by Addison Wiggin & Ian Mathias

• Nukes in Russia, nukes in Korea, nukes in Iran… And $220 oil?
• China feeling pressure to let yuan rise… But does it really matter?
• U.S. “recovery” about to level off? The chart that gives us pause
• Main Street investors fleeing stocks… How to prepare for a correction
• “Partnoy’s complaint”… another wrinkle to the Lehman disaster

 
  Some days, while perusing news and e-mail from our contacts ’round the globe, we detect an underlying theme. Some days, the emergence of the theme makes little sense on the surface… but we proceed on the assumption nothing happens by chance.

Today, the theme is, unexpectedly, nukes.

Nuclear weapons, nuclear power… and go figure, each thread leads to Washington. Grrr. Let’s dig in…

  Today marks the start of no less than four diplomatic efforts to cut the number of nuclear weapons across the planet. We’ll spare you the mind-numbing details of each one, but Secretary of State Clinton is in Moscow to get the ball rolling. She’s talking with the Russian foreign minister about a successor to the 1991 START treaty.

In theory, both sides have agreed to cut a total of 1,500 more warheads from their arsenals. In practice, the Russians are prickly about this… because the U.S. still plans to install a missile defense system in Central Europe. (What if Russia wanted to put a missile-defense system in Cuba? Just asking.) If these talks stumble, all other bets are off.

But that’s not the only nuclear jawboning Washington is carrying on…
 

• South Korea is angling to revise its own nuclear power deal with the United States. Washington wants assurances that Seoul’s spent fuel can’t be turned into a weapon. Yes, the North Koreans have nukes now, but the U.S. doesn’t much care for the South to do the same as long as tens of thousands of U.S. troops are still stationed there
• The South Koreans have won contracts to build nuclear power reactors in the United Arab Emirates, shutting out U.S. firms. The U.S. ambassador to the UAE says he’s confident the Americans will get a piece of the action in the next round of bidding.

  Looming over all of this assorted nuclear news is the nagging prospect of the United States or Israel launching a war with Iran over that country’s nuclear program.

Scotland’s Herald newspaper trumpeted an exclusive this week about the United States shipping 387 bunker buster bombs to the Indian Ocean island of Diego Garcia. That would be a plausible staging area for an aerial attack. Adding to the tension: comments to Congress by Gen. David Petraeus, who oversees all U.S. military operations in the Middle East. He said Iran is giving aid and comfort to al-Qaida.

Thing is, Iran’s designs are much more complex than just sticking it to Israel or the United States. Byron King makes that point in his latest expose… weaving a tapestry of threads that add up to oil reaching as high as $220 a barrel. See how it could happen, here.

  April 15 is exactly four weeks away. And it’s not just the deadline for Americans to demonstrate fealty to the IRS. It’s also the day the U.S. Treasury issues its twice-yearly report naming which countries, if any, are currency “manipulators.”

We’re hearing growing buzz from Washington that Tim Geithner will take the fateful step his predecessors have hesitated to take and slap Treasury’s scarlet “M” on China. Unless, of course, China depegs the yuan from the dollar between now and then, which the White House would no doubt prefer.

Thus, the following pressure has been applied in the last 24 hours…

• The U.S. ambassador to China told students at a Chinese university the situation is “a real concern to people in my country”
• Sens. Chuck Schumer and Lindsey Graham, the 21st century’s answer to Smoot and Hawley, have revived a bill that would clear the way for higher import duties if Washington finds a trading partner is manipulating its currency
• Even the World Bank and the IMF are getting in on the act. The former just raised its growth forecast for China and thus recommended allowing a stronger yuan. The latter declared upfront the yuan is “undervalued.”

Put it together, and it reinforces the suspicion we shared last month that the Obama White House is aiming to boost jobs domestically by boosting exports -- which means a weaker dollar against the yuan, whatever it takes.

  Beneath all of this is an underlying assumption that China’s economy is an unstoppable juggernaut.

“The problem is, China has a bubble,” says our forex specialist Bill Jenkins. “It is inflating even as we speak, although the government is trying very hard to keep a lid on it. The bubble is similar to what ours was… real estate and housing” -- driven by Beijing’s own stimulus program.

Can China’s economy afford it? Bill says no. “And there has already been some evidence of it. China used its last round of stimulus to build the largest shopping mall in entire world. It now sits 99% vacant. The Chinese are not very proficient in allocating capital.”

“So they may be able to manipulate it for some years yet. But NO central bank, dealing with a FIAT CURRENCY, has ever won at this game.”

“In other words, while China may be able to keep the illusion of growth going for some time yet, it has bought into the same failed model of Keynesianism that the West has used. It is already combating bubbles, even though its official inflation rate is not in the red zone.

“If it continues to put the brakes on its red-hot economy, we can certainly look for a second dip into recession.”

  Judging by this morning’s report on leading economic indicators from the Conference Board, we may be headed that way already. The index has now risen 11 straight months. But the trajectory of the increase leveled off in February…

  The (heavily massaged) consumer price index (CPI) was flat last month, too. Over the last year, it had risen 2.1% -- a tenth of a point above Big Ben Bernanke’s sweet spot.

  The number of first-time jobless claims fell a teensy bit last week -- 5,000. That’s right in line with the forecast of outside analysts. Put that together with the CPI numbers and…

  U.S. stocks opened mixed this morning, with the Dow industrials up a bit and the S&P 500 down a bit.

Yesterday, the Dow exceeded the post-crash high it set on Jan. 19. The index now stands at its highest point in nearly 18 months.

  But if you’re keen to put your money in the pot, you should consider this fact first. Mutual fund managers yanked $3.7 billion out of stock funds during February -- more than canceling out the $2.7 billion inflow in January… and resumes 2009’s downward trend.

More and more, the word among high-power money guys is that a broad rally can’t go on for more than a couple months… at most.

Meaning, it’s time to get choosy about your stocks.

That’s why we recently had our editors record a series of exclusive videos… naming seven of their favorite picks for the rest of 2010. These videos go live on Monday, and you can secure your exclusive access via an offer we’ve never made before -- and, depending on results, we may never make again. Watch this space for details.

  The Canadian dollar is rapidly approaching parity with the greenback. The loonie trades this morning at just over 99 cents. Meanwhile the dollar index has fallen a bit below the 80 level, while gold is steady at $1125.

(Side note: Alan Knuckman’s Resource Trader Alert readers could have booked $1,100 this week on a gold call spread. Not bad for a little over four months. How about you? Want in on his next play? Here’s where to start. )

  Uh-oh. Congress is finally ready to hold hearings on the Lehman bankruptcy. Recall last week, an examiner appointed by a federal bankruptcy court found that Lehman engaged in accounting tricks to cover up its insolvency.

But in this case, we hold out a glimmer of hope the House Financial Services Committee will ask the right questions. "Either the SEC and the New York Federal Reserve failed to discover the ongoing accounting fraud at Lehman," says the committee’s senior Republican, Spencer Bachus, “or they turned a blind eye to the ongoing fraud.” The optimistically named Bachus even wants “Titanic” Tim Geithner to testify.

  Another dimension to the Lehman revelations is what’s becoming known as “Partnoy’s complaint.” A finance professor at the University of San Diego’s law school named Frank Partnoy first raised the issue this week. And now Jim Chanos, the hedge fund manager who made his name calling out Enron’s accounting tricks nearly a decade ago, is spreading the word.

It’s more than just a matter of Lehman making $50 billion in debt vanish from its balance sheet. “Lehman also couldn't reliably and consistently confirm the value of its holdings,” Chanos explains. “The company lacked any internal check on prices set by its numerous trading desks, each with its own methodology and the incentive to set optimistic prices on securities to be traded or held.”

Oy. It’s pretty hard for markets to function properly when the pricing mechanism isn’t allowed to do its job.

  “I can one up the Minnesota reader whose tax refund is being delayed,” writes a reader. “The IRS audited one of my partnerships, and after four years determined I was due a refund. When I submitted the amended return to New York for my state taxes, the bandits said I was beyond the statute of limitations and they wouldn't honor it.

“So I asked if they would have swept it under a rug if I had owed them money, and predictably the answer was no. Keep in mind I did not voluntarily file this return; it was instigated by their audit of me. So in New York, we have a one-way system in which you can be audited at any time with a one-way outcome favoring the government.

“If Thomas Jefferson were alive, he would challenge these crooks to a duel. ‘When the people fear their government, there is tyranny,’ he said. Kin Hubbard summed it up best: ‘Now an’ then an innocent man is sent t’ th’ legislature’."

The 5: Amen. Whatever happened to the citizen representative? That was a good idea, too.

  “Just this afternoon I had to cancel my subscription to Penny Sleuth out of disgust for Patrick Cox's defense of deadly drugs,” writes another one, apparently from a place we don’t often go. “Admittedly, I am proudly not in the mainstream regarding the use of poison, er, drugs in general. In my opinion, I believe 100% of ALL synthetic drugs should be banned. Then I have to read his crap in The 5 Min. Forecast too. Is there any escape?”

The 5: Genius… should we ban electricity, too?

  “Thanks for the thoughts in today’s 5 about the FDA,” writes a third, just a tad more sane. “Very interesting, indeed.

“It is difficult for one who has not engaged in clinical research to comprehend how difficult it is to develop meaningful data. The inherent variability of individual responses to medications requires rigorous statistical analysis to obtain any answers that are significant. Even with great care, the chronically understaffed FDA occasionally approves a new medication that later must be recalled because of serious unexpected side effects.

“Having spent some years at NIH in clinical cancer research, I have seen the problems firsthand and appreciate the FDA's caution. Mr. Cox has not had the benefit of that experience, making it easy for him to be critical of what he does not understand. In this instant gratification society, he would like to see results instantly, if not sooner.”

The 5: That’s probably true. But as Mr. Cox has said himself, he doesn’t mind dying -- “it just sucks getting old.” Time is of the essence, for some.

  “I’d like to know more about what is wrong with the FDA,” writes a fourth, “I can’t figure it out.

“Right now I’m writing to you from a hotel room in Germany waiting for neck surgery that will take place tomorrow. I’m an American getting a U.S.-developed artificial disc put in, but I have to go to Germany to get it done (at my own expense, of course). The excellent Stenum orthopedic hospital has been using this particular artificial disc (Spinal Kinetics M6) for five years with tremendous success, but our trusty FDA is years from an approval. Seems the FDA doesn’t allow consideration of data from outside the U.S., no matter how conclusive or compelling.

“The FDA recently approved two devices that are better than the procedure used before, but are quite inferior (old designs) for my circumstance, but even these approved devices are not covered by United Healthcare. That’s because the government doesn’t require insurance companies to cover approved procedures if they don’t feel like doing so. Therefore, I’m in Germany, where they have the most experience and the best technology. 

“Is it possible that our wonderful, all-knowing government is beginning to seriously retard the wheels of progress in I.O.U.S.A? My particular situation is not of direct concern to the overwhelming majority; however, my strong feeling is there are many other such hidden, self-inflicted cracks developing in the foundations of our country. And yes (gasp!), the media are too busy to report such issues to us. Sandra Bullock’s latest dress deserves to be front-page news, after all, and is far more interesting than the slow-motion crumbling of the American Republic.

“The waiting room here is full of Americans who have come to Germany to get a treatment that should be available in the States, but is not. The cost is the same as the 50-plus-year-old treatment that is the standard procedure covered by insurance in the U.S., so cost is not the issue. I’m sure somewhere there is either a story of ‘follow the money’ or FDA = CYA. Any theories on what is going on here?

“I’d like to understand.”

The 5: We would, too. This move toward collectivism and centralized control is troubling. And counterproductive. Sounds like you already know what is going on.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. “I feel that your whole message,” writes a fifth, commenting on our latest quixotic adventure, “not only of the Apogee, but of The Daily Reckoning or The 5 Min. Forecast, is very negative and worrying.

“I realize that the ‘state of the world’ is NOT good, but often after reading one of your publications I have to suppress the urge to build a bunker and lock the door behind me. I also realize that you have to be very ‘graphic’ to get through to some people, but would it hurt if you threw in some constructive tips and such between all your (justified) pessimism?

“If you are so displeased with the way your government handles the situation, you could, e.g., join forces with David Walker and the Peterson Foundation and organize some demonstrations in the style of the anti-war marches of the ’60s.

“Just an idea, but if you use your whole subscriber base as an instrument to ‘get the word out,’ you might have a shot to wake enough people up.”

The 5: You’d think, right? We’ve recently been invited to address students in the MBA program at Towson University here in Baltimore and the communications directors of the “Blue Dog Democrats” on Capitol Hill. We bitch and complain a lot. But it doesn’t seem to have any effect. For the most part, we’re dismissed as pessimistic. Thanks for pointing it out, though.

If you’d like to comment on Apogee and aren’t part of the program, here’s how to get involved.

P.P.S. In the meantime, check this out: Yesterday, Greg Guenthner suggested to readers of his Bulletin Board Elite service that they sell their position in ticker AFOP for a 50% gain. That’s on top of the 65% gain (in just two weeks) that came the day before.

