Visa — ticker “V” — was supposed to open this morning on the NYSE for $44 a share. But strong buying pressure pushed up prices to open to the everyday investor at $60.

While the mood on the Street is incredibly optimistic for V, thanks mostly to MasterCard’s breakout IPO in 2006, the newly minted share faces stiff head winds. The Renaissance Capital IPO Index, which tracks public companies from their debut to two-year birthday, is down 23% this year… twice as bad as the performance of the S&P 500.

Morgan Stanley crushed Wall Street earnings estimates today, reporting net income about 45% above analyst expectations. But like its financial brethren yesterday, despite beating estimates, Morgan also admitted that first-quarter earnings were nearly chopped in half compared with the same period last year. Year-over-year quarterly net income fell $1.5 billion, or 42%.

As usual, the FOMC would like you to forget about inflation. “The committee expects inflation to moderate in coming quarters,” continued the statement, “reflecting a projected leveling out of energy and other commodity prices and an easing of pressures on resource utilization.” While the Fed admitted that inflation uncertainty “has increased,” it did little more than assure us that they would “monitor inflation developments carefully.”

CNN/Opinion Research released a poll yesterday showing that “the rising rate of inflation” is Americans’ No. 1 economic concern. Ninety-one percent of all folks polled by CNN listed the dollar’s devaluation as their primary fiscal worry. Worry over the value of the bucks in their wallets beat our job growth, the stock market or housing concerns in the poll.

Yet in an act of sheer defiance, the dollar index surged off near-record lows after the Fed’s release hit the wire:

We can only assume traders had priced in 100 points, rather than the paltry 75 they drummed up. The dollar index currently rests at 71.7, about a full point above its all-time high. Hooray!

The euro trades for $1.57 this morning, a penny short of its record high. The pound has fallen a bit, down 2 cents, to $2.00. The yen is back to 98, and the loonie has retreated to parity with the greenback — $1 even.

The Swiss franc, we note today, has reached parity with the U.S. dollar for the first time in history. The franc — a destination currency in the global “carry trade” — is up about 17% on the greenback in the last three months.

The stock market loved the FOMC’s cut yesterday too. Already elated with Goldman Sachs and Lehman Brothers earnings announcements, the Dow had rallied 250 points before the Fed’s announcement. Despite a sharp pullback within minutes of the release, by the end, U.S. stocks enjoyed their best day in five years:

The S&P 500 and Nasdaq skyrocketed 4.2%. The Dow mustered a gain of 3.5%.

The Dow’s 420-point gain was the fourth best in the index’s history, and you’ll have to look back to 2002-2003 for bigger one-day gains for any of these major U.S. indexes.

We weren’t surprised to see financials lead the way yesterday – just about every bank, broker and lender soared to double-digit gains yesterday. Bear Stearns is even getting in on the action:

Since it’s “acquisition” for $2 per share on Sunday, BSC has more than quadrupled.

Gold got shellacked during yesterday’s stock market rally and again this morning. Spot prices fell to around $995 after the New York close, and are sinking to $950 as we write.

We’re inclined to think, at least in the short term, the “easy money” has been made in the gold trade. But in terms of trading gold stocks, our gold adviser Ed Bugos thinks there is plenty of money yet to be made. He just published a report on the five gold stocks that have yet to catch up with $1,000 gold. You can learn more about them here.

Oil crept back up to $109 per barrel, $2 shy of its all-time high this morning before falling back to $104. While the world’s eyes have been fixated on rising crude costs, coal prices are quietly setting records, too. Check this out, from today’s New York Times:

“China’s coal consumption is mind-bending,” writes our Byron King. “China is currently building giant, 500-megawatt coal-fired power plant systems in an almost assembly line fashion. And China is installing and commissioning these coal burners at an astounding rate of THREE per WEEK!!!

“Each year as of late, China has added more electrical generation capacity than the entire nation of Germany. And Chinese electrical generation capacity has been growing at a steady rate of over 15% per year for the past five years.”

In the U.S., coal accounts for about 50% of American electricity production. The U.S. also has more coal deposits and proven reserves than any other nation. If you’re interested in investing in coal, Byron’s your man.

Rice shot up to a 34-year high this morning. Thai rice, largely considered the global standard, has risen 72% in the last three months to $640 per tonne this morning. Rice in the Philippines is selling for $702, up 50% in a little over a month.

“Some of this is weather related,” explains Chris Mayer, “but it also speaks to the larger issues of increasing resource scarcity. We see it in the energy markets; we see it in food prices. Rice is particularly important because of its central role in the diets so many people. And for many of them, a doubling in price since January is keenly felt. It’s also a potential source of social unrest.

“There is no easy way out of this. It’s going to take time and a lot more investment in agriculture. All of this spells opportunity for the number of agricultural plays out there.”

Chris’ Special Situations readers own Viterra, one of the largest grain handlers in North America. Since he recommended it in August 2006, its up over 80%. Discover the rest of Chris’ blockbuster MSS portfolio, here.

Sovereign wealth funds (SWFs) invested a record $48 billion in U.S. companies in 2007, says a Dealogic report on Monday. That’s a 165% increase from 2006, the study showed. What’s more, despite SWFs moving out of the spotlight this month, Dealogic estimates that SWFs have already spent $24 billion on U.S. securities this year… well on pace for a record 2008.

