76,120 Americans filed for bankruptcy in February — a 15% rise from January.

Personal bankruptcy filings, says the American Bankruptcy Institute, are now at their highest level since 2005. Business bankruptcies shot up as well, to a four-month high of 4,326.

Total personal filings surged to an incredible 800,000 last year. The institute estimates a million people will file this year. That’s a lot.

Adding to the discomfort, foreclosures and mortgage delinquencies continue to rise. And home prices continue to fall.

“In this environment,” Ben Bernanke suggested yesterday, offering what is possibly the most bizarre intervention strategy ever to be recommended north of Venezuela, “principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.”

Say what?!

“The fact that many troubled borrowers have little or no equity suggests that greater use of principal write-downs or short payoffs, perhaps with shared appreciation features, would be in the best interest of both borrowers and lenders.”

Translation: Because banks made bad loans to people who can’t repay, they should be willing to accept less money back. It’s in the best interest of both lenders and borrowers to reduce the amount borrowed… and the amount to be paid back.

This is crazy. Bernanke wants a “Mulligan” — a “do-over” — for the whole housing bubble. Remember all the rising prices we were fired up over about two years ago? The very “engine of economic growth” in the country — nay, in the world? Just forget about them. They never happened.

Oy.

Surprisingly, markets saw right through Bernanke’s plan.

As the chairman spoke yesterday, the Dow hemorrhaged a good 200 points. Along with some bad news for Citigroup, it looked like a serious case of collective angina in the trading pits.

But a unnamed consortium of banks administered the Pepto-Bismol — word leaked that a bailout for bond insurer Ambac could arrive as soon as the closing bell — the Dow and S&P 500 rallied back to near break-even.

The Nasdaq finished in the black.

“I consider the perception that the Fed is pursuing a cheap-money strategy,” commented Dallas Fed President Richard Fisher in a speech yesterday, “to be a paramount risk to the long-term welfare of the U.S. economy.”

For his part, Fisher is officially tapped out. He pledged he will heretofore urge his Fed brethren to stop cutting rates.

“We cannot,” he said, “in my opinion, confidently assume that slower U.S. economic growth will quell U.S. inflation and, more important, keep inflationary expectations anchored. Containing inflation is the purpose of the ship I crew for, and if a temporary economic slowdown is what we must endure while we achieve that purpose, then it is, in my opinion, a burden we must bear, however politically inconvenient.”

Good for him.

“The primary task for macroeconomic regulation this year,” said Chinese Premier Wen Jiabao, addressing the equal and opposite reaction on the other side of the planet, “is to prevent fast economic growth from becoming overheated growth and keep structural price increases from turning into significant inflation.”

In his annual policy speech to China’s legislators, Wen clearly labeled rising commodity prices and subsequent food shortages as China’s No. 1 policy issue for 2008.

“Chinese inflation indexes are heavily weighted to food prices,” says Christopher Hancock of Free Market Investor. “Price controls are a short-term solution. Going forward, yuan appreciation would go a long way to alleviate this problem, as commodity imports would be cheaper.

“Export dependence has thwarted policy. But Chinese dependence on an export economy is waning. The World Bank’s latest China Quarterly Update suggests that net exports contributed only 0.4 percentage points to GDP growth in the year to the fourth quarter of 2007.

“Domestic demand, not exports, contributed 10.8 percentage points of the 11.2% growth rate.”

In a related vein, China’s largest state-owned bank bought a 20% stake in South Africa’s biggest financial institution this morning. The Industrial and Commercial Bank of China paid nearly $5 billion for its new stake in South Africa’s Standard Bank.

Standard Bank operates in 38 nations, mostly in Africa, and will surely provide China an interesting partnership in what we can only guess is a Chinese effort to begin extracting the huge bounty of African resources.

China is now the largest Standard Bank shareholder.

As we suspected would happened, the dollar found a temporary foothold in the slippery walls of the monetary abyss yesterday. The dollar index inched up slightly from Tuesday’s all-time low of 73.3 to just short of 74. We know, hardly a rally… but these days, you’ve gotta take what you can get.

The euro, pound and yen all backed off by very small margins. Prices this morning are around $1.52, $1.98 and 103, respectively. The loonie rallied to regain parity… $1.00 on the dot.

We note the Canadian dollar retained its parity with the U.S. dollar despite a surprise 50-point rate cut by the Bank of Canada yesterday. BOC Gov. Mark Carney noted that further reductions might be needed as U.S. exports slump.