Clearly, Gunner’s revamped strategy for 2010 is paying off. To celebrate, we’re offering 5 Min. readers an exclusive deal on Bulletin Board Elite for the next 24 hours. We won’t go into the details right here, but you can call my friend John Wilkinson for all the details at (866) 361-7662. Fair warning: We have a strict membership cap… and only 27 spots remain right now. If you’re number 28, you’ll have to go on a waiting list. And if you’re an existing BBE subscriber, we have a special offer for you too. Call John for the details. But this deal’s only good for another 24 hours.

Also… if you have questions about the over-the-counter market or bulletin board stocks, by all means fire them at us... we’ll be broadcasting our answers and questions of our own in a couple of weeks. Climb on board.

P.P.P.S. One last item… easily the most important of the day. Our office away from the office is a swanky little Irish joint known as Mick O’Shea’s located on Charles Street in lovely downtown Baltimore. They serve up the Pinot upon entry and always have the best specials on offer. We don’t think we’d survive the office commute without them.

A couple of years ago we managed to get Trish, our favorite lunchtime bartendress, voted in as Baltimore’s Best Bartender. The vote is on again. If you appreciate the words you read in the 5 Min. Forecast, please do us a big one and vote here for Trish from Mick’s. She has a mere 126 votes, and the leader has nearly 600.  Voting ends tomorrow… at 5 pm. So get on it. Please.

by Addison Wiggin & Ian Mathias

• Fed keeps rates ultra low… Dan Denning forecasts the FOMC’s next "underhanded" move
• How the seemingly benevolent FDA hurts you every day… and crowds out growth in U.S. health care
• Resource traders take note: Another “once in a generation” flood threatens the U.S.
• Plus, your thoughts on our latest venture: Apogee Advisory

  As the legend goes, some 1,600 years ago a Celtic missionary banished the serpents from Ireland, using little more than divine assistance and his walking stick. It’s in fancy paintings, so it must be true:

Were they really snakes, or rather an unpopular religious sect? Was St. Patty even Irish?

We don’t care. It’s a good excuse for a drink… and inspiration to chase out some modern-day slithering here in I.O.U.S.A.:

The Fed did a whole lot of nothing yesterday at the FOMC meeting. Rates stayed the same, and one year after coining the phrase, the Fed insisted rates will stay “exceptionally low” for “an extended period.” In short, it was a snoozer.

“What in the shillelagh is the Fed actually thinking?” Dan Denning asked in response in this morning’s Australian Daily Reckoning.

“To be clear, a shillelagh is an Irish cudgel, used to beat things or threaten drunken bar patrons on St. Patrick's Day. Ben Bernanke is not Irish, as far as we know. But the Fed has used its digital printing press to beat 10-year interest rates into submission. That's kept a lid on U.S. 30-year mortgage rates and prevented a further implosion in the American housing market…

“But do you really think the Fed can afford to withdraw its support of the U.S. mortgage market? The Fed's $1.75 trillion quantitative easing program has kept the U.S. housing market from totally imploding. A spike in mortgage rates would dry up already anemic U.S. housing sales. Prices would fall. Millions more who are hanging on for grim death would see their mortgages go under water. And they would begin to walk away.

“Putting aside the implications for bank collateral, we're talking a serious systemic collapse of the U.S. housing market…

“We think the Fed will find a way to fund, in some underhanded fashion, a new entity to centralize the risk of the U.S. mortgage market. Risk has been concentrating in fewer and larger institutions over the last few years. But the mortgage debt is still too toxic to be borne by any institution that wants to appear healthy and well capitalized in the market.”

  And just in time to support the Fed’s thesis, producer price inflation (PPI) declined in February, the Labor Department reports today. Lower energy costs helped push the PPI down 0.6%, roughly double analyst expectations. That’s also the biggest fall, the government claims, since July.

Year over year though, it’s clear prices are rising again. Producer prices are up 4.4% in the last 12 months.

  Both the short-term absence of inflation and the Fed’s absence of judgment are helping bump stocks a little higher. Over the last 24 hours, the S&P has managed to climb about 1%. These are familiar bubble-era trends…

  The “crowding out” effect we mentioned last week is a serious problem for breakthrough technologies, too, says our tech adviser Patrick Cox.

“When, as is the case now,” Cox asserts, “government uses its coercive powers of taxation and financial regulation to control capital, there is far less available to markets for sustainable economic growth. As a result, the economy suffers.”

Exhibit A: the FDA and its regulation of American drugs.

“The problem is this: Regulators impose costs that are extremely difficult to measure. We hear about birth defects caused by thalidomide when pregnant women ignored warning labels and used the anti-nausea drug to self-treat morning sickness. We don't hear about the people who died of malnutrition because thalidomide, the only drug that let them eat normally, was yanked off the market. We hear about side effects caused by approved drugs. We almost never hear about the suffering and death caused by not approving drugs. The pro-government mainstream media, of course, inevitably fail to present regulatory issues fairly.

“In addition, economists have long pointed out that regulatory agencies tend to be ‘captured’ by those they regulate. Over time, due to various factors, regulators tend to protect the established interests of the industries they regulate. This was clearly the case with the home mortgage industry.

“In the case of drugs, the same dynamic exists. The barriers that must be vaulted by new drug makers are enormous. These barriers are both time-consuming and expensive, which is often the same thing. The best way to understand FDA rules, in my opinion, is to realize that the imposed costs are just high enough to keep Big Pharma safe from most upstart innovators.”

Despite it all, Patrick has done a fine job helping his readers thrive in such an environment. Just this week, one of his core holdings in the Breakthrough Technology Alert portfolio soared so high so fast that other regulators -- this time the SEC -- had to halt trading. Suffice to say, it feels good to own a stock with such a “problem.” Have Patrick help you with your tech investments, here.

  Tech milestone: For the first time last week, Facebook beat out Google for the most visited site in the U.S. The social networking site attracted a mighty 7.07% of all web traffic, edging out Google by a few hundredths of a percent.

Year over year, Facebook visitors have skyrocketed 185%, while Google traffic has increased just 9%.

Oy. We’ve about had it with people talking about Facebook. Are we alone? Or just cranky…

  Attention resource investors: Another flood is now forecast to hit the nation’s breadbasket. Last year, the Dakotas and Minnesota had to fight record-setting high water. Now the National Weather Service forecasts the Red River to rise 38 feet in Fargo by the week’s end -- that’s 20 feet over the flood level and 3 feet short of last year’s record.

“This ‘once in a generation’ flooding two years in a row has our attention,” notes our resource investor Alan Knuckman. “It reminds us that the upside risks for price pressure often outweigh the chances of ideal crop conditions. Though last week’s USDA numbers gave grains a downward slap to add to the January punch -- if history is a guide -- prices will move higher similar to this critical time last year. Beans are holding above $9.00 for now, with corn finding support at $3.60 almost precisely following 2009. If history is destined to repeat itself, we could see corn another dollar higher and soybeans pushing into the low teens by June.”

  Rising stocks and a slightly weaker dollar are helping commodities of every stripe this week. Oil is back up to $82 and change. The front-month contract got a little bump this morning from OPEC too, which announced it is quite content with current prices and won’t be altering the world’s supply of oil.

  Gold is doing well, too, up as high as $1,133 an ounce this morning. All the pieces are in place for the yellow metal today… rising long-term inflation, crazy-low interest rates, etc.

  “I enjoyed reading your latest Apogee,” a reader writes, referring to Apogee Advisory -- our newest publication, which was released Monday. “I thought I would share a comment that my daughter (16-year-old) stated in the middle of last night.

“She had just finished reading an article online at The New Yorker about Tim Geithner. Her comment was a summary that suggested Mr. Geithner’s, and, therefore, President Obama's, policies are working, but they (critics?) aren't giving the administration credit.

“I made the analogy that if we, her parents, took a million-dollar loan on a $350,000 house and she brought her fiends over, it would give the impression that our family is financially doing great. I asked her if she would like the idea that she had to start help making payments on the loan in two years when she was 18, just so that we could keep up appearances that we were doing well to her friends and neighbors. Somehow, she seemed to then grasp a whole different perspective.

“I also told her that Mr. Obama made us feel dirty just because we worked long hours for a good living and don't want to pay higher taxes. We would like to think that we are willing to look after our own finances, instead of the government thinking it can do it better. Also, we would like to let you know that we have been living in our SAME house since 1989.

“I apologize for being long-winded, but I was made to feel stupid by all of the individuals who ‘flipped’ real estate during the boom while we didn't participate.”

  “Thanks for sending along the first issue of Addison's new publication,” another writes. “It was thought provoking, a little terrifying and, overall, an interesting read.”

  “Last night, I read through the maiden issue of the Apogee Advisory letter,” the last writes. “While I thought the material was important and timely, my primary reaction was that most of it was a rehash of stuff I had read from Chris Mayer, Bill Bonner or Joel of Taiwan within the last few days. I also felt that this 13-page tome was pushing at the borders of prolixity; long on word flow, but short on specific action-oriented ideas.
 
“Don’t get me wrong: I still love the concept. I just didn’t feel that this first issue has really ‘gotten on its feet’ yet. I am hoping that as Apogee gains momentum and gets its bearings, we will be reading more insightful ideas about how to cope with this nutty and often scary world (by way of short, specific nuggets from various and unexpected sages around the world), and less broad-brush rehash of geopolitics.
 
“Go get ’em, Addison! “

The 5: If you’d like to help us get Apogee on its feet, please register your comments and complaints, here.

Slainte,

Addison Wiggin
The 5 Min. Forecast

P.S. Gunner’s Bulletin Board Elite traders had a chance to sell their ticker ESPH for 65% gains yesterday… a trade that paid off in just two weeks. That’s good livin’.

If you seek similar penny stock returns, we have an important announcement. Because of market demands and a skyrocketing demand for actionable information, Gunner retooled BBE to include Sunday buy signals and Wednesday updates. He’s refined the trading strategy, and his results are bearing juicy fruit.

To illustrate the important new improvements to the service, we’re going to host a free online broadcast, in which he’ll dispel penny stock myths and answer your most-pressing questions. All you have to do is sign up, right here. And don’t forget to include a small-cap question you’d like answered… we’re all ears.

P.P.S. When all our editors and analysts were in town earlier this month, we asked them for their No. 1 stock pick for 2010… and captured their answers on video. If you want to see it, stay tuned.
 

by Addison Wiggin & Ian Mathias

• Stocks are a drag, so The 5 finds two bull markets elsewhere -- food and bombs!
• China’s other “nuclear option” -- U.S. Treasuries… one reason why foreigners should be selling American debt
• John Williams on the suspicious “job creation” surrounding the U.S. Census
• Plus, The 5 examines a global first -- the New American Brain Drain

  Stocks went precisely nowhere yesterday. In fact, for all of 2010 so far, the Dow and S&P 500 have done just about squat -- a 2-3% gain, at best.

Traders will say they’re all holding their breath for today’s FOMC decision, which, as our pal Peter Cooper forecast last week, might include a surprise rate hike. But really… stocks are boring these days. So let’s find a bull market somewhere else more traditionally boring.

  Buy food, Chris Mayer told his Special Situations readers yesterday. “The world has an increasing demand for food,” he wrote, citing some nuggets from the CEO of one of Chris’ favorite ag stocks:

• The U.N.’s estimate that world population will grow from 6.8 billion people to 9.1 billion people by 2050, with Asia and Africa making up 80% of the increase  
• The world will need to produce an additional billion tonnes of cereal crops and 200 million tonnes of meat. That’s a 70% increase in food supply 
• Global diets are shifting from one heavily weighted toward rice to one that includes more meat, which has an exponential effect on grain demand
• Scarcity of arable land and clean water mean that most of the new production (about 80%) will have to come from increasing yields from existing farms.

“In that kind of world, a global agriculture powerhouse with a focus on bringing food to markets is the stock to own. This next chart shows you what the global trade flows for grain might look like over the next decade. Note the large import markets of South America, Africa and the Middle East and Asia.”

Chris thinks he’s found another ag stock that meets his criteria for the Special Situations portfolio. Find out what the stock is and why it applies here.

  Here’s another global bull market, this one a little more explosive -- weapons. The average volume of global arms sales rose 22% over the last five years, the Stockholm International Peace Research Institute reports.

Interesting details in this report… the U.S., the great global police force, remains the world’s biggest exporter of arms. We are responsible for some 30% of the global trade. Russia’s bombs and guns are close behind, with a 23% stake.

The world’s biggest importers rank in this order: China, India, South Korea, the UAE and Greece. South America saw a stunning 150% spike in arms sales (ahem, Hugo Chavez). Exports to Southeast Asia, notably Vietnam, are up quite a bit, too.

And just how much money is the world spending on weapons? Heh, c’mon… governments don’t disclose that information anymore. It’s none of your business anyway… right?

