5 Min. Forecast » Russia

U.S. Debt In Foreign Hands, Russia to Buy Fannie and Freddie, Financials to Fall Again, and More!

admin — Fri, 22 Feb 2008 19:39:39 +0000

Surprising data: U.S. debt still has takers… is our democracy doomed?
Russian SWFs get OK to invest in America… but only in the two worst stocks on the market
Analyst that predicated the January financials plunge calls for 15-50% more losses
How a Philadelphia survey might herald an entire U.S. manufacturing decline
U.S. markets fall again… an atypical chart shows the Dow deep into an 8-year bear market

Here’s some interesting news. The Chinese bought more U.S. debt in December than they sold… the first time they’ve done so since before the credit crisis began last July.

Mainland China upped its stake in American debt during the month by nearly $20 billion, to $405 billion. Thus, surprisingly, China has brought U.S. Treasury holdings back to pre-credit crisis levels.

Also interesting, Brazil more than doubled its stake in U.S. debt last year, from $53 billion to $126 billion.

As we hasten to note nearly every time this data is released, the number of Treasury notes owned by foreign governments is breathtaking. Even though Japan has been a net seller for the last six months, Japan, China, the U.K. and Brazil own over $1.4 trillion in U.S. Treasuries themselves.

“Can democracy survive when its financial roots have been cut?” asked the economist James Galbraith back in 2006. “The American citizenry has lost its pride of place as creditor of the American state. The proportion of U.S. debt owned directly by Americans has fallen to below 10%; in 1945 (when the debt was more than twice as large in relation to GDP as now), citizen-creditors just about held it all.”

Combined, financial institutions and foreign nations now own over 70% of U.S. debt.

“The scale of public debt is not the issue,” contends Galbraith, “but its ownership is. Can a country — whether the United States or any other — be truly democratic if it is in hock to banks and foreigners?”

“We no longer ‘owe it to ourselves,’ as FDR used to say,” opines our Byron King. “The banks and overseas creditors have hijacked the bond process. The citizens have little direct stake in the U.S. government, certainly not as bondholders. And more than half of all citizens pay no taxes at all. Over 50% of all taxes are paid by the wealthiest 3% of households; 90% of all taxes are paid by the wealthiest 10%.

“I guess the amounts of money were just too large for the citizenry to continue to buy bonds and keep a financial stake in the health of the government. So with no financial stake in their own government, it’s all about ‘I get mine.’ From pork at the congressional level to ‘what benefits can I get?’ at the personal. Heck, everyone wants their check from the government. Hey, where’s mine?

“We’re doomed.”

The Russian government has given two sovereign wealth funds worth $157 billion the green light to begin buying bonds of foreign government agencies. The Russian Finance Ministry told its SWFs yesterday that 15% of their funds can now be used to buy the debt of 15 different international government-backed companies.

Most interesting to us, the Russian funds will now be allowed to buy debt of two U.S. companies — Freddie Mac and Fannie Mae. Oy… we hope they know what they’re getting into.

The other 85% will be used to purchase sovereign debt.

Meredith Whitney, the Oppenheimer analyst who outed Citigroup back in November, has issued another sell signal for banks yesterday.

A day after Whitney’s November warning, Citigroup stock fell 7% and the Dow shed 2.6%. Soon after, Citi cut its dividend by 41%, and has lost about 30% of its “value.” At the time, Whitney’s alert was rewarded with death threats from investors in the stock.

If you’re a Citi shareholder, grab your latex gloves and start cutting out letters from the newspaper. There’s more pain to come: “The best-case downside scenario,” Whitney told CNBC, “is that there is a 15% downside in the financials; worst case is 50%.” Whitney also speculated that Citi will soon need to cut its dividend again and raise much more capital to cover write-downs.

Bond insurer MBIA withdrew from its industry trade group — the Association of Financial Guaranty Insurers — yesterday. Ironically, MBIA chieftains claim that the industry must begin separating the business of insuring muni bonds from insuring riskier assets like CDOs and asset-backed securities.

