Greenspan Speaks… a Lot, Fed Rate Forecasts, Banking Crisis in U.K., Soaring Commodities, and More!

by Addison Wiggin & Ian Mathias

  • At least 33% chance of recession, says Greenspan… quotes from the former Fed chairman’s weekend of shameless promotion
  • Fed meets tomorrow… forecasts for all 3 possible outcomes below
  • “The deal of the century”… well… until the next one
  • British line up outside banks in withdrawal rally… why U.K. investors can’t trust the bank to hold their cash
  • Commodity prices so good Kevin Kerr “can’t stand it”
  • So you like The 5? Details of our surprising weekend below…

The odds of a coming recession are slightly more than one in three…
give or take an odd or two says the 237-year-old Alan Greenspan.

The former Fed chairman has been talking to everyone with a camera and a mic this weekend. His memoirs hit shelves today. Here’s a quick and dirty roundup of weekend prophecies:

  • The outlook of the future of the U.S. economy is “pretty gloomy,” he told 60 Minutes’ Lesley Stahl. “The re-emergence of inflation” will be our biggest problem in the coming years, he said.
  • “I’m coming to the conclusion that bubbles are inevitable,” he said. “Human beings cannot avoid them… They cannot learn.”
  • “When you get this far away from a recession, invariably forces build up for the next recession, and indeed, we are beginning to see that sign,” Greenspan said via satellite to a conference in Hong Kong. “For example, in the U.S., profit margins have begun to stabilize, which is an early sign we are in the later stages of a cycle.”
  • “We have the capability of far bigger price declines” within the housing sector this year and in 2008, he also told the WSJ.
  • “I’m saddened that it is politically inconvenient to acknowledge what everyone knows — the Iraq war is largely about oil,” said Greenspan in a leaked excerpt from his new book.
  • “The next administration may have the Clinton administration name but the Democratic Party… has moved… very significantly in the wrong direction,” he told the WSJ.
  • “The Republicans in Congress lost their way,” said he in another leaked passage. “They swapped principle for power. They ended up with neither. They deserved to lose” in 2006. “Smaller government, lower spending, lower taxes, less regulation — they had the resources to do it, they had the knowledge to do it, they had the political majorities to do it. And they didn’t.”
  • The smartest thing Greenspan ever dreamt up while sitting in the bathtub (where he wrote the majority of his memoir) was asking his wife to marry him, he told Matt Lauer. Kudos to Lauer for the follow-up “She wasn’t in there with you, right?” and twice admitting that he was blocking out mental images of Greenspan writing in the tub.

Bill Bonner’s new book with Lila Rajiva, Mobs, Messiahs and Markets,
is now on offer, ironically, with Greenspan’s memoir for a discount at Amazon. Heh.

The much-anticipated Federal Reserve meeting goes down tomorrow.
Our friend David Galland of Casey Research recently penned these possible outcomes… a useful playbill for the economic opera about to unfold. The Fed will do one of these three things:

“1. Stubbornly refuse to reduce the fed funds rate (the American equivalent of ‘stiff upper lip’). The response to this by the market, we suspect, would be to take a long dive off a tall building. In this case, gold may have a mixed day, but as we have seen of late, the odds are strong that gold pops to the minds of many as the crisis hedge it is and heads higher.

“2. Begrudgingly consent to a 25 basis point cut, in which case the market — which is strongly anticipating 50 basis points — will likely hesitate a few minutes before taking the jump. Meanwhile, the shift from a tightening to a loosening mode should take its toll on the dollar. Gold moves up strongly.

“3. Signaling a decision to ‘git-r-done,’ the Fed decides to shave a full 50 basis points off the fed funds rate. At which point, the markets may step back from the edge to think things over for another few days. But the dollar will be the one taking the plunge, sending gold soaring.”

The Fed will have to choose between the economy and the dollars tomorrow… expect the greenback to get the cold shoulder.

The dollar gained on most major currencies over the weekend.
The Fed’s looming rate cut decision has dollar sellers on hold, but for now, the buck is a bit stronger — $1.38 euro, $1.99 pound and Y114.

At $717, gold is continuing its slow and steady rise.
The yellow stuff climbed as high as $717 an ounce over the weekend, resisted the $708-09 mark and climbed back to the high teens this afternoon.