  Another thing “pertinent to all the Chinese rail building,” Byron King says, adding another layer to our note on 19,000 miles of rail built with stimulus funds over the past 18 months, “it's of interest that the Chinese have their nuclear weapons under the excusive military control of the 2nd Artillery Corps of the People’s Liberation Army. That is, there's very little ‘civilian’ control of the weapons, such as we've grown to love here in the U.S. and, to some extent, in Russia.
 
“China's nuclear warheads are stored deep inside a mountain of granite, far in the Chinese interior. Almost all shipments of nukes and the associated missiles are by rail.

Which rail passenger do you think is more valuable
to the Chinese government?

“Thus, a nice, new high-speed rail system serves a strategic purpose for China -- quickly dispersing nuclear missiles and warheads during time of crisis.”

Fun stuff.

  China -- executing another of its nuclear options -- cut its holdings of U.S. debt in January for the third month in a row, the Treasury announced yesterday. Chinese holdings fell $5.8 billion during the month, to a mere $889 billion.

China is -- by a long shot -- still the world’s biggest holder of U.S. debt. The Treasury mistakenly reported Japan had taken the honors last month. Sorry, not a mistake… they are just “revising” the tally. Oy…

One other worthy detail: Net foreign purchases of private corporate bonds fell $24.8 billion in January, the biggest fall on record. Perhaps we’re missing something, but that sounds like a big fat vote of no confidence in the current state of American industry.

With legislation like the following working its way through the system, how can you blame investors?

  The most ambitious financial reform bill in American history is one step closer to fruition. The soon-to-be erstwhile senator from Connecticut, Chris Dodd, unveiled the Senate version of the Financial Regulatory Reform Bill yesterday. The 1,336-page beast remains the largest financial reform since the Depression Era.

Frankly, there are simply too many provisions in there for us to recount… a new consumer protection bureau within the Fed… a new systemic risk council… executive power to liquidate “too big to fail” companies… a new “financial rescue fund” financed by big banks… derivative regulation… new executive compensation laws… MBS securitization requirements… and on, and on, and on.

There’s a summary of it here. Fair warning, though. This thing has yet to be altered by the Republican minority. Who knows how big this behemoth will get?

“We’ll try not to screw it up too badly,” one of the authors of the bill, Sen. Mark Warner of Virginia, told the concerned folks gathered at a meeting of the financial publisher’s Roundtable hosted by the Motley Fool back in October. Heh. There’s still time… 

  New home construction plunged almost 6% in February, the Commerce Department reports today. This one makes sense… given the snow around the Mid-Atlantic, Northeast and much of the South, you’d be nuts to break ground last month.

But still, building permits, which shouldn’t be affected by bad weather, fell 1.6%.

Also, the total number of homes under construction fell to 492,000, the lowest on records dating back to 1970. That’s bad for the “recovery,” but a good thing, we say… why build a new place with such a glut of cheap inventory?

  “In the last week, I have seen heavy public hype of the large jobs gains ahead,” notes government stats watchdog John Williams, “comments to the effect that Census hiring will jump-start the economy, even a wire-service story referring to the Census as a government economic-stimulus plan.

“The U.S. Census to be conducted as of April 1, 2010, will have fleeting impact on employment and negligible impact on the economy. While hundreds of thousands of part-time Census jobs will spike payroll employment in March through May 2010, they all will be lost in sharp (hundreds of thousands) payroll losses in June through September. That, at least, is the pattern of jobs change around the 2000 Census, which also was conducted as of April 1. Details of temporary Census jobs patterns seen around the last two Census periods are available from Bureau of Labor Statistics (BLS).

“I would not take seriously anyone who is touting the pending jobs surge but not adding some qualification as to the temporary nature of Census impact…

“The Census is not an economic stimulus package being put forth by the Obama administration. It is a decennial survey mandated by the U.S. Constitution and has been conducted accordingly every 10 years since 1790.”

  Meanwhile, the real jobs -- or at least the people that we need to employ -- are fleeing the U.S. In recent years, foreign students snagged 60% of engineering doctorates in the United States. If you widen the pool to doctorates in engineering, mathematics, computer science, physics and economics, foreigners still account for 50%...

There was a time when these students exited the academy and stayed stateside. No more. “The United States may be experiencing the first brain drain in its history,” Vivek Wadhwa, a professor at Duke told us.

In 2009, Wadhwa was among four researchers from Duke, Harvard and Berkeley who compiled a survey of more than 1,200 foreign-born students for the Kauffman Foundation. The number of Chinese who plan to stay is now just 54%, while the number of Indians who expect to remain is 58%.

What’s more, only 7% of Chinese students surveyed and 25% of Indian students believed the American economy’s best days still lay ahead. But overwhelming majorities of both Indian and Chinese students believed their home country’s best days still lay ahead.

We wrote about this American brain drain -- and other major demographic shifts in the world today -- in the first issue of Apogee Advisory. Check it out for yourself, here, and pass along your suggestions accordingly. Thanks.

  “I always file my taxes in October instead of April, but always pay the taxes due on time,” a reader writes. “My accountant inadvertently sent my state taxes in with the ‘apply refund to next year's return’ option instead of ‘send me a refund.’

“I filed the paperwork with the state of Minnesota to correct the error and submitted it the last week of December 2009. The first response I received was only after having my accountant contact them in the middle of March. The response I received was that it would take them 120 days to give me a decision. That is four months on top of the 2½ months the Minnesota Department of Revenue sat on their hands waiting for me to ask about my own return.
 
“The amount I am owed is roughly $80,000, which is the probable reason for the delay, as they don't want to give that much money back. My friend who has, basically, a very decent fixed income from a top IT firm received his refund electronically within a week of filing his return. Of course, his refund was more on the order of $500.
 
“Most observers may think that there is more to the story about the delay in my refund. Sadly, there is not. I am not being audited or anything of that nature. I am on the up and up with the state, and my only error was not double-checking to make sure my accountant checked the correct box for my refund. Since my refund is a result of an ‘amended’ return, although the box being checked is the only amendment, the state is taking its sweet time, using my funds to pay back my buddy and other fixed-income people subject to withholding tax.
 
“I suppose it is politically more ‘expeditious’ to piss in one voter’s pickles and use the refund to help return other voters’ monies. By my calculations, they are able to float 160 more people like my friend, and it only costs them alienating one voter. Ah, the perversities of class warfare.

“Anyway, I went the long way around the barn to say... add Minnesota to your list of states withholding tax refunds  please.”

Thanks for the heads up… we think. Ugh.

Addison Wiggin
The 5 Min. Forecast

P.S. During both the tech bubble and bust and the housing disaster, we noticed that the personal wealth advisory business -- with those guys with all the letters after their names, i.e., CPA, CFA, etc. -- were underserved with alternative ideas about what was really happening in the world around them.

“Why should we listen to investment advice from people who never saw the crisis coming in the first place?” is a staple question we get these days during radio and TV interviews.

It’s a fair question.

Many -- or may we be bold enough to say most -- of the financial advisers who’ve hung up their shingles in your local strip mall are more concerned with what the mainstream finds acceptable than actually telling you what’s happening with your money. If they’ve given you “acceptable advice” and it turns out to be wrong, they’re safe… because “everyone was doing it.”

In one respect, we’re grateful for this willful ignorance. It allows us to make a business of publishing independent and actionable ideas where others fear to tread. On the other hand, it’s a travesty. Not unlike Congress. When we talk to members of Congress about the deficit spending in Washington or the runaway national debt, they privately agree that they need reign it in… but then party apparatchiks get involved and the system of earmarks takes over… what comes out publicly is anything but responsible.

In an effort to provide alternative ideas directly to the financial advisers themselves, we’ve partnered up with InvestmentNews -- a newspaper geared entirely for the CFA crowd. We suspect not everyone who reads that publication is going to agree with us, but we at least hope to make them think. The Daily Reckoning will be featured on the home page of the publication in an ongoing syndicated blog site. You can check it out here… and be sure to tell you friends in the business about it. Thanks.
 

by Addison Wiggin & Ian Mathias

• Dollar gets ambushed… Chinese government, “Black Swan” and Moody’s fire shots across the bow
• Dan Amoss with a Chinese problem big enough to change “the consolidation of state power”
• America’s savings crisis: States out of money to pay tax refund, individuals woefully unprepared for retirement
• Plus, Byron King with a great (yet often overlooked) new energy frontier -- Namibia

  “What I don’t understand,” China Premier Wen Jiabao begins today’s 5, “is depreciating one’s own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is protectionism.”

There was a time, long ago -- like way back in 2007 -- when the only mud slung from the Far East came from the hands of “radical” professors and low-level government officials.

A year ago -- almost to the day -- Wen expressed his first formal “concern” with the dollar, the “safety of [Chinese] assets” and America’s ironic demands that China get its currency in order.

Yesterday, at the close of the annual National People’s Congress, he turned it up a notch: “We are very concerned about the lack of stability in the U.S. dollar. If I said I was worried last year, I must say I am still worried this year.”

  “We are facing an environment with a huge amount of debt,” our friend Nassim Nicholas Taleb said in a speech in New Delhi -- just as Wen was dishing dirt on the dollar. “The next mistake is going to be overprint, which is going to be the way out for them, which is why I fear hyperinflation.”

  “If there is inflation,” Wen ominously added, now referring to his own country, “plus unfair income distribution and corruption, they will be strong enough to affect social stability and even the stability of the state’s power."

Inflation is already rearing its ugly head in China. And lord knows large income gaps and corruption are no strangers there.

  “An authoritarian government,” warns Dan Amoss, “with control over a printing press and a banking system can sustain the unsustainable for much longer than skeptics expect. Imagine how much bigger the credit and housing bubbles in the U.S. could have grown if politicians, rather than risk-averse bankers, had control over the banking system. Markets force investing mistakes to be corrected quickly, while politically driven economies compound investing mistakes until they run into insurmountable resource constraints, or destroy confidence in the integrity of the currency.

“As long as the status quo in China remains, artificial pressure on commodity prices will likely remain in place, with periodic pullbacks. If Western consumers’ appetite for Chinese exports wanes (which is likely), then the Communist Party will likely redouble its infrastructure stimulus to keep a restive population in a state of ‘harmony.’

“With yesterday’s announcement that China’s money printing and lending is seeping into its consumer price index, we’ll probably see a more aggressive effort to tap the brakes on the Chinese banking system. If so, we could easily see a sharp decline in the prices of steel and aluminum. China is normally a large net exporter of these products, but its stimulus plan has directed much of its production toward office towers, autos and bridges.

“With the long-term trend toward urbanization, demand for steel and aluminum will likely be up, but in 2010, we could easily see a free fall in pricing with all the new low-cost production capacity coming online.” Count on Dan to have his Strategic Short Report readers ready for such a decline. If you want to play these trends for maximum gain, see details here.

  The oddly relevant Moody’s warns today there will soon be “downward pressure” on the U.S. AAA credit rating.

“If [the budget deficit] trajectory were to materialize,” the rating’s agency disclosed after examining last week’s Treasury Budget, “there would at some point be downward pressure on the triple-A rating of the federal government.”

“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” added Pierre Cailleteau, Moody’s managing director of sovereign risk. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”
 
We won’t hazard a guess as to what algorithm, chicken bone or tarot card reading inspired Moody’s to issue this press release today, instead of last week… last month… last year … or last decade.
 
Still, that makes for one U.S debt “warning shot” each from Fitch, S&P and Moody’s in 2010.

  Despite the notable forecasts above, the dollar index is a touch stronger this morning.

Or we should say the euro is lower.

Euro traders are still antsy over a Greek implosion, and this weekend yielded no major developments in EU efforts to bail the Spartans out. Thus, the dollar index rose a few tenths of a point, to 80.1.

  “The Swiss franc rose to its strongest level in nearly 1 1/2 years against the euro this morning,” notes EverBank’s Chris Gaffney. “A Swiss government report showed annual producer and import prices declined at the slowest pace in more than a year, dampening fears of deflation.

“Economic growth seems to be taking hold, and the Swiss National Bank has been quiet in the currency markets, letting the franc appreciate. The SNB sold francs last year in order to hold down its appreciation versus the euro, but they seem to be willing to accept a higher franc given the recent economic data.

“With the Greek debt problems continuing to keep the euro volatile, investors may be wise to look at the Swiss franc as an alternative.”

  Gold is holding tight today, considering the dollar’s little rally. The spot price is hanging in at $1,105. Oil, on the same pressure, is down almost 2%, to $79 a barrel.

  “Good news!” write Joe Weisenthal and Kamelia Angelova at the Business Insider this morning, picking up on a theme we’ve been following for a decade, “The Federal Reserve announced that capacity utilization is ticking back up, a sign our idle factories are starting to hum again.

“The bad news: as shown by the blue line, even during boom times, peak capacity utilization continues to trend lower, and has been since the peak in the late ’60s.

“What's interesting is that capacity utilization and the employment rate used to be tightly correlated, but the employment rate during the last two peaks looked much stronger than what the capacity utilization rate might have predicted.

