More Housing Pain, A 10% More Expensive Winter, A Climate Change Index, Gold and Oil Forecasts, and More!

by Addison Wiggin & Ian Mathias

  • Home prices, home starts both fall to scary lows… how the housing’s bottomless decline will be more “far-reaching” than expected
  • Planning on heating your home this winter? Might want to rethink your budget… details below
  • The dollar regains some ground… Chuck Butler on why this might just be a short break before $1.50 euros
  • Goldman Sachs celebrates “What’s your best guess?” day… surprising forecasts for oil and gold from the i-bank giant
  • Ahmadinejad helps move oil prices… how denying Iranian homosexuality is worth as much as $2 per barrel
  • A first since 1979 for the nuclear industry… Gunner on why this is just the beginning of uranium’s next run

U.S. homebuilding starts fell to 12-year lows in August,
said the Commerce Department in its latest housing report. The housing slump prompted builders to begin construction on 2.6% less homes in August, bringing the total forecasted 2007 home starts down to 1.33 million. Building permits also fell to their lowest levels since 1995 — a 6% decline dropped permits to a rate of 1.3 million this year.

Coupled with the NAR’s estimation earlier this month — a 24% drop in new home sales in 2007 — housing has clearly yet to find its bottom.

Home prices in July fell to 16-year lows,
says the S&P/Case-Shiller Home Price Index released this morning. Down 4.5% from this time last year, home prices haven’t had it this bad since 1991.

Since the start of 2007, the home price index has fallen every month… and always by percentages greater than the month before.

“The decline in home prices clearly continued into the summer months,” says Robert Shiller, the steward of this index. “The further deceleration in prices is still apparent across the majority of regions, with 16 of the 20 metro areas showing a drop in their annual growth rate from what was reported in June.”

The subprime fallout and subsequent credit crisis will have a “far-reaching” impact on the global economy,
said the IMF yesterday in its latest “Global Financial Stability Report.”

“Downside risks have increased significantly,” said the group, “and even if those risks fail to materialize, the implications of this period of turbulence will be significant and far-reaching. The potential consequences of this episode should not be underestimated and the adjustment process is likely to be protracted… The losses in the financial markets and bank balances will take some months to become totally evident.”

The IMF has already hinted that it will cut forecasts for U.S. and European economic growth in coming reports. In light of its July upgrade of U.S. growth forecasts, news of this stance reversal is particularly notable… the U.S. economy has lost one of its few remaining believers.

73,000 General Motor’s workers decided not to show up for work this morning.
Members of the United Auto Workers union officially began their strike today, halting operations in 80 facilities in 30 states.

While most expect this strike to be resolved quickly, delays could be the last nail in the coffin for GM. The automaker has been estimated to lose up to $8 billion if this strike were to last more than a month. For every day the UAW strikes, about 12,200 cars and trucks are not made. Chances of GM holding out on UAW health benefits are very slim… but if this strike doesn’t get patched up quickly, it could be curtains for the Detroit automaker.

Dealers are not expected to feel inventory shortages for at least two weeks. In fact, if GM plays its cards right, this strike could be little more than a good opportunity to clear out inventory glut.

“July help-wanted advertising fell to its lowest level since 1958,”
writes John Williams in his latest edition of Shadow Government Statistics. John didn’t have to take a closer look at the Conference Board’s most recent survey of help-wanted ads… even at face value, they suck:

“While part of the downward shift in newspaper ads is due to the rapid and somewhat offsetting growth of online advertising in recent years, the recent plunge in ads shows a significant deterioration in current employment conditions, irrespective of Internet activities.

The index’s most recent score of 25 is six points lower than this time last year, and dangerously close to all-time lows. July marks the third consecutive month in which help-wanted advertising decreased. August stats will come out at the end of this month. We’ll save you the suspense… they won’t be any better.

And if that’s not all bad enough… it will cost about 10% more to heat your home this winter.
The National Energy Assistance Directors Association (NEADA) said yesterday it expects the average U.S. household will spend $992 on heating their home this winter, up $94 from a year before.

Those using heating oil will get it far worse… the NEADA forecast a 28% rise in such costs. If you’re still using oil to heat su casa, expect to pay around $1,834 this winter, says the NEADA. That’s twice as much as the same forecast in 2004.

But all is not gloom. The number of millionaires and billionaires worldwide is rising quickly.
A study by Capgemini referenced by Yahoo Finance this morning shows the “rich” held $37.2 trillion in total wealth at the end of 2006.

Good thing… ’cuz they’re going to need it. According to Forbes, prices for luxury goods rose twice as quickly as consumer prices this year.
The Forbes’ Cost of Living Extremely Well Index (CLEWI) — an index that measures luxury goods — rose by 6% from August 2006-August 2007.

“A normal consumer may pull back,” Forbes’ Scott DeCarlo said, “but if you’re buying any of these items, I don’t think the cost of inflation will have any effects.” The CLEWI has risen twice as fast as the consumer price index has over the last 30 years.

Global currency traders took some profits of their own off the table last night.
The euro gave back a few tenths of cent and has returned to $1.40. The pound followed suit and sold back down to $2.01. The dollar index remains at 78.

“There is mounting talk from the Eurozone, mainly France,”
says currency counselor Chuck Butler, “that the euro is too strong, and they want the ECB to cut rates to ease the pain of the strong euro.