Again, we suspect these funds are going to be a key component in any investor’s successful retirement strategy. If you haven’t checked out Christopher Hancock’s work on these funds, you can do so here.

We end today lamenting the anniversary of the war in Iraq.

Five years ago today, U.S. troops unleashed “shock and awe” on ancient Babylon. Then-Secretary of Defense Donald Rumsfeld fully expected the troops would be “greeted as liberators.”

The U.S. government now estimates the total costs of the war are up to $2 trillion… give or take a trillion. And as a popular documentary last year illustrates, there’s “no end in sight.”

“No one would argue that this war has not come at a high cost in lives and treasure,” President Bush said this morning, “but those costs are necessary when we consider the cost of a strategic victory for our enemies in Iraq.”

Yeah. “I would argue,” says David Walker in the opening lines of I.O.U.S.A. “that the greatest threat to our national security is not some guy hiding in a cave in Afghanistan or Pakistan, but our own fiscal irresponsibility.”

“The dollar is depreciating against gold,” postulates a reader with a forecast of his own, “because of a fundamental change in pricing of the value of goods in the world. Commodities are priced against each other, and only because of tradition are we still quoting commodities in U.S. dollars.

“Until quite recently, gold, oil, copper, lead, agricultural commodities, etc. were priced in U.S. dollars. They are still quoted as such, but in reality, the commodities are valued against each other, just as it was done during early civilization. Of course, the one major difference is it’s all done electronically. Currencies have become irrelevant. Unbelievably, we are still in awe when we hear a report that gold went up by US$20 or crossed the US$1,000 barrier. It’s really no big deal in terms of other commodities. The price of gold over the last few years actually went down against most other commodities.

“The same is true for oil. As in the good old days of early civilization, a commodity value is now strictly based on the available supply. Today, if corn is in short supply, it will appreciate against wheat if there is an excess. Of course, when the prices of basic commodities like oil and energy are appreciating against the U.S. dollar, it will affect the people who pay for their daily needs in that currency. But the rest of the world really doesn’t care unless their currencies go down too.

“In the foreseeable future, some commodities will be in much shorter supply, in particular, the commodities that are used up and cannot be replenished. An obvious one is oil. Once we use it up, it’s gone. The supply is constantly diminishing. Not so with gold. Other metals will also become rarer, but only because high-grade ore bodies are more difficult to find and costlier to develop. The price of the rarer metals will appreciate against other commodities that are more readily ‘available.’ Gold will likely be among them.”

Regards,

Addison Wiggin,
The 5 Min. Forecast

Since the peak two years ago, new home starts are down 62%.

Building permits, the best indicator of future housing starts data, also plunged in February. Permits fell 7.8% in the month to an annual rate of 978,000, also a 17-year low and the steepest monthly decline since 1995.

Goldman Sachs and Lehman Brothers both shocked Wall Street this morning with much-better-than-expected first-quarter earnings. Goldman said it earned $3.23 a share in the first quarter, beating estimates by about 25%. Lehman did the same, reporting earnings about 13% higher than the Street expected.

The news from Lehman was particularly well received. The market was anxiously awaiting Lehman to suffer a fate similar to its infamous counterpart Bear Stearns. Traders had barraged Lehman shares over the past week, sending LEH from $48 to $21 in the last five days.

But on the news this morning, shares in LEH have rebounded nearly 70% from Monday lows, to $36.

Still, both banks show over a 50% year-over-year net decline in first-quarter earnings — a long, long way away from the profitability they enjoyed just a year ago.

Nevertheless, markets skyrocketed this morning on the Lehman and Goldman news. The Dow surged over 200 points on the open.

The opening rally this morning furthers some good will mustered by investors midday yesterday. When the Dow, S&P and Nasdaq all opened the week with 1.5%+ losses… and given the Bear news … we were ready to let the crash flags fly. But traders, like consumers, held their ground. The Dow actually mustered a gain of 0.2% by the day’s end.

“It’s big mess,” our Chris Mayer told CNBC yesterday, referring to the Bear debacle, “and it’s going to take time to sort out. In the meantime, it’s going to weigh on the market. We’re likely to see some screwy prices as hedge funds and other leveraged players face forced liquidations. The fall in prices itself will also shake loose additional sellers as fear starts to take hold.

“That creates opportunity for investors who take a cooler view of things. Just as that huge gap opened up on Bear, there are other gaps that open up on the upside. In other words, there are stocks that dealmakers would pay considerably more to own getting tossed overboard in a panicky market.

“Studies show that after compounding, 90% of the return on stocks is generated on just 1.5% of the days the exchanges are open. So things can snap back quickly. I think if you’re going to put money in this market now, you’ve got to be patient and willing to give ideas some time.”

Chris’ book Invest Like a Dealmaker shows exactly how the richest investors in the world keep calm in times like this — and dive in for incredible bargains when the time is right. It’s worth the read.

Prices at the wholesale level jumped 0.3% in February. “Core inflation,” stripped of food and energy costs, and regarded by the Fed as the accurate measure of rising prices, actually shot up 0.5% — its biggest monthly leap in over a year.

