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Yesterday marked the worst start of a new year that Wall Street has seen in 25 years.

From the Financial Times: "The Dow Jones Industrial Average fell 1.7 per cent to 13,043.96 points, its worst percentage decline on the first trading day of a year since 1983. The S&P 500 closed 1.4 per cent lower at 1,447.16 and the Nasdaq Composite shed 1.6 per cent to 2,609.63."

Turns out the markets weren't too keen on the ISM data that we mentioned yesterday, that showed manufacturing had weakened in December, sinking below 50 to 47.7.

"I learned in econ class that when the ISM hits a level of 45 for two consecutive months, it indicates a recession," our currency counselor, Chuck Butler, tells us in today's issue of The Daily Pfennig.

"I know that economists believe a recession is defined by two consecutive quarters of negative growth. But I argue that point…and in 2001 I was bang on, and months ahead of the economists' call that a recession 'had' occurred…"

The minutes from December's FOMC meeting were released yesterday, showing that the Feds believe they may need to cut rates again. Apparently, the turmoil in the housing market was worse than they expected, and surprise, surprise, it has affected consumer spending. According to the minutes, "tighter credit condition, higher gasoline prices and the continuing housing correction might be restraining growth in real consumer spending."

Basically, the Fed is caught between a rock and a hard place - nothing new here. They are "trying to fight inflation while dealing with the slowdown in U.S. growth," one expert told the FT.

There were some bright spots for traders yesterday, however…energy stocks and precious metals.

Gold futures hit a high not seen in 28 years today, surging above $860 an ounce. The yellow metal ended the year with a 31% gain - its seventh consecutive year of gains. Our friend, James Turk, at GoldMoney.com had this to say:

"Will gold continue its winning streak in 2008? Of course only time will tell because no one can predict the future. Nevertheless, one thing is certain. If central banks persist with actions that debase national currencies, the gold price will continue to rise in terms of those currencies.

"Given all the debasement that we have seen over the past seven years, it seems like a sure bet that central banks are not going to change their ways. Their pronouncements to 'fight inflation' and to protect a currency's purchasing power are nothing more than hollow rhetoric."

Meanwhile, crude oil hit $100 a barrel on the weak dollar, geopolitical uncertainty - and the possibility that global demand will outstrip supplies.

The center of Nigeria's oil industry, Port Harcourt, was invaded yesterday, which helped push the price of oil up, as did news that China's refineries are running at record levels to offset a gasoline shortage in the Far East.

But there is an interesting twist to this story…

"It was little more than the will of one trader that pushed the price into the three digit range," Addison and Ian at The 5 Min. Forecast tell us. "Only a single oil contract was purchased yesterday for a hundred bucks… a paper trade made on the floor of Nymex for one lot (1,000 barrels) of oil.

"In other words, somebody was just looking to be the first guy to own $100 oil. We won't be surprised when that ticket ends up on e-Bay. Despite the playful manner in which oil achieved $100, it's found support at $99 ever since." 

Until tomorrow,

Short Fuse
The Daily Reckoning

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The Daily Reckoning PRESENTS: Poorly degraded U.S. roads, highways and interstates cost American taxpayers $67 billion per year, $5.6 billion per month, $186 million per day, $7.8 million per hour or $130,000 every minute - not for reconstruction, mind you - but for patchwork and cosmetic touch-ups. Christopher Hancock explores…

AN ECONOMIC AND SOCIAL EPIDEMIC
by Christopher Hancock

On Aug. 1, 2007, every child's worst nightmare came true.

At 6:05 p.m., a school bus transporting 60 children from the Waite House Neighborhood Center day camp clung precariously to a mangled steel guardrail on the I-35W Mississippi River bridge. Thankfully, the children and driver were spared. Many others, however, were not.

When the bridge collapsed, dozens of cars, tons of concrete and twisted steel beams plummeted 60 feet to the riverbed below. Thirteen died. Approximately 100 more were injured.

"This is a catastrophe of historic proportions," said Minnesota Gov. Tim Pawlenty.

Prior to the collapse, every year as far back as 1990, federal inspectors had assigned a "structurally deficient" rating to the I-35W bridge. Yet for 17 years, the structure stayed open.

Currently, 73,518 of America's 594,709 bridges - roughly 12% - share this "structurally deficient" classification. But like the I-35W bridge, they too stay open.

This tragic disaster represents an economic and social epidemic quickly spreading throughout the United States today. American infrastructure keeps crumbling. Collapsing bridges, exploding steam pipes and Louisiana levees… And we fear these failures simply epitomize the tip of the proverbial iceberg.

Poorly degraded U.S. roads, highways and interstates cost American taxpayers $67 billion per year, $5.6 billion per month, $186 million per day, $7.8 million per hour or $130,000 every minute - not for reconstruction, mind you - but for patchwork and cosmetic touch-ups.

The economic outlook gets worse.

We've mentioned these stats before. But they bear repeating. The American Society of Civil Engineers issued a grave warning. The United States has fallen so far behind in maintaining public infrastructure - roads, bridges, schools, dams - that it would take more than $1.5 trillion over five years just to bring it back up to standards.

The Iraq and Afghanistan wars have cost the United States $474 billion to date. In other words, public infrastructure maintenance alone will cost roughly three times as much as six years of war.

Going forward, I believe America needs an even greater commitment to nation-building. Except this time, America needs to rebuild itself.

