By Addison Wiggin & Ian Mathias
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Real estate pullback “showing no signs of slowing down”… 17 out of 20 metro markets decline in last 12 months
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U.S. markets sell off again… but one sector is seeing its highest insider buying action in 12 years
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Temp jobs suffering… last time this happened general “unemployment” followed right behind
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A precious commodity in a city of 4 million… Best way to play the trend
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Technical uranium correction… why now is a good time to buy the juniors
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China assumes yet another “world’s biggest”…
More homes are on the market now than at any other time in U.S. history.
4.5 million units are currently for sale, the most in sheer quantity ever. In more relative terms of current population, the current 9.6 month supply is the largest housing glut since 1991. Supply rose over 5% since June, yet another signal that the worst of the housing bust might still lie ahead.
U.S. homeowners, buyers and sellers have officially endured an entire year of falling home prices. The median American home cost $228,900 in July, down 0.6% from the month before… the 12th consecutive month of tumbling home prices.
All told, home prices fell 3.2% across the country in second quarter — the steepest rate since the S&P started its Home Price Index in 1987.
“The pullback in the U.S. residential real estate market is showing no signs of slowing down,” writes Robert Schiller, one of the architects of the S&P Home Price Index.
“The year-over-year decline reported in the second quarter of 2007 for the National Home Price Index is the lowest point in its reported history. On a regional level, 17 of 20 metro areas are showing declines in their annual growth rate from what was reported in May.”
We remember talking to radio hosts and listeners in 2005-2006 after our book Empire of Debt came out. We warned at the time that housing and real estate “don’t always go up.” At that time, even that subtle rebuke was met with utter disdain. What happens now, when it looks like we were right?
Consumer credit rose at an annual rate of 6.5% in June, to a record $2.45 trillion. As they did in 2001-2002 when the stock market “wealth effect” dried up, consumers are turning to their credit cards to keep up appearances.
By no coincidence, at all, we’re sure… the rate of defaults on credit cards in the first half of 2007 rose 30% over the same time the year before. Late payments are on the rise, as well. Bank of America, Citigroup and Capital One have all raised fees and interest rates in response.
And while the official government unemployment rate has stayed mostly the same since the beginning of the year, temp jobs have become a full 2% less available since the end of 2006. In each of the past six months, temp job opportunities have fallen across the country. Temp job stocks have followed suit.
Manpower, the world’s second largest staffing firm, shed 9% in the second quarter. In 2001, temp jobs suffered a similar decline, and a year later, overall employment dropped significantly.
Add all this up and what do you get? Consumer confidence dropped to 105 in August, down from 111 the month before. That’s the most substantial plunge in two years, the Conference Board, purveyors of the survey, said this morning.
Of those polled, 16% said business conditions are “bad,” 20% said jobs were “hard to get” and 10% of those surveyed said they expect conditions to worsen over the next six months.
Markets fell a smidge yesterday. The Dow lost 0.5% and the S&P 500 took it a bit harder — down 0.8%.
But get this. Stock purchases by “insiders” at banks, consumer lenders and insurers in climbed to a 12-year high. Not since 1995, when the Fed cut rates from 6% to 5.75%, have so many banking and lending execs bought so much of their own stock.
Notably, Wachovia, American Express, and American Capital Strategies all had remarkable streaks of heavy insider buying. Hmmnnn…
At the same time, however, Goldman Sachs, Lehman Bros., Bear Stearns, Merrill Lynch and Morgan Stanley executives have been avoiding their own stock like the plague. One board member bought two shares of Bear Stearns in July, but no other BS exec has bought stock since March. We’re guessing that guy lost a bet.
Thus, it comes as little surprise that Merrill Lynch downgraded Goldman Sachs, Bear Stearns and Lehman Brothers this morning from “buy” to “neutral.”
“Greater Phoenix’s population has doubled in less than 17 years,” reports Chris Mayer in this morning’s Rude Awakening. Chris is quite amazed by these booming desert cites… many of which have showed startling (read: bubble-like) signs of growth. Phoenix, Ariz., for example, was the 99th largest city in the U.S. in 1950 — today it’s No. 5, just behind Houston.
“In the olden days,” explains Chris, “when cities sprung up around strategically useful locations along riverbanks or ports or spread in fertile valleys, it would be inconceivable that a city of Phoenix’s size would sprout in the desert.”
Yet today’s technology makes it all possible. Phoenix — a city that averages seven inches of rain a year and is hundreds of miles away from major water resources — has over 300,000 swimming pools and 80 golf courses, not to mention 4 million thirsty mouths.