Over the past 12 months, PPI is up 6.4%, with energy goods (up 19%) and food (up 6%) leading the way.

Yet as the Fed meets today, fed funds futures in Chicago are pricing in a near 100% chance of a 75-point cut today, about a 50% shot at a full 100-point slash.

Anything less than 75 points and you can expect mayhem on the corner of Wall and Broad streets in Lower Manhattan.

“The Fed has been playing the equivalent of Whac-A-Mole,” said Former Fed Vice Chairman Alan Blinder yesterday, “as financial turmoil keeps cropping up in new and unexpected places. Yet many of the problems facing [the economy] are beyond its reach.”

“When you have Fed insiders describing what they do as an arcade game,” suggests Christopher Hancock, “in which players try to hammer down plastic critters that randomly pop out of holes, you’ve got to wonder where’s the safest place to put your money.”

The yield on a three-month U.S. Treasury bill fell to a 50-year low yesterday. The 13-week T-bill, widely considered the ultimate in “safe” investments, yielded a pathetic 0.6% yesterday.

In other words, more investors are sitting on the sidelines than have been since Elvis was gyrating in front of his ladies.

The dollar backed off yesterday’s all-time low… but only by a smidge. The dollar index, after striking a new all-time low of 70.6, returned to 71.2 this morning. Light volume suggests traders are holding their breath until Bernanke exhales his own today.

“These aggressive moves by the Fed have all but sealed the fate of the U.S. dollar,” says our friend at EverBank, Chris Gaffney. “Currency traders have continued their assault on the greenback, and there is currently no rescue in sight. I don’t think even Hank Paulson can seriously talk about a strong dollar policy anymore.

“They have, obviously, thrown inflation concerns and concerns about the weakening currency out the window and are just trying to keep the U.S. economy from falling off the precipice. I think we have, unfortunately, already fallen off, and the currency traders look like they agree.”

“I myself watch very closely the development in the world economy and the U.S. economy,”
said Chinese Premier Wen Jiabao today, “and I’m deeply worried.”

Wen at the NYSE… quite literally keeping an eye on the U.S. economy

“What concerns me now is that the U.S. dollar is depreciating continuously, when the U.S. dollar will reach the bottom in this depreciation process, what kind of monetary policy the U.S. government will adopt and where the U.S. economy is heading.”

“China’s economy is already tied to the globalized economy,” said Wen. “All kinds of changes and fluctuations in the international economy will inevitably be reflected on China’s own economy.”

Oil finally took a breather yesterday. After touching another record high of $111, light sweet crude fell a good 4%, its worst one-day performance since August.

Thus, oil opened in aftermarket trading at $105 and is trending up to $105. A 75-point cut by the Fed today should kick the dollar in the groin and drive oil back up toward record highs overnight.

Despite oil’s pullback, U.S. gasoline prices attained another record high yesterday. The national average price at the pump has jumped about 1 cent a day for the past week and now rests at a record $3.28.

The U.S. Energy Department forecasts a national average of $3.48 by the end of spring. Bummer.

Gold sold all the way back to $996 last night. In fact, Just about every commodity under the sun got hammered yesterday. The Reuters Jefferies CRB Index — a measure of 19 different commodities including metals, oil, grains and meats — fell 5%. That’s the worst daily percentage loss in about 40 years.

A slowing economy in the U.S. could be putting a damper on demand for commodities. At the same time, financial institutions may be trying to liquidate positions in order to raise capital to shore up their balance sheets. Either would cause a correction in the index.

Either way, it was well overdue. The CRB has had quite a run:

“Am I worried?” Kevin Kerr asks himself. “No, not at all. I knew a correction would come. I’m still very happy we purchased some long-term options.

“Under no circumstances should you panic or start fretting over this kind of correction. That would be a huge mistake. Sure, it’s no fun to see an option lose value, but if you begin to think of it as an actual loss, you are going to have a very tough time trading options.

“As an active investor, the best thing to do now is what we have been doing. Take profits when we can keep the portfolio light and nimble, add when we see good opportunity and never trade beyond our means.”

Visa still plans on floating its initial public offering tomorrow. All signs leading up to this event suggest Visa’s IPO will be the largest in U.S. history, perhaps the world. Still, it ought to be interesting. The world’s largest credit card company floating during the height of one of the worst credit crunches in U.S. history. You can’t buy drama like that…

We’ll keep an eye on it. More tomorrow.

“You let ‘California Homeowner’ off too easy in Monday’s 5,” opines a reader. “For one thing, people who can’t pay mortgages can’t stay in their houses, and the bulk of jobs created in California over the past 10 years have been in home marketing and construction, so you can figure on a bunch of foreclosures from that crowd. Add to that the number of second homes and speculator-owned homes and you have a lot fewer than ‘99%’ of owners happy to stay put.

“Obviously, ‘California’ is whistling past the graveyard, because if he’s owned his home for 25 years and had its value drop below what he owes on it more than once, it means he’s been sucking out his equity for 25 years.

“I’ve owned a house in California for 25 years, and it’s paid for.”

Cheers,

Addison Wiggin,
The 5 Min. Forecast

P.S. Despite gold’s pullback last night, there are still very good reasons why its bull run still has good legs… we explore nine of those reasons here.