“The Canadian dollar looks like it will stay trading right around parity with the U.S. dollar,” notes Chris Gaffney in The Daily Pfennig, “as both administrations seem happy with this level. With a majority of exports flowing south into the U.S., I would expect the BOC to mirror any further rate cuts by the FOMC and the Canadian dollar to stay stuck at the current levels for the near term.”

Nothing puts a point on the uncertainty of markets these past few days better than a look at the spot price of gold.

“It was time for a breather,” our friend Doug Casey wrote yesterday after gold fell for the first time in six sessions, silver for the first time in 11.

But as we write this morning, it’s skyrocketing back to new highs of $993. Could today be the day for gold $1,000?

Oil, too, shed nearly four bucks, to close yesterday at $99 per barrel. But as of this writing, it’s right back up to $104, a new all time high.

OPEC officials chose to leave global oil production as is, the group announced after its meeting today. In spite of pleas from the U.S. and Japan, the cartel will not alter its production schedule, claiming that crude stockpiles were well within their five-year average.

In fact, “I would prefer in this situation to lower production because demand globally is going to be lower,” said OPEC president and Algerian oil minister Chakib Khelil. Presidents from Algeria, Iran and Venezuela all called for OPEC to cut its production.

“Understand the consequences of high energy prices,” commanded President Bush in a speech directed to OPEC officials yesterday. “I think it’s a mistake to have your biggest customers’ economies slowing down as a result of higher energy prices.”

Hey, he’s right. In America, the customer is always right, right?

Heh. Go, Dubya.

U.S. gas prices increased again yesterday, too. The average price now stands at $3.18, a nickel shy of its all-time high.

Soft commodities, however, took a hit. Grains like corn, wheat and soybeans all backed off recent highs yesterday.

“A sign of a healthy market is a correction that comes during overbought conditions,” Kevin Kerr reminds us. “That’s what we got today; nothing more, nothing less. What you need to focus on now is which profits to grab and which to let ride back up — and most importantly, which commodities offer good value to establish new long positions.”

For what its worth, Kevin and his Resource Trader Alert readers have recently pocketed profits in silver and sugar… both around 200% gains. He’s also headlining a group of products we call the Resource Reserve, which is comprised of Outstanding Investments, Resource Trader Alert, Energy & Scarcity Investor and our soon-to-be-released Gold and Options Trader. Together, these services provide a comprehensive strategy for playing the booming energy and resource markets… details on your discounted Resource Reserve offer are coming soon. Look for them.

Also, if you’re looking to place bets on the rise and fall of food prices across the world, here’s a new chance:

UBS unveils the UBS Bloomberg Constant Maturity Commodity Food Index today. The Index will track 13 commodities directly linked to human food consumption. Stewards of the index note that this is the first commodities index that directly targets food prices, and as such, raw materials not found in other indexes, like red winter wheat, cocoa, orange juice and lean hogs, will be included.

“Why worry about the price of gasoline now?” asks a reader. “Let’s remember, it’s an election year. Big Oil wants Republicans in office, and two years ago, gasoline prices dropped under $2, just in time for the elections.

“No wonder Bush never considered that prices could go that high while he is in office. They went back up by over 50% within six months, and if the pattern repeats, we will have big problems for 2009, but we can look forward to a break in the meantime. We just have to stop driving from now until October.”

The 5: Heh.

“You spend a lot of time talking about the loss of purchasing power of the dollar,” notes another reader. “And rightly so. Therefore, I fail to see the problem with anyone spending dollars as quickly as possible and incurring debt. That dollar spent today will be worth less, if not worthless, tomorrow, and the dollar repaid will be of lower value than the dollar borrowed.

“Can’t have the argument both ways.”

The 5 responds: Not sure how we’re having the argument both ways. We’re lamenting the demise and the futility of saving at the same time. People who save and invest build wealth over time. If you spend and borrow and spend more — especially because the currency in which you’re spending in is losing purchasing power — that’s hardly a recipe for prosperity.

“I enjoyed your use of a Bob Dylan quote today,” says another reader about yesterday’s edition, “but an equally good one is:

“Maybe someday, you will understand
That something for nothing is everybody’s plan.”

Best regards,

Addison Wiggin
The 5 Min. Forecast

P.S. “How do I get a copy of I.O.U.S.A.?” remains our most FAQ in the 5’s inbox. We’re still finishing the movie, doing our best to bring it to a big screen near you in time for the election. DVDs and a book about “the making of,” too. Please bear with us while we work out the kinks… we think it’ll be worth the wait.

In the meantime, perhaps you’d like to check out this podcast from zoom-in.com… they just posted it this morning. Patrick, David, Bob and I did the interview during a brunch we hosted at Sundance.

