebounded yesterday, too. Light sweet crude rebounded a few bucks, to just below $60. Today, though, it’s following stocks again… back down. As we write, a barrel goes for $57.
 

  “Enjoy cheap oil while it lasts,” warns Byron King in today’s Rude Awakening .

“Don’t get me wrong. The world won’t run out of oil in seven-10 years. That’s not how it works. It’s just that volumes of conventional oil are declining. The takeaway point is that the energy markets will tighten up, like a hangman’s noose around the collective neck of the oil-consuming world.

“So how long will we have to wait for this ‘future’ to show up? Well, how long will the current worldwide recession last? I don’t know. But I do know that if you can afford to be patient with your funds, you should be buying at this very moment the companies that own oil reserves in the ground, and the oil service companies that extract oil and natural gas. These firms should eventually stage a comeback as oil prices rise again.

“The nearby chart shows the total hydrocarbon resources in the world and the relative costs to convert them into a barrel of oil or oil equivalent. This is my summary, based on several different government and academic compilations:

“These are big numbers, right? And they can supply a lot of energy over a long time…at a price. But that price will almost certainly be more than $60 a barrel…much more.”

  “Looking at Saskatchewan,” notes Chris Mayer, with another investment opportunity, “you’d never know markets are suffering a global slowdown.” Chris has been hunting for investment treasures in all the “last places you’d look” regions of the world. Again and again, he tells us Saskatchewan is where it’s at.

“As far as natural resources go, Fortune has smiled broadly on this land between the 49th and 60th parallels. It is the world’s largest producer of uranium and potash. The former is a critical component in the ‘nuclear renaissance.’ The latter is a key fertilizer that sells for $1,000 per ton, compared with only $300 per ton a year ago. Saskatchewan is the world’s largest exporter of chickpeas and lentils. And it is also rich in oil and gas. The U.S., in fact, buys more oil from its northern neighbor than it does from Kuwait.

“Saskatchewan is also in a particularly good spot to gain from biofuel and farmland trends. Almost half of all the farmland in Canada is found in its golden prairies. Wheat, canola and barley represent three-quarters of the crop acres in the province.

“The primary attraction of Saskatchewan farmland is cheapness. For all farmland prices in the region, Saskatchewan is the cheapest of the lot, at $405 per acre.

“At a time when governments everywhere face gaping budget shortfalls, Saskatchewan is awash in cash. On a budget of only $9.4 billion, the province reports a surplus of $3.1 billion. Of this, some will go toward highway repairs, better hospitals and improved schools. Not needing so much money, the government announced the largest cut in personal income taxes in its history.

“It also paid off 40% of its provincial debt. Prudently, the government also decided to sit on a $2 billion cash cushion, just in case. Even the icy-cold fingers of the credit crisis seem stunted here. Canada’s big agricultural lender is backed by the state. Farmers still have access to credit to plan for a big harvest next year.”

  “It seems likely,” writes a reader with perhaps the last word we’ll print on this American automaker debate, “that most who so vehemently argue in favor of purchasing cars from U.S. automakers might be future (or current) recipients of UAW pensions. Two other thoughts:
 
“1.) When executive management is spending more time trying to figure out how to ring their bonus plan bell than they spend on real improvements in their company’s operational efficiency and long-range planning, they’d better be ready to pull the rip cord on that golden parachute — and hope their company still has the money to pay them when it’s over.

“2.) If your job is so awesome that your skills and the free market won’t allow you to replace more than 60% of your current income (can you say $30-40 per hour assembly line watchers with obese benefit plans?), then your days are numbered — and your employer is headed down the tubes. That kind of system simply doesn’t represent reality — at least not in the 21st century.
 
“So what do GM executives and their rank-and-file UAW workers have in common? Their legal representatives both negotiated such wonderful contracts that they put the company out of business. Turn out the lights, I hear the fat lady humming!”

  “Enough with the union bashing already,” says another, responding already. “If anybody’s been paying attention, the percentage of union jobs has fallen drastically over the last few decades, due to union busting and right-to-work laws. At the same time, real wages have not gone up at all, while prices have drastically. People have had to borrow to make up the difference. Now they’ve borrowed too much, and the whole house of cards is falling. The middle class has been decimated, and the lack of unions has had a lot to do with it. You need a strong middle class to have a good economy, but politically, we couldn’t care less about them.

“The executives’ wages went up. The people who complain most about unions are usually on those higher pay scales. They decided not to compete for quality. People used to buy American when it wasn’t junk. I wouldn’t plunk down an investment in an American car. My ‘95 Maxima has 250,000 miles. Blaming unions for sh***y cars is stupid. They didn’t come up with planned obsolescence.
 