“While the banking industry is rapidly consolidating worldwide, few global banks operate in all the areas that HSBC does, such as Hong Kong, the United Kingdom, the United States, Latin America and Asia,” says Chris Hancock of HSBC, a Free Market Investor pick.

“This geographic spread enables the bank to offer cheaper and better service to multinational corporations operating in rapidly growing Asian and Latin American economies. We believed emerging market growth combined with HSBC’s forthright disclosure to subprime exposure early on showed a bank with a solid earnings stream that was willing to fess up to its American mistakes. To us, it basically valued its long-term reputation above a ‘tell only if you’re caught’ approach that other banks seem to employ.

“Sadly, there are a few problems with this approach, one of which is that the cost of servicing all this federal debt already consumes a major fraction of our ‘tax take.’ In stagflation, tax revenues drop, while debt service goes up. Who wants to lend to a borrower who’s using the proceeds to pay debt interest? We could find ourselves obliged to stop borrowing, and actually start paying our way.

We heard hints in his testimony Wednesday that more rate cuts might be on the way. Yesterday, the Fed chairman made it quite clear that he means to cut rates again, noting that inflation expectations have remained “pretty stable” and that “inflation will moderate this year as oil and food prices don’t rise as much this year as they did last year.”

From the cheap seats, it’s sure looking like every food and energy commodity is at or near an all-time high and U.S. inflation is growing at a rate far from “pretty stable.” Regardless, gamblers in Chicago were emboldened by Bernanke’s remarks… futures there now price in a 100% chance for a 50 point rate cut in March, a 62% shot for 75 points.

Following Bernanke’s testimony, the dollar reached new lows across the globe. The dollar index has given up two full points since the Fed chairman began his testimony on Wednesday, and now sits at an all-time low of 73.

Likewise, the euro shot up to $1.52 yesterday, an all-time high of its own. The yen gained all the way to 104, a three-year high versus the greenback. The Canadian dollar and British pound stood still at about $1.02 and $1.98.

This is starting to surprise even us. We remember predicting the euro would go to $1.50 just after parity was reached… and getting roundly criticized for it. Now that we’re inching even higher, we suspect it’s going to have to gain some sympathy votes sooner or later.

“There will probably be some bank failures,” Bernanke suggested, saying that many overexposed small financial institutions in the U.S. are still at risk. While we respect Bernanke’s candor on the matter, markets didn’t care for his speculation.

Traders sold down financials in style yesterday, and the whole market followed… nearly1% losses for the Dow, S&P 500 and Nasdaq yesterday.

Neither Fannie Mae nor Freddie Mac helped in the matter much. Both banks reported big losses this week, writing down $3.6 billion and $2.5 billion in their respective fourth-quarter earnings announcements. Both losses were greater than Wall Street expected.

Naturally, as the U.S. two largest buyers and backers of American mortgages disclose a basket of bad subprime bets, the U.S. government has chosen to ease regulations on their investment capabilities.

Within hours of Freddie revealing its multibillion loss, the Office of Federal Housing Enterprise Oversight proudly announced that it will be removing limits to the amounts of loans and securities Fannie and Freddie can own. The two companies’ investment pools were formerly capped at a fixed level because of a few accounting “lapses” in 2004.

But now, Fannie and Freddie can invest in as many subprime-backed securities and risky mortgages as they can stomach, potential losses be damned. Brilliant.

Insurance giant AIG announced its own $15 billion write-down yesterday, adding a $5 billion fourth-quarter loss for good measure — its biggest in 89 years. Losses at the insurance group were attributed to bets gone bad among credit default swaps — pledges to cover missed debt payments that went arse up during the credit crisis.

Annual profits for the U.S.’s largest insurer were consequently cut in half, to about $6 billion.

Financial institutions of the world will write down some $600 billion by the time this “credit crisis” has run its course, estimated UBS analysts today. According to recent Bloomberg reports, a mere $160 billion has been written down by the global banks. Thus, UBS is calling for financial losses to get much, much worse.

And UBS might have a pretty good idea how bad it could be… its report comes just a few weeks after the Swiss bank admitted to a hefty $14 billion write-down of its own.

Fourth-quarter gross domestic product in the U.S. was confirmed at a lousy 0.6% by the Commerce Department yesterday. The government arm left last month’s GDP estimate unchanged in its “official” reading. Currently, all signs point to even less economic growth during the current quarter… recession, here we come.

But don’t rule out the American consumer just yet. In the face of economic turmoil and plunging markets, spending by individuals rose 0.4% in January, the Commerce Department reported this morning, higher than expected by a factor of two.

Not surprisingly, spending rates outpaced U.S. income gains, up 0.3% in January. Thus, personal savings in came in at a negative 0.1% for the month.

Maybe these new marijuana vending machines are just too tempting:

The newly created “Herbal Medical Center”

Scoring an ounce from these bleak-looking boxes isn’t quite as easy as picking up a Coke from the office vending machine. Three new machines in LA are housed in stand-alone rooms and guarded 24/7. When you want to get high, umn excuse us — relieve your symptoms, you’ll need to be fingerprinted, photographed and issued a pre-paid card that can be used only at the machine.