“It is up to us to shape our future,” said newly crowned MBIA CEO Jay Brown, “in a way that we believe is most responsive to the markets, our policyholders and our owners, and we must do so without the constraints of participation in an industry association that does not always share our views.”

Food prices will rise 3-4% in 2008, predicted the U.S. Department of Agriculture’s chief economist Joseph Glauber yesterday. Should his prediction come true, that would spell a whopping 8% inflation rate for food since January 2007.

“While the ethanol boom can be expected to bring higher incomes to farmers and reduce government outlays for farm programs,” Glauber suggested at the USDA annual outlook conference, “it will also contribute to higher crop and livestock prices… Overall retail food prices for 2008-2010 are expected to rise faster than the general inflation rate.”

“There’s going to be real food inflation in this country,” added C. Larry Pope, CEO of Smithfield Foods. “I think we need to tell the American consumer that things are going up. We’re seeing cost increases that we’ve never seen in our business.”

Ahh… Inflation, the hidden tax, continuing in a grocery store near you.

The Philadelphia Fed’s Manufacturing Index fell to minus 24 from minus 20 in January. Often seen as a precursor to the ISM’s manufacturing index — which we’ll see on March 3 — the Philly Fed’s index now lies at lows unseen since post-tech bust 2001.

In fact, the Fed division’s measurement of “six-month outlook” fell to minus 16.9. That’s the first negative reading since 2001 and the lowest since 1990. Traders have baked in a ISM report early next month… perhaps you should, too.

The dollar took that news on the chin… again. As the dollar index fell back to 75, the euro rose well into $1.48, about a cent short of its all-time high set in November. The pound and loonie recovered too, back up as high as $1.96 and 99 cents, respectively. The yen found its way back to 107.

Gold struck yet another record high yesterday, of $953 per ounce. The once and future money has gained over $40 this week alone. Since striking its new high, we note that the gold price has stayed in a tight rage between $945-950 in Asian and European trading overnight.

The stock market in the U.S. lost about 1.2% in yesterday’s trading session. The Philly Fed Index seemed to be the downer of the day… losers topped winners 3-to-1 on the NYSE. In spite of all the recent volatility and occasional market upswings, the Dow is now a mere 2.5% above its January low.

And for some broader perspective, check out this graph of the Dow priced in gold:

The Dow, priced in gold, has been a totally hopeless venture since the tech boom. In 2000, you would have needed 45 ounces of gold to buy one “share” in the Dow… today those 45 ounces would fetch you three times the number of Dow stocks.

We recall, working with Bill Bonner in 2000-2001, issuing the “Trade of the Decade: Sell the Dow, Buy Gold.” Eight years on, we’re feeling pretty good about that trade.

Across the Pacific, the Shanghai Composite fell again overnight, this time by 3.5%. We hear that many “lockup periods” among institutional shareholders — holding huge amounts of recent IPOs — will soon expire in China. Coupled with higher-than-usual share offerings from Chinese financial institutions, investors are bailing in fear that a flood of shares will soon hit the market with nary a buyer in sight.

Oil backed off a bit yesterday from its recent high of $101. Light sweet crude fell to $98 in New York yesterday on Energy Department reports of higher-than-expected crude inventories.

The U.S. government has reversed its decision to remove the economicindicators.gov site, reports the Commerce Department yesterday. “Given the feedback… received,” says the site, the government will continue to offer its listing of economic resources for free. As usual, we’ll attribute this victory solely to the power of The 5 and its readers.

Despite the government’s retraction, John Williams of shadowstats.com tells us he will still run an economic indicators site of his own, also for free. Like most other private ventures aimed at replacing a government-sponsored service, we suspect John’s will somehow be superior.

Check it out here.

