• Markets manage another day of gains: Chart shows a Nasdaq on the canvas… but not out for the count
• George Soros on the unavoidable recession and a “radical realignment”
• If bond insurers lose their AAA ratings, what will be the cost? Barclays wagers its guess, below…
• Gold hits an all-time high… how China is more in control of the precious metal than ever before
• Zimbabwe unveils $10 million bill… street value: $3.90

Despite Nancy Pelosi’s best efforts, the markets suffered more choppy trading yesterday. The Dow managed to plum the negative no less than six times before finally settling in at +1%. The S&P 500 finished up about the same amount.

The Nasdaq managed to bank a 2% gain.

The Nasdaq is now down 17% from its late-October high. But, lest we fail to appease your inner chartist, we recognize the Nasdaq has managed to maintain its four-year uptrend:

The last two times the Nasdaq tested 2,300, it rebounded some 2,000 points within six months. Then again, this four-year up trend was preceded by a four-year downer courtesy of the tech bust.

Should the Nasdaq break through 2,300 this time… look for your favorite chartists to flee quickly.

“I am not convinced that the global market is done with the widespread selling,” our resource man Kevin Kerr chimes in. “Many of the commodities will probably lose more value. It’s very hard to say what will happen, because the volatility is so extreme that it’s tough to keep up. It is a very difficult time to trade, and I usually stay on the sidelines until the selling seems to be exhausted.

“The current crisis is the culmination of a super-boom that has lasted for more than 60 years,” adds the legendary investor George Soros in the Financial Times.

“The current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises [preceding the current crisis] were part of a larger boom-bust process…

“Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the U.S. Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realize that the Fed may no longer be in a position to do so.”

Mr. Soros is famous for having made a billion dollars in one day betting against the monetary foolishness of Britain’s elite back in 1992.

Soros

“Although a recession in the developed world is now more or less inevitable,” Soros continues on a different tack, “China, India and some of the oil-producing countries are in a very strong countertrend. So the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the U.S. and the rise of China and other countries in the developing world.

Should the credit ratings of insurers like Ambac and MBIA be knocked from their AAA thrones, banks worldwide would need to raise over $143 billion, analysts at Barclays estimated today. If the ratings community were to cut the debt ratings of Ambac and MBIA by one level, it would cost the banking community about $22 billion, Barclay’s estimated. Four levels, from AAA to A, would multiply that expense sixfold.

The total U.S. private equity war chest now exceeds $2 trillion. Private equity funds raised more than $500 billion last year alone, according to a report by Private Equity Intelligence. The total “enterprise value” of the private equity industry has grown to $2.4 trillion.

China became the world’s No. 1 gold producer in 2007, reports the English metals consultancy GFMS. China increased its gold output by 12% in 2007, to 276 metric tons of gold, taking South Africa’s place as the largest global gold producer.

“The Indian rupee has been steady at the wheel during all this dollar strength in the past 10 days,” reports Chuck Butler from the EverBank trading desk. During the dollar’s surprise rally this month, the rupee has held its ground at $0.0255. What’s more, the rupee’s been handing the dollar its hat for most of the last 12 months.

“I like the Indian rupee over the Chinese renminbi,” says Chuck. “I know, the renminbi is already up 1% in the first three weeks of this year. But at least the rupee floats. And the interest is better. And U.S. lawmakers aren’t beating on it all the time.”

If you didn’t catch it yesterday, our friends at EverBank just opened a new global investing portal on their site. You can learn more about diversifying your wealth outside of the dollar with Chuck and company by visiting EverBank’s Global Market Resources.

Monetary officials in Zimbabwe unveiled the $10 million bill this morning. Inflation is out of hand over there:

60 million Zimbabwe bucks… about $23 U.S.

According to the BBC, Zimbabwe’s incredible monetary decline over the last eight years has brought on an estimated 50,000% inflation rate. The new $10 million bill will be little more than a tiny bandage on a gaping, festering wound. Halting the Zimbabwean dollar’s nose dive to worthlessness is all but impossible.

The new bill is mostly “designed” to elevate pressure on banks, which are unable to keep up with monetary demand. Queues form around the corner of banks every morning, and most are out of cash by lunch. At a black market exchange rate of around US$1 per 2.5 million Zimbabwe bucks…. there’s not enough paper bills to fill the demand.

Light sweet crude rebounded yesterday up to $90. Traders must be expecting at least 10% of those $600 “stimulus” checks will be squandered at the pump.

“Can anyone say ‘intervention’?” asks a reader “Or how about ‘manipulation’? Of course, we all know what’s afoot. It’s a little group called the Plunge Protection Team. Manipulation or intervention, or whatever one wants to call it, it only makes the situation worse in the long run and makes the inevitable ‘correction’ that much worse when it does finally happen.”

The 5 responds: It’s easy on a day like Wednesday to believe there’s a Plunge Protection Team in place ready, willing and capable of saving the day. There are those who are convinced the gold price has been suppressed for years by a similar cabal, too.

“Even now,” writes a third, on the subject of another substantial fraud, “there might be a way to capitalize on Societe Generale’s colossal trading losses, albeit indirectly. Perhaps you could hire Mr. Kerviel as one of your editors.

The 5 responds: Now you’re talking,

P.S. Even if we don’t land a contract with Mr. Kerviel, the Strategic Short Report is a hot ticket during these turbulent market periods… open positions are still up an average of 74%. Don’t miss your chance to join.