On the bright side, once you get past the guard dogs and swim through the moat filled with laser-equipped sharks, there will be a plethora of cannabis at your disposal. Users can buy a variety of “flavors” up to an ounce a week. According to a USA Today, these pot machines could soon be vending Viagra, Vicodin, Propecia, and various antidepressants — a veritable cocktail of pharmaceuticals.

Gold shot up to another record high yesterday. Spot prices spiked to $975 this morning. For the year, gold is up an incredible 16%. Gold $1,000 is just one solid rally away.

Oil nudged higher to another record high itself overnight. Light, sweet crude closed at a record high $102.59 in New York yesterday, and then briefly touched $103 in Asian trading, before retreating to the low, low price of $101 this morning.

“New technology is breathing life into an old fuel alternative,” Greg Guenthner told our crew in the editorial meeting at our HQ earlier this week.

“Sure, the older, louder diesel engines coughed massive amounts of nitrous oxide into the atmosphere. But the technology is better now. Diesel engines are cleaner, quieter and more efficient. Just ask someone who lives in Europe… About half of the cars on the road there are powered by diesel engines. The diesel revolution in Europe began almost a decade ago, thanks to high fuel taxes put in place to help fight global warming.

“Diesel is superior to conventional gasoline because the fuel releases less carbon dioxide than regular gasoline and diesel engines get 30% more miles per gallon. What’s more, diesel has a strategic advantage that petroleum just can’t match: It can be made without drilling a single hole into the ground in search of crude. In fact, biodiesel can be made out of animal fats, soybean oil and even waste food oils.”

Gunner just issued a new buy on a microcap biodiesel play to his Bulletin Board Elite readers on Tuesday. The company has pioneered a way to produce biofuel cleaner and cheaper than the industry standard… and is still really cheap. Details here: Subscribe today.

“Outsourcing production to China or any other country is the biggest misconception ever,” writes a reader. “When the so-called educated talk about globalization and outsourcing, they tend to overlook the huge requirements of energy and materials needed to accomplish this. To get that little widget to the U.S. from China or any other foreign country, ships, trucks, trains, containers, airplanes, roads, ports, offices and organizations need to be built. Let’s also not forget all the equipment needed to make the aforementioned operational.

“This has created a huge demand for raw materials and energy just to handle and ship these goods around the world. None of the ‘educated’ and ‘enlightened’ morons have ever figured into the cost of the product the building of that infrastructure and all the extra handling involved. A lot of that infrastructure was built with tax money.”

The 5 responds:
Uhh… we’ve been recommending infrastructure plays across our roster of services. But… seriously… what’s your beef with educated people?

“I am a living example of what has happened,” another reader writes, “is happening and will likely happen far more in our country unless changes are made, and made very quickly. My partner and I founded a successful high-tech electronics company. Our company produced many innovative products used across the consumer, industrial and governmental spectrum. We both put in the super long hours that are a dominant characteristic of entrepreneurs.

“After a couple decades, it became apparent to me that the bulk of my earnings were being siphoned off in the form of taxes. Once my partner died of cancer, I had to search deeply for the reason I was working my arse off for the benefit of a bunch of complaining, obstructionist anti-free enterprise morons who now represent the majority of voters in this country. The stress of running our company surely got to my best friend and business partner. I didn’t want to pay the same price.

“At the age of 47, I, essentially, retired from business, and now, 15 years later, I have no regrets. My standard of living is significantly lower, but my happiness in life is so much greater I can’t tell you. It was ironic, as I finally realized that I and most entrepreneurs and most wealth-creating people are being exploited through our tax system.

“This modern form of slavery is accomplished by people who are always complaining about being exploited (because their government handouts are never enough) thanks to the producers not being taxed enough. Sooner or later, the slaves will mostly join the ranks of their masters, but who will be left after every one realizes the taste of greenbacks is no better than its nutritional value?”

Enjoy your leap day,

Addison Wiggin,
The 5 Min. Forecast

The U.S. service sector, savior of American consumerism, and roughly 90% of the American GDP, plunged into contraction during January for the first time in five years. The Institute for Supply Management reported early this morning its nonmanufacturing index dropped from 54 in December to 41 in January. That’s a monumental change. A score of 49 or lower represents “contraction” within the sector. January’s score of 41 is the first below 50 since March 2003. And the lowest reading since 2001.

The number is so bad, in fact, the ISM released its data at 9 a.m. EST this morning, an hour and change ahead of schedule, in an effort to quell any leaks that might spook the stock market. In spite of an early release, the Dow opened down over 200 points.

The average reader of The Washington Post has a more pessimistic view of the American economy today than at any time over the past 15 years, says the Post this morning.

80% of the people selected for the poll rated the economy as “not so good” or “poor.”

30% are bearish about their investments and financial prospects in 2008

60% believe America is already in a recession.

39% of those polled cite the “economy and jobs” as the No. 1 issue in the current presidential campaign, up 10% in the past three weeks alone, and more than double those who call the war in Iraq the No. 1 concern.

Only 19% view the economy in a positive light — the lowest level since June 1993.

These numbers come out just in time for Super Tuesday. More than 1,700 delegates are up for grabs in Democratic primaries and caucuses around the country today. Over 1,000 will stand up and be counted for Republican candidates.

Yawn.