“Have one of your researchers look up the Great Panic of 1907,” suggests a reader. “The current situation is very similar, but with more zeros in the numbers. Bank fraud, commodities corners, asset collapse. Unfortunately, J.P. Morgan is not alive to solve the problem this time.”

The 5 responds:
We mentioned the eerie similarities between 1907 and today back in September and January. Warren Buffett is probably the closest the U.S. has to a J.P. Morgan today, but while he may lend a hand in the muni bond arena, Berkshire Hathaway is a long way from having the funds to bail out the entire financial system. Buffett says as much in I.O.U.S.A..

“That reader was right,” writes a reader responding to yesterday’s debate. “THE money didn’t vanish. YOUR money vanished into someone else’s pocket. You had $70; now he has it. You were counting on somebody paying you maybe $100 down the road; now he wants to pay you 30 cents, which is the new value of your holdings. This is not ‘semantics’: it’s how to correctly state risk and outcome. Journalists are always asking what happened to THE money, probably because they never had any to lose.”

“The reader surmising that the vanishing $7.7 trillion,” another responds, “somehow ended up being transferred from banks to sovereign wealth funds must not have noticed that money flows only in the other direction.

“Make no mistake about it: SWFs get their money from U.S. consumers buying oil from Abu Dhabi and rubber dog crap or Pocket Fishermen from China. If you don’t like it, then stop buying gas for your car, plastics and other oil-derived products, and anything manufactured in China.

“I hear the Amish make killer wooden toys.”

“The reader who thinks somebody still holds the ‘other side of the trade,’” comments a third, “in the vanishing $7.7 trillion is also failing to consider the multiplying effects of leverage and credit. I’ll buy $1 billion of your paper by putting up $200 million (or so) of my cash in an asset-backed security, giving you $800 million, while at the same time, I’ll sell the $1 billion of paper for $1.1 billion and collect $220 million cash and take my buyers $980 million ABS.

“I’ll be sure to buy a credit default swap from somebody to be sure I get my money and I can pay my seller. The guy I sold to has probably sold again, and then again, etc., etc., until we get about $1 trillion. Pretty soon, all that “the other side of the trade” is holding as real value is the down payments on the deals, while all the credit portions of the deals vaporize.”

Have a nice weekend,

Addison Wiggin
The 5 Min. Forecast

P.S. Are you enjoying your 173% gain? Back in October, in your complimentary issue of Strategic Short Report, Dan Amoss recommended you short Systemax, a computer retailer on the verge of collapse. Last month, just about three months later, Dan recommended you end your short position in Systemax… for a sweet 173% return. During that same period, the Dow fell over 10%. Not too shabby, eh?

The beta issues of Strategic Short Report generated such positive response — and handsome gains — that we’re currently offering three additional months for free. Click here to learn more.

P.P.S. “For most investors, the surest way to profit from the weakening U.S. dollar is to invest directly in strong currencies and their certificates of deposit (CDs)…” Who said it and why? Check it out here.

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Insane New U.S. Budget, Jim Rogers on Crisis and Opportunity, 11 Reasons to Buy Gold, Platinum Soars, and More!

admin — Mon, 04 Feb 2008 17:08:58 +0000

by Addison Wiggin & Ian Mathias

Bush reveals his final budget… really, has he lost his mind?
Jim Rogers on why he’s “extremely worried.” Plus, the buying opportunity that has him “gearing up”
Markets stage best week since 2003… John Williams on what may be around the bend
Ed Bugos with 11 damn good reasons to buy gold
Kevin Kerr on the latest booming commodity… and how it could wreck your Valentine’s Day

Bush must be pathological. There can be no other explanation.

After chastising Congress for earmarks and pork barrel spending in his State of the Union address last week, the president unveiled the first ever $3 trillion budget proposal today. $3.1 trillion to be exact, but who’s counting the extra billions these days?

The man who once promised a more humble foreign policy and championed “compassionate conservatism” is now responsible for the first $2 trillion (2002) and $3 trillion (2009) government budgets… which is nothing short of incredible. It took his predecessors 200 years to reach the first $1 trillion in 1987.