“The last two peaks were also major bubbles (dot-com and real estate).

“Bottom line, if historical trends stay in place, capacity utilization won't even rise to the last level of the last boom. So if we want anything approaching full employment, you better pray for another economy-distorting bubble.”

We expect that bubble will be in alternative energies and green tech, replete with the charlatans and hucksters that were common in the last two. We intend to ride the wave, but will be wary all the while. And keep our eyes peeled for advances in old-school energy, like this next bit, too:

  Namibia is becoming one of the great new energy frontiers, says the intrepid Byron King. You may already be aware of the nation’s compelling offshore oil and gas opportunities. In fact, Byron’s Energy & Scarcity Investors are up 178% on the Namibian offshore play we were writing about two weeks ago.

“There’s a whole lot of uranium there, too,” Byron told his readers. “Namibia is quite underdeveloped. It is a large nation in terms of geography. Its area is almost 319,000 square miles. That’s over 500 miles wide and 600 miles from north to south. Namibia is not quite as large as, say, British Columbia. But it’s 25% larger than France.

“And the population? It’s pretty small. There are only about 2.1 million people in Namibia, or about the same population as the city limits of Paris, or the metropolitan limits of Vancouver. Just imagine what it’d be like if the rest of, say, France or British Columbia were almost empty. Wow.

“Much of Namibia’s population is located in and around the capitol city, Windhoek. If you do the math and think it through, you can see how Namibia boasts one of the lowest population densities in the world.

“So we have a large, dry, underdeveloped nation, with not a lot of people. Add to that the fact that Namibia is quite underdeveloped. The flip side of that is that there’s immense opportunity there.”

Byron just gave ESI readers the ticker for a company that’s early in this coming development -- one with all the critical African permits and roughly 75.5 million pounds of measured U308. Quite an opportunity for nuclear bulls… get the details by subscribing.

  Four more banks failed late last week, bringing the yearly total to 30. We note a rare Thursday closure, of LibertyPointe Bank in New York. The employees are predominantly Jewish, and the FDIC didn’t want to botch their Friday evening Sabbath plans.

  If you’re expecting an income tax refund this year, don’t hold your breath. Budget officials in Alabama, Hawaii, Idaho, Kansas, North Carolina and New York have already announced plans to delay tax refunds.

Heh, with a budget shortfall of $9 billion, how does New York expect to pay out $500 million in refunds? We certainly don’t know… nor can we say why California and Illinois aren’t on that list. The Golden State delayed returns and ultimately issued billions in IOUs last year.

  Just 16% of American workers are “very confident” they’ll have enough money to retire, says a survey today from the Employee Benefit Research Institute. Of those already retired, just 19% say they aren’t worried about running out of cash.

And worst of all, 31% of respondents have saved nothing for retirement -- not one cent. While we don’t know for sure, we doubt the suits at EBRI ventured into neighborhoods like west Baltimore… thus, that number is probably much, much higher.

Even those who have saved, the majority -- 54% -- have less than $25,000 stashed away. Speaking of which, we have one resource in particular that’s very useful for retirees and those looking for reliable income. Look here.

  “I ran into financial hardship,” a reader writes, referring to the “wrong house repos” happening at Bank of America, “and started getting late in payments. BoA was my new mortgage holder after it bought my loan from Quicken Loans.

“It became clear that we would not be able to keep up our payments. So we contacted a realtor friend who knew our situation and they suggested a short sale based on hardship. They had helped others in the past and knew what to do. They even have a person doing just that. We decided the two years against our otherwise perfect (over 40 years) credit would be better than seven years.

“I submitted the required paperwork and supporting documents [to BoA]. I resubmitted it via Internet when requested to do so. My realtors did the same. I was told to call and ask for a postponement of the foreclosure sale date. I did so. In five different calls on five different days, from five different reps, I received the same answer... we have no information that you have submitted on your loan... and you cannot request postponement except seven days before it is to occur. Fine, I marked the date on my calendar.
 
“Meanwhile, my realtor could not get a negotiator assigned, and had to resubmit ALL of the forms that they had sent in. That was crazy.
 
“I called in on the seventh day before the foreclosure and requested the postponement based on short sale with approved buyer (contract). They said they filled out the form and sent it to the short sale department (Equator) for assignment of a negotiator... we had been told about 15 days before that that a negotiator would be assigned within five-10 days. I was told to call back in two days to verify that the postponement had taken place. I did so, same number, and they could find no record of it... or the application. I asked to please put it in now and was told that this was awfully short notice and they weren't sure it would go.

“I explained the past trouble and they said they would submit it again. I called back two days later and was told that they didn't see it on the computer, but they did see where a negotiator had been assigned... call back the next day... but the next day, before I called, at about 8 a.m., I got an e-mail from my realtor that said when they checked, they were told that the house had been foreclosed and was no longer mine.”

The 5: While we may empathize, historically speaking, you can expect reports of callous behavior of banks and nameless employees within to be on the rise.

  “A friend of mine told me about your 5 Min. Forecast,” the last reader writes. “I have read the last week’s, and I think it is great. How can I receive this each week?”

The 5: Thanks. The best way is to be a paid subscriber of one of our services. If you are, we’ll do you one better and e-mail The 5 to you every day. Another way is to agree to provide useful feedback on our newest service, Apogee Advisory. The details of this second offer can be found, right here.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. It ends tonight -- at midnight, to be precise.

So if you haven’t yet read all the details of our very significant discount on Options Hotline, I urge you to do so right now.

Click here or miss out.
 

by Addison Wiggin & Ian Mathias

• Last word on Lehman: “Repo 105” and the man who looked the other way
• Numbers confirm massive government debt is crowding out private investment… Doug Casey on a coming “cataclysm”
• And just who’s buying all that government debt anyway?
• Byron King on those late-night “sell your gold” TV ads… and a smarter approach
• Foreclosures “en masse” -- a reader’s forecast based on painful personal experience

  Sifting through the day’s developments -- a postmortem on Lehman, a routine Fed report, an item on Fannie and Freddie -- we detect a commonality. No longer is “TurboTax Timmy” a suitable moniker for our Treasury secretary.

Na, it’s more like “Titanic Timmy,” the captain of an enormous sinking luxury liner.

Timothy Geithner breaks out the Jedi mind trick… again

  Let’s begin. A court-appointed investigator looking into the collapse of Lehman has just released his report.

Lehman used an accounting trick known as “Repo 105.” The trick made $50 billion in debt vanish from the balance sheet during the two quarters leading up to Lehman’s collapse... with no notice to shareholders. The report labels the move “inherently improper.” Ouch. In officialese, that’s pretty strong language. The suits who occupied Lehman corner offices at the time probably feel really bad about themselves now.

The New York Fed, then under Tim Geithner, ran three “stress tests” on Lehman during this period… and it flunked all three times. In the end Lehman was allowed to design its own stress test, which it miraculously passed.

And that was the end of it. No corrective action required on Lehman’s part. Until the market handed it the high hard one. Good on the market. But you have to search far and wide this morning to find someone in the business press who’s asking what this means for the banks still standing after the panic of ’08.

Why should they? Citi’s back above $4 now. Buy!

  Meanwhile, the Federal Reserve is trash talking the Treasury Secretary too. Two days ago, Geithner insisted on Capitol Hill that his department’s massive borrowing was not -- repeat, not -- crowding out private investment and crippling recovery.

Cue the Fed’s quarterly flow of funds report yesterday…

The report confirmed everything common sense would tell you: The crowding-out effect is in full force:

· Business debt in 2009 fell 1.8%. The figure is now its lowest since the 1991 recession… good
· Household debt fell 1.7% -- the only annual decline in the data, which go back to 1946… even gooder
· State and local government debt grew 4.8%… umn… not so good
· Federal government debt grew 22.7%… yikes.

  As we explained to our friends at Odyssey Marine on Monday, the predominant theory requires government to step in, borrow and spend where consumers and corporations no longer think it’s prudent.

When the economy returns to health, tax receipts will go up, and the government will then have the resources to repair its dismal balance sheet. Unfortunately, since the ‘supply side revolution’ of the early ’80s, this second part of the equation never gets attended to. Since the Panic of ’08, debt accumulation has gone stratospheric – as this chart drawn from the flow of funds data demonstrates…

Not only is there “crowding out” going on… but it’s not simply current tense anymore. We’re “crowding out” future economic activity at a rate never seen in U.S. history before.

  Geithner, predictably, backed up his assertion that “crowding out” is not happening by gleefully noting the government can still borrow at rates that are “really remarkably low.”

Well, yes, banks can borrow at “really remarkably low” rates too -- next to nothing, in fact. As can mortgage seekers… and small businesses… they just aren’t of a mind to borrow much right now. But that’s another story.

  “It’s clear that the government is stretched too thin,” writes Dan Amoss this morning. “The illusion that it has unlimited resources will soon wear off. Its continued access to cheap financing won’t last for more than a few years. This is why the 2008 bailouts should have taken a much more ‘triage’-style approach, rather than bailout everyone and everything and worry about the consequences later.

“Greek politicians wish they’d thought about the consequences of runaway deficits five years ago. It would be nice if we’d learn from their experience.

“But alas, most political systems don’t respond to crises until it’s too late, choosing instead to maintain the delusion that the current policy path is sustainable. Politicians as a group are incapable of voting to take manageable pain today in return for avoiding a huge collapse at some point in the future.

“Either you control your debt, or it eventually controls you.”

  While we wait, however, the U.S. Treasury auctioned $13 billion in 30-year bonds yesterday, and it went much better than last time out. After climbing to 4.72% before the auction, yields fell back to 4.68% after. The bid-to-cover ratio looked positively perky at 2.89, the highest level in six months.

But who’s buying? “Indirect bidders,” a category including foreign central banks, accounted for just 24% of the purchases, compared with 40% in January. Meanwhile, “direct bidders” hit a record high of 30%. Which wouldn’t be troubling except the identity of these direct bidders is largely shrouded in mystery. Is it bond funds? Pension funds? The Fed? Who really wants to finance a piece of the national debt from now until 2040? The mind reels.

  Ah, well, Geithner probably means well. After all, he’s been promising to outline the “principles” to “reform” Fannie Mae and Freddie Mac in the weeks ahead. “We want to take a careful look,” Titanic Tim said Wednesday “at the entire set of government agencies that act in the housing market now."

Gosh, we can hardly wait.

The reforms may result in Fannie and Freddie owning outright as many as 2 million foreclosed properties. Dan Amoss’ expose on the Treasury’s move toward tackling the “shadow inventory” of houses under water -- entitled “Shady Bailouts and Implications for the National Debt” -- is a must-read. You can do so in your Apogee “beta” issue this weekend. If you haven’t already, you can find details on registering for this free offer, here.

  “The national debt?” muses our friend Doug Casey. “When was the last time you heard any average person worry about the national debt? Americans have become so used to carrying huge loads of debt around -- right out of college with student loans -- that it doesn't even occur to them that there could be any reason for concern over the national debt. It's an abstraction, like the number of light-years to the Andromeda Galaxy.

“Now it's even more dangerous, because the U.S. government owes it mostly to foreigners: the Chinese, the Japanese, the Taiwanese and so forth. And they won't like it if they are left holding a bunch of worthless IOUs at the end of this experiment.

“It's not just the Chinese and Japanese governments that are going to be unhappy. But hundreds of millions of individuals around the world -- in places from Russia to the Congo, to Mexico, to Thailand -- that have a trillion of the things under their mattresses, because they justifiably don't trust their own government's paper are going to be even more unhappy with the U.S.

“This is big trouble. It's not just another economic downturn when scores of millions find their life savings go ‘poof.’ What we're looking at is a cataclysm at some point soon.”

Doug, as usual, doesn’t mince words, which is why he’s a favorite each year at the Agora Financial Investment Symposium. July isn’t all that far away -- and you can register now.

  U.S. stocks opened up slightly this morning on news from the Commerce Department that retail sales rose last month by 0.3%.

The same news sent gold on a minor slide below $1,110.

  "What's with all these ads to sell my gold jewelry?” writes a reader. “Will I get a good deal on that?"

The short answer: No.

“In general,” offers Byron King by way of explanation, “the mail-order gold people are paying about 10-25 cents on the dollar.” Bad deal.

“We're seeing monetary psychology at work here,” Byron explains. “It's the feel of cash in hand. We have relatively unsophisticated people sending in ‘old’ jewelry, and they don't know what they have. The mail-order gold buyers are sending back a check, and the crinkle of that check makes people think they got a good deal.”

Even at 100 cents on the dollar, this looks like a lousy trade to us

“Don't sell your goods to the mail-order crowd, unless you want to get taken to the cleaners. If you sell your old disco chains at a reputable jewelry store, you're likely to get a reasonable deal for the gold content [up to 75 cents on the dollar], as well as for any precious stones.

”We're living in tough economic times. There are a lot of people who are desperate for immediate cash. So they send in their ‘old’ gold and such. But the process we're seeing is a classic case of valuable goods flowing from weak hands to strong ones.”

