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 showed manufacturing had weakened in December, sinking below 50 to 47.7.

Theory says when the ISM hits a level of 45 for two consecutive months, it indicates a recession. We are definitely in a turmoil situation worse than we have expected.

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.

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.

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.