Gold $1,000, More Trouble at Bear, Rogers’ Way to Fix the Dollar, and More!

by Addison Wiggin & Ian Mathias

  • Gold flirts with $1,000… which headline pushed the precious metal into the 4-digit range
  • S&P says end of financial meltdowns “now in sight”… but how far away are we?
  • Can commodity prices hold up in a grave U.S. recession? Kevin Kerr’s answer below
  • An illustration that should make up your mind about biofuel… and the coming water crisis
  • Jim Rogers on the only way to fix the dollar crisis
  • Last, The 5’s baby boomer blame game put to bed… for now


Gold: $1,000… well, almost.

April futures did, in fact, breach $1,000, but the spot price made it only to $999 and change yesterday before backing off. Still, at $995 this morning, gold was just one piece of bad news from a proper $1,000. Let’s go see if we can find some…

J.P. Morgan Chase and the New York Federal Reserve will team up to bail out Bear Stearns. Rumors have abounded all week that Bear Stearns is facing severe liquidity problems. But the news turns out even worse than the Street’s forecast.

Bear will be injected with yet untold billions by J.P. Morgan, which will borrow the money from federal printing presses and you.

Bear Stearns stock fell over 35% within minutes of the news hitting the wire, even after being down some 25% this week already. The whole S&P slipped 1%.

That did the trick for gold, too. On this news, gold spiked to $1,003.

“The end of write-downs is now in sight for large financial institutions,” reported Standard & Poor’s yesterday. That news helped the Dow eke out a small 0.3% gain for the day. Likewise, the S&P 500 ended up 0.4%, and the Nasdaq rose 0.7%.

But either traders failed to read the fine print, or a financial crisis is already priced into the market. The S&P report estimated total write-downs to be some $285 billion, up $20 billion from the forecast last month. While this estimate is nowhere near the $600 billion guess UBS wagered last month, it’s still significantly more than the $160 billion already written down by global financials.

To paraphrase the S&P report, we’re barely over halfway there.

While markets in the U.S. have enjoyed a rally for the better part of this week, investors in Asia are still down on their luck. The Nikkei 225 is down almost 7% since Wednesday on worries that a U.S. recession and very strong yen will stunt Japan’s export economy.

After its big drop of 3.3% this morning, the Tokyo exchange is at a 30-month low.

Elsewhere in the Pacific… Hong Kong plummeted almost 5%, while Singapore’s index shed 4%. Stocks in Seoul, Sydney and Shanghai fell about 2.4%.

Oil set an all-time high of $111 by yesterday’s close. The price has since backed off a skosh. But upward pressure remains.

“Would gold and energy and other materials be this high” Larry Kudlow asked our Kevin Kerr last night on his show, “if we were poised for a really bad American recession?”

“This is a global growth story, Larry,” the Maniac Trader quipped in response. “While the U.S. may be heading into recession, we’re still seeing a lot of world demand. I don’t think we’re seeing the price of a recession in the commodities right now, so I do think were going to see a short-term correction, which will help ease the recession.

“Longer term, I really believe these commodities are going to go higher because of that global demand.”

Water, too, remains a commodity in high demand. One driver in rising water consumption is the rush to produce biodiesel, as this McClatchy chart shows:

Across the board, consumer prices neither rose, nor fell in February, the Labor Department said this morning. We’re not exactly sure which economy they were measuring, but polled economists predicted a 0.3% jump in the consumer price index (CPI) last month, slightly less than January’s 18-month high of 0.4%.

Since inflation is under control, the Fed is free to cut rates next week without fear of ruining the economy.

Still, the dollar can’t catch a break. It found itself another all-time low last night, this time at 71.7. Similarly, the euro and pound inched higher, to $1.56 and $2.02, respectively. And for a brief second, the yen struck 99, a 12-year high.

“Those aren’t good tidings,” George W. Bush told PBS yesterday when asked about current exchange rates, “if you’re for a strong dollar like I am. One reason I am for a strong dollar is because I think it helps deal with inflation.”

Really… you don’t say?