Desperate homebuilder Hovnanian held a nationwide, three-day fire sale this weekend.
The company discounted homes by as much as $100,000 and gave away fancy TVs, appliances, and gift cards in what it called “the deal of the century.” We suspect this Hovnanian “deal” was inspired by HOV shareholders. They’ve gotten quite good at selling:

Hovnanian has admitted that it doesn’t expect the housing slump to bottom until 2009. Their’s won’t be the last drastic fire sale, nor will it be the most severe.

England’s fifth largest mortgage lender has a good ol’-fashioned bank run on its hands.
Northern Rock, the first U.K. casualty of the subprime mess, will suffer through its third day of massive withdrawls today… British depositors are literally “queuing” up outside NR branches, anxiously waiting to yank out their cash before the lender sinks deeper in trouble.


What a lame run… where are the flaming torches, the heads on stakes?

In the past week, Northern Rock has served investors and depositors a bitter cocktail of subprime exposure, lending crises and failed acquisitions. The subprime bust/credit crunch got so severe for NR that it was forced to turn to the Bank of England for emergency funds last week.

It’s clear today that the British public has lost a lot of faith in the lender. Investors have knocked the share price down 33%. The FTSE 100 closed down 2% on Friday, almost exclusively on this news. Depositors in Northern Rock have withdrawn over 2 billion pounds — 10% of the bank’s total deposits — since Friday.

But Northern Rock isn’t the only overexposed lender/bank in town. Here’s a quick U.K. rundown published in today’s Daily Mail:

“HSBC is one of the most sound, cleanly running banks on the planet,” says FMI editor Christopher Hancock. “Not only does it operate in basically every civilized nation in the world, but it continually does so in very a transparent, safe manner… a great value pick for any portfolio.”

For more on Free Market Investor, including Christopher’s buy-up-to price for HSBC, click here.

Soybean and wheat futures leapt over the weekend in response to surprisingly low temperatures across the country.
Temps dropped as low as 28 degrees Fahrenheit in Iowa and Minnesota, and frost all over the Midwest came at least three weeks too early. Soybeans for November jumped 1.95, to $9.72, while wheat for December delivery climbed a good 3%, to $8.74 a bushel — off its $9.11 high last week, but still unbelievably expensive compared with recent years.

“This is so bullish for our bean, wheat, and oil positions in RTA I can’t stand it,” said our resource man Kevin Kerr. “Even I would never have imagined frost this early…It shows just how unpredictable the weather is for farming.” Kevin’s enjoyed an impressive winning streak lately… readers have pocketed 50% and 147% gains this last month alone. Click here to learn more about Resource Trader Alert.

The Burj Dubai Tower, a $4.1 billion hotel, business and residential complex in Dubai became the world’s tallest free standing structure last week.
Beating out a 31-year-old record set by the CN Tower in Toronto, the Burj Dubai passed the 150-story/1,822-feet mark last week and consequentially became tallest manmade object in history. The building will be complete some time in 2008, UAE officials say.

When finished, the building will contain 165 floors, 56 elevators and more hotel rooms, apartments, offices and tourist attractions than we care to mention.

Canadians can still hold onto one point of pride: The CN’s observation deck is 5 meters higher than the Burj’s – thus, it remains the world’s tallest publicly accessible observation deck.

“Keep up the good work!”
exclaimed a reader. “My favorite 5 minutes of the day… thank you!”

“Your concise and pertinent comment is very helpful,”
said another reader, “and as a U.K. investor, it gives me an instant snapshot of what is happening across the ocean. That is important.”

“Keep up the good work,”
said our last reader. “You are knowledgeable, witty and entertaining… and you can write, too. I get 40-50 e-mails a day from sources I really don’t want and I delete them. But I’m always on the lookout for your e-mail.”

The 5 responds:
Believe it or not, we weren’t trying to solicit compliments from you on Friday… just saying “thanks” for your continued support. But we were flooded with mail like the three above over the weekend, and for that, we owe you some more humble gratitude… we couldn’t do what we love to do if you weren’t reading — merci.

Regards,

Addison Wiggin
The 5 Min. Forecast

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