“That kind of growth shows no signs of stopping,” advises Chris. “So it will be interesting to see how the water resource issue plays out. I’m not saying people are going to die of thirst and Phoenix will disappear beneath the sands of Arizona. But I do think that water, logically, ought to get a lot more expensive.”
For ways to play the trend, check out Mayer’s Special Situations.
The $2.4 billion Venetian casino, resort, and convention complex opens in Macao later today — the largest of its kind on the planet.
“At 10.5 million square feet, the Venetian Macao is the second largest building in the world, after a Boeing plant in Washington state,” reports Christopher Hancock. Chris received one of his MBAs in Hong Kong…and took advantage of the opportunity to explore the finer things in Asia.
“Oh, how times have changed,” says Chris. “It hasn’t been three years since my friends and I used to take the ferry from Hong Kong to Macao on a regular basis. Back then, our only option outside of the two tables at the Mandarin Oriental was the aging Grand Lisboa. Macau looked much more like a late 1970s version of Atlantic City. But there was no question that would change.
“We were there the day Sheldon Anderson unveiled the $240 million Sands Macau. Talk about a revolution. Players had to wait for a table at 2 a.m. on a Sunday night. You knew the Chinese traditions of folklore, taboos and luck would play an integral part in the gambling industry. So it was no surprise to see Steve Wynn follow Anderson. And it was certainly no surprise to see the Chinese territory surpass the Las Vegas Strip as the world’s greatest gambling revenue center.”
Safe to say Macao’s developments are evolving into much more than bush-league blackjack and keno huts. With gondoliers sailing down canals, the 3,000-room Venetian tries to recreate the beauty of Venice, Italy. The complex also boasts a 15,000-seat sports arena, retail space for 350 stores, 1.2 million square feet of convention space, fine dining, and a Cirque du Soleil-produced show.
“Amazing,” remarks Chris. “I wouldn’t have thought Macao would go from a one-horse town to holding the second largest building in the world in less than five years.”
“In early August, uranium bulls were drawing up plans for a march on $200,” writes Dan Denning of Port Phillip Publishing in Australia. “Since then, the uranium price has fallen over 35%, which also happens to be a standard technical correction in a long-term bull market.” Hmmn…
“The correction in the market took all the wind out of the sails of uranium juniors. But we think that’s a good thing. Apart from some speculative forecasts on increased production in Kazakhstan, the fundamentals for uranium supply and demand are still bullish.”
Denning echoes our Gunner Guenthner in saying, “Time to buy uranium”… click here to learn how.
“Finally, someone your side has heard of jatropha,” writes a reader.
“For months, if not years, the world has been harping on about ethanol, whether it comes from corn, palm oil or sugar. Now, miraculously, a small company in the U.K. has been quietly doing deals with none other than BP using jatropha as the principal feedstock for its biofuel. It not only has no edible qualities whatsoever, it will grow in arid conditions and on nonarable land. Will this be the crop of the future? Who knows, but I can imagine a number of countries and U.S. states that would welcome some economic input.
“Can you imagine the center of jatropha cultivation being in Africa, which is where the company is pursuing its activities? Maybe they ought to be selling it to the Arizonans or the LV guys; they don’t have water, but they have lots of nonarable land — perfect for this little gem — might even rescue them from the upcoming ‘dry ghost town’ scenario you paint so well.
“Oh, and by the way, this little company not only grows the stuff, but also owns the rights to propagation and has a very nice seed subsidiary. Isn’t it about time you sent one of your weary analysts over to take a look at the company? I know you know who it is!”
The 5 responds: Our weary analysts are already on the job.
“The per barrel cost of biofuel from jatropha,” says Chris Mayer who put us onto the leafy green golf balls yesterday, “is about half that of corn and a third of rapeseed. So there is a little mini-biofuel boom going on in India. You can put jatropha in almost any kind of soil and it will grow. It doesn’t need fertilizer. It also uses little water. Nobody eats it, so you aren’t competing with food supplies. And India has lots of land.”
As we mentioned, BP is putting $90 million into a joint venture to develop the idea. Another company is Mission Biofuels. It’s putting up $80 million for jatropha.
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. We’re stumped… we’ve been publishing a letter that, frankly, contains the world’s most valuable undiscovered stock research for about two years now. And for a reason we can’t explain… it isn’t our best-selling publication.
To test ourselves, we’re giving a “half-off” exclusive offer to readers of The 5 that will expire on Sept. 4, 2007. We’re already regretting putting this price on the table… so much so that we’re not going to link to it in today’s 5. Keep an eye on your inbox tonight… this private invitation expires in one week.