“Well… The ECB may stop raising rates, but with oil prices rising, thus putting inflation pressures on the economy again, I doubt seriously that the ECB will cut rates anytime soon… especially if it makes them look to be easily controlled by member nations.

“Euro $1.45 may very well be a conservative call. Now that the Fed has begun to cut rates, a move to $1.50 can’t be ruled out.”

The Norwegian krone, of all things, struck a 26-year high against the dollar this morning.
Thanks in part to recent oil prices. “Continue to look for gains from the Norwegian krone,” exclaims Chuck, “and the krone’s kissin’ cousin, the Swedish krona, which has also been a strong performer for over two years now!”

Chuck and the EverBank crew have reason to celebrate. They put together a Global Energy CD early this summer… a CD that profits from the rise of the Canadian loonie, Norwegian krone, British pound and Australian dollar. Safe to say all of these currencies have been handing the dollar its hat this year, and will probably continue to do so. Click here to learn more about this CD.

Gold prices fell significantly since our last 5 Min. Forecast.
The precious metal shed over $12 bucks last night, to $724. If you are the type to guess why prices move on a given day, add these reasons to your list: general profit-taking, a whiff of greenback strength and the rumor we reported yesterday that BHP Billiton has found the world’s largest pot o’ gold in its Olympic Dam facility.

Goldman Sachs raised its six-month target price for gold from $775 to $800 this morning.
“Gold continues to gain support from the structural realignment in the relationship between gold and the U.S. dollar,” as statement from the bank read, “driven mainly by rising consumer and central bank demand in the rapidly growing emerging markets.”

Goldman also predicted $85 oil by the end of 2007.
In another release today, forecasters at Goldman raised their entire oil outlook through the end of 2008, predicting an average price of $85 for 2008 and a high of $95 by the beginning of 2009.

This morning, oil is trading at $79-80. “Looks like Gauleiter Ahmadinejad talked about $2 off the price of a barrel of oil yesterday,”
comments Byron King. “The world got a look at him and realized that he really is the dolt that some have long suspected. So some of the risk premium is vanishing.

“Now, the antics of Iran’s president are costing some serious money. So when he gets back to Iran, I suspect that the adult supervision will come down hard on the guy. We might not have Herr Ahmadinejad to kick around much longer. He might have to join up with those gay people who do not exist in Iran. Oh, well. Live by the sword…”

The Hong Kong and Shanghai Bank (HSBC) released its global climate change benchmark index today
— the world’s largest index that aims to profit from the challenges of various inconvenient truths.

The index will track 300 global companies from industries such as alternative energy, recycling, water management and so on. The benchmark index will also be split into four smaller indexes, which track niches like low carbon energy or green auto solutions.

We’ll keep our eyes peeled on this one.

“NRG Energy Inc. is submitting the first application for a new nuclear reactor in the United States in almost 30 years,”
Greg Guenthner tells us. NRG Energy — a huge U.S. power company — announced plans this morning to build two new nuclear power plants in Bay City, Texas. Its proposal marks the first complete construction and operating license submission that the government has processed since before the 1979 Three Mile Island accident.

“This is the main reason we shouldn’t concern ourselves with the recent dip in uranium prices,” says Gunner. “It’s not 1979 anymore… policy and public sentiment have changed and new nuclear power plants seem inevitable. This is just the beginning.” That’s exactly why Gunner has a front-running uranium exploration company in the Bulletin Board Elite portfolio. Click here to learn more.

“For the past two years, ‘Russia could no longer be considered a democracy at all, according to most metrics,’”
the Financial Times reported this morning. Citing the work of Freedom House, a Washington, D.C., think tank, the FT says Russian citizens face too high a “threshold for parties to be elected to the Russian parliament,” endure rampant corruption, see jury trials rarely and suffer uneven enforcement of property rights.

The report also calls Iran on the carpet. Freedom of expression has apparently worsened since Mr Ahmadi-Nutjob became president in 2005. Corruption, too, has increased, “as highlighted by cut-rate privatizations for favored buyers and a failure to deposit billions of dollars in oil revenues in the national treasury on schedule.”

And here we were feeling like the world had become a kinder, gentler place since the U.S. won the Cold War.

“I reside in the Denver area,”
writes a reader, “and with 37,000 foreclosures here, the lenders have their hands full.

“As a lifetime banker, and still active in matters, I can assure you that the problem of housing out here is not because of poor people, but greedy builders that build houses that an average family does not need.

“The average price for a home here runs from $300,000-$l.5 million. Not too many normal wage earners can afford those prices. If they want a home, they are forced to overpurchase to have a roof over their heads. Things happen — death, divorce (up 50%), layoffs, etc.: If the dumb lenders knew what I did in the bad years with such things, they’d put payments on the backside of the mortgage and assist the client. Banks were started in this country to help people, not hinder them.

“I wish I could take my knowledge of all my years and speak to the BIG BANKERS — Greed has overcome.”

The 5 responds:
Hmnn. Aren’t banks in the business of making money by lending it? If the “poor people” want homes, just tell ’em to wait a year or so. The homes in Denver are going to be a lot cheaper next year. Even the greedy bankers will be trying to sell.


Addison Wiggin
The 5 Min. Forecast


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