The Greater Depression, Q1 Review, Q2 Forecast, Planting Intentions, and More!

*The Dow, down 7.6%, at 12,262 points, had its worst quarter in five years. Down 1,001 points during that time, the Dow recorded its biggest quarterly point loss ever.

*The S&P suffered a technical correction during the quarter, down 10%. The broad index came but a breath away from entering an official bear market, falling as low as 16% below its October peak. The index has sunk for five consecutive months… its worst monthly losing streak since 1990.

*The Nasdaq, which fared best of the three indexes in 2007, got hit the hardest this quarter. Down 14% year to date and over 20% from its October high, the tech index is the only one of the big three officially in a bear market.

Volatility rose to new highs in the first quarter, too. The VIX, largely a measure of market uncertainty, hit highs unseen since the tech bust. The S&P moved up or down 1% or more on 51% of the trading days in the quarter… that’s the most frequent period of big percentage moves since 1934.

And contrary to the growing belief that global markets are “decoupling” from the U.S. variety, take a gander at this first-quarter roundup from The Wall Street Journal:

A weaker dollar really is good for the global economy, isn’t it? Golly.

“The first quarter was rough,” laments our managing editor, Chris Mayer, “no doubt about that. Poor fourth-quarter earnings reports and a weaker outlook across many sectors all had a part to play. Financials, of course, were the main culprit.

“Financials look abysmal, with a 50% drop in earnings expected. Along with consumer discretionary stocks — think trendy retailers and electronic goodies — these two sectors account for the drop in earnings for the market as a whole.

“But look at the other end of the spectrum. The consensus on energy companies is high — anticipating a 22.8% increase. That can be good and bad. If expectations are too high, energy companies are bound to disappoint. But I don’t find that energy companies look expensive, generally. It’s a big sector. It depends on what you’re looking at specifically, but generally speaking, I think energy should be a good place to be.”

For specific recommendations on weathering this tempest in one piece, see Chris’ Capital & Crisis.

Unfortunately, if UBS’ announcement this morning is any indication, the second quarter is likely to bring more of the same.

The European mega-bank says it expects a $12 billion loss from the first quarter. The bank will kick off Q2 with another $19 billion write-down, which it also revealed today. And as if shareholders hadn’t had enough bad news, the bank is seeking $15 billion in emergency capital to cover bad bets that have yet to hit the books.

UBS has written down $40 billion since last July — making it Wall Street’s biggest loser (so far). Upon announcing this latest array of losses, UBS head honcho Marcel Ospel stepped down. No April Fools’ prank here.

The mostly unscathed Deutsche Bank threw its hat into the write-down ring today too. The German bank predicted a first-quarter write-down of $4 billion thanks to “significantly more challenging” market conditions.

Not to be outdone, Lehman Brothers capped off the day’s round of dismal financial earnings news. Lehman says it will need at least $3 billion in emergency funding to stay afloat during this “credit crisis.”

To raise the money, the brokerage will sell 4 million convertible preferred shares; “an endorsement of our balance sheet by investors,” says CFO Erin Callan. Funny… looks more like a sudden, desperate attempt to raise money at the expense of current shareholders.

Two sides to every coin, we suppose.

Naturally, UBS, Deutsche Bank and Lehman stocks rose on the news. In fact, Deutsche Bank was so smitten with UBS’ super-sized write-down, it decided to upgrade UBS shares to “buy” today. Only in the stock market can massive, multibillion-dollar losses be reasons for optimism.

This is precisely why we don’t publish any day trading letters.

The dollar ended up with some big gains after yesterday’s volatile session. The euro climbed up to an tenth of a cent below its all-time high of $1.59 yesterday on high inflation readings and subsequent doubts of an ECB rate cut.

But within moments of swinging toward record lows, the dollar rebounded against nearly every major currency. Profit taking and a weakening resource market seemed to be the catalyst for this latest wave of dollar strength. The dollar index has shot up a full point from yesterday’s low, to 72.4 this morning.

