by Addison Wiggin & Ian Mathias
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Market highs abound… What’s driving euro, loonie, oil, gold to YTD highs
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U.S. trade sets two record highs, too… why it’s seen as “good news”…
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National Association of Realtors reduced forecasts for ninth time this year… two predictions on a housing bottom… Beazer asks for court protection…
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OPEC increases production, but only enough to cover their own use…
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Brazil growth accelerates: How this could be just the beginning…and a play that’s already up 8.5% in 3 months
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National procreation day in Russia… no kidding
The euro punched through $1.38 overnight… a new record high.
The dollar suffered its sixth day of losses in a row yesterday — its worst losing streak since April.
“Buy the rumor, sell the news,” the trading adage goes. Currency traders are selling the rumor that last Friday’s job report is going to force the Fed to cut rates next week. Europe, England, Japan and China are all rumored to be raising rates soon, too. The pound snuck up a penny, to $2.03, overnight… the yen is pushing toward 112.
At $711 this morning, gold continues to climb. It’s currently sitting atop 16-month highs.
Gold’s been climbing almost daily since mid-August.
The loonie is back!
The Canadian dollar pushed past 96 cents yesterday — just a breath away from yearly highs reached on July 24.
“What’s really strange is that you just don’t see a lot of investors rushing to buy loonies,” comments our currency counselor Chuck Butler. “Gold is over $700, oil is heading to $80 and the demand for other energy sources like natural gas continues to be strong. All of this juices up the Canadian economy. When the economy gets juiced, the loonie follows.”
OPEC surprised speculators (your editors included) by deciding to raise production output by 500,000 barrels a day yesterday.
After their Vienna meeting concluded, OPECers announced the half-million-barrel boost will go into effect in November.
But will it matter? “A 500,000 barrels per day increase would not put much of a dent in what looks to be tight fourth-quarter fundamentals,” said a Lehman Brothers report yesterday.
OPEC nations have accounted for nearly 22% of the 8 million barrel a day increase in global demand between 2000-2006. The increase in production will basically mollify their own desire for the black goo.
Oil traders didn’t care either way.
During trading yesterday, light sweet crude jumped above the $79 range… and then settled in pennies below its all-time high.
The National Association of Realtors (NAR) cut back its home sales forecast yesterday — for the ninth time this year.
The NAR now predicts existing home sales to drop 8.6% in 2007. New home sales will fare even worse. The association now predicts a whopping 24% decline in new home sales.
Undaunted, the NAR bravely issued a new “housing bottom” prediction. As of yesterday, the realtors currently expect home sales to regain traction by the year’s end… and new home sales shortly thereafter, in the first quarter of 2008.
We guess nine revisions in their forecasts aren’t enough for one year.
For their part, Moody’s said the housing decline might not find a bottom until 2009.
They suggested, too, that home sales will take a “substantial hit” for the rest of 2007.
The “crisis of confidence” in credit markets will likely last longer than previous financial shocks of the past two decades,
Hank Paulson, Treasury secretary, warned the Financial Times yesterday. Longer than the turmoil that followed the Asian crisis… longer than the Russian default of the 1990s… longer than the Latin American debt crisis of the 1980s.
The homebuilding giant Beazer asked a court yesterday to hold creditors at bay.
After being served with a second set of default notices, Beazer said they believe their former CFO may have made some errors in reporting cash reserves.
Hey, we’ve seen this movie before…
“Madison Avenue,” says the New York Post, “bracing for a slowdown, is officially now in a slump.”
Spending on advertising in the U.S. fell to $72.6 billion in the first half of the year… down about a half percent year over year. Jon Swallen, director of research for TNS Media Intelligence, told the Post it will be tough to meet even the revised forecast at this point, but refused to use the word “recession.”
The TNS report says, “The hardest hit media categories were newspapers and TV. Newspaper ads fell 5.7%, to $11.1 billion, while TV slid 3.6%, to $11.8 billion. Internet ads, however, jumped 17.7%, to $5.5 billion.”
“Those TV ad numbers reinforce my decision to get out of a dying business,” Dave Gonigam tells us… a 20-year vet of the TV industry and now a writer in residence here at 808 St. Paul. “Political buys will reverse the trend next year – campaign ads have become crack for broadcasters – but come ’09, look out below.”
U.S. markets rallied about 1.3% yesterday.
In the U.K., the FTSE 100 jumped 2.4%, and its pan-European benchmark, the FTSE Eurofirst 300 index, rose 1.7% — its biggest one-day gain in three weeks.
