by Addison Wiggin & Ian Mathias

• The ultimate sign of the times… China poised to flex its FX muscle
• Foreign investment floods Bombay… Addison Wiggin on what’s still holding India back
• 81% of economists say recession is over… why Bill Bonner is officially flying the “Crash Alert” flag
• One Nobel Prize stole the headlines, but which one could make you rich?

  You know we love “signs of the times.” This might be the granddaddy of them all:

China National Offshore Oil Corp and Exxon Mobil are about to enter a bidding war over oil-rich water near Ghana. At stake is “Jubilee,” a recently discovered offshore site that probably holds a couple billion barrels of oil. This isn’t China’s state-owned offshore oil company’s first foray into the global energy grab, but it’s one of its biggest. Exxon currently has the winning bid -- $4 billion.

Technically, it’s going to be a “bidding war.” But really, it’s just a matter of how much China is willing to pay. The Red Nation announced this morning that its foreign exchange reserves rose $141 billion in the third quarter, to $2.27 trillion -- the biggest national war chest in the history of fiat money… a feat they’ve accomplished in a remarkably short time:

No company, even the mighty XOM, can hang with that.

“More than $40 billion in loans to Brazil, Russia and Venezuela in exchange for future supplies,” the FT notes, “direct state purchases of other producers and pledges of infrastructure to countries such as Angola give China a claim to billions of barrels of future production. Add to that huge sums spent or pledged in pariah states such as Iran and Sudan, where U.S. companies cannot compete, and China’s political edge in securing supplies is clear.”

Heh, and can you even imagine the U.S. -- the world’s largest oil consumer -- trying to elbow our way into this Jubilee deal? With what… T-bills? Citigroup prefered shares? Chevy Malibus?

By the way, the African oil producer that controls the Jubilee field is a core holding in Byron King’s Energy & Scarcity portfolio. We’ll be looking a lot closer into that portfolio later this week… stay tuned.

  Similarly, a near-record amount of investment cash flowed into India during the second quarter, Macquarie Securities and The New York Times report today. The BRIC nation garnered $7 billion in net foreign direct investment and another $8 billion in cash invested in Indian stock and bond markets -- a $15 billion total inflow second only to the last three months of 2007. As these charts show, investing in India is back -- big-time:

So China is rich with cash, ready to bully the global oil market, while investment dollars are gushing into India again… two more of a million reasons to check out BRIC by BRIC, our all-out effort to profit from these faraway lands.

  “Soon after we arrived at the Taj,” Addison Wiggin writes from the famous Mumbai Hotel, “a sarapi-wrapped young lady delivered Chris and I personalized letters. Each informed us that due to state elections being held, it would be illegal for the hotel to serve us alcohol of any kind beginning at 5 p.m. on that day, ending 48 hours later. We found out later to that if our partners here in India were to keep the office open for work on election day, they risked being arrested, fined and possibly put in jail.

“’Can a democracy be a dictatorship at the same time?’ an Op-Ed asked in this morning’s Times of India in response to the draconian efforts the Maharashtra state had taken to boost voter turnout. The idea simply: If people weren’t allowed to work and didn’t have the option to spend the day drinking… they might turn out to vote. Right.

“In Mumbai, voter turnout was just over 40% -- respectable by some U.S. standards -- but down a bit from the last election, in 2004. ‘Worth two days without the hooch?’ might have been our Op-Ed title, had we been asked to submit one.

“When we asked one of our colleagues here if he voted or not, he said no and laughed. ‘Maybe if there were a category that gave me the option to choose “none of the above,” I would do so. But there isn’t.’

“‘Bureaucracy’ and ‘corruption’ are the two words we’ve heard most this week when asking what’s holding India back. In one example, a national auction for oil and drilling rights held on Monday closed with only half of the contracts even receiving bids. A conflict between the oil and energy minister and his brother have left many would-be suitors for the rights contracts unsure who’s calling the shots. This week, no one wants to put their own money down, in fear of losing it unceremoniously.”

  Back in the States, 81% of economists say the U.S. recession is over, says a National Association for Business Economics survey. The majority of respondents are signing the new status quo -- that the economy grew 3% in the third quarter. Interestingly, 54% said the economy won’t regain the jobs it’s lost during this downturn until 2012, and about a third say the worst is yet to come for home prices.

So outside of your job (your biggest source of income) and your house (biggest investment), everything should be just fine.

“We don't care what they said,” says Bill Bonner in The Daily Reckoning. “These are the same seers who missed the biggest single event in financial history. There are many banking crises, recessions, panics and defaults in the record books. But none were as great as the one that hit September a year ago. Most economists didn't see it coming; why should we trust them to tell us when it is going?