You want to be a strong hand, especially now. You can learn how by reading the shocking "untold story" of gold that Byron reveals in his brand-new book, The Curse of the Incas. We've just mailed out about 100,000 copies, but you can read the whole thing free online.

  “I think we're about to go into a unpredicted phase that hasn't been on the radar,” writes a Reserve Member responding to our item about Bank of America’s wrong-house repossessions, detecting a more sinister trend, “real estate holders being forced prematurely into foreclosure en masse.

“I have witnessed over the past couple of months a severe turnaround in my bank's attitude in pursuing the ‘team’ concept in working out my real estate situation. My plan is very doable at severely discounted prices; I may not have anything left, but the bank will be totally 100% whole when it's all said and done. Well, recently (this week), it has backed off being my ‘team partner’ in executing my plan, and has moved into ‘alpha’ male mode, i.e., ‘Give us the money or we're taking the real estate and disposing of it. You will be liable for the deficiency and that will be put into a deficiency note for payment.’

“I thought to myself, What the hell just happened here? Why the change in direction? I can get you all of your money I just need time to work the plan. They don't care anymore.
 
“This is what I've come to surmise: The banks have had access to 0-0.25% money now for over a year and have made a ton of money that has allowed them to fund their loss reserves (this may have been “Helicopter” Ben's plan from the beginning). They are now feeling that it is more important to ‘clean up’ their balance sheets in favor of using the loss reserves and just liquidating the real estate on the books.

“I think this attitude is going to turn viral and all the major banks will likely follow suit, not caring how much the asset sells for -- that's what the loss reserve is for -- in favor of a clean balance sheet, which is much more important than a loyal client.

“But hey, I'm just a small-business man who once employed over 100 people in seven different businesses; now I employ only 30 people in four businesses that are hanging on by our fingernails. So what the hell do I know?”

  “I enjoy your ‘tell it like it is, brother’ approach to everything,” writes another, “but I really like it when it comes to government. I, for one, appreciate your willingness to share your views, to put the trappings of government and Wall Street and Big Business in plain view for all to see. They seem to have moved away from black and white. Now they operate in the gray zone, as well as the red zone.

“It is very difficult to have faith in a ‘do as we say, not as we do’ government. It reminds me of the Frost/Nixon interview, when Nixon said, ‘When the president does it, that means that it is not illegal.’ Anyone hear the bells ringing?”

The 5: Only for thee. And we.

Glad you brought it up, too. After more than a decade daily e-letters, books and movies, we’ve decided to take this “tell it like it is” approach to a new level. We’re annotating the final edits on our “beta” issue of the new Apogee Advisory as we speak.

A select group of serious readers have agreed to review the service for three months free and give us the kind of feedback and direction that so often makes our advisories successful. If you’d like to be a part of this test group, please read the following.

When we’re done with the beta period, there will be nothing like this service on the market… we’ll be transforming our exploration of the Wall Street-Washington nexus into moneymaking ideas and strategies. And, hopefully, bringing you along for an enjoyable ride…

Have a good weekend,

Addison Wiggin
The 5 Min. Forecast

P.S. Even if Tim Geithner helped try to hide the rot at Lehman, our own Dan Amoss saw through it anyway -- generating 462% gains on Lehman puts in just a four-month span during 2008. That’s the kind of analysis -- and results -- readers have come to expect from Strategic Short Report. Membership is still available at a substantial discount -- but not for long.

P.P.S.  Hmnn… against this backdrop, we learn 43% of American workers have less than $10,000 saved for retirement. Oh, but it’s not as bad as it seems, we’re told, because that figure excludes home equity and traditional pension plans. (Actually, that makes us feel worse.)

If your retirement plans already have you looking for reliable income, Jim Nelson just e-mailed that he’s working on “a brand-new play set to take advantage of an enormous growth opportunity. Already, it pays a solid, safe 4% dividend. In coming months and years, we could be looking at a massive double-digit yielder.”

If you want dibs on Jim’s report when it’s ready, sign up for Lifetime Income Report.

by Addison Wiggin & Ian Mathias

• Gack! The return of the China Sneeze Play…
• Record U.S. deficits, and how China’s reacting: Watch what it does, not what it says
• Why the weekly oil inventory numbers are useless… and how to invest accordingly
• Foreclosures leveling off, but “wrong house repos” on the rise
• Readers sound off on the Census: Essential service or nefarious plot?

  Here we go again. Markets have caught a chill after signs of inflation fever in China. And that’s not even the half of it. Let’s dive in…

  Consumer price inflation in China hit a 16-month high in February -- a 2.7% year-over-year increase. China’s National Bureau of Statistics was quick to put out a statement reassuring everyone that "price rises this year will be moderate and controllable,” but that’s not enough to calm traders looking for excuses to feel jittery.

And any news that might, possibly, at some point in the future, signal monetary tightening in China… well, that’s enough to put the fear of God in them. Hence, the major U.S. indexes opened down about 0.2% in the first hour of trading. The news is also an excuse for traders to bail out of gold, which clings to $1,105 as we write.

So much for the short-term noise from China. But the Middle Kingdom is also making real news this week. We’ll get to that in a bit, but first, we bring you this item to help put it in context.

Right in line with analysts’ forecasts, Uncle Sam’s budget deficit for the month of February was $220.9 billion -- the largest monthly total in history. For the first five months of fiscal 2010, the total is $651.6 billion, 10% ahead of last year’s blistering $589.9 billion pace.

The details are even fuglier. Total revenues: $107 billion. Total expenditures: $328 billion. Yes, that’s only one dollar of revenue for every three dollars spent.

We have just two words for this: Banana. Republic.

  So what does China make of numbers like this? As it happens, the National People’s Congress is holding its annual session this week. During the festivities, Yi Gang, the head of the Chinese State Administration of Foreign Exchange assured the world that U.S. Treasuries would remain a major component of China’s reserves.

We noticed he said little about whether China would actually add to its positions and soak up some of that additional debt racked up last month.

Yi also pooh-poohed any role for gold in China’s wealth management strategy: “It is, in fact, impossible for gold to become a major investment channel for China's foreign exchange reserves,” he said. “I have 1,000 tonnes now, and even if I doubled that holding, according to current prices, that would be about $30 billion…" barely a drop in the big bucket that contains $2.4 trillion of China’s forex reserves.

  Of course, that’s what face the Chinese government puts on for the public. Yet “the volume of China's gold reserve in terms of its forex reserves only ranks fifth in the world, and is well below the global average,” says Russell Hsiao of the Jamestown Foundation.

Hsiao rounded up some interesting stories from Chinese media that shed additional light…

• The Guangzhou Daily reported in 2008 that China's central bank was considering raising its gold reserve by 4,000 metric tons. (It’s currently 1,054 metric tons.)
• Ji Xiaonan, the chair of the supervisory board for major state-owned companies under the Chinese State Council’s state assets commission, set an even higher bar last year -- 6,000 tons by 2014, and 10,000 tons by 2019
• According to the English-language Web site ChinaStakes, a senior official from the People's Bank of China (PBoC) suggested last year that China should "secretly increase its gold holdings” as part of a long-term plan -- with the central bank buying up as much domestic production as possible.

However it turns out, “the long-term implications of Chinese debates to increase its gold reserves,” Hsiao concludes, “will have far-reaching impact on the stability of China's forex reserves and the yuan's ability to become the next reserve currency of the world. The question for Chinese leaders now appears no longer if, but how, that will come about.”

  So how do you make money from this? Other than buying gold, of course? We return to Chris Mayer’s thesis: Buy what China needs. And we’ll show you just what we mean in a bit, but first, we need to take another roundabout… to the oil market.

  Oil is holding on stubbornly to $82 a barrel this morning. It briefly topped $83 yesterday after OPEC forecast world demand to grow by 900,000 barrels a day in 2010 -- a slight increase from its estimate a month ago.

  Also fueling a rising oil price -- the U.S. government’s weekly oil inventory data. Crude inventory is up, but less than expected. Gasoline inventory is down, more than expected. According to the Energy Information Administration, domestic oil demand is up 3.8% year over year. As if any of this really matters long term…

  “Exactly why oil traders and speculators think the data has anything to do with the state of world oil demand is beyond me,” says Jeff Rubin, who walked away last year from a cushy post as chief economist at CIBC World Markets so he could speak his truth.
 
“While the U.S. oil inventories data pertains to the largest oil-consuming nation on the planet, it is no more indicative of world demand than U.S. oil production numbers are indicative of world supply. Both are in terminal and irreversible decline.

“It certainly wasn’t U.S. fuel demand that took oil prices over $100 in the first place, and it won’t be U.S. fuel demand that will push them back into that range anytime soon. U.S. oil consumption is almost 3 million barrels per day short of its pre-recession peak.” And it will never return to that peak, Rubin asserts.

Result? “As China moves from consuming 8 million barrels a day to 10 million barrels, and OPEC ramps up its own daily consumption from 10.5 million to 12 million barrels, somehow, somewhere else in the world, there must be a corresponding decline in oil consumption. That somewhere else just happens to be the U.S. market and the oil markets of the other OECD economies.”

“That’s why Saudi Aramco is far more interested in securing long-term supply contracts with rapidly expanding domestic oil markets in countries such as China and India than in supplying shrinking oil markets like those in the U.S.”

There’s China again. As we mentioned a month ago, China has now eclipsed the U.S. as Saudi Arabia’s biggest oil customer.
 

  “Last year, China passed the U.S. as the world’s largest market for cars and trucks,” says Chris Mayer. “There are over 40 million vehicles in China now, and the Chinese bought 13.5 million vehicles last year. They are car crazy in China.”

“That means the world will need to boost [oil] refining capacity. In fact, world refining capacity got a big boost from 2006-2008 as it grew from 5 million barrels per day (mbd) to 8.6 mbd. That’s a 72% increase. By 2013, based on what’s in the hopper now, another 68 mbd will come online. Of that, only about 6 mbd is net new capacity, as the rest replaces existing capacity that is closing down. Still, that’s a 70% net increase -- nearly equal to the prior boom.”

Most of this new capacity is coming from Asia, followed by the Middle East, as this next chart shows.

“Over the next few years in China alone, there are five-six big new refineries planned. Each will have the capacity to produce at least 200,000 bpd.”

But refining is a low-margin business. “I’d rather own the businesses that the refineries have to spend all their money on,” says Chris.

Just yesterday, he told readers of Mayer’s Special Situations about a maker of essential refinery equipment he figures is set to triple. You can access this recommendation for just $1… but only through 5 p.m. EST today. That’s then the window closes on trial memberships in Mayer’s Special Situations. For instant access, go here.

  The latest Forbes 400 list of billionaires is topped by Mexican telecom magnate Carlos Slim Helu. At $53.5 billion, his net worth just barely eclipses that of Bill Gates.

Americans make up 40% of the list this year, down from 45% last year. Chinese are the second most-dominant nationality, making up 16% of the list.

  Foreclosure filings dropped for a second straight month in February. That’s the good news. But the monthly total of 309,000 is still 6% higher than a year ago. That’s actually the smallest year-over-year increase since January 2006. Looked at that way, of course, we’ve now had 50 straight months of year-over-year growth in foreclosures.

"This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure,” say the folks who crunched these numbers at RealtyTrac, “but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity -- albeit at a historically high level that will likely continue for an extended period.” Sounds about right.

  As long as we’re on the subject of foreclosures, we’ll wrap up with a curious spate of “wrong house” repossessions at Bank of America.

This week, Angela Iannelli of suburban Pittsburgh sued BofA for repossessing her house, even though she had a near-spotless payment history and never received a notice of default.

Last October, according to the suit, a BofA contractor changed her locks, cut the utilities, poured antifreeze down the drains, and even made off with her pet parrot -- which she later recovered.

No parrots were harmed in the making of today’s 5

BofA has issued a statement that basically says, “Oops, wrong address.” Which sounds plausible enough except BofA did the same thing last summer to a couple north of Tampa -- who paid for their home in cash.

Similar cases are documented in Texas and Kentucky, all with Bank of America. These miscues are so stupid, we’re not even sure we have a comment on them.

  “Some of your readers are such arrogant and ignorant knuckleheads,” writes a reader. “Regarding the complaint about the letter notifying us that a Census form will be arriving, innumerable national advertisers (especially those involving huge giveaway prizes) use this strategy year after year. Their only interest is to increase responses to make more money, so if it did not prove useful to increase response rates, the market place long ago would have told us so. Wise up.

“Another reader’s response only shows his or her abysmal ignorance of the use of the Census. Congressional seats hang on the outcome, as does extensive funding to districts, since the doling out of federal pork is indeed contingent on these numbers. Your reader will later only be complaining about how much pork -- ‘entitlement’ when you receive it -- flowed his way once the numbers are in. Informed taxpayers should care more than a squat. Unfortunately, your reader isn’t one of them.”

The 5: Well, at least you’re a humble genius.

