It seems that with each passing month the estimates for losses in the international banking system keep rising. This time last summer the largest estimates (from credible sources), if memory serves me correct, were around $400 billion, give or take a few months. By the end of the year it was in the neighborhood of twice that. Then last quarter we saw estimates approaching $1 trillion. Last week, the number being broached was $1.6 trillion, by Bridgewater Associates, one of the top, and more credible, analytical firms in the world. In this week's letter we look at the implications of that projection, analyze recent lending patterns by banks, briefly touch on the implications of the recent unemployment numbers, and end with a few comments on the bear market. It will make for an interesting letter. Warning: remove sharp objects from your vicinity before reading.

But first, I need your help, and in return I would like to give you a link to a recent speech I gave, where I speak about what I think is the development of an important new asset class, one which will come about precisely because of the problems I am writing abut today. I have not yet written about this topic in public, and the speech has been well-received. I think you will like it. Now, as to how you can help me ...

I get to travel a lot with my daughter and business partner Tiffani (actually she runs the business) and meet new people. Over the years, she has become as fascinated as I have with their individual stories. Everyone has a story to tell or a lesson to teach. We have decided to write a book about those stories, looking at the differences in perspective between old and young, retired and working, those who are wealthy and those who aspire to wealth. What are the differences in attitudes, in work habits, in how you manage money, in how you look at the future, and a score of other items? How do all of these things correlate?

The official number for employment suggested a loss of 63,000 jobs. But could it have been more like 200,000? And I will make a case for 2,000,000 lost jobs last month. This week we will take a look at the confusing labor-market picture in the US. We will also look at the debate over the money supply. Is the Fed increasing the money supply at a reckless rate, fueling inflation fears down the road? All this and a lot more as we look at how the recession in affecting everyone and everything, from individuals to large businesses. (The letter will print a little long, but there are a lot of charts.)

This week's letter is triggered by an amusing (but very flattering) note from a reader. Matt M. wrote:

"John, you have been my rock for the last few years. Will this decline be equal to the 1970's, the 1930's or the 1900's when we had a similar wealth disparity? I must use a line from Star Wars, 'Help me Obi-John, you're my only hope.'"

After a wild week in the markets, there is so much to write about, it is hard to know where to start. The headline number says jobless claims fell 20,000. That would be good news, if it were true. Sometimes you need to look behind the curtain to see how these statistics are made. As we will see, claims were actually up by 26,000. I wrote in my annual 2008 predictions that the big story of the year would turn out to be credit default swaps and counter-party risk. I will admit to thinking it would take more than a few weeks for that to happen. And the Senate is hampering the ability of the Fed to work, and doing so for blatant political purposes, in an effort to reduce the independence of the Fed. There is that and a lot more to cover in what should be an interesting letter.

But first, let me briefly mention my upcoming 5th annual Strategic Investing Conference (co-hosted with my US partners Altegris Investments). It will be April 10-12 in La Jolla, and is shaping up to be the best conference we have ever done. Paul McCulley, Louis Gave, Rob Arnott, George Friedman of Stratfor, and several more well-known names who I expect will commit this next week are on tap, as well as some of the smartest hedge fund managers I know. Find out how these guys are taking advantage of the volatility in what is clearly becoming a bear market, and what you can do to join them.

Although it frustrates me, we have to limit attendance to investors with a net worth of more than $2,000,000, for regulatory reasons. Invitations will be sent out soon. If you would like to go and have not signed up for my free accredited investor letter, you can go to www.accreditedinvestor.ws and sign up. One of my partners from around the world will contact you. (Again, for regulatory reasons we have to talk with every individual who plans to attend, as private offerings and hedge funds will be presented, and we have to make sure that the legal requirements for such presentations are met.)

It's that time of year, when I throw caution to the wind and present my annual forecast issue. Jumping to the conclusion, I think a recession has begun, so the relevant question is to ask when the recovery will begin. We will look at the housing market, the continued implosion of the credit markets, and the deteriorating employment picture. Will the Fed worry more about employment and recession or about the very real inflation pressures? Oil? Gold? Which way the dollar? I am going to make some unusual calls, as well as highlight what I think will be the next looming problem in the growing credit crisis. We'll try to cover it all in just a few pages.

But first, one quick commercial note. I am looking to establish a relationship with a few venture capitalists, and/or broker-dealers who specialize in private equity placements. If such a relationship might interest you, please feel free to contact me. And now, let's jump into the letter.

As is usual for the forecast issue, we begin by looking at how I did last year. All in all, not bad. I correctly predicted the housing and subprime crisis, noted that there was a potential for the credit crisis to spread (which it did), and suggested that we would end the year in recession. As I will make the case later in the letter, I think we did just that in December. I got the direction of the dollar right, as well as energy, but I was wrong (as usual) about the stock markets. I thought a recession would lead to a lower stock market for 2007. It now looks like that lower stock market will show up in 2008.

The economy added 166,000 new jobs last month, almost double the average estimate. GDP for the US came in at a blowout 3.9% growth, well above trend. The Fed cut its rate by another 25 basis points, but many observers see language in the accompanying statement which they think suggests the Fed is done with cutting, at least for now, as the economy appears stronger.

But appearances can be deceiving. This week I lay out a partial case for why the Fed will cut again and yet again (all the reasons would take a book). There are good reasons to doubt the jobs number, but unless you get into the details of how the number is created, you might never know. "Laws are like sausages, it is better not to see them being made," said Otto von Bismarck in the late 19th century. I would add to that list government statistics. While this week's letter may not be for the squeamish, we are going to look into how the sausage of the jobs report is made.

And in response to some questions from the recent survey we took, I finish with a few thoughts on the biases I have in writing this letter.