Conventional wisdom will tell you “Democrats are bad for business.” Looking at the top campaign contributions so far during this primary season, Corporate Americans are gluttons for punishment:

Oil has declined steadily this week. Light sweet crude is down around $88 this morning. The market appears to be waiting and wondering if a U.S. or global slowdown will affect consumption. Or… if the Fed is willing to crush the dollar enough to hike the price past $100.

The dollar posted some big gains this morning on news that eurozone service industries have themselves shrunk to three-year lows. The dollar index rallied over half a point, to 76, this morning, sending the euro back down to $1.46.

“$1.4684 is a far cry from 82 cents, eight years ago!” comments Chuck Butler in a reminiscing frame of mind.

The euro could “experience a problem when the European Central Bank (ECB) finally gets around to cutting rates this spring,” Mr. Butler speculates. “The dent could take the euro to 1.40. But after getting past the initial blow of having lower rates, calmer heads will prevail and use this lower level as a springboard to push the euro higher. This is when I believe we will see 1.50, but not before suffering some rough times.”

Gold continued to fall in overnight trading, too. New York opened at $888 this morning… still a fair shot higher than the $253 we remember back in 1999. Buy.

Hedge fund investors yanked $7.7 billion out of Japanese funds in 2007 – over 20% of the nation’s total hedge fund industry.

Given the poor performance of the Nikkei et al., Nipponese hedge funds shed nearly $11 billion last year. Investors in such funds are no strangers to losing money. Japan’s 2006 performance was equally disappointing.

“All that pessimism creates some nice prices,” Chris Mayer comments. “I was in Manhattan on Friday attending an investment conference. One of the speakers was Jean-Marie Eveillard, a legendary investor who runs the First Eagle Global Fund. His favorite idea was to invest in Japan. He likes the ‘world-class manufacturers’ — some of them trading for cash on the books.

“Let’s face it — people in Japan live well,” Mayer adds. “They are relatively rich and live long lives. Unemployment is 3.8%. Crime is low. Japan is still the second largest economy in the world. It’s still home to many world-class companies. Infrastructure is good. There is a large and comfortable middle class.

“For the first time in a long while, Japanese real estate is rising. Plus, in Tokyo, the real estate market is strong. There are few vacancies. The prospect for increases in earnings looks good as old leases roll off.”

For Chris’ favorite Japanese real estate play, see your latest Mayer’s Special Situations alert.

Moody’s proposed a new rating system for CDOs and other complex debt securities today. Good timing there.

The new system would distinguish these securities from more legitimate bonds by rating them with a system of 21 numbers — not the traditional 21 letter system of AAA, AAA-, AA and so on.

Yeah… like it’s going to make a difference now.

Congress passed a bill yesterday making the words “In God We Trust” more prominent on the nation’s new dollar coin.

The motto was formerly etched on the narrow edges of the new coin — a creative touch meant to dissuade counterfeiters and provide more room for art on the face. Now, by law, it will return to the fronts and backs of the coins.

The provision was earmarked to a $555 billion spending bill.

Hmmn. Let’s see. The dollar index is down over 10%. And by the government’s own calculations, U.S. inflation jumped 4.1% in 2007 — the largest rise in 17 years. Fourth-quarter inflation soared past 6%. Seems like Congress ought to be a little less concerned with what’s written on the darn thing… and a little more concerned with what it’s worth. Yeah?

As we reported Friday, China is dealing with a nasty squall of winter weather. But just how bad is it? Probably worse than you think… check this out:

“I cannot help but say the media are out of control,” writes a reader. “They announce that Exxon Mobil, the second largest corporation in the land, made obscene profits of $1,300 per second, or about $78,000 per minute.

“How can they not make the dramatic announcement that the federal government deficit-spent at a rate 12 times as high, or over $1 million per minute? Or that the 2007 federal spending of $2.8 trillion is over $5 million per minute?

“Talk about obscene.

“We should remember the wise words of Cicero when he said: ‘The budget should be balanced. Public debt should be reduced. The arrogance of officialdom should be tempered, and assistance to foreign lands should be curtailed, lest Rome become bankrupt.’”

“The actual deficit for 2008 will be about $500 billion more,” writes another, “than the projected deficit of $410 billion. Please take a look at the table below from the U.S. budget Web site. The Bush administration’s projection of the 2008 budget deficit of $410 billion is off by about $500 billion — if the budget shenanigans of the past few years are any guide.

“Before you write me off as another nut, look at the bottom line in the table in the column ‘Debt at start of year.’ You will see that at the start of fiscal 2007, the debt was $8.451 trillion and that the debt at the end of the year was $8.949 trillion. The difference — that is, the real deficit — was $497.1 billion.

“Yet the government announced late last year that the deficit in fiscal 2007 was $162 billion. The difference between the actual $497 billion and the announced $162 billion is $335 billion. Remember, these numbers come from the official government Web site.

“The $335 billion credit to the budget was something you might find in Oz-land: the interest on the total obligation of the government to the Social Security Trust Fund, which is about $4 trillion (the interest rate was apparently something like 8%). The government’s own stats (below) show that the actual deficits have been $498-594 billion per year since 2003, far higher than the announced deficits.

“Please tell your readers that the government includes nonexistent credits in its numbers every time it announces the budget deficit. We are in even deeper doo-doo than we thought. I thank you, and so will your readers.”