  "Before the income tax, the Census was also used to apportion taxes," writes another. "That it has come down to who will get the most loot is a travesty."

  “I, too, received the worthless ‘pre-Census’ letter,” another writes. “As huge a waste as that was, consider the really terrifying aspect of this Census program -- GPS.

“Every residence’s front-door is now recorded with the latitude and longitude coordinates. Why, you ask? Well, ask any serviceman or -woman why they use GPS coordinates. Those little black boxes the Census folks carry around recorded the precise location of your front door. What might that portend for the future -- especially if you get out of line as might be determined by the powers that be. Paranoid? You bet I am! And you should be too.”

The 5: Hmmmn…

  “Loved Chris Mayer's expose on this great Chinese jobs road program,” writes a third, “but he overlooked one important fact: Nations build roads not just for commerce, but for war!

“China is building to the perimeters of all the southern countries and establishing supply depots along them. India and Pakistan and the neighboring ‘little’ kingdoms should be looking at the situation with alarm. Their commerce is infected even now with Chinese control, and when this network is done... well, I think even myopic ‘capitalists’ should understand!”

The 5: While on the flight back from Tampa yesterday after visiting the Odyssey Marine HQ located there, I read this interesting little tidbit in Vanity Fair magazine:

“While Washington poured billions into propping up the banks that brought the economy to its knees, the Chinese spent their stimulus billions on an epic 19,000 miles of new railroad track.

“Nearly half that total will go toward completing a web of more than 42 interprovince hyper-speed rail lines that will link almost every major city in the country. The fastest of the new trains travels at 220 miles per hour. That’s speedier than both Japan’s bullet and France’s TGV -- and half again faster than the quickest train in America.

“So China comes out of the economic crisis with a rail system that will be the envy of the world, and America soldiers on with an infrastructure that is resolutely last century -- or, worse, the one that preceded it.

“The crisis also crippled pension funds and the endowments of universities and arts institutions and hobbled the fortunes of cities and states, not to mention small and midsized companies. About the only industry that has recovered from the economic calamity is Wall Street itself, which, thanks to government support and a soaring stock market, regained its footing quickly…”

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. The law firm in Washington, D.C., that is representing Spain in the Black Swan case against Odyssey Marine will get 5 million euros (roughly $7.5 million) this year alone for legal services trying to prevent Odyssey from selling the coins it’s recovered from the site. In order to pay them, Spain says if it wins the case, it’s going to sell the coins!

The attorney representing Spain also has his own shipwreck outfit. Coincidence?

More to come…

P.P.S. Time’s running out for half-price access to Options Hotline -- the offer is still good from now through Monday. Steve Sarnoff is now in his 11th year of delivering consistent triple-digit winners. See the evidence for yourself here. 
 

by Addison Wiggin & Ian Mathias

• The bubble expands: China reports booming exports, oil imports and real estate prices
• One chart offers a sobering perspective… what the “recovery” looks like ex-China
• Alan Knuckman & Jim Nelson offer two investment trends gaining momentum
• Plus, David Walker offers simple solutions for fixing Medicare

  Here in the States, they’d call it a bubble. On the other side of the world, it’s “robust growth,” as The New York Times wrote this morning. Check this out:

1) Chinese exports increased 46% over the last year, China’s government reported overnight. 46%! That’s the best rate of annual growth since 2007, before the global crisis began in earnest.

2) China also released annual crude oil imports ending in February -- up 58% year over year, to a near record 4.8 million bpd.

3) Residential and commercial real estate prices in 70 Chinese cities rose 10.7% in February, year over year. In the Hainan province, new home prices suffered a nearly 50% annual rise. (It’s a lovely tropical island, but still… 50%?)

  What happens when the music stops? Bubble or boom, China is the strongest staple of the loosely bound “global recovery.” 

  “The Chinese are laying highways like nobody’s business,” notes Chris Mayer, picking up a piece of the construction boom illustrated above. “By the end of 2008, China had an estimated 60,000 km of highway. The U.S. has 75,000 km. Over the next few years, China plans to have 85,000 km of roads.

“This is having some amazing effects. For instance, China recently built a highway from Lhasa, Tibet, that runs all the way to the Nepali border. Along this road is the city of Shigatse, a formerly sleepy town where tourists may stop to gaze at ancient monasteries on their way to Mount Everest. But today, it is also a place where people get rich running freight services along the 515-mile highway…

“This allows an easy mixing of peoples and the freedom to pursue their own ends leads people to trade. Business expands. The quality of life rises. The roads are doing their work. The cars and trucks are coming. Where are the opportunities?

“I’m more interested in investment ideas that are a step removed from actually building the roads and cars that use them. All those cars will eat up a lot of metals of all kinds, for example. They will also burn a lot of fuel.

“Dig deeper and you’ll find China loves methanol as an alternative fuel to blend with gasoline to lower emissions. China blends more than a billion gallons of methanol in gasoline annually. And its appetite for methanol is growing more than 16% a year. Methanol, made from coal or natural gas, is China’s ethanol.”

  As China dependant as it might be, the great global bear market rally remains intact. Stocks did little yesterday, thus the S&P is still up 2% year to date, and 66% from its crisis low.

“The market momentum looks to carry stock prices to new post-recession highs,” speculates one of our traders, Alan Knuckman. “The S&P has blown through the 1,120 Nov/Dec triple-top resistance. Prices currently sit around 1,140 with the January highs at 1,148 soon to be tested.

”The market is littered with those who have questioned the legitimacy of this run-up, both economically and politically. Price momentum and trends are very powerful forces that are oft best to work with, not against. Eventually, stock prices will top out and fade, but the urge to be the first to pick that turn needs to be repressed for now…
 
“Stocks, gold and oil have assumed leadership positions at different times, but all have tended to move in the same directions. Until those relationships change, we plan to keep doing what we have been doing successfully.”

Alan’s Resource Trader Alert readers have found some remarkable success, indeed. With his trading advice, readers brought in 22 winning trades in 2009, with an average gain – including the losers – of 56%. That’s terrific. If you want to be on board for the rest of 2010, look here.

  Since stocks are little changed from yesterday, gold and oil are right about where we left them. Gold is a bit higher, at $1,125. Ditto with oil, at $81.

  For income investors, the real opportunities are abroad, says Jim Nelson. “One glance at your Lifetime Income Report portfolio will tell you how we feel about international investing. We think you’d be a fool to forget about the rest of the world when it comes to income. Just take a look at this…

“In the 1970s, the U.S. controlled a 70% share of the world’s financial markets. And according to Reuters, that number “could shrink to 30% by 2030.” Yet U.S. investors hold only about 5-10% of their investment wealth in foreign stocks and bonds. That’s a ridiculously low number, considering that soon, seven out of every 10 dollars will be made abroad.

“That’s not even the most enticing stat to switch to a broader international exposure… As income investors, it’s impossible to ignore the massive dividend yields foreign markets offer. The major indexes of many foreign markets are posting yields that are two, and even three, times larger than the S&P 500.

“That’s why we have spent the last year ramping up the Lifetime Income Report portfolio with solid foreign income plays. For tickers, look here.”

  Back in the U.S., the Treasury is expected to release another record-busting budget deficit today. Though not out until 2 p.m. EST, the Street expects around $220 billion in shortfall for February. That would bring the fiscal year total to over $650 billion -- up 10% compared with the same period last year and on course to top last year’s record $1.4 trillion budget gap. Oy.

  “We need to recognize that what threatens this ship of state is the ice that's below the water in the iceberg,” David Walker, the protagonist in our documentary I.O.U.S.A. , told NPR yesterday. “It's not today's $12.4 trillion in debt. It's the $50 trillion in unfunded obligations for Medicare, Social Security, other commitments and contingencies that we don't know how we're going to keep…”

For example, “in Medicare, I think we have to recognize… that there are actually three Medicare programs. There's Medicare Part A, which is hospital insurance, which is funded with a payroll tax, and there are B and D, which are physician and out-payment and prescription drugs, which are voluntary programs funded with a combination of premiums and general revenues and state contributions.

“The first thing we have to do is recognize that under Medicare Part B and Medicare Part D, billionaires receive subsidies for voluntarily signing up for those programs. That makes no sense… we should have more means-tested premiums than we do right now.

“We need to also be able to have more competitive bidding with regard to Medicare. We need to move away from the fee-for-service payment system. We need to move more towards evidence-based medicine. We need to do something with regard to malpractice. We need to move to electronic records, more integrated-care systems, a number of things that not only apply to Medicare, but also have to apply to our overall health care system.

“And last, but certainly not least, we need to learn the lessons of every major industrialized nation. We need a budget for how much taxpayer resources we'll allocate for health care. We're the only major industrialized nation that doesn't do that. Every other country has recognized that it'll bankrupt you if you don't.“

If you like what David has to say, you should join us in Vancouver this year. He was one of the most popular guests at the 2008 event, and we suspect he’ll be a crowd favorite again. We’ve asked him to fill us in on what’s been happening since we finished filming I.O.U.S.A., the effort to get the deficit commission established and -- of course -- some dirt on all those closed-door bailout meetings to which he was privy. There’s only one way to hear what he has to say -- be there. 

  “Yesterday, I received a letter in the mail from the Census Bureau,” a reader writes, “telling me that in a week the census form will be mailed to me. How much did we spend on mailing out the pre-Census letter. What a waste!”

  “I read with interest the note from your reader whose friend landed a modern-day WPA job with the Census Bureau,” another writes. “Perhaps providing temporary jobs is the only viable reason for doing the census. Of course, it does give politicians something to squabble over when it comes time to dole out the federal pork.

“But surely, with all the data and tools at hand in today's federal government, it is no issue to estimate population size and location in this country... if that's even important to do. If there were a good reason for doing the census, it likely would have been spelled out in a recent letter the bureau sent to all citizens. Instead, the letter essentially appealed to us to mail in our forms, or our local communities would not receive all the benefits (pork) to which they are entitled. Sounds like the feds already suspect us folks care squat about counting noses and need a little threat to solicit action. What a sad state of affairs.”

  “Before you get too smarmy about Census activities, you need to consider a few things,” our last reader writes. “I spent some time working with the Census Bureau as a consultant, helping them prepare for the 2000 Census. If you want a crappy, thankless job go run the Census Bureau. It's a political and logistical nightmare.

“While my numbers may be a bit stale (the numbers would actually be larger now), it is interesting to note that the human resources ramp up for enumerators (home visitors) and others is second only in effort to ramping up for war. In 2000, approximately 250,000 people were needed. The success rate on interviewing was about 1 in 4. The people hired had to be people that could survive somewhat of a background check; were presentable; could speak intelligently with people to extract Census data out of them; and would not be afraid to go to rotten parts of town, where most of the follow-up had to occur. And oh yeah, would only want this job for three or four months, starting in April (leaves out most college students).
 
“You may find an undependable deadbeat to work for a nickel an hour. But given the "security" requirements of the job... finding a quarter million workers for a few months, who happen to be situated in the right location, is not an easy (or cheap) task.”

Thanks for reading,

Ian Mathias
The 5 Min. Forecast

P.S. You have just one day left to take us up on a $1 Mayer’s Special Situations trial. Seriously -- just one buck for full access to the MSS portfolio and one month of Chris’ high-end advice. We can’t make a deal much sweeter than that… take advantage here, before the offer expires tomorrow.
 

by Addison Wiggin & Ian Mathias

• Many “signs of the times” in one story: China & Big Oil team up to buy out Aussie LNG
• Frank Holmes explores an emerging economy hidden from mainstream highlight reels
• Fed reportedly preparing surprise rate hike… as soon as next week!
• Chris Mayer on a U.S. boomtown -- maybe boomtowns -- in the most unlikely of places
• Plus, readers chime in on Census Bureau employment and pannin’ for gold

   Big news: Arrow Energy, a modest foreign producer, received a $3 billion takeover bid yesterday. Why is this bench warmer story the leadoff hitter in today’s 5 Min. Forecast? Ahh, the drama’s in the details…some big trends in the making here:

First, Arrow is in the Australian natural gas business. Chris Mayer specifically gave you a heads-up on Aussie LNG just a few weeks ago. It’s the real deal.

Second, the bidders: Royal Dutch Shell and state-owned PetroChina have teamed up for the buyout. Royal, one of the biggest companies in the world, wants the bottomless bank account and political swagger of the world’s most powerful government -- that’s China.

And the Chinese, as evidenced by their failed deals with Rio Tinto and Woodside Petroleum, want access to Aussie resources -- badly. Those two failed ventures -- both with a fair share of controversy -- explain the collaboration with Shell. Lord knows China doesn’t need the money.

Heh, and last: America can still export something. Citigroup was the main financial adviser.

  “Asia’s rapid growth hogs the emerging-markets spotlight,” writes Frank Holmes, a mainstay at our annual Investment Symposium, “but Russia and the other countries of Emerging Europe (EE) also deserve some attention.

“For starters, EE economies have tight fiscal policies and are carrying far less debt than many developed economies, both positives for sustained economic growth.