My interest in infrastructure started at an early age, a deeply ingrained, natural byproduct of my upbringing. You see, my father, the former mayor of a small West Virginia town, worked to rebuild our own community's infrastructure. For better or worse, he constantly dragged me along.

My friends worked on farms. I spent my afternoons and Saturday mornings searching for water leaks. They rode John Deere tractors. I rode Caterpillar end loaders.

Anyhow, around 1982, a rather substantial water leak on the south side of town brought out the picks and shovels. These calls were never routine. Municipal water leaks are tricky business.

You see, water leaks rarely surface in close proximity to the broken pipe itself. More often than not, concrete roads and sidewalks force water to trickle way down the line in search of more porous escape routes. Some leaks, in fact, never surface.

Meaning, you just don't dig a big hole beneath a percolating puddle. Maintenance crews check various meters and pressure gauges, trying to pinpoint their proverbial ground zero. It serves to reason. Digging up roads isn't cheap. Cities (and especially small towns) certainly don't cut into roads unless they're pretty confident they've located a problem.

Well, on that crisp spring afternoon, my dad and his crew felt confident they found their leak. And sure enough, 4 feet later, they were right. The broken pipe was no surprise. The fact that hollowed-out logs served as pipe certainly turned some heads, though.

Hollowed-out tree trunks acted as the earliest means for either water or sewage conveyance. Eventually, wood construction gave way to a more durable material. In fact, logs gave way to lead.

According to Marc Edwards, a civil engineering professor at Virginia Tech, the U.S. has over 5 million lead pipes in its water infrastructure today. Edwards said:

"Lead is a good-quality plumbing material, from the perspective that it lasts a long time and it does not break. Unfortunately, the little that can leach from those pipes into the water is sufficient to pose a serious health concern. More recently, the issue we've been discovering is pieces of lead from these pipes, and from lead solder, sometimes detach and, essentially, fall off into the water in pieces. This is very disconcerting, because in some cases, you can take a single glass of water, and if you're unlucky and it has that piece of lead in it, you can get a very high dose of lead, similar to that which you could obtain by eating lead paint chips."

Edwards estimates it would cost $1 trillion to completely correct this problem.

For a quick perspective, consider this: Mattel, the maker of Barney, Barbie and Dora the Explorer toys, recalled more than 9 million toys because its products were coated with lead paint.

Mothers and fathers were outraged. China was vilified. Every news outlet in the country ran with the story. Zhang Shuhong, owner of Lee Der Industrial, a company that made toys for Mattel, hanged himself in a company warehouse over the incident.

Lead poisoning in young children can lead to neurological problems. But as Edwards points out, "There are no laws requiring lead testing or replacement of plumbing…Only 10% of schools have tested their drinking water in recent years."

Meanwhile, our faucets continue to run.

Here in Baltimore, the public school system took action. It turned to bottled water. According to a report by Sara Neufeld in the Baltimore Sun, the city Health Department discovered that 10 fountains that had passed previous tests still contained unacceptably high levels of lead. After 15 years of efforts to remove the lead in its water fountains, Charm City capitulated.

So you ask, what will it take to replace these pipes?

Actually, it will take a great deal. The reason? Partial replacement helps address the aging pipe epidemic. However, partial replacement can actually aggrandize the lead content spewing from our taps.

We turn once again to Mr. Edwards:

"In terms of the pipe replacement, it is true that for utilities exceeding the lead action limit, a certain percentage of their lead pipes must be 'replaced' every year. Or to be more precise, we actually only 'partly replace' the lead pipe, because in most cases, we leave the customer's portion of the lead pipe right where it is. Recent monitoring data have shown that in many cases these 'partial replacements' actually cause worse lead problems than if we had done nothing at all, perhaps because of disturbance of the lead scale (e.g., lead rust) and galvanic corrosion of the lead pipe. The worsened lead leaching is known to persist for months and months in some of these cases, and no convincing data exist that the situation completely corrects itself. Replacing part of a lead service pipe is not defensible from either an economic or public health perspective. In fact, in light of what we know about this problem, I challenge someone to put forth a rational argument that speaks in favor of 'partial replacements.'"

Meaning from the way we read things, eliminating the lead risk associated with the current infrastructure system currently in place, it's an all-or-none case scenario.

Regardless of composition, these pipes are old… They're too old. "Most of the water pipes and treatment plants in our country are over 40 years old right now. And they're nearing the end of their useful life," our resident expert Mr. Edwards points out. 

For investors, infrastructure stocks seem promising.

Interminable military obligations, rising prices, a declining dollar and a credit crisis with no end in sight can't thwart our fundamental need to fix this problem.

So the question is…Will Uncle Sam start applying the Band-Aids before the next bridge begins to collapse?

Regards,

Christopher Hancock
for The Daily Reckoning

Editor's Note: Christopher Hancock has spent the last two years doing investment research primarily focused on emerging markets, specifically China and Hong Kong. After working with Citigroup in Hong Kong on the challenges and opportunities associated with the forthcoming RBM flotation reform, Christopher left many of his friends behind and decided to return to the States to pursue a career in equity research.

Christopher's desire to work for an independent firm led him to Agora Financial, where he now is the editor of Free Market Investor. Christopher travels extensively and utilizes his contacts across the globe to recommend the best international investments in the world right now for his subscribers.