What’s more, after repeating his promise to balance the budget by 2012, Bush announced the second and third largest deficits in the nation’s history. The $410 billion deficit projected for this year and the $407 billion projected for 2009 will be surpassed only by his $413 billion deficit four years ago. By what fuzzy math this is heading toward “balanced,” we cannot even hazard a guess.

“These are not insignificant changes,” Paul O’Neill comments in I.O.U.S.A. of Bush’s uncanny ability to add to the national debt. “These are monumental changes.”

“When you’re no longer able to service your debt,” O’Neill warns, “you’re finished.”

“I’m extremely worried,” our friend Jim Rogers told Fortune magazine over the weekend. “I just see things getting much worse this time around than I expected.

“Conceivably, we could have just had recession, hard times, sliding dollar, inflation, etc., but I’m afraid it’s going to be much worse,” he says. “Bernanke is printing huge amounts of money. He’s out of control, and the Fed is out of control. We are probably going to have one of the worst recessions we’ve had since the Second World War. It’s not a good scene.”

“I’m delighted to see what’s happening in Shanghai and Hong Kong,” Rogers said of the recent 20% pullback in many Asian markets. “As I’ve said, if things hadn’t cooled off, the Chinese market was in danger of turning into a bubble. I find this most encouraging… I would suspect the correction isn’t quite over in China. But I’m gearing up. I didn’t put in any orders for tomorrow, but I’m starting to prepare my list of things to buy in China. Whether I buy this week or this month or this quarter, who knows. But I’m starting to think about buying new shares in China for the first time in a while. And I’m not thinking about buying in America.”

U.S. benchmarks finished up about 1% or so on Friday, ending a week of big gains on Wall Street. Traders seemed mostly unfazed by the first monthly job loss reported by the BLS in four years. Microsoft’s bid for Yahoo and more whispers of bond insurer bailouts captured investor attention, and thus another day of gains for U.S. investors.

For the week, the Dow rose 4.4%, while the S&P shot up just short of 5%. That’s the best weekly performance for both indexes since March 2003. The Nasdaq posted a jump of its own, up 3.8%, its best week in 18 months.

And the good vibes spread to Asia, where markets are sharply up this morning. The Shanghai Composite gained over 6%, while benchmarks in Hong Kong and Japan rose about 3%.

Over 302,000 “investors” tuned in to CNBC during business hours in the month of January, the best month for the network since September 2001. From 5 a.m.-7 p.m. all month, the nation’s most popular business network had 28% more viewers compared with January 2007.

Proof, perhaps, that people care about their money only when they are losing it.

After briefly dipping into a score of 74, the dollar index staged a small rally over the weekend. Now with a score of 75.3, the index is just short of 1 point from its all-time low… better than last week, but still frighteningly low. The euro still trades for $1.48. The pound lost a shilling, down to $1.97. The yen stood still at 106.

“With the Fed capitulating to stock market demands for easing,” advises John Williams of Shadowstats.com, “deterioration in the U.S. dollar should accelerate sharply. The general outlook for the months ahead, however, remains the same, with a deepening inflationary recession, a major bear stock market, heavy selling of the U.S. dollar, heavy buying of gold and an eventual flight to safety away from the greenback that will spike long-term interest rates.”

We too see a dollar ready to test new lows, as we explain in the second edition of Demise of the Dollar… due out in a month. As far as the greenback is concerned, we’ll keep a close eye on it this week. Both the European Central Bank and the Bank of England meet this week… stay tuned for their rate decisions and subsequent “guidance” statements.

Gold fell off a cliff on Friday, sliding from all-time highs of $936 to just barely above $900 this morning. Can you say, “buying opportunity”?