“In the chart above, the best place to be is in the southeast quadrant, and that’s where EE nations are clumped. Russia’s debt position is minimal and there is ample strength in the consumer sector going forward. In January 2010, wages were up 11% from a year ago, to 19,000 rubles per month. This has kept domestic consumption levels around 65% -- on par with Brazil and above both China (30%) and India (57%).

“In addition, Russia’s oil production -- the country’s main profit center -- came through the crisis more robust than many expected, even surpassing Saudi Arabia in terms of production.

“But Russia is looking beyond oil and gas. In February, Time magazine reported that President Dmitry Medvedev has ambitious plans to create a high-tech haven where geniuses can think up world-changing inventions.

“The intellectual capital is there. Despite years of exodus of scientists and engineers from the Soviet bloc during the 1990s, the combined number of researchers in Russia and its former satellite states in Emerging Europe is not far behind the United States and China and is many times ahead of Brazil and India.”

  Back in the States, “The Federal Reserve is set to raise its key overnight interbank rate by a surprise 25bps next Tuesday,” our friend Peter Cooper wrote for araibianmoney.net, citing an “impeccable source from a top global bank.” This modern world is a trip, isn’t it? We’ve got news of a Sino/Aussie resource grab, details on Eastern European debt from our fund manager friend in Texas, Addison’s in Tampa shooting a documentary and now Peter -- a brit expat living in Dubai -- is scooping us on a U.S. interest rate rumor.

“By raising interest rates at this point in the cycle, the Fed will be both proving its confidence in the tentative economy recovery that chairman Ben Bernanke has proclaimed and underlining its commitment to preserving the value of the U.S. dollar at a time of mounting deficits and bond issuance programs…

“There will also be an inevitable revaluation of financial markets to reflect the higher cost of money. Again there is a risk that if confidence is not as strong as generally held, then financial markets will crash, rather than undergo a healthy correction…

“Reflationists will throw their arms up in horror at this action as imperiling a very fragile recovery. But it is a very fine judgment call, and a lot will depend on how much credibility the markets give the accompanying statements from the Fed about the likely speed of additional rate rises.

“However, the Fed has to keep its street cred and being a part of the gradual global tightening of interest rates -- after a long period of loose monetary policy -- should actually be better for the long-run health of the economy.”

We’ll keep an eye on the FOMC when they meet next Tuesday. Stay tuned…
 

  A sudden rate hike could cause quite a stir in American stocks, which are celebrating the one-year anniversary of the crisis bottom today. No signs of stress yet… markets opened flat this morning.

  Four more banks failed over the weekend, bringing the annual tally to 26. That’s already more than all the 2008 failures, and just a little off the pace of 2009, which saw 140 banks bite the dust. The FDIC currently has 702 lenders on its infamous “problem list.”

For the weekend’s failures, chalk up another $300 million in IOUs for the FDIC’s bankrupt deposit insurance fund.

  The dollar rally continues today, thanks largely to this: “Greece's debt problems could soon spread to the rest of Europe and mean a weaker euro,” said Greece’s PM George Papandreou overnight. Heh, this guy must be SO popular in Germany. The dollar index is up half a point from yesterday, to 80.7.

  More drama still in the euro-space: A stunning 93% of voting Icelanders elected to not pay back Dutch and British creditors that lost their shirts during Iceland’s monetary collapse in 2008. “They do not want to give their own money to rich investors who took the risk of depositing their funds in Iceland for higher interest rates,” The Epoch Times reports.

Did we miss this vote here in I.O.U.S.A.?

  Today’s dollar strength is bad news for gold. The spot price is $20 off yesterday’s high, at $1,115 as we write. Oil is down too, about a buck, to just under $81 a barrel.

  “This is a boomtown, or boomtowns,” Chris Mayer reports from an “exotic” location of his own. We’ll keep you in suspense here… see if you can guess which region has caught Mr. Mayer’s attention.

“You know the labor market is tight when the local McDonald's starts handing out $300 signing bonuses. Workers are coming in from all over, making it tough to find housing. They might sleep in their trucks or pitch tents, but it can get 50 degrees below zero, which makes such a move dangerous.

“There is also a chronic shortage of hotel rooms. I browsed the Web to see if I could find a room. I checked the Super 8 motel -- no rooms available. I checked a few others -- no rooms there either. I used Priceline to search, and there were no rooms available. What's going on here?

“Local ranchers are becoming millionaires overnight. The 4 Bears Casino reported a 60% increase in sales last year. This is a boomtown. Or boomtowns. Even the state government is in surplus.

“The above is a composite of what's going in North Dakota, around the Bakken Shale formation. As The Wall Street Journal put it: ‘A massive oil reserve buried two miles underground has put North Dakota at the center of a revolution in the U.S. oil industry, a shift that has radically altered the fortunes of this remote area.’

“The Bakken Shale could hold more than 4 billion barrels of oil and stretches under North Dakota and Montana (and Canada, but I'm only talking about the U.S. piece here). If that number is correct -- it comes from the U.S. Geological Survey -- then it would be the biggest oil field discovered in the contiguous U.S. in more than 40 years…
 
“In February 2008, we picked up shares of Kodiak Oil & Gas, a small Bakken player, for $1.94 per share. By June, they traded for over $4 per share. So you can make good money speculating on the Bakken.”

There’s a solid Bakken stock nestled inside Chris’ Special Situations portfolio -- which you can still take a peak at for just $1. Come Thursday, this trial offer will be off the table, so don’t wait. Details here.

  “My friend just started her job with the Census Bureau,” a reader writes. “She will have two days of training for her job, which will consist of opening envelopes and removing the documents, straightening the papers as needed to be scanned (not part of her job). Someone else will check the envelopes to make sure they are empty. Can't wait to see what she will learn on day two. And for this, she gets paid $17/hr, only no benefits.

“Gotta love those govt. jobs. Why make productive jobs when you can give someone $17 an hour to check an empty envelope? Yikes.”

  “To your reader who thinks that, as the price of gold rises, people will start panning for gold again,” another reader writes, “check out how crowded the tourist sites in ‘defunct’ gold producing areas are. Many of the ‘panners’ are doing this while trying to find another job or to find a nest egg… you are a little late!”

  “Back in the mid-’90s," the last writes, "while taking a rest from graduate school in upstate South Carolina, I used to spend three days a week panning mountain streams in North Carolina. After expenses and bank fees (my bank handled the shipping of my gold and black sand), I netted about $350 per three-day week. The gold price having risen considerably since then, I'm confident I could easily exceed a UAW weekly salary, the difference being that I'd actually have to get my hands a bit dirty to get paid.”

The 5: Heh, no shortage of sass in the inbox today. Good stuff…

Cheers,

Ian Mathias
The 5 Min. Forecast

P.S. Addison sends his best from Tampa, Fla. As he mentioned yesterday, he’s down there for most of the week, capturing the plight of Odyssey Marine on video. Stay tuned for more…

P.P.S. We’ve already put into circulation over 40,000 copies of our new mini-book, The Curse of the Incas. It’s an interesting read -- and a great lesson to be learned about owning gold and protecting your wealth. Check out the online copy, here.
 

by Addison Wiggin & Ian Mathias

• Buried by the government, noticed by The 5: Another $9.7 trillion in deficits
• A “cascade” of private debt default: Rob Parenteau on “the next act” in the Greek tragedy
• China hints about dropping dollar peg… Why the timing may be no accident
• Chris Mayer on “one of the best investments we can make right now”
• Readers write: Package delivery, gold as a “Ponzi scheme”

  One interesting feature of the Internet age, we observed while sitting high atop a cliff overlooking the Pacific frontier in Nicaragua last month, are the many different locales one finds oneself working.

Today, we’re in transit at the Tampa airport on our way to the final shoot of the Odyssey Marine segment of our new documentary film.

Luckily, the Tampa Airport just installed free Wi-Fi throughout. And luckier still, the bones of today’s episode were becoming evident almost as soon as we hit the “send” button on Friday’s “delusional” one. So today, we bring you an all-new “Debts and the Dollar” episode of The 5.

  The latest deficit projection from the Congressional Budget Office was conveniently revealed just prior to the close of business on Friday.

“Why so?” You ask suspiciously.

“Because,” we respond in a hushed tone.

The CBO’s latest numbers reveal that President Obama’s proposed fiscal 2011 budget would add $9.7 trillion to the national debt over the next 10 years. The White House projection is only slightly less staggering -- $8.5 trillion.

Further, the CBO projects the national debt will be 90% of GDP by the end of this decade -- higher than the 83.4% recorded at the end of fiscal 2009 last fall. We’re 100% certain this comment will elicit the customary response: “Look at Japan, its debt is 170% of GDP… and it’s been running massive deficits for years!”

To which we can only sigh and respond: “Exactly.” Then get back to our film in which we hope to illustrate the long-term deleterious effects caused by the “crowding out” effect, when governments spend their citizens’ future wealth… way ahead of schedule.

  “We told you two months ago,” our economist-in-residence Rob Parenteau also revealed late on Friday, “we thought Greece would not default, it would begin to implement government spending cuts and tax hikes and there would be a backup fiscal assistance facility put in place for the region in the event bond auctions began to fail. So far, this is precisely how the scenario has played out.”

So far, so good.

But “the next act gets tougher to predict,” he cautions. “Greece and other countries now face falling private-sector incomes — that is, after all, the direct and immediate result of higher taxes on businesses and households and lower government expenditures. Unless the trade deficits of these nations can swing sharply into surpluses (as lower domestic incomes lead to less import demand and lower costs of production lead to higher exports), private debt defaults will now start to multiply and cascade through the system.

“Last week, Moody’s placed four Greek banks on downgrade watch. This is just the start -- the fiscal retrenchment has only just begun to take effect. By taking these steps to avoid a public debt default, we would suggest these economies are now poised for more private debt defaults.

“We believe private investors do not yet get this connection, but it will be made very clear in the months ahead. Latvia, with a GDP collapse of nearly 25%, will become the next poster child of the region in this regard.”

  “It amazes me how complacent the market remains about the situation in Europe,” Dan Amoss chimed in, likely en route to our annual Agora Financial Inaugural Banquet, which we also hosted late on Friday. “It’s become quite obvious that there are no easy, painless solutions to the crisis in Greece. Economic growth in Europe will disappoint, because governments and banks taxed and borrowed from the productive private sector about as much as they can.

“It’ll be very difficult for Europe to avoid painful reforms to its gold-plated welfare state programs. Government spending will fall. Tax rates will go up, but may, in fact, lead to lower tax revenues. Yet the market is acting as though this huge problem will just be swept under a rug.

“The youth throughout Europe are suffering from chronic levels of high unemployment. This not only includes countries like Greece and Spain, but also includes Germany and France. The powerful influence of unions has limited the opportunities of new entrants into the labor force. And a high youth unemployment rate is not good for social stability.

“The disease that will afflict financial markets in the coming years is unaffordable debt at all levels of society. Greece is just one symptom. More will pop up in 2010.”

Ominous news for the world at large, but for those in the know, the crises yield the very opportunities that can help you protect your own pile from rot. Membership to Strategic Short Report is still available at an extremely reasonable rate.

  As if to underscore Dan’s point about complacency, we see that European leaders hope to fix their problems by establishing a eurozone version of the International Monetary Fund. In theory, it would set up tougher standards of fiscal responsibility to prevent another Greece.

The German and French ministers hatching this scheme say they’ll present concrete proposals “within a few months.” Heh. With luck, the other PIIGS will still be feasting at their trough by then. Or not.

  “Surely, the main mistake Europe made,” writes a reader commenting on the world’s obsession with Greek debt, “was in assuming Wall Street knew what the hell they were doing. When every financial ‘expert’ in the world was exhorting Wim Duisenberg to lower interest rates after the dot-com bubble burst, he valiantly resisted, because he worried more about inflation. Greenspan opened the taps and created a housing bubble.

“Well, it's a funny thing, but Spain also had a housing bubble, but the banks survived OK, because they had managed that risk. It was US junk debt packaged as triple-A investments combined with the bonus culture that screwed the world up -- particularly the U.K., whose only economic policy since Thatcher has been to copy the U.S.

“For my part, I noticed a while ago that the financial markets were being controlled by 25-year-old cocaine addicts with no moral compass.”

  China is floating a trial balloon about possibly letting its currency float against the dollar again. The head of China’s central bank has described the current peg -- in place since July 2008 -- as a “special” policy stemming from the credit crisis. “Sooner or later, we will exit the policies,” he said.

Not what you’d call a firm commitment, but it’s an interesting good-cop counterpoint to the bad-cop act Premier Wen Jiabao delivered three months ago: “We will not yield to any pressure of any form forcing us to appreciate.”

Don’t overlook the timing here. During an extended musing about China a few days ago, we pointed out next month is when the official window opens for the U.S. Treasury to label China a “currency manipulator.” We’re in the process of assembling a specific strategy for you should this trial balloon actually float this time... you can receive it free when you accept this “beta offer” -- three months of my new Apogee Advisory, free… invitation and details here.