“Regarding the ins and outs of the distribution of I.O.U.S.A.,” writes a reader, “I think you should take it that your loyal fans — and I’m one of them — won’t mind how you distribute your new movie, just so long as they can view or buy/download a copy ASAP.

“This story is a universal one: As you and Bill Bonner keep reminding us, there are people in every country (just about) who’ve been spending way ‘too much money they don’t have, on stuff they don’t need.’ Here in Ireland, we’ve raised this notion to a fine art and achieved (sic) a personal income-to-debt ratio in the region of 165% — which far exceeds the borrow-and-spend orgy that’s gone on in the U.S. or U.K. Most of this debt is tied up in housing (though we’ve built up prodigious amounts on credit cards, too) that is now sharply falling in value.

“There’s a much-quoted expression here that in regard to both our style of capitalism and our social attitudes, the Irish are ‘closer to Boston than Berlin.’ I don’t think Irish audiences will have any difficulty ‘getting the point’ of your movie or applying its lessons.”

The 5 responds: Slainte! We’re working on it. We’ll keep you posted.

Best,

Addison Wiggin,
The 5 Min. Forecast

P.S. As we write to you this morning, the Dow is down well over 200 points…today’s ISM reading has brought recession woes back to full force. While U.S. investors seem to spend every trading day “waiting for the other shoe to drop,” our international investing adviser Chris Hancock has found a global niche immune from the credit crisis… one that he thinks “could be the most persistent and reliable market boom in a decade.” You can learn about it here.

“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.

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.

“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.

Whoa, Nellie! We need to slow this economy down before we overheat.

The U.S. stock market rejoiced. The Dow skyrocketed over 200 points within an hour. But the buzz wore off quickly, as market makers realized the cut had been baked into stock prices long ago… U.S. benchmarks ended the day down 0.3%. Just as Ian predicted.

The euro surged up a cent and a half, to $1.49. The pound is back to $1.99. The yen regained 106, and the loonie passed parity again, now trading at a $1 and change.

We reviewed cover copy and a final manuscript for the second edition of The Demise of the Dollar this morning. Should be hitting shelves within the month… we’ll keep you up-to-date. Go Patriots!

The current version of the stimulus package encompasses a wider range of potential recipients… now anyone making less than $150,000 per year will get a check. The new package will also now include those living on Social Security and unemployment, while additionally extending unemployment benefits and lightening requirements.

“This package will put rebates into the hands of 20 million additional American seniors,” said committee chairman Senator Max Baucus, “plus lower-income payroll taxpayers and disabled veterans — all of whom will spend this money quickly and give our economy the shot in the arm that it needs.”

Yawn… stretch.

Japan is the world’s largest holder of U.S. Treasuries. Of the country’s $973 billion in reserves, $580 billion are U.S. bonds. That investment, versus the value of the yen, is down about 13% over the past year alone. If and when Japan launches its SWF, it could easily become the world’s second largest (behind Abu Dhabi’s massive $1.3 trillion fund). Our Chris Hancock has put together a special report on how such funds could save your retirement nest egg… read it here.

Ratings agency Standard & Poor’s said it has begun cutting ratings of as much as $534 billion in additional mortgage backed securities and CDOs.

According to S&P officials, the downgrades could cost the world’s holders of such securities more than $265 billion in losses. Such losses would have a “ripple impact” on broader financial markets, a release from the agency said. That would be shocking.

The Chinese are currently suffering through their worst winter in over 50 years.

What was a bitter nuisance is quickly becoming nothing short of a national crisis. A particularly nasty storm struck China this week on the verge of the Chinese New Year… the biggest annual human migration in the world.

Some 178 million Chinese — more than the entire population of Russia — are attempting to travel throughout the week to celebrate the New Year with families. All over China, the winter weather has shut down the majority of airports and railroads, and now tens of millions of Chinese travelers are stranded.

What fun: Just a few of the 500,000 people stuck at the Guangzhou Railway Station.

BusinessWeek estimated the railroad crisis has already cost the Chinese government over $3 billion in damages. Protestors are taking to the streets. If anything, it’s an incredible testament to the multitudes and groupthink at play in China… where else would 178 million people try to get up and go somewhere at the same time?

The NAF says some 1.8 million pieces of furniture will be purchased just for the big game, up 38% from 2007. That’s not including the nearly 4 million TVs expected to be purchased, up 50% from last year. Also, the average cost for a 30-second commercial during the game will cost $2.7 million this year, up $100,000 from last year — double that of 1997.

Yeah, good to know where the consumers’ heads and hearts lie.

“We are becoming a nation of serfs beholden to foreign powers in the Mideast and Far East. The America I knew when growing up is changing forever as the dissembling Chinese take all those dollars they’ve accumulated by unfair trade policies, i.e., yuan valuation, and use them to dump junk in our country, build up their military and buy our country out from under us in a pincer movement.

“Next in line to buy up America are the Islamic oil sultans. Add to this unholy mix NAFTA and the Mexico-U.S.-Canada superhighway and you no longer have a country. Nationalism is being replaced by mercantilism, and those dumb *&$#tards in Washington and the greedy bankers in New York who have given us a worthless dollar and our subprime moment in history have brought it about.