“I can think of 11 good reasons why it is still early to buy gold,” suggests our gold adviser Ed Bugos:

1 – Valuation — the most important, yet overlooked commodity on the board
2 – U.S. dollar still over-owned, diversification and/or new reserve currency still needed
3 – Worldwide gold reserves are stagnant and mine production is shrinking (peak gold)
4 – China’s gold and futures exchanges just now launching access to gold investments for retail investors
5 – No sign of an end to cheap money policies despite a sizeable inflationary threat
6 – Coming bear market in shares to provide extra fresh safe haven “liquidity”
7 – Seasonal trends are favorable until about May-June
8 – 2008 U.S. election uncertainty
9 – Geopolitical uncertainty / wild card
10 – U.S. budget deficit to widen on recession and current stimulus plan
11 – Confidence in Fed impaired as Bernanke seen to panic on latest rate cuts

We’ll consider today’s federal budget proposal and Jim Rogers’ and John Williams’ comments on the dollar above as reason Nos. 12 and 13.

“This Valentine’s Day,” writes our Kevin Kerr this morning, “the vast majority of men may put off buying that platinum anniversary or engagement ring and opt for roses or a box of chocolate.” Platinum prices have surged dramatically. Since Friday, April platinum has added $32, to $1,770 per ounce, in New York, a new record all-time high.

“The ultra-precious metals,” says Kevin, “are not a futures market for the squeamish, but for those brave enough, it can be some of the most lucrative trading around.

“The power outages in South Africa that drove platinum into the stratosphere,” Kevin notes, “didn’t just come out of the blue. The government knew it needed more power plants and that it had to lower power exports. (Hmmn. Sound familiar?) There is only so much juice to go around, after all, and mining (heavy-duty deep mining) takes a lot of juice.

“Many of the mining shares that are getting hit will most certainly rebound once this problem is resolved. The next two years are supposed to be the worst, and therefore are going to offer some very good buying opportunities for the longer term.

“Remember, South Africa is the world’s second largest gold producer and the absolutely the biggest platinum producer on the planet.”

“A great game of resource strategy just got a lot more intriguing,” writes Dan Denning from his perch down under, adding to our international intrigue today.

“Just days before BHP’s London deadline to make a formal offer for Rio Tinto, the Aluminum Corp. of China (Chinalco) swept in from the left flank to seize 12% of Rio’s U.K. listing. The $15.5 billion raid included an American wingman. Alcoa is a junior partner in the deal, and it gives Chinalco a 9% stake in Rio’s dual-listed corporate structure.

“Chinalco’s move gives it a seat at Rio’s table, and thus a voice in the ongoing negotiations between Australia’s two biggest mining stocks about their collective future.

“Not a bad weekend if you’re the China Development Bank, one of Chinalco’s financiers. And not a bad weekend if you’re a strategic policymaker in China. The move does not kill the prospect of an OPEC of iron ore-united Pilbara operations under the BHP banner. But it will force BHP to increase its offer for Rio, or recognize that it’s been outflanked by a strategic customer.”

Wesley Snipes was acquitted of felony charges of tax fraud and conspiracy last week.

You may remember our brief coverage of the new face of the anti-tax movement. Somehow, a judge bought his plea of ignorance. He was found guilty on three misdemeanor counts, which might involve a year or so of jail time.

But before you tear up your 2007 W-2… keep this in mind: Both of Snipes’ financial advisers were convicted of felony tax evasion and conspiracy and will do a spit more in the joint than the B-List movie star. And the IRS issued a statement immediately after the verdict: Snipes, despite his acquittal, still owes taxes on the $38 million he made from 1999-2004. Man, can’t a brother catch a break?

Snipes should have leveraged down on the Giants yesterday. According to the official Web site of the Professional Handicappers League, the “moneyline” on yesterday’s Super Bowl was +325 to +405 in favor of the Patriots.

So confident were the media — and the Patriots themselves — that this was going to be a blowout that every $1,000 you put down on a Giant’s win would have not only returned your initial stake, but up to $4,050 more. We suspect there are some very angry bookies out there this morning.