“And let’s not forget that when they close plants, they are generally moving them out of the country. What was that comment about no manufacturing base and third-world countries again? Who’s been shipping out the manufacturing jobs?
 
“All the American car companies had to do was make quality cars that weren’t designed to fall apart. We operate a union construction company. People pay for quality. And I’ve never seen stronger Buy American’ sentiment than among union members.”

Enjoy your weekend,

Addison Wiggin
The 5 Min. Forecast

P.S.  I.O.U.S.A., the film, opens in the U.K. tonight. If you care to read The Telegraph’s review, it’s short, and right here.

I.O.U.S.A., the book, passed the president-elect again this morning, and is at No. 1 on Amazon’s best-seller list as we write. Hopefully, we can keep it there this time, eh?

  For an erudite debate over the Paulson doctrine, we turn to our friends at The Onion this morning:

The Money Hole.

It’s not any more complicated than that, is it?

  Indeed, Paulson and company announced a TARP switcheroo yesterday. Now the Treasury’s Troubled Asset Recovery Program (TARP) is suffering a serious case of the STD “mission creep.”

Instead of purchasing troubled assets from banks, the Treasury, as of this morning, plans to continue investing directly in banks, using your money, encouraging them to lend more. Jump-starting a market for mortgage-backed securities is apparently too tricky… better to give money to the banks that got us into this mess in the first place.

And with the remaining TARP funds, Secretary Paulson suggested the government provide more easy money for student, auto and mortgage loans… even credit card relief.

But… what about the ambiguously named “troubled assets,” we ask hesitantly? Perhaps we shouldn’t take their acronym so literally. The troubled asset appears to be the U.S. consumer.

  Really… TARP funds are so accessible you can get an application on the Internet.

Here’s an idea: Fill out an application with whatever kind of BS data you prefer and send it in. If you can get a hold of some of the relief funds, we’ll publish your results… if for no other reason to illustrate how goofy this whole idea has become.

  The stock market hated Paulson’s announcement. Aside from an initial lack of transparency for the allotted bailout funds, now the Treasury seems uncertain as to how to proceed? Forget it… the Dow plummeted another 4.7% yesterday, to 8,282, about 100 points away from a five-year low.

   “At these prices, many investment pros are ready to get back in,” notes Bill Bonner. “Stocks are a bargain, they say. You get more value for money than you got in years, they point out. ‘Both my money and my mouth say the same thing,’ adds Warren Buffett: ‘Buy equities.’

“The stock market bulls aren’t necessarily wrong. But we announced a ‘Trade of the Decade’ in 2000 — sell stocks, buy gold. The decade has a few more months to run, so we’ll stick with it. At the beginning of this decade, you could get about 40 ounces of gold for a unit of the Dow stocks. Now, you barely get 12. If you’d done the trade and stuck with it, you’d be up about 200%.

“Besides, it looks to us as though the Dow is going to drop below 5,000 before this is over. Dividend yields have risen to almost 4%. When the dividend yield reaches 6%… and you can trade 1 ounce of gold for the entire Dow… call us.

“In the meantime, we still think it’s a good idea to take advantage of the low price of gold.”

  Gold is cheaper than usual today. The spot price is down almost $50 since Monday, to about $710 as we write.

  If you’re looking to dodge the 2009 recession, consider moving to… ummm… the moon. At least, that’s the vibe we’re getting from the Organization for Economic Cooperation and Development this morning.

The OECD forecast today that GDP will contract by an average 0.3% in all of its 30 member countries… with few exceptions, the 30 biggest economies in the world.

Specifically, the OECD says the U.S. will contract 0.9% next year. The eurozone will fare a bit better, shrinking 0.5%. Japan, already in recession, will contract another 0.1%. Should the OECD’s forecast come true (which wouldn’t surprise us one bit), it would be the first time since the oil shocks of 1974 that all three of these regions suffered recessions simultaneously.

Unfortunately, the OECD has been pretty generous with its GDP forecasting this year. As late as June, the group suggested the worst of the credit crisis was over and forecast 1.7% growth for its 30 member nations.

  Germany, Europe’s biggest economy, entered recession this morning. The country revealed a 0.5% third-quarter contraction. Coupled with the country’s second-quarter GDP reading of negative 0.4%, Deutschland is officially recessing. Even if the German economy manages to rebound this quarter (ha!), this will still go down as the worst German contraction since 1996.