  In the meantime, “one of the best investments we can make right now,” says Capital & Crisis legend Chris Mayer, “is to pick up relatively secure, low-cost uranium -- the feedstock for nuclear reactors.

“The demand for uranium is building in intensity like a heap of hot coals. There are already 436 reactors up and running today. And there is a surge in demand coming in the next decade from the hundred or so new reactors expected to come online. Yet the industry is about 400 million pounds short of meeting that demand, as shown in the chart below.

“The market has been in deficit for years, as it burns off Cold War stockpiles, which are finite and dwindling. Another way to look at it: Uranium demand is on its way to hitting 226 million pounds per year. Yet last year, the top dogs -- which make up 90% of the market -- produced only about 110 million pounds of uranium.”

If you haven’t yet taken advantage of the chance to try out Chris’ premium service, Mayer’s Special Situations, for just $1, time is running out. The deadline for the offer is this Thursday at 5 p.m. EST -- when his new issue and latest recommendation comes out. Here’s where to go to give this service a trial run.

  U.S. stocks opened flat this morning. The dollar index is down a bit, around 80.19. But gold is likewise down a bit, breaking below $1,130.

  Oil prices touched $82 a barrel today. Traders are overlooking the subtleties to the jobs numbers that came out Friday and concluding the U.S. economy -- and, hence, oil consumption -- is on the rebound.

  We’d be remiss to ignore the fact gold reached record highs last week against the euro, the pound and the Swiss franc.

  “Your retired UPS reader is wrong,” writes a reader determined to continue our debate about package and mail delivery. “Things have changed. I'm a rural mail carrier, and UPS drops off packages at post offices for delivery every day, usually by the pallet. There are even new return labels that allow the customer to send merchandise back via either shipper.”
 
The 5: You’re right. A colleague tells us he had some shoes delivered over the weekend and the tracking info from FedEx was very clear -- the final leg of the journey was via the USPS.

Heh. Of all the crises, fraud and political shenanigans going on in the world today, why are we still talking about this?

  “We take exception to the comments about the USPS,” writes an octogenarian with a similar sentiment. “We are pushing 80, and so have mailed countless letters and packages without a problem. Yes, a few pieces were delayed some, and the first-class mail doesn't always get in the box right at noon, but our local post office is manned by knowledgeable, hardworking and courteous staff. There are plenty of other things to be angry about, especially the trillion dollars spent on an unnecessary war.”

 “Gold, the ultimate Ponzi scheme?!?” writes a reader outraged by CNBC’s strange encounter with Marc Faber. “Gold has always been the anti-Ponzi scheme. The way fractional reserve banking works, the last people to receive money in the pyramid have the least purchasing power.

“People view gold as expensive right now, but what's to stop the little guy from buying mining shares, or, hell, maybe even try their hand at gold panning. Sure, right now, maybe a day’s worth of panning will buy you a sandwich, but this is my guess as to why we are not at the top of this bull market in gold. I think at the top of the gold boom, people actually will set out and start panning for flakes again.”

Argh!

Regards,
Addison Wiggin
The 5 Min. Forecast

P.S.: Reserve Members: Time is short, but we had one Canadian couple cancel their reservations for the Rancho Santana Reserve “Chill” Weekend. If you’re footloose and want to join us, we’d be glad to meet you there. Details here.

P.P.S.: Our attorney has warned us that the judge and magistrate have ruled correctly in denying Odyssey’s claim to $500 million in silver and gold off the coast of Gibraltar “IF” -- and this is a big “IF” -- you believe the state has the right to invoke ‘sovereign immunity’ over their vessels hundreds of years after they’ve gone down in the sea. The law was originally meant to cover U.S. military secrets during World War II wartime operations… now it’s being applied to treasure, as well.

We’re willing to admit that at this point in the story we’re not sure what to think. That’s why we’re in Tampa this morning. But more than one of the subjects we talked to in London last week suggested Spain has been known to allow their ships to be salvaged in the past… but never has a sum this great been on the line.

Spain is also a signatory to a UNESCO treaty that claims all ships that have been at the bottom of the ocean for more than 100 years are “World Heritage Sites.” The U.N. needed 20 countries to sign on the treaty to make it international law. They got ’em. Ironically, Spain is the only one of the 20 that has a coastline. Hmmmn…

by Addison Wiggin & Ian Mathias

• The 12-million barrel delusion: What’s up in Iraq
• Citi chief goes to Capitol Hill, blames short sellers, hilarity ensues
• Faber on whether gold is a “Ponzi scheme,” Casey on the future of the euro
• Unpacking the Census’ impact on February job numbers
• Enron memories, yours for a mere $11,900,000

  Iraq will pump up oil production from 2.4 million barrels a day now to 12 million barrels by 2017. That’s the promise of Prime Minister Nouri al-Maliki, who’d like to hold onto his job after elections on Sunday.

Welcome to the Delusional Friday edition of The 5.

  It’s not 2004 anymore. And it’s no longer in Washington’s interest to play up purple fingers in Iraqi elections. So let’s bring you up to speed on what’s been happening there since the “surge” was deemed a success:

• A bevy of suicide bombings this week went underreported in the U.S. press. Three explosions just today killed 12 people. Chances are it’s the work of the Sunni minority, who’ve stayed quiet the last couple years because U.S. troops paid them off to lie low -- a key reason “the surge” has kept the fighting to a dull roar
• The Sunnis are restless because the Shiite majority maneuvered recently to keep hundreds of Sunni candidates for parliament and local offices off the ballot. Of course, we were told the whole idea of “the surge” was to give Iraq’s factions breathing room to settle their differences. So much for that.

 
We still have 100,000 American troops in Babylon trying to make sure that non-American oil companies like BP and China National Petroleum Corp. have reasonably secure access to the giant Rumaila oil field. (ExxonMobil got a small consolation prize in the bidding.) We marvel at the spectacle.

  The delusion that “short selling” is what nearly took down Citigroup in 2008 was being peddled on Capitol Hill yesterday. Citi chief Vikram Pandit blames that foul, unpatriotic trading strategy…. but paid no mind to the reams of foolish loans made by his employees.

Even in Congress, the idea didn’t fly. Elizabeth Warren, chairwoman of the Congressional Oversight Panel bird-dogging the TARP program, wondered why Citi was the only bank that needed a second bailout after the first. “I just want to understand why Citi is special,” she quipped.

“His bank has got the highest [credit] loss rate of any of the big four,” Christopher Whalen from Institutional Risk Analytics added. “The shorts were just responding -- the emperor had no clothes.”

Our own stock market vigilante would do the same. For more on Dan Amoss’ Strategic Short Report and a 62% discount, read here.

  Another delusion gaining traction this morning: Gold is “the ultimate Ponzi scheme.” Honestly, the folks at CNBC are starting to become unhinged.

Gold is “an inanimate object that sits in a dark, damp cellar somewhere,” host Simon Hobbs posited to Gloom Boom & Doom Report’s Marc Faber, “that may or may not be in short supply, may or may not glitter in the correct light, but really has no productive power. Isn't gold the ultimate Ponzi scheme?"

Faber was entirely too polite in smacking this down: "No, I don't think it's a Ponzi scheme, and it's not a liability of someone else... its quantity cannot be increased at the same rate as you can print money... I’m not saying that the dollar will go straight away down, because other currencies, apparently, like the euro, are even worse at the present time. But eventually, if you print money, the purchasing power of money will lose."

If you can stand it, watch the whole thing here.

  Faber and our friend Doug Casey agree on the outlook for that delusion in currency collectivism known as the euro. Greece will get an indirect bailout from the European Central Bank, says Faber. And it won’t work. And the rest of the PIIGS countries will follow. Lather, rinse, repeat.

“I think it was inevitable,” says Casey, “that the euro would burst apart at the seams, sooner or later. This isn't the first straw in the wind, by any means, but it's a major, unmistakable sign that the EU currency union is going to break up and the euro itself is on its way out. And the EU itself will meet its inevitable doom not too long after that.

“When you stop to think about it, the EU was really a stupid idea to begin with. It started out as a coal and steel free-trade zone, which made a lot of sense. But as time went on, as people in general often seem to do, and Europeans in particular seem to love to do, they bureaucratized the thing and made it into a pseudo-government.

“They wrote a constitution hundreds of times longer than the one that served the U.S. so well until it was abandoned. They took on micromanaging everything, down to producing huge, phone book-sized regulations on the composition of French cheeses, and so on. There's a burgeoning bureaucracy in Belgium trying to consolidate the 27 member states into one giant country, and it's absolutely not going to work.”

Both Doug and Marc Faber will join your editors and a host of Agora Financial regulars in Vancouver this July at the Agora Financial Investment Symposium in Vancouver. David Walker, Bill Bonner and Petrobras veteran Marcio Mello will be there, too. Our symposium chief Bruce Robertson has outdone himself this year. Register here. Early bird discounts still apply.

  And of course, this morning, it’s time for that ritual exercise in delusion that comes on the first Friday of the month, otherwise known as the Labor Department’s monthly employment report. Let’s go to the tape…

· Payrolls fell about 36,000 -- less than mainstream analysts expected
· The worthless U3 unemployment rate held steady at 9.7%
· The U6 figure that includes discouraged workers and part-timers who want full-time jobs grew from 16.5% to 16.8%.

Amazing how 15,000 temporary Census jobs can take the edge off an otherwise-lousy report, huh? And those temporary government jobs are just starting to ramp up.

  Still, from the stock market’s standpoint, these are Goldilocks jobs numbers -- stronger than expected, but not so strong that anyone expects the Fed to go and do something crazy, like, you know, raise the fed funds rate.

The major U.S. indexes opened up 0.5% in the first few minutes of trading. And the airwaves were filled with fund managers heralding the good news.

  Gold is holding up nicely at $1,133. Oil has perked up a buck, to over $81.

  So much for the delusion that extending the homebuyer tax credit would keep pumping up the housing market. Pending home sales fell 7.6% in January, according to the National Association of Realtors -- which is already trying to lower expectations for the February number by pointing out that people tend not to look at homes when they’re buried under three feet of snow.

  From the “times are tough all around” department comes word that the widow of Enron chief Ken Lay is having trouble shopping her Houston penthouse among private buyers (showings by invitation only) for $12.8 million.

So it’s been publicly listed for $11.9 million.

“Italian Renaissance-inspired,” the listing says. Reminds us of that gag about the Holy Roman Empire: It’s not Italian, it’s not Renaissance and it’s definitely not inspired.

The 12,827-square-foot spread features six elevators, five half-baths, four balconies, three fireplaces and two toilets in the master suite. No partridge in a pear tree, alas.

A spokeswoman for Linda Lay says only she’s looking for a smaller home. It’s also possible she’s trying to come up with some scratch to generate a couple of pennies on the dollar for Enron’s creditors. But if she’s made any sort of deal with the Justice Department, we won’t find out about it -- the court records are sealed.

  “Once again, your unchecked facts are designed to match your preconceptions, instead of reality,” scolds a reader. “In fact, the inauguration date was changed for Roosevelt's second term, in 1936, not his first in 1932. His first term was actually shortened by about six weeks due to this. Here are the particulars from WikiAnswers:

“The date of Jan. 20 for the presidential inauguration was established by the 1933 ratification of the 20th Amendment, which changed the start date of the new presidential term from March 4.

“The reason given was that due to the modern conveniences of better communications, the election results could be confirmed faster than in olden times. They did not want to make our Congress and president wait until almost the end of the first quarter of the year to begin their service.”

The 5: We stand corrected on the dates. Of course, we were merely being flippant. If you choose to believe the unchecked facts are designed to propagate our own delusions, that’s your prerogative. That particular factoid is a matter of pride, actually. March 4 is this Wiggin’s birthday. Thanks for setting us straight on the details.

  “I have to take exception to the comments by the reader about UPS giving the package to the post office,” writes another, “I worked for UPS for 30 years. UPS delivers to every address, while the postal carrier will leave the mail at the mailbox, UPS will take it to the door.

“As a driver in rural Arizona, I delivered to ranches that were 10 or more miles from the mailbox. The postal carrier would leave the package or mail at the mailbox and I would drive to the ranch, leaving the package at the door.”

  “The Postal Service cannot be fixed,” writes another reader, who gets the last word. “It is hopeless. I know, I worked at USPS headquarters in Washington, D.C. They do not even understand how horribly inefficient they are. I could fill an entire Web page and not scratch the surface, but you wouldn’t believe it. Needless to say, I was blown away over at the incompetence.

“By the way, why should we all subsidize mail delivery to people who choose to live in the boonies? They pay more for just about everything else in life (fuel delivery, groceries, etc.), but expect the same mail service, for the same price, we get in densely populated areas.”

Have a good weekend,

Addison Wiggin
The 5 Min. Forecast

P.S. “It's emerging markets that are driving the bull market in this [commodities] cycle,” comments our managing editor Chris Mayer in a MarketWatch piece out this morning. More of his thoughts here.