P.P.S. The speaker invitations… the theme… the sponsors… all sent and ready to roll.
In light of your daily briefings here in The 5… we were hard pressed to identify a more urgent and important topic than this year’s symposium in Vancouver. Get all the details here. Sign up soon… space is very limited.

We begin today with another benchmark for your kitchen calendar: March 3, 2008 — most expensive oil price in the history of human civilization.

Light, sweet crude briefly touched $103.95 yesterday… its first inflation-adjusted historical high since 1980.

Courtesy of The New York Times:

In dollars, the 1980 high was just below $40 a barrel. But as you can see, $40 ain’t what it used to be.

“In 2007, the United States imported $331 billion worth of crude oil,” comments our oilman Byron King, citing a Department of Energy report, “at an average price of $64.25 per barrel. If the U.S. imports crude oil in 2008 at an average price of about $95 per barrel, the annual import bill could jump by about $150 billion or more, to $580-600 billion.

“That would be larger than the entire budget for the Department of Defense.

“This hemorrhage of currency will, of course, negate any effect of the Bush-Congress economic stimulus package, of about $152 billion value.”

Who could have seen that coming?

In kind, the dollar bled all day yesterday and into this morning. The dollar index dribbled down to a new all-time low of 73.3. The yen is still having its way with greenbacks… the Nipponese currency climbed on top, to 102, during the night. The euro watched and enjoyed its way further up, to $1.52.

“I think the only thing the dollar has going for it these days,” says EverBank’s Chuck Butler, “is the hope that the European Central Bank tries to play catch-up with the Fed regarding rate cuts. I don’t think the ECB will do that. But it will, most likely, cut rates this spring… probably in May. So… When that happens, it just might be a buying opportunity.”

“The dollar’s going to get weaker over time,” Warren Buffett told reporters yesterday, following the release of the Berkshire shareholders letter. “The government can talk about how it’s in our interest to have a strong dollar, but we’re not following policies that lead to that. [A weak dollar] is just a consequence [of government policy], and it’ll just continue to be.

“If you do the same thing over and over again, you’re going to get the same result… and we are doing the same thing now that we were doing two, three, five years ago, and the dollar will weaken in an irregular basis, in my view, for some time to come.”

Amen.

The stock market swooned on petty rumors yesterday.

Out of the gate, the ISM manufacturing data we discussed tripped markets up and down. They went a full 1%. But then whispers of another “secret, closed-door Fed meeting” drove markets wild. Up they rallied… but then… it turns out the meeting was actually just the same old boring regularly scheduled drivel fest the Fed usually conducts.

“Nothing out of the ordinary,” said Fed spokespeople.

A fickle bunch, floor traders smirked. After they’d slithered off for the day, the Dow and S&P 500 ended right where they started, and the Nasdaq fell 0.6%.

It’s going to take “a lot more money” to rescue Citigroup and U.S. banks, suggested Sameer al-Ansari today, CEO of Dubai International Capital.

The head of the UAE sovereign wealth fund was referring to the $23 billion in capital injections Citi has already received from SWFs in Dubai, Kuwait and Singapore. How much is “a lot more”? We think you’ll find out soon, and so will Merrill Lynch:

Citigroup will post another loss in its first quarter, analysts from Merrill Lynch predicted this morning, and take more “big write–downs.” Merrill has slashed its earnings estimate for Citi to a loss of $1.66 per share this quarter.

Citi shares plummeted to a nine-year low on the warning. If this keeps up, it might soon be a good time to buy. But not yet.

2007 brought you terms like “ARM,” “CDO” and “SIV”… here’s one for 2008: pay option loan (POL).

The pay option loan is a variation on the ARM in which the borrower can choose how much they can pay toward their mortgage each month. The loans allow you as the borrower to pay less each month if the going gets tough. Fair enough.

Trouble is, if you pay the minimum enough times, you’ll come up short of the interest owed, the remainder of which gets added to your principal. Enough of that… and you’ve got a noticeably larger mortgage than you first signed up for… with the adjustable rates about to kick in. Fun, eh?

Yeah.

Our friends at Countrywide filed an SEC report on Friday admitting they hold $29 billion worth of POLs… $26 billion of which have already grown beyond the amount of the original loan. More than eight out of 10 of these loans were made to borrowers who provided little to no income documentation. As of December, seven out of 10 of them were electing to pay less than interest-only payments.

Good grief… three guesses as to what happens next.

The Canadian government reported this morning that its economy grew less than a percent in the fourth quarter… which was a shock to some, given the commodities boom and the soaring Canadian dollar. For the year, the economy grew an anemic 2.7%.

The loonie lost parity on the news, down to 98 cents against the dollar this morning.