• Trade deficit soars… how the latest reading is all the more remarkable
• Moody’s threatens to downgrade U.S. credit rating… Mayer on how the loss would be “far from symbolic”
• Bernanke speaks… equities, currencies and commodities react. Details below…
• Countrywide’s big bailout… World’s biggest bank to the rescue
• Plus, the $2,500 that might just change the world…

The U.S. trade deficit widened by a greater-than-expected margin yet again in November, the Commerce Department reported this morning. U.S. trade deficit rose by $63 billion, over $5 billion more than expected by economists.

That’s a 9% jump from the last month — the highest level since September 2006. Much of November’s deficit rise was attributed to record high oil prices — up 53% year over year.

The annual trade gap through the end of November swelled to $650 billion.

This huge deficit is made all the more remarkable by one fact: The U.S. has also enjoyed the ninth consecutive month of record high U.S. exports. Arthur Laffer and a slew of neocon economists would argue that growing exports and an expanding deficit are both symbols of economic prowess.

“The U.S. credit rating is at risk,” reports Chris Mayer this morning.

Citing a Moody’s report yesterday, Mayer suggests what we’ve tried diligently to document in our documentary. According to Moody’s, unless the U.S. can curb booming health care and Social Security spending, it could lose its AAA credit rating by 2017. If the government were to lose the ranking — which it has held since 1917 — confidence in the U.S.’s ability to pay back debts will be seriously damaged, and the U.S. economy could face a ginormous slowdown.

“When I read stories like this, it makes it harder than usual to stomach election-year politics. Is anyone paying attention to how much the government spends? Maybe with the market tanking, people will start to think about money again… and look less graciously on those who spend it so carelessly.”

“We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,” said Fed chairman Ben Bernanke in prepared remarks yesterday. While Bernanke reiterated that the Fed does not believe the economy will slip into recession, few could disagree that this was his most bearish outlook to date.

And for what it’s worth, “substantive additional action,” was completely interpreted by Wall Street as at least a 50 bps rate cut. Futures listed on the Chicago Board of Trade now price a 92% chance that the Fed cuts by 50 bps on Jan. 30.

Bernanke’s comments saved the market yesterday. Within seconds of the breath leaving his yap, the Dow recovered from 100 points down… and ended the day 1% higher. Wall Street sure loves an accommodating Fed chairman.

Another bit of news helped spur the rally, too. Bank of America will buy Countrywide for $4 billion, or about 7 bucks per share, the bank confirmed this morning. By acquiring Countrywide’s portfolio of mortgages, BoA will become, by far, the biggest mortgage lender in the country. According to third-quarter origination stats from MortgageDaily.com, the bank now controls $142 billion in home equity financings. Wells Fargo takes second place, at $68 billion.

Merrill Lynch will announce an additional $15 billion write-down in its earnings statement next week, reports The New York Times. Even the bravest of Wall Street analysts had predicted no more than $12 billion in additional fourth-quarter write-downs for the bank. Don’t be surprised when Merrill announces worse-than-expected fourth-quarter losses as well.

Currency traders heard Bernanke’s speech too… and sold the dollar off in droves. The dollar index, seemingly on the verge of a small rally, fell off a cliff:

Aided by the European Central Bank’s decision to hold rates steady, the euro marched from $1.46 back to $1.48. The yen crept up to 108. Even the Swiss franc enjoyed the ride… it’s heading toward parity with the U.S. dollar too. Currently, the creamy chocolate franc trades for 91 cents.

The pound has broken ranks with the dollar entirely.

Since November, the pound’s gone nowhere but down, falling a dramatic 16 cents in about two months. As our friend Chuck Butler put it in today’s Daily Pfennig, the pound “has been beaten like a rented mule lately.”

 

Gold saw the last visible effect of Bernanke’s comments yesterday. Speculators drove the spot price as high as $897… it has since steadied, trading between $890-895.

Indian automaker Tata unveiled the Nano yesterday, quite possibly the world’s least expensive car. For a about $2,500 bucks, this beauty could be yours:

Labeled “the people’s car,” the Nano will be made and produced almost exclusively in India. Tata estimates seven of every 1,000 Indians own a car. With 1.1 billion people in the country… looks like the market could be huge.

Make no mistake, Indians will get what they’ll pay for… the Nano comes equipped with a 0.6 liter engine, a top speed of 60 mph, no air bags, no passenger-side mirror, no power steering, no radio, no A.C. and one windshield wiper.

Tata plans on making 250,000 Nanos by July 2009, and if successful, plans to market the car in Latin America, Southeast Asia and Africa. In a related note, Tata is also a leading candidate in line to take Jaguar and Land Rover off Ford’s hands. Heh… interesting times.

We’ve been in and out of Tata a few times for good money. With this news hitting the major media and the Indian market as frothy as it is, we’d be wary of buying again right now. But it’s definitely a stock worth watching.

“Beats me,” writes a reader, “why any firm would want to pander to Tony Blair’s vanity and egomania by employing him part time to the tune of a (reported) $500,000 per year. Doesn’t JPM have enough so-called experts?”

The 5 responds: Hmmn… we invited Tony Blair to be in our movie, too. It wasn’t necessarily for his expertise.

“Wall Street’s biggest brat, Jim Cramer,” writes a reader “was on the Today show in Fluff-merica yesterday wearing his biggest pouty face. His latest railing? We should be as indignant as he is because Fed governors aren’t elected officials. All this, I suspect, because his pals on the Street haven’t been bailed far enough out by more and more rate cuts.

“Funny, I don’t remember hearing about the need to turn these into elected positions when rates were dropping precipitously.

P.S. You’ve got just a few more days to take advantage of our three-month trial offer of Energy & Scarcity Investor. ESI features the fast-moving small-cap energy plays of our oil adviser Byron King. Check it out now,
before we hike the prices on Monday.