“You seem to be worried about the Chinese and Russians buying U.S. assets by the truckload,” notes one reader, “but isn’t that a good thing? First, it helps our economy, and second, it shows that at least some people have faith in the good old U.S., which I know you don’t. And also, the more other countries own the U.S., the less likely it is that they will do anything stupid militarily or otherwise, because they would also lose.

“You often say the Chinese may dump the dollar or use its military muscle against the U.S. in the future, but I don’t think so. If they did, who would buy their useless junk? It would be same as killing a golden goose…. which the U.S. is to them.

“Actually, this is an important point: Nationalism and separatism are how the world has operated, and this has been a problem before. But as the world gets more fused together, so that all the countries are joined at the hip, only then we will have a chance to lasting peace.”

The 5 responds: Au contraire. We’re grateful to the Chinese. Who else would lend us the money to keep up our spending? We’re grateful to the Russians, Singaporeans and the Abu Dhabites, too, for their massive sovereign wealth holdings. Who else would bail out the Wall Street banks as they take a bath on the homes we’ve moved into?

And if you read a little more carefully, you’d notice we were “taking the piss out of” (if you’ll pardon the British expression) those who think keeping the Chinese or the Russians or the Arabs out of the U.S. is a good idea right now.

“The fact that oil company (Shell, Exxon Mobil) profits are seen as ‘obscene’ or outrageous is a sad commentary on a ever more envious society,” opines another reader. “I don’t recall anyone feeling sorry for these same companies when they were struggling to make a profit with oil prices in the low teens. I certainly don’t remember the government looking to bail them out with the same fervor that they are suggesting punishing them now.

“Where is the anger toward the milk companies now that their commodity is up 29%? How about looking into excess profits and bloated salaries at colleges and universities as tuitions continue to skyrocket?

“Profit is profit. As long as it is garnered within the rules and laws that govern business, leave those that make profits alone. It’s those profits that drive our economy.”

The 5: The gentleman who called the profits “obscene” was a union rep in London. What else do you think he’s going to say? We’ve done quite well on our oil positions, thank you.

Oy,

Addison Wiggin,
The 5 Min. Forecast

P.S. Not only is it important to let the Chinese, Russians and sovereign wealth funds buy U.S. assets, but in some cases, it may provide you with the strategy you need to protect your own retirement over the next decade. For our report on this $2.5 trillion retirement fund, click here.

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Jan in Review, A Case for Gold, U.S. Predicts $225 Oil, Russian SWF, and More!

admin — Fri, 01 Feb 2008 19:56:19 +0000

by Addison Wiggin & Ian Mathias

Markets end January with a bang… why 2008’s first month was still a record bust
Gold creeps back to record highs… Frank Holmes on why gold remains an “attractive investment”
OPEC denies output boost, U.S. government prepares for $225 oil
Russia launches SWF… how baby boomers could learn a lesson from Mother Russia
Jobs report falls negative, far below expectations… why the latest BLS reading is even worse that it seems

U.S. markets capped off January with a nice rally yesterday. The Dow, S&P and Nasdaq all shot up 1.7%.

It must have been the huge loss posted by MBIA…or perhaps the worst consumer spending number in over a year… or maybe even the warning issued by S&P that it plans to cut its ratings on $534 billion more in CDOs and mortgage-backed securities.

One of these bits of cheery news surely lured “investors” back into stocks.

Alas, even with yesterday’s rally, January will go in the books as one of the worst in history. The Nasdaq finished the month down 10%, the worst January in the 37-year history of the exchange.

The Dow dropped 4.6%, its worst January since 2000. And the S&P 500 fell 6.9% — its lousiest year opener since 1990.

Microsoft offered up a $45 billion hostile takeover bid for Yahoo this morning. That ought to be fun to watch.

Gold has been the real story this month. After falling from Wednesday night’s all-time high of $936 per ounce, gold has crept back up to $934 this morning.