“Besides, they've got the whole thing wrong. It isn't a recession; it's a depression. There is no recovery from a depression; instead, the economy has to reinvent itself in another form. Things aren't going ‘back to normal,’ in other words. Because the period leading up to the crisis was not ‘normal’; it was a bubble. After a bubble explodes, you have a lot of debris to clean up. The bigger the bubble, the more damage it does when it blows up…

“Today, we are officially running our ‘Crash Alert’ flag up the pole here at the London headquarters of The Daily Reckoning. Cross Blackfriars Bridge and you might see if flapping in the wind, between the two huge gold balls on the roof.

“Our Crash Alert flag is out because stocks have become too expensive...and because this bounce should be reaching its apogee by now. Already, central banks are talking about cutting back on their efforts to sustain the bounce with easy credit. Australia led the way last week with a rate hike.

“It is also becoming clearer and clearer that the feds' efforts aren't really working. They can give money to their friends in the banking industry. They can give money to speculators who then make bets on the stock market, among other things. They can bail out major companies. But they can't really get much money into the real economy.”

  We’re with Bill, but the crash will have to wait for another day -- the Dow and S&P opened up 1% this morning. Intel got the ball rolling last night with an earnings beat, and J.P. Morgan -- the apple of the banking sector’s eye -- topped quarterly earnings expectations too.
 

  Commodities are up today. Oil nicked a 2009 high of $75 a barrel, but has backed of just a little since. Gold, even in spite of booming market optimism, hit another record high of $1,065 an ounce right at the N.Y. open this morning.

The dollar is still in the dumps. The dollar index is at 75.4 as we write, a fresh 52-week low.

  As you’ve likely heard, the Senate Finance Committee approved the first rendition of the Baucus health care reform last night. That would be the fifth and final congressional panel approval needed to move this thing to a vote by the House and Senate.

The Budget Office guessed that the Finance Committee’s version will cost about $830 billion, not too far off the House’s $1 trillion rendition. President Obama has promised that the bill he signs won’t add to the national debt. We don’t want to wade too deep into this mess, but if this administration can soak the rich and cut expenses to the tune of a trillion bucks, we’ll be damn impressed… and renewing our passports.

By the way, if you’re getting lost in all the renditions and alterations to this reform (we certainly are), here’s a good resource for keeping track. Even in this simple bulleted format… oy, what a mess.

  “The important Nobel Prize news last week,” writes our tech man Patrick Cox, “was the recognition of three American scientists for their role in the discovery of telomerase. More attention was garnered by the rather puzzling Peace Prize award, but that has become routine. The five Norwegians who pick the Peace Prize winners are specifically selected, it seems, by Norway's liberal parliament primarily to comment on and meddle in American politics.

“Regardless, the prize for medicine this year is extremely significant. Telomerase is the ‘immortalizing enzyme,’ produced by stem cells. When administered to adult cells, telomerase adds life-extending telomeres to the ends of a cell's DNA. There has been no more important discovery in the history of medicine.

“The list of scientists credited with the discovery is sorely short, having ignored the contributions some other critical researchers who have made crucial contributions to the current state of the science -- one of which runs a company in the Breakthrough Technology Alert portfolio. I'm glad, however, that the award will help bring attention to regenerative medicine.

“As more people learn what regenerative medicine can do, it will attract additional capital and accelerate progress. It will also, of course, push up the value of companies that hold important patents covering telomerase and other stem cell technologies.

“The most important patents associated with telomerase and stem cells are already in our portfolio.” Want the tickers? It’s not too late to be among the early investors… details here.

  “Support America!” a reader demands. “I am disappointed that you are considering moving your publishing company overseas.”

The 5: Easy… Addison and Chris are on their “New Silk Road Tour” to look for investment opportunities for our readers, partnerships for our new BRIC newsletter and possible locations for another satellite office (Agora has ’em in eight countries on six continents). Our HQ will remain in Baltimore... or will it? Heh.  

  “Label me confused,” another reader writes.

“You write about price deflation for years to come, consumer demand down and all. But that seems too simplistic to me. Please talk about the possibility of currency inflation with ever more dollars being dropped from helicopters upon our economy. Is this not, historically, a hyperinflation setup even as money velocity is low?

“I say consumers are not saving as much, as they do not have the cash or credit to spend. Taxes are up, food is up, even shipping rates are up, but wages are not. I maintain the high cost of medical care in this country is because it reflects/tracks the true value of our money. The cost of health care is currently not masked by importing it from a massive Chinese factory with cheap labor.”

The 5: Listening to all our editors and analysts every day, it sounds like no one is betting against inflation… they’re just not betting on it yet. As Bill Bonner reasoned, it seems like this deflationary bust still has a way to go.

Thanks for reading,

Ian Mathias
The 5 Min. Forecast

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