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 "History proves… that a smart central bank,” Ben Bernanke, then chairman of Princeton’s economics department, wrote in an article in Foreign Policy magazine in September 2000, “can protect the economy and the financial sector from the nastier side effects of a stock market collapse."
 As if on cue, Bernanke, now chairman of the Fed, injected $14 billion more dollars into the system this morning.
“The New York Fed plans still more liquidity injections on most days over the next two weeks.” writes “Dollar Bear” Dave Gonigam on our blog this morning. “It’s telling us this now so that we don't, you know, get the wrong idea and think they're reacting to a calamity or something.”
If you’re keeping score at home, this morning’s dollar dose brings the total since last Thursday to $85 billion. That’s nearly $5 billion more than the initial boost given by the Fed following the Sept. 11 attacks on New York and Washington, D.C. For more, check out Dollar Dave’s entry.
 The Dow and S&P 500 both dropped about 1.3% yesterday.
It took the Dow 58 trading days to climb from 13,000 to 14,000 points, and only 19 to fall back down into the 12,000s. The index opened this morning at 12,859 -- a five- month low.
 After yesterday’s close, the S&P 500 is in negative territory for the ’07 calendar year.
 “Officially,” a bear market begins when an index has dropped 20%... a “correction” begins after a 10% shellacking.
So here’s the crazy thing: This morning, the Dow is 8.9% off its all-time high. And the S&P is down just 9.7%. We’re not even in “official” correction territory yet… and already investors and fund managers alike are screaming bloody hell. Here’s how your cynical editors view these current events:
The sell-off and the dramatic response from the Fed shows just how feeble the rally was over the summer. And… the bombastic fools who were crowing about gains in June and July knew it was a feint.
Investors are so leveraged in their portfolios, their houses, their cars, their clothes and their rock ’n’ roll lifestyles they can’t afford for stocks to go down. Even just a little bit.
 Treasury Secretary Paulson tried to ease investors’ fears yesterday. He admitted to The Wall Street Journal that the mess in the markets will "extract a penalty" on economic growth. But… the turmoil is taking place "against a backdrop of a very healthy global economy with strong fundamentals."
"Looking over periods of stress that I've seen, this is the strongest global economy we've had." Paulson opined again this morning, glancing upon his 32-year career in finance.
We’re not sure why, but we suddenly had a flashback: TheStreet.com’s Jim Cramer calmly saying the subprime mess is “meaningless” back in mid July… and then screaming, red in the face and table-pounding angry, that there’s “Armageddon” in the income markets just a few weeks later.
What do you suppose is roiling just beneath Paulson’s skin as he talks the administration’s book? Global economic strength is “meaningless” if investors on Wall Street are watching their retirement funds evaporate.
 Overnight, the Asian and European markets suffered some of their worst losses since the tech bust. On average, Europe’s broad indexes shed 2.7% -- England’s FSTE 100 and France’s CAC both registered well over 3% losses. As of this writing, Germany’s DAX is the only major European index to return a profit in 2007. All others have given up their gains to the subprime and credit gods.
 Asia faired no better… South Korean traders must have felt a need to catch up after taking yesterday off (for a national holiday) -- the country’s benchmark Kospi index is down a whopping 7%.
Falling nearly 126 points, today marks the Kospi’s biggest point drop ever, and its largest percentage shedding since the Sept. 11 attacks:
Indonesia’s market also plummeted… the Jakarta index fell over 6% overnight
Singapore, Hong Kong and Thailand all suffered 3% losses Japan’s Nikki and the mighty Shanghai Composite fell 2%
 In Australia, the ASX fell more than 5% in its opening hours -- its worst intraday drop since 2000. Miraculously, the index managed to regain all but 1.2% by the day’s end.
 We’re not entirely convinced, as Mr. Paulson seems to be, that the contagion raging in the global markets won’t have an equally deleterious effect on their underlying economies.
 Homebuilder confidence slumped to a 16-year low yesterday, according to the National Association of Home Builders. With a score of 22, homebuilders haven’t been this depressed about the housing market since 1991. In fact, 22 is the second lowest score since the survey was incepted in 1985. All told, confidence has dropped 2% since July.
 And who can blame homebuilders for their current low self-esteem? U.S. home prices dropped for the fourth straight quarter in Q2 2007, said yesterday’s report from the National Association of Realtors. Currently, the median single-family home in the U.S. will set you back $223,800 -- 1.5% less than this time last year.
 Housing starts and building permits also have yet to find a bottom in the current housing crisis. According to this morning’s housing stats report, starts in July fell to an annual rate of 1.38 million -- the worst since January 1997. July permits sunk to 1.37 million -- the lowest level since October 1996.
 The country’s top six home builders - Lennar, D.R. Horton, Centex, Pulte Homes, KB Home, and Hovnanian -- have all reported second-quarter losses. Not one of them expects business to improve before this time next year.
 Countrywide, the nation’s largest mortgage broker, dropped another 13% this morning…Mike Shedlock’s “put” on Countrywide is up 219% this morning. His Lowe’s puts are up 73%. And his Financial Select Sector ETF play is up over 50%. We suspect there’s more where that came from >>
 “Ironic that two things deemed so safe... housing and cash (dollars)... have turned out so badly of late,” mused Chris Mayer over IM this morning, after hearing the latest news from Sentinel Management Group.
Sentinel is a $1.6 billion “cash management” firm that seems to have a particular affinity for investing that cash in AAA corporate bonds. Now that the entire world doesn’t want anything to do with the corporate bond market, Sentinel is faced with a serious dilemma: Its clients want their money back, but all of those swanky General Electric bonds are selling at Tyco prices.
“We had previously thought that the market would return to some semblance of order and that our clients would not join in the panic,” explained Sentinel in a letter to investors.