“Did you see the president say with a straight face,” wrote a reader last night, “that he favors a strong dollar? And the interviewer failed to follow up with the logical next question — why, then, do we have $9 trillion in national debt? I could have screamed.”

President Bush likes to say he got a “B” in economics, but an “A” in cutting taxes… and being fiscally responsible with the people’s money.

Congress passed the president’s $3 trillion spending proposal this morning.

The Senate quickly authorized this massive budget for the next fiscal year, beginning Oct. 1, just a day after the current government spending data showed record-high deficit so far this year.

But that’s all part of balancing the budget by 2012, we suppose… setting new all-time spending highs each year. The logic is impeccable.

“This is getting absurd” Jim Rogers told CNBC yesterday about the dollar crisis. “I know they can run their printing presses forever, but that is not good for the world, inflation is not good for the world, a collapsing currency is not good for the world. It means a worse recession in the end.”

When asked how he would handle the dollar crisis, specifically, the first two things he would do if he were in charge, Rogers responded: “I would abolish the Federal Reserve and I would resign… no country in the world has every succeeded by debasing their currency.”

Something tells us Mr. Rogers won’t be on CNBC long with that attitude.

“With all due respect,” writes a reader in response to our friendly debate about who is really to blame for the nation’s economic woes, “a cursory analysis of the ages of those who have most influenced U.S. economic and monetary policy over the last 30 years would suggest that our current deficit crisis (in most aspects) was a product of the ‘Greatest Generation.’

“The baby boomers are just starting to retire, and will face depletion of the trust funds, etc., in their retirement, while the architects of our troubles, from 1971 onward, will most likely die before their legacy comes to fruition, having both the ability to live off the spoils of the longest boom in our history and the tail end of the trust funds.

“Perhaps the hubris of winning World War II contributed to the mentality that the U.S. could overcome any obstacle, even deficit spending.”

“I am a boomer,” counters another, “and I have always thought my generation was a pack of super lemmings. Depending on the time frame, I have been called a freethinker, radical, rebel, rabble-rouser, social Darwinist and anarchist. Recently, in politer circles, I am an eccentric.

“Twenty-five years ago, I was blacklisted. In the Old West, a man’s survival threatened to that degree led to a hanging (horse thieves). Today, that is unacceptable. With the exception of family and a couple of close friends, ALL of my so-called peers supported the list.

“I have had an interesting and productive life since, but quite lacking in sympathy for the kind of trivia I ‘m seeing here. A good dose of truth has a salutatory effect on occasion, and you are to be commended for providing it.”

The 5 responds: Judging by the amount of mail we’ve received on this issue, age is a hotter subject than sex in this country. As well it probably should, given the tsunami headed for the nation’s financial situation.

One common thread stands out among the writers: Each generation is all too willing to blame the one before it for the mess it perceives the country to be in. Boomers do appear, at least from the cross section of letters we’ve received, to have a higher degree of self-loathing than either the “Greatest Generation” or those in their 30s — the so-called “Generation X.”

For our part, we’d like to apologize for being so general about our comments, and leave you with these words of wisdom from the generation that follows us:

“As for my and everyone else’s generation,” writes our last reader on the subject, “the vast majority of each are ignorant, especially financially so. Basic finance isn’t even taught in public schools. Thus, it would be idiotic of me to defend my demographic simply because I am lumped in by the fact of my age.

“What’s next, defending the actions of the Fed simply because it is American and so, by birth, am I?

“In regard to the vocal defenders of their demographic, don’t you find the level of groupthink a tad surprising for a publication catering to those sympathetic to a contrarian financial perspective?”

Enjoy your weekend,

Addison Wiggin,
The 5 Min. Forecast

P.S. By the way, if you’re a current subscriber to Resource Trader Alert, Outstanding Investments or Energy & Scarcity Investor and you’d like to join the Resource Reserve, we failed to mention we’ll credit your account the subscription fee of your existing pub toward the discounted Reserve Membership. You can claim that credit by calling 1-866-361-7662. But please do so by Monday — we’re trying to close the membership drive.


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