The markets may be stuttering…with the euro suffering in overnight trading and stock indices down over a percent at today’s open…but a continued rally still seems the foregone conclusion du jour. We’re not necessarily going to question it.

Despite a few brief months of rational behavior last year, the markets are given to obeying only their own reality. Something that Cornelius Luca – Editor of The Money Trader – picked up on last week…

“The U.S. jobless data was worse than expected,” he said in reaction to last week’s unemployment news…

“The unemployment rate climbed to 8.9% in April, the highest since late 1983. That was as forecast. More importantly, if we include laid-off workers who have given up looking for new jobs or have settled for part-time work, then the unemployment rate would have been 15.8% in April! And the nonfarm payrolls were bad in April and MUCH worse

They’re tearing down houses out west…as you’ve probably heard. It’s cheaper than going through all the necessary steps to get the houses mortgaged out, so banks are just bulldozing McMansions.

And closer to home, toxic drywall has become the scourge of South Florida.

It’s particularly bad in St. Lucie County. They’re now saying thousands of homes could possibly be contaminated…that the nearly-toxic levels of sulfur might have seeped into the foundation, meaning the homes will need to be demolished.

And the rest of the U.S. housing market is just as shocking. The free-fall in home prices is still accelerating. 20% of American homeowners are underwater on their mortgages…some 11% (and maybe more) of all the homes in America are unoccupied and unsold…

But most Americans still don’t recognize the biggest mistake they made during the boom…

It didn’t even occur to me until just a

Dear Value Seeker,

Is gold back?

The precious metal suffered heavy losses in the second half of 2008. But it has soared in recent weeks, breaking through the $900-an-ounce barrier yesterday.

As 5 Min Forecast editor Addison Wiggin says, “Global investors see metal as the only currency worth holding.”

This from The 5:

Looking around the globe today, every major currency is in the crapper — and we’re not the only ones to notice. The euro is being torn apart by once-booming members Ireland and Spain. Nor is Greece helping matters much. Across the channel, the pound is getting leveled by outright fear in the London banking scene. Switzerland and its franc are rapidly losing their safe-haven status. China’s manipulating the yuan, as Tim Geithner insists. If Japan isn’t doing the same, it will soon —

Dear Value Seeker,

With the markets closed today for Martin Luther King Day, it’s a good time to look at how the rest of the world is coping with the credit crunch.

The answer, unfortunately, is not very well.

The European Commission has slashed its growth forecast for the euro zone in 2009 to 1.9%. And it estimates that a recovery in 2010 to be a timid 0.4%.

Meanwhile, the so-called “PIGS” – Portugal, Ireland, Greece and Spain – are facing a financial disaster that could eventually threaten their position in the euro group.

Ratings agency Standard & Poor’s has already downgraded its credit rating for Greece and Spain. The other two outliers are under review.

In Britain, which analysts expect

High yields don’t always mean high value, says Matthew Collins. Some Real Estate Investment Trusts (REITs) now yield an attractive 16%. But commercial real estate is in a perilous position right now. And Matthew says investors should resist the temptation to go bottom fishing just yet. Later in the year, there could be some great opportunities to cash in on a recovery bounce.

This from Sovereign Society:

In a previous A-Letter, we talked about the three attributes necessary to make a portfolio successful in this kind of market. One of those attributes was yield…something that’s become easier to find as equity markets take more and more of a beating. But you have

Tax-free municipal bonds with historically high yields might look attractive to many investors. But Matthew Collins says the risk is still too high. Bloated and inefficient local governments are facing funding emergencies as revenues tumble and credit is squeezed. As the recession deepens in 2009, Matthew says muni bonds should be avoided.

This from Sovereign Society:

With yields as high on municipal debt as they’ve been in years and the President-elect’s office all abuzz with news of stimulus for state and municipal governments, the cunning investor is paying attention. The bailout of the financial system is already leading to some serious opportunities in commercial debt, so should you get ahead of the curve and dive into municipal debt?

In a word; no. At least not yet.

After all, big government curing our economic woes with “stimulus” projects is almost like a drug dealer curing withdrawal symptoms with more heroin…you just can’t

Dear Value Seeker,

It could almost be comical… if our financial futures were not at stake.

Today, Fed Chairman Ben Bernanke spoke about the economic crisis and the government’s policy response.

After defending the Fed’s policies over the last 18 months, ‘Helicopter Ben’ made it clear that he isn’t about to be upstaged by Obama’s mega stimulus plan.

In my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system…

More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets. A continuing barrier to private investment in financial institutions is the large quantity of troubled, hard-to-value assets that remain on institutions’ balance sheets. The presence

Obama’s ever-growing stimulus package isn’t giving the markets a boost. Matthew Collins says the Fed’s zero-rate interest policy has created a liquidity trap, in which businesses and consumers prefer to hoard cash than make risky investments. That makes stimulating the economy very difficult, and dampens hopes of an ‘Obama rally’ in the near future.

This from The Sovereign Society:

It’s often the case that the most important news isn’t what’s happening in the world today, but what’s not happening in the world today. Case in point; President-elect Obama’s constantly growing stimulus is not driving the market upward.

Going back to the Fall of 2007, the Fed’s interest rate cuts served as an immediate boost that pushed the markets higher. As planned, these infusions of credit helped to boost market confidence and morale…even if only for a few days or weeks.

Their effect lessened and

We are all being deceived by the nature of our banking system, says Matthew Collins. Fractional reserve banking is corrupt. And with the Fed at the heart of the scam, it’s no wonder things are so messed up. Matthew says its time we stand up and demand answers.

This from The Sovereign Society:

Your bank is a counterfeiter, as facilitated by the Federal Reserve System and permitted by the government that allegedly represents you.

The lie of fractional reserve banking is at the heart of our ‘banking’ system. And its acceptance as fact or necessity by the world’s populace is the basis on which most other economic lies and myths gain so much credibility.

To understand why we’re in so much trouble right now, and why the privately owned Federal Reserve Banks are to blame, one must understand fractional reserve banking, and why it amounts to little more than counterfeiting.