Bush on Gas Prices, Bernanke Speaks, More Resource Record Highs, Mary Jane Vending Machines, and More!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Maybe these new marijuana vending machines are just too tempting:

The newly created “Herbal Medical Center”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Enjoy your leap day,

Addison Wiggin,
The 5 Min. Forecast