“Despite the assertions of some,” comments our friend and perennial Vancouver attendee Frank Holmes, “today’s gold is not the tulip of 400 years ago. The ‘wise crowd’ around the world has been buying gold as a safe haven from currency risks and the trillions of dollars invested in derivatives and as a way to recycle petrodollars.

“What we’re seeing in the market is not a bubble-blowing frenzy fueled by crowd madness. Below is a chart of gold in 1980. In January of that year, the price went up 40% in seven trading days, to its peak, and over the next five days, nearly all of that gain was lost. Now, that was a bubble.

We’ve added the gold chart over the last six months for comparison:

Today, “There are many plausible ways to explain,” says Holmes, “why gold is an attractive investment in the current environment: gold’s positive correlation to the price of oil, its inverse relationship to the dollar, rising wealth and demand in emerging markets, the unknown depth of the escalating derivative crisis, prospects of a U.S. recession and more.”

Frank is the CEO and chief investment officer of U.S. Global Investors and has given riveting speeches every year at our annual Vancouver event. This year will be no different. If you haven’t made plans for summer travel yet, we recommend you work Vancouver into your schedule. It’s easily the best investment conference you’ll attend this year.

Last night, OPEC ministers chose to keep oil output at present levels. The group decided to maintain its 29.6 million barrels per day flow until March 5, citing concerns that a global slowdown — particularly in the U.S. — will stunt demand.

Light sweet crude currently trades for just under $92.

Meanwhile, the U.S. government is pricing oil at $225 per barrel in the not-too-distant future. “No less an oil-burning institution than the Department of Defense,” says our oilman Byron King, “is planning for a future of $225, and higher, oil.

“The U.S. Navy, for example, is currently designing future ships using $225 per barrel as a baseline for the price of fossil fuel. In fact, the Navy, under the direction of Congress, is also planning to use nuclear power for all future large surface combatants. And the Air Force is designing engines and fuel systems to work on synthetic jet fuels derived from coal and natural gas.

“There is an astonishingly complex engineering process for qualifying synthetic fuels to work in military-grade engines, at high altitudes, high G-forces and supersonic speeds. But all of that is happening even now. The Air Force knows that it cannot lose any time in getting this done. And the Army and Marine Corps are looking hard at the fuel-efficiency of ground combat vehicles.

“Post-Iraq, the Army and Marines will be re-equipping their forces with much new gear. So the planners are hard at work figuring out how to design and procure ‘mobility systems’ that have the best possible fuel-efficiency. This is all because the DOD planners are forecasting oil prices of $225 per barrel and more.”

Exxon Mobil announced earnings of $40.6 billion for 2007 this morning — the largest income for any company, ever. Exxon income rose 14%, to $11.6 billion, in the fourth quarter, another all-time high for any U.S. company.

Assuming Exxon’s still bringing in profits at its 2007 rate, it’s banked about $15,600 in the 12 seconds it took you to read this bit.

Shell reported earnings of $27 billion in 2007, a new all-time high for any British company. We’re sure Shell employees and shareholders were delighted… but the rest of Great Britain seems, well… pissed.

“Shell shareholders are doing very nicely while the rest of us… are paying the price and struggling,” said Tony Woodley, leader of the U.K.’s largest trade union, who labeled Shell’s $75 million daily revenue “obscene.”

Yesterday, we reported Japan’s intention to open a multibillion sovereign wealth fund. Today comes word the Russkies are right on their tail.

The Russian Finance Ministry launched two sovereign wealth funds overnight, with a total purchasing power of nearly $190 billion. The nation has split oil proceeds into funds labeled the Reserve Fund and Fund for National Well-Being. (Sweet titles.)

The Reserve Fund will control $125 billion and will be used to hedge against a possible drop in oil prices, as oil revenues serve as Russia’s No. 1 income stream

The Fund for National Well-Being will begin with $32 billion in the bank, and Russian finance officials have said that the fund will invest in foreign stocks and bonds. The whole “well-being” bit alludes to the beneficiary of the fund — the Russian pension system. As with the U.S. and our boomers, Russia is facing a huge demographic shift.