“Can the amero currency be far behind? Or a one-world government to manage the global economy? I fear for our future. This is not what our forefathers fought the British for back in the 1700s, or our grandfathers fought for in the 1940s to stop the Germany-Japan axis. Where are today’s Samuel Adams, George Washington and Dwight Eisenhower? Doesn’t anybody see what’s happening to us? Doesn’t anyone care enough to pull us back from the abyss?”

Regards,

Addison Wiggin,
The 5 Min. Forecast

Now we just need to get the candidates addressing these issues. Yes, we know Ron Paul does… but what about that tired old war hero who’s promising to keep us in Iraq for 100 years? Or Hillary and Barack, who keep dissing each other over who’s more “likeable”?

While no concrete plan was announced, rumors alone sent financials through the roof. Ambac and MBIA rose 71% and 32%, respectively. Just about every bank also rallied on the news.

Financials, homebuilders and retail rallied — big time. Energy and tech plays, some of the leaders of 2007, fell off a cliff. When the dust settled, major benchmarks not only regained their losses, but surged way into profits. Both the Dow and S&P 500 finished with over 2% gains.

“Yesterday had all the signs of a temporary market bottom,” says our own Dan Amoss. “Sentiment readings simply got too bearish. Stocks with sustainable fundamentals might have bottomed, but I expect more pain for stocks on the wrong side of the credit bubble.

“As for MBIA and Ambac, the short trade in these stocks had simply become too crowded — so crowded that mere rumors of an orchestrated bailout prompted a massive short squeeze. I doubt the investment banks can or will come up with anywhere close to the rumored $15 billion, considering their own capital shortfalls. Plus, any capital that’s raised will likely go to the insurance subsidiaries, not the publicly traded holding companies.”

Dan’s no stranger when it comes to shorting stocks. His open short positions in Strategic Investment – up an average of 100% – have inspired him to launch the Strategic Short Report. Find out how you can profit from falling stocks here.

“But… the market didn’t fall further. So, what do we do today? Keep cool and maintain your composure. As John Maynard Keynes once said: ‘I consider it the duty of every serious investor to suffer grievous losses with great equanimity.’

“No one knows if we’re anywhere near a bottom, of course. Don’t believe the ones who tell you otherwise. We’re all in the dark on that. But we can manage our accounts intelligently. We can look for values where we find them. We can take the long view.”

Chris’s new book is out… in it he reveals the source of his inner calm in the midst of the storm. Check it out: Invest Like a Dealmaker.

Meanwhile, Congress and the Bush administration have completed their simple plans to meddle in… umn, provide “stimulus” to the economy.

Somehow, they’ve come to the conclusion that giving $600 to every U.S. citizen is the right number… just enough to save the economy. According to the plan, each child under your roof could entitle you to an extra $300, with a cap of $1,200 per family.

But if you make more than $75,000 a year — forget you. You don’t need an extra 600 bucks… or you might be inclined to — gasp — save it. Then what good would it do?

The CBO, as per their usual methods, left out a few dollars in its 2008 predication. Namely, the $100 billion “stimulus” package announced moments ago. And the off-budget billions consumed in Iraq and Afghanistan.

Heh. This is like a slow-motion car wreck. Horrible and fascinating all at once.

Google was once again named as the overall best company to work for.

Anyone long in just about any equity market these days has lost their shirt… and Soc Gen has been no exception. The bank announced that it was forced to unwind these trades on Jan. 21 for a loss in the $7 billion ballpark — the largest trading loss, by one person, in history. Impressive.

The Chinese government has predicted continued economic expansion in 2008, by at least 10%.

“The public doesn’t react pragmatically or rationally to bad news. It’s always an emotional meltdown followed by Uncle Sam coming to rescue us from the crisis, or so people think.

“But if Uncle Sam (code for GWB and Congress), big business and the banking industry are seen as the problems, whom will the people turn to? The timing of your film could trigger public demand for a socialist state run by liberals where all of our needs are cared for fairly and equitably by who else? Mother Hillary.

“I’m getting worried. As actor Jack Nicholson so eloquently put it, ‘You can’t handle the truth!’ Neither can the masses who live from paycheck to paycheck.

Peace,

Addison Wiggin
The 5 Min. Forecast

“‘The Dude,’ ladies and gentleman,” Patrick said, apparently an acquaintance of the man. “Jeff Dowd.” A smattering of applause followed.

Mr. Dowd lumbered up to the stage and proceeded to chastise the crowd for participating in this “speculative” economy and not understanding that the solutions to our deficit crises are right under our noses. Dowd, it turns out, while a co-founder of the Sundance Institute, is also the inspiration for the character The Dude in the Coen Brothers film, The Big Lebowski.

The Dude’s father is an economics professor at Cornell — and, according to his vociferous son, has written the definitive tome on debt crises and how to get out of them. In this case, The Dude recommends we focus our attention on the “green technological revolution”… kick our addiction to consumerism and the military-industrial complex… and begin building products at home again that we can use and reuse in our own communities.

“Where are we going with this?” Patrick whispered.

“I dunno…” I replied… “but who cares? It’s The DUDE!”

We’ve been filming our Q&A sessions for posterity’s sake. You can bet this one will end up on the “bonus” selections on the DVD. The DUDE!