“Unfortunately, this has not been the case. We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients.”
“Bear markets expose all, eventually,” says Chris Mayer. “Every crack gapes wider and every confidence in the new order gives way. Whatever faith one had in abundance while prices went up shatters like a dropped crystal vase when they fall. Or as in this case, when prices can’t even be found.”
 “The yen is on the loose!” exclaims Chuck Butler from his EverBank World Trading desk. The Japanese currency rallied as high as 113 per U.S. dollar overnight, its strongest position against the greenback in over a year. This is especially significant in light of the dollar’s recent strength (see below).
Yesterday, we expressed hesitation over getting too excited about “the unwinding of the carry trade.” Chuck affirmed our hesitancy this morning:
“Everywhere I look, I see more and more talk about ‘unwinding carry trades,’ says Chuck. “The trading pattern sure looks like that could be happening, given the strength of the yen, and the weakness of the New Zealand dollar/kiwi... It'll take time to see if this pattern continues, as we've had a few false dawns recently... I think it really has more to do with ‘risk positions’ being unwound.”
 The euro and pound both gave up a full cent to the dollar in the past 24 hours as traders averted risk under the shelter of the world reserve currency. Now at $1.33 and $1.98, respectively, the dollar’s major competitors are against the ropes. But far from face down on the canvas, mind you.
 The dollar will likely fall against the pound and the euro again soon, but we’ll take it any day over the naira. The central bank of Nigeria announced this week that it will curb the naira’s inflation by simply dropping two zeros from each note’s value.
Ouch! Imagine every dollar you own suddenly turning into a penny. Oh wait…
 After rallying to over $73 per barrel, crude oil plunged over $3 today. The oil industry is essentially the same as it was weeks ago when light sweet crude was marching toward $80 per barrel… yet prices have fallen nearly $10.
“There have been a lot of entities around the world that have had to raise cash to cover losses in the subprime mortgage meltdown, or otherwise to book some sort of gain to impress the clients,” explains Byron King. “When you have to raise cash in a hurry, sometimes you can’t sell what you want. Sometimes you just have to sell things for which you can find or make a market… and there is always a market for oil futures.”
“From the standpoint of supply, there have been no major oil discoveries anywhere in the world of late,” cautions Byron. “And at the other end of the economic equation, oil usage trends are still going up. Supply is tight. Demand trends are rising.
“The Peak Oil paradigm is still with us, and we will surely see $100 per barrel of oil, sooner or later. Be patient. We will get to that $4 gasoline, and probably much more, in due course.” The market’s recent pullback has brought three of Byron’s latest picks back into “buy” range >>
 “I don't know anything about Mr. Walker,” a reader writes “but 14 years ago, Pete Peterson, former commerce secretary, co-founder of the Concord Coalition and at that time head of Blackstone Group, published Facing Up, a detailed analysis of the unfunded obligations of the federal government and a prediction of the catastrophe we are going to experience if we don't face our mounting debt. People yawned. Pete has published several additional warnings, his latest entitled Running on Empty, an assessment of the two major parties' spending folly. More yawns.
“This is a shame, because Pete is a pretty smart old bird. I noticed he made a few billion when Blackstone went public earlier this year. So he can spend his stash without guilt. He tried to warn us, but nobody listened.”
The 5 responds: Pete’s still trying. He’s the president of the Concord Coalition, which has sent Mr. Walker and crew around the country on their Fiscal Wake-up Tour. Pete also sat down with us for an interview for the film. We got the impression he’s been trying to warn people for so long, he’s just tired of the refrain. He rolled his eyes a lot when we asked rudimentary questions.
 “I think you are crazy to support nuclear power,” opined one reader. “Look, 30 years ago, the U.S. thought giving nukes to Iran was a great idea. But things change.
“Japan just came close to a meltdown when an earthquake hit their large nuke plant. But the main issue is WASTE. The stuff is totally toxic for up to 4 billion years, as in the leftovers from the uranium enrichment process. We use the waste in weapons that are basically dirty bombs that are resulting in massive cancer increases in Serbia, Iraq, Afghanistan, wherever those weapons are used.
“If you worry about terrorism, (which is way overblown), all you need is one terror attack and you make an area uninhabitable. Is nuclear energy worth all those risks, not to mention that cleanup costs are never included, since who the heck knows what cleanup 40 years down the road when the plant must be decommissioned will cost?
“It's total madness. Madness. Wind, solar, ocean wave, efficiency, geothermal are solutions… not new nukes. But hey, there's money to be made now, and who cares if the planet is permanently poisoned?”
The 5 responds: Madness? Sure. We were merely pointing out that some of the loudest voices decrying the use of nuclear power in the ’70s are now hailing it as a “green alternative.” Irony has its own visceral quality. We enjoy it.
As far as an investment, we suspect that uranium, like most raw natural resources, is in a multiyear bull market. Whether you choose to invest along with the trend or not is up to you. We cast no moral aspersions either way. Historically though, “social investing” is about as effective as washing your hands with mud.
Regards,
Addison Wiggin
The 5 Min. Forecast
P.S. Having said that, it’s worth pointing out that our Greg Guenthner is hot on a geothermal stock in his new service, Bulletin Board Elite… and investigating an ocean wave project in Scotland. We like wind and solar, too. Check it out >>
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Thursday, August 16th: 6:20am.
Recent guerilla attacks in western Mexico have authorities on both sides of the Mexican border scrambling to protect billions worth natural gas pipelines. Companies such as Hershey’s, Honda, and Kellogg’s are losing up to $7 million a day as local rebels bomb energy sites left and right. Meanwhile, several little known organizations are well positioned to profit from a sudden energy grab... or… worse yet, a full blown U.S. / Mexico Border War. 