The euro limped all the way back down to $1.56. The yen backed off to 100.

“This is a NOT a trend reversal,” warns Chuck Butler. “We’ve seen this at various times in the past with the euro. Sooner or later, love is gonna get ya, and then the euro will finally climb over 1.58 to on its way to higher ground. The HUGE capital flows that used to come into the U.S. are disappearing, and with the current account having problems with financing, the only give is in the dollar.”

In the first quarter, the dollar managed its biggest quarterly loss versus the euro since 2004. The yen had its best quarter versus the greenback since 1999 and struck its highest level since 1995.

In all, against the euro and yen — arguably, the two most influential currencies outside the dollar — it was a nasty first quarter for the greenback.

Hit the hardest during yesterday’s broad commodity sell-off, oil fell over 6% yesterday and overnight. Oil is now trading just below $100.

Even as oil backs off, prices at the pump have hit new highs. The national average gas price yesterday struck $3.28, another record high.

After pulling itself back up to $940 yesterday, gold sank like a stone, to as low as $890 this morning.

“Gold got mixed support from the usual suspects yesterday,” writes Doug Casey, “with a sinking dollar unable to compensate for sharply lower oil prices. It was also likely caught up in a broad-based commodity sell-off that dragged down virtually everything except corn and natural gas.”

“Gold is up 9.7% year to date, and 38.2% for the past 12 months,” James Turk reminds us. “Silver is up 16.7% year to date, and 29.0% for the past 12 months. By any measure, these are spectacular results, and they place gold and silver among the best performing asset classes. Meanwhile, the U.S. dollar index has dropped 6.4% year to date and 13.4% over the past year, making it one of the worst performing asset classes.

“There has not been any meaningful or fundamental change to take the dollar off its present path, which leads to the fiat currency graveyard. In the absence of that action, one can only assume that over time, the dollar is going lower, and gold and silver are going higher. Therefore, continue to accumulate gold and silver, while minimizing your holdings of dollars, and, for that matter, any national currency.”

Following last year’s record number of acres planted, the USDA reported yesterday that farmers in the U.S. expect to plant some 86 million acres of corn this year. Soybeans will see a planting boost this year, too — up 18%.

“Yesterday’s USDA report,” beams Kevin Kerr, like an expectant father, “was as I expected, bullish corn and bearish soybeans. The planting intentions came in far below what was expected, and carryover stocks did, too. We see strong evidence that demand from ethanol combined with increased input costs for farmers is having the expected impact.

“In addition, the flooding and cold weather in the Midwestern Corn Belt could also have a major impact if planting is delayed dramatically. The bad news for consumers is that this likely means even higher food prices, with little end or solution in sight.”

Accordingly, Kevin is long corn in his Resource Trader Alert. If you would like to play these trends, you could have no better mentor than Kevin… he learned to trade these markets at the feet of renowned billionaire Paul Tudor Jones. Check out RTA here.

“I was surprised you did not express alarm over the Fed’s imminent takeover of all U.S. financial institutions,” writes a reader. “After all, it is a private banking corporation no more a part of the U.S. government than FedEx, whose true owners have never been revealed — and which has never been audited. How can the Treasury legally turn over everything to it? It’s like giving the fox the keys to the henhouse!”

The 5 responds: We’re no less alarmed than if we’d witnessed a car wreck heading south on I-95 at 4 a.m. in a rainstorm. But since we’ve been driving all night with kids in the car… the horror registers only on the inside. The rest is just action: We either attempt to get out of the way or slow down to see if we can help, preparing all the while to get wet.

For what it’s worth, the chairman of Federal Express is not appointed by the president, nor was the transportation company created by an act of Congress. In fact, to insinuate they are similar is an insult to Fred Smith, the company’s founder, whose antics and success are studied in business schools… ironically, of course, given that he flunked out himself.

Cheers,

Addison Wiggin,
The 5 Min. Forecast

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