  “We think [the U.S. recession] could be deep; we don’t know how deep," suggested a cryptic Jamie Dimon today, CEO of JPMorgan Chase. "We think the economy could be worse than the capital markets crisis."

We’re not exactly sure what Dimon is saying, and suspect neither is he. But if the Dow has dropped 37% and he suspects the economy is worse… well, that can’t be good.

“Right now,” echoed John Thain, head of Merrill Lynch, “the U.S. economy is contracting very rapidly. We are looking at a period of global slowdown. This is not like 1987 or 1998 or 2001. The contraction going on is bigger than that. We will, in fact, look back to the 1929 period to see the kind of slowdown we’re seeing now.”

  Yet the good old I.O.U.S.A. still turned in a $56 billion trade deficit in September — down 4% from August, the Commerce Dept. announced today.

But before we get our knickers all in a twiddle, the trade deficits’ improvement can be attributed almost entirely to a record decline in fuel import prices. The average cost of an imported barrel of oil fell 12% during the month, the most ever. In fact, all imports declined by a record 5.6%.

If the trade deficit were contracting because of increased production in the U.S., that would be cause enough for knickers-twiddling. Alas, excluding petroleum, the deficit actually widened by about $2 billion in September. Sales of American-made products overseas fell to their lowest level since the Sept. 11 attacks.

  The crack in the facade of American consumer “wealth” has become a gaping crevasse. “In 42 years of retailing," said Brian Dunn, COO of Best Buy, “we’ve never seen such difficult times for the consumer… Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we’ve ever seen."

The company dropped a doozy of an earnings announcement yesterday, which the market translated as a bellwether for the consumer at large. Same-store sales fell 7% in October, and Best Buy officials suggested they could fall another 15% by year-end. The company slashed its earnings expectations for fiscal 2009 (ending in February) by nearly 30%.

Best Buy, mind you, is an industry leader.

   Still, the mighty consumer hasn’t tapped out quite yet. Wal-Mart was, yet again, the darling of an otherwise very ugly day in the market Wednesday. The world’s No. 1 retailer managed to increase profits 10% in the third quarter. The company pocketed $3.1 billion in the quarter, a cool $300 million better than the same time in 2007.

But even Wal-Mart is bracing shareholders for a rocky 2009. The company trimmed fourth-quarter same-store sales expectations to as little as 1% growth.

  Understandably, currency traders have relaxed their dollar-buying frenzy. Even the most headstrong dollar bull must be a little nervous this week, and thus, the dollar index has kept to a tight range since we wrote you last. It’s still at a lofty 87.5.

  As equities fell yesterday, most commodities followed suit. Oil fell again, to as low as $57 a barrel.

“Current energy prices are just too low to support the level of energy investment that the world needs going forward,” insists Byron King, yesterday’s IEA report in hand. “Meanwhile, the U.S. government is spending trillions of dollars forward just to bail out the banks and bankers, not one of whom runs pump jacks.

“The IEA estimates that the oil industry will have to invest over $350 billion per year to counter the steep rates of decline in output. And even that will not be sufficient to maintain levels of output for traditional forms of crude oil. Thus, much of the future investment will have to go toward extracting other kinds of hydrocarbon substances.

“In its World Energy Outlook, the IEA categorically states that ‘Current global trends in energy supply and consumption are patently unsustainable.’

“There’s not much wiggle room in that statement. According to the IEA, despite the recent fall in oil prices, the medium- and long-term outlooks for energy supply are grim. Conventional oil output is destined to decline. Demand will still grow, however, especially in the developing world. And the twain shall meet only by prices rising to clear the market. ‘It is,’ as our Arab friends like to say, ‘written.’”

  And over in the UAE… a loud hissing noise. “Dubai finally joined the elite of the elite when it comes to embarrassing market meltdowns,” writes the Rude Awakening’s Joel Bowman from his UAE pad. “After plunging over 16% in the first two trading days, Dubai’s DFM Index may now rub shoulders with the likes of Russia, Iceland and Ukraine in the illustrious ‘Sub-60% YTD Club.’

“Such a calamitous collapse wouldn’t have been possible without insidious government intervention into the everyday life of the economy. Distortion of market fundamentals, rent caps, wage manipulation, ongoing ‘Emiratization’ of the labor force, bloated welfare programs, intervention into the banking and construction sectors, nationalization of the emirates’ resources and the blatant and severe restrictions on freedom of the press have all played their part.

“Even the mighty Dubai real estate bubble is making a resounding pop. According to The National newspaper, ‘Residential prices for Emaar Properties’ signature Downtown Burj Dubai development have fallen by at least 22%, with reductions of up to 50% within the Burj Dubai tower itself.’
 