Thus, now over 40 international SWFs are up and running, with a net worth of over $2.5 trillion. Chris Hancock has assembled a report on the matter… a must-read for any long-term investor. Check it out here.

In the currency world, the dollar whipsawed through some big ups and downs overnight, but this morning trades a skosh away from yesterday’s familiar lows. The euro is still at $1.48, the pound at $1.99 and the yen at 106.

Mexico cut its 2008 economic growth forecast this week. The Mexican Finance Ministry now expects 2.8% GDP growth this year, down from its previous forecast of 3.7%. Ministry officials specifically cited recessionary woes in the U.S. — the country’s No. 1 trading partner — as the largest driver behind the lower forecast.

Despite Mexico’s GDP revision, growth there is still likely to double the U.S.’ 1.5% expansion in 2008, as predicted by the IMF.

Back here, north of the border, jobs fell by 17,000 in January – a number far below the 70,000-plus jobs analysts’ expected to see. Unemployment fell slightly, down to 4.9%, which makes perfect sense… only the U.S. government can report an unexpected loss of jobs and lower unemployment in the same breath.

Assuming the BLS doesn’t “revise” the number back to positive growth next month, this will go down as the first monthly payroll decline since August 2003.

And much as we hate to rain on your Friday, the jobs number is far worse than it seems. The number of long-term unemployed — those seeking a job for more than six months — now stands at over 1.3 million — up 22% from this time last year.

The number of people who’ve given up looking for work is nearly double the same reading for 2000, the last time we feared a looming recession.

“Yes, I totally agree,” responds a reader — facetiously, we think, “it is an outrage, those Chinese coming into America, and buying the place up. How dare they?

“For years and years, those unfair Chinese would work away diligently, supply America with anything it desires, provide it cheap — nay, unfairly below market value — and to boot, all they wanted in return are little pieces of paper, something about an IOU and deeds to American houses and businesses and factories and land. So here we are, busily preparing for the next Super Bowl, and next thing you know, we find out that we don’t own the place anymore.

“Those evil little workers have finally arrived, and they have come to collect their debts. They want to trade some of those little pieces of paper for something more substantial, because, well, those little pieces of paper aren’t worth as much as they used to be anymore, and it’s only going to get worse. Too many little pieces of paper, not enough goods.

“Can you imagine such a thing? Workers wanting to be paid ‘in kind,’ if not in specie, for their work? Outrageous. Intolerable. For 20 years, they were working for what we thought was basically nothing, never living it up like us, never traveling all over the world like us, never getting involved in any conflicts trying to bring democracy to the world like us, never consuming what they produced, and suddenly, they feel like they own the place.

“I think there ought to be a law to make this illegal. I think foreign workers should be forced to only ever be able to accept little pieces of paper for their work, but never be able to trade those little pieces of paper for anything else. Yes, we need a law. Hillary? Mrs. Clinton? Help, please.”

The 5: Heh. No doubt she’ll be soliciting advice from Charlie Rangel. Lord help us.

“Regarding the suggestion,” adds another, this one a little more seriously, “that the U.S. government should contract with American companies to build a renewable energy economy… We could pay for it by closing several foreign military bases each year.

“That money could be used to subsidize investment in these technologies. It’s time to take care of numero uno and let the rest of the world take care of itself. I’m tired of paying to protect the world’s oil supply. Let China and India step up for a change.”

Enjoy your weekend,

Addison Wiggin,
The 5 Min. Forecast

P.S. Maybe the U.S. government should open its own sovereign wealth fund to invest in resources around the world and then dedicate the proceeds to Social Security, Medicare and to pay down the national debt. Oh, wait, that would mean the guv’ment would actually have to have some money to fund the darn thing. Right.

Too bad. You’re on your own.

Mr. Hancock can help.

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