The trade deficit narrowed slightly in July,
says the Commerce Department.
U.S. sales exports rose to an all-time high in July of $137.7 billion. Farm goods, cars and auto parts and “capital goods” all set records. But wouldn’t you know it, imports rose to an all-time high, too. Petroleum imports surged 2.3% — the highest level in 11 months. July’s trade deficit checked in at $59.2 billion.
All told, the U.S. is on track to tally a $711 billion trade deficit this year, down from last year’s $758. That’s great. At this rate, it will take only 14 years to reach a surplus.
Copper had its biggest gain in five months yesterday.
Demand from China is driving demand up and supply down. The Chinese imported more than 1.9 million metric tons of copper in the first eight months of 2007 — a 43% gain.
“Undoubtedly,” comments Chris Mayer “this is due — at least in part — to China’s massive power grid buildup. It takes a lot of copper to build power grid systems. And that demand should support copper prices for years to come.
“Copper is also used extensively in water pipes, another area in which the country is sinking billions of dollars.”
Chris has been watching the infrastructure build-out in China — and around the world –- closely in his Capital & Crisis. His power grid play is up 40% this year. Mr. Mayer will publish his next infrastructure play in less than an month. Don’t miss it.
“Brazil is expected to put up 5.5% growth rates for the second quarter, more than double the average for the past 15 years,”
says our international investing man Christopher Hancock.
“The figures are due to be released today. Some expect growth to reach 6.1%. There is high job creation and rapid expansion due to falling cost of consumer credit. The total amount of credit in the economy has doubled since 2003 to more than $420 billion… or about 35% of GDP. Inflation is still a concern, but the government is still expected to see a budget surplus of about 3.7% of GDP. This will keep the ratio of debt to GDP on a downward trend, hopefully leading to the ratings agencies slapping the investment-grade stamp on Brazil.”
If you’re familiar with his Free Market Investor, you’ll know that Christopher has been anxiously awaiting Brazil’s credit upgrade. The country’s central bank has successfully brought down short-term lending rates nearly 10% in the past three years. If Brazil can continue this sort of growth, an investment-grade credit rating is right around the corner, and the country will boom. Chris’ Brazil play is up 8.5% in less than three months… and he’s looking for a whole lot more:
Click here for more on FMI and Chris’ favorite retirement stock.
Another way to play this trend just became available with our partners at EverBank. They just began offering Brazilian real CDs – a pretty simple, and potentially very profitable way, to play Brazil’s currency. These CDs aren’t available to the public yet, but if you call (800) 926-4922 and tell ’em you’re a reader of The 5, you can sign up today.
Here’s an autocratic decree we can get behind. The Russian government is sponsoring a “Day of Conception” today.
Officials in the Volga River region — a demographically desperate zone about 550 miles east of Moscow — are giving couples a half day today to… well… go home and make babies. Couples that give birth to a child nine months from today, a Russian national holiday, are eligible to win cars, cash… even a shiny new refrigerator.
Since the Soviet collapse in 1991, population has been in steady decline thanks to lower birth rates, shorter life expectancies, emigration surges and a truly horrible health care system.
The world’s largest country by land mass is inhabited by only 141 million people. The AP predicts that number could shrink to 100 million by 2050.
Putin has already installed cash subsidies for couples giving birth to more than one child. Last year, he went on record saying this demographic crisis is the country’s most severe predicament.
“Wow!”
exclaimed our last reader. “I am sitting here looking at my screen for 30-day Libor at 5.72% and trying not to worry about your 6.89% number. I know you say there are bunches of different rates, but surely not over 100 basis points different? What can you tell me?
“Also, any added info as to the coming Sept. 19 event of 20% of European short-term paper all coming due on a single day? How much can that be? What more can you advise?”
The 5 responds:
The Libor is a tricky matter… the rate changes depending both on the length of time money is borrowed and the currency in which the loan is originated. We’re guessing the Libor you’re looking at is the 30-day dollar — which as of this writing is about 5.7%. The Libor we reported to you yesterday was the 30-day pound sterling (6.9%). We normally favor dollars in The 5 — after all, it’s the currency most of us understand the best. But we went with the pound for this reading because it’s been 20 years since there was such a sizable gap between the Libor and the Bank of England’s rate — about 115 basis points.
That’s a pretty big deal.
Regards,
Addison Wiggin
The 5 Min. Forecast