“Local real estate brokers are trying to sure up investors who, having sensed that the game might be up, are scrambling for the door, selling at and even below zero-premium. Such a panicked exodus must have seemed so unlikely when the centerpiece tower sold out in record time. (The tower is not even due for completion until late next year!)”

  Our last item today you may want to place in your “it could be a whole lot worse” file. No matter how bad your portfolio’s been slammed this year, you’ve probably done better than this heavy hitter:

Sheldon Adelson, head of Las Vegas Sands was once the third richest man in America.

Not a big believer in diversification or hedging, Adelson put his life’s fortune in LVS stock. It was $144 a share in October 2007… it’s barely $5 today. That’s a $30 billion loss for Sheldon. His fortune has been reduced to a “mere” $2 billion.

Forbes says barring a spectacular turnaround in December, he’ll be the biggest annual loser ever in their “400 Richest” list.

  “Please! I beg you,” writes a very enthusiastic reader this morning, “just give me a crack at the reader with a bias toward American-made autos. I have a bone to pick with him/her AND the U.S. auto industry, particularly Ford. Back in the 1980s, when Ford came out with the Taurus, I was talked into buying one, as my father-in-law had worked for Ford. I’ll save you the long, sad tale but bottom line, the car literally fell apart at the seams with me having to pour hundreds of my hard-earned 1980s dollars into fixing the hunk of junk. When we traded it in, to get rid of it, the car had not even broken 90,000 miles and the dealership we dealt with was embarrassed it couldn’t offer but just $75 for it on trade-in. We didn’t bother to tell them we were inwardly thrilled to not have to pay them to take it off our hands!

“I say all this to make my point that during the entire time we had problems with the American ‘Made With Pride’ piece of junk, I contacted Ford dealerships, spoke with personnel at the Hapeville plant that built the Taurus and even wrote to HQ in Michigan. Their response? Lots and lots of sympathy, but ZERO results. I swore then I would N-E-V-E-R in my lifetime buy another Ford product. The next new car I purchased was a 1993 Honda Civic VX, which I still drive for a 120-mile per day commute. It gets 40 miles per gallon on average and is approaching 300,000 miles! Best damn investment I EVER made!
 
“So anytime a ‘fellow American’ talks to me about poor-mouthing American automakers, I let ‘em have it. As far as I’m concerned, Ford and its employees STOLE money out of my pocket and put it into theirs because they didn’t make good on their part of the trade, and I don’t give a rat’s tail about how good their products are today — point being they owe me a car for free over a five-year period with ALL major repair work covered at THEIR expense, JUST TO BREAK EVEN, before earning a chance at being considered for future auto purchases.

“Well, Ford? (Silence.) Hmm, I didn’t think so. All four vehicles I own are Japanese made, and I couldn’t be happier! So don’t give me that ‘fellow American’ crap, you thieves! You did it to yourself, you idiots!”

The 5: Yikes…

  “There you go again throwing that xenophobia charge around,” writes another, apparently monitoring our use words that begin with the letter ‘x.’ “How is it xenophobic for the commenter who prefers his/her Cadillac CTS to challenge (with source citations) your contention that foreign cars are of better quality? Sure he/she is emotional, but you cherry-picked certain tangential claims made and focused instead on only part of the argument.

“I really am interested in how you see this as xenophobic. It seems, rather, that you have your own emotional knee-jerk reaction to anyone who might be challenging your quasireligious devotion to free trade and all that it entails, including, but not limited to, free labor trade and, thus, open borders. The arc of American history is not the whole of history. Yet you undoubtedly would characterize previous generations of Americans as morally deficient for their preference for things American, cultural and otherwise. But history is replete with examples of empires whose decline was at least partially caused by a refusal to engage in a little protectionism, again, cultural and otherwise.

“If markets were truly free worldwide, then perhaps your points would ring a little less hollow, but when it’s a one-way street, the lopsided current account balance and consumer- (rather than production-) based economy that we now have leads inexorably to said decline and implosion from within.”

The 5: Amen to that.

Addison Wiggin
The 5 Min. Forecast

P.S. This is your last chance to save a ton of money . Bulletin Board Elite is half off its normal price until midnight tonight. Get the details on this rare offer, here.  

  
P.P.S. And we have to pass on this little nugget: a feedback page for the RNC . Pretty telling.

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

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

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

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

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

  But never fear, Fannie Mae and Freddie Mac are back, and they’re ready to save the world.

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

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

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