On cue, The Royal Bank of Canada posted the worst Canadian write-down since the start of the subprime banking massacre yesterday… a whopping C$187 million.

Not to make light of a couple hundred million bucks, but c’mon. If that’s as bad as it gets up there, you’ll never shake your moniker: United States Lite. Let’s get with it, eh?

Gold spiked to another new record high yesterday, this time to $989. Not coincidentally, the precious metal peaked the very moment the dollar index attained its latest record low. Also, as with the dollar, gold backed off its latest record this morning, and trades for about $983.

“If you’re worried about the U.S. economy,” says Kevin Kerr, “buy gold. If you’re not worried about the Chinese economy, buy some more gold.

“Gold demand in China relative to GDP is about five times higher than in the U.S. Also, for several years, Yu Yongding, a committee member of the People’s Bank of China, has advised that China use its foreign currency reserves — the largest in the world — to buy gold. He’s not the only one. Other Chinese economists are urging their government to QUADRUPLE the nation’s gold reserves.”

As we’ve noted here in The 5, China reports that less than 1% of its $600 billion in reserves are held in gold. Should the country move even a fraction of the trillion-plus in dollar reserves it has into gold, you could see a spike of historical proportions.

The CRB Spot Index, the historic global benchmark for commodities, jumped 12% in February – its highest leap since July 1974, when “stagflation” was making its debut as a buzzword for wonks. What’s more, the index is up 15% already in 2008 — its best two-month opener since Eisenhower was working on the Interstate Highway System 52 years ago.

“The American economy is definitely slowing,” comments Chris Mayer to his Special Situations readers. “Whether it is or isn’t actually contracting is a matter of debate. Just looking at how companies are doing, it’s not hard to see that North American operations are off. Overseas, though, it’s a different story. Companies with operations in China or India report that business is good. The booming CRB index is proof of that.

“So it’s an interesting market for investors here in the U.S. Sometimes, it’s like picking over a minefield, because the price swings seem so great. But it’s that volatility that creates room for the stock picker to operate.”

Mr. Mayer’s new release, Invest Like a Dealmaker, is topping the charts this morning… No. 1 on both Barnes & Noble’s and Amazon’s business lists. If you’re inclined to read books, there is no easier way to get insights from the finest value investors of our time.

You may recall we’ve mentioned the water war brewing in the Southern U.S.. For the past two years, the Georgian government has been “illegally” damning up extra water to support a booming Atlanta population — water that would otherwise have flowed to cities in Florida and Alabama.

The Army Corps of Engineers announced this morning they failed to broker a negotiation between Georgia, Alabama and Florida. Now Army engineers will employ a water-rationing plan handed down by the federal government. We predict this will get a whole lot more interesting before it rains.

“Based on my personal experience with friends,” writes a reader, “as long as we Americans have a dollar in our pocket — a single dollar — we will spend it. No matter how poor one’s financial condition, no matter how large one’s financial responsibilities/commitments loom, consumer spending will increase as long as there is a dollar left to spend. This is the pathetic truth. When that last dollar is spent — then and only then will consumer spending plummet.”

The 5 responds: The past two “recessions” prove consumers will go even further than that. They’ll spend the last dollar and any on loan from a credit card banks offering instant gratification near you.

“By the way, I rate your services a perfect 10 out of 10 — you guys are great!”

The 5 responds, again: Gracias. You flatter us.

“As Bob Dylan said, ‘When you ain’t got nothin’, you got nothin’ to lose…’” a reader reminded us after we witnessed two frame store clerks casually discussing the annihilation of the middle class.

“I think that woman showed great perception and insight with her comments. The impact of rising food and energy costs will utterly destroy the standard of living of many middle-class families, many of whom already can’t afford health insurance unless their employer provides it — an increasingly rare occurrence. A middle class will remain in name only, with a lifestyle similar to that of the lower middle class of the 1950s and 1960s that I grew up in — no home ownership, no vacations, almost no discretionary income, living paycheck to paycheck.”

The 5: This time around, however, Americans will be experiencing a first: the prospect of shrinking paychecks, rather than growing ones… and a diminishing return on those dollars comprised within.

Cheers,

Addison Wiggin,
The 5 Min. Forecast

P.S. Today is the birthday of the nation. The Constitution was ratified on March 4, 1789. For many years, it was also the day that new presidents were sworn in — that is, until rapid transportation made it possible for the electorate to oust the outgoing louse 43 days earlier.

It’s also your eldest editor’s birthday today. For a present, his wife scheduled a physical with a new physician. At his age, you know what’s included in the battery of tests… ahem. Thank you, ma’am, are we supposed to hug now?