Writedown Wrap-Up, Inflation Update, Killing For Cooking Oil, Addison’s Pants, and More!

by Addison Wiggin & Ian Mathias

  • Lost in the write-down whirlwind? A nifty recap below…
  • Crude hovers at $94… why oil prices stalled on their way to $100
  • Could Starbucks be the canary in the consumer coal mine?
  • Kevin Kerr on the hard truths behind the latest CPI numbers
  • Cooking oil sale causes fatal stampede in China… “agflation” at dizzying heights
  • “Addison keeps forgetting to put on his pants” accuses a reader. The 5 responds below…

Hmmmn… today marks the first day this week without a financial sector write-down announcement.

We’ve gotten so accustomed to them, our daily 5 minutes feel a bit nude without some sort of banking bloodshed. So while we’ve got a moment, here’s a full accounting since the start of the third quarter:

“We have not seen a nationwide decline in housing like this since the Great Depression,” said Wells Fargo chief executive John Stumpf. “I don’t think we’re in the ninth inning of unwinding this. If we are, it’s going to be an extra-inning game.”

Stumpf told reporters that the housing slump would continue well into 2008, and that (of course) Wells Fargo was well positioned to weather the storm. WFC shareholders nodded and grinned as they discreetly slammed the “sell” buttons… the stock fell nearly 4%.

Stocks, across the board, followed suit. Yesterday, the Dow, S&P 500 and Nasdaq all ended down about 1%. The Barclays write-down and bond fund woes at GE helped fuel a late-afternoon sell-off.

Crude oil prices rose again overnight, but barely. At $94.13, we can’t help but wonder what took the wind out of oil’s sails this week. Early November’s run-up had us expecting $100 by Thanksgiving. But the rally sputtered… most likely because of heavy options trading.

“Options on the price of crude oil expired earlier this week,” explains Brian McAuley of The Survival Report. “When it became clear oil would not pass $100 before the options expired worthless, the price of oil slumped as options sellers got out of losing positions.”

We’re still expecting oil to rise above $100 on demand alone.

Value retailers J.C. Penney and Kohl’s unveiled slow earning statements for the third quarter yesterday. Kohl’s profit fell 14%, J.C. Penney’s by 9%. Both companies slashed year-end outlooks.

Coupled with a similar announcement from Macy’s on Wednesday, it looks like consumers may be considering a few write-downs in their personal balance sheets. But we’ve been suspect of their spending ability for years… since the 2001 “recession that wasn’t,” at least… they may surprise this holiday season yet.

Still, for the first time in its vast strip malled history, Starbucks’ lines dwindled this quarter. While traffic overseas rose 5%, the company announced yesterday domestic latte addicts entered Starbucks 1% less than in the previous quarter.

Again, this might just be consumers getting tired of poor-quality beans burnt to hide the taste. (Your editors at The 5? We prefer a little anarchy with our caffeine: Red Emma’s on St. Paul Street.)

Or it may be that the cost of things people actually buy in their quotidian regimen is going up. And they’re getting tired of it…

Of course, if you ask the quants at the Bureau of Labor Statistics (BLS), they’ll tell you, “No way!” In October, the BLS number crunchers reported yesterday, consumer prices (CPI) increased only 0.3%.

“The talking heads are saying that yesterday’s CPI data show tame inflation,” comments our resource man Kevin Kerr, proving there’s much more to Kevin’s world than soybeans, oil and orange juice futures.

“But some simple analysis will show you that inflation is there; it’s just invisible to the BLS. And the longer the BLS ignores it, the bigger the bull market in gold, silver and commodities will be.”

Here are a few charts to help out:

“The October CPI level was 3.5% higher than the same period a year earlier. In fact, viewed this way, inflation clocked just 2% in August, then 2.8% in September and now 3.5% in October. If this same rate of acceleration continues, CPI should be over 4% year over year in December.”

What gives? Let’s take a look…

The BLS says consumer energy prices rose just 1.4% in October. “Looking at that number,” says Kevin “you have to wonder what country it’s talking about. But their methodology provides a clue. The BLS samples for energy prices on the Tuesday of the week that contains the 13th of the month. In other words, the BLS’ methodology essentially ignores all energy prices paid except for on one day of the month.

“This lays the groundwork for rising energy prices to arrive in the CPI in one huge rush. Likewise, food prices, which officially clocked only a 0.3% rise in October, could also be in for a sudden surge. I think December could be shocking, indeed.

“Brace for impact — higher prices are on the way.”

The dollar continued to strengthen overnight. The dollar index clawed its way back to a score of 76. But it’s still at a depth not seen since the advent of the index itself.

The euro pulled back another penny, to $1.45. The pound dropped to $2.03. And the loonie has gotten slammed this week. This morning at $1.01, we’re approaching dollar-loonie parity again, this time from the other direction.

“The poor loonie,” laments EverBank’s Chuck Butler. “One week it’s hitting on all eight, reaching a multidecade high versus the greenback, and the next week it’s barely hanging onto parity. Do I believe this will continue for the loonie? No! There are just too darn many good things going on in Canada to keep this currency down.”

The yen continued its rally, too. The Japanese currency crept higher in the 110 range against the dollar. And against the euro, too, climbing to 161. Barring a massive resurgence of the carry trade today, this week will be the second consecutive for yen gains versus the dollar and its European cousin. In terms of percentage growth, the yen takes the prize as “best performing” among all 16 actively traded currencies this week.

We hate to report this kind of news on a Friday, but your gold holdings were taken to the woodshed last night and beaten like a mangy hound.

The price fell a good $30 in trading yesterday, bringing spot prices as low as $785. Following the drubbing, nature’s forlorn currency limped back into daylight this morning, stretched its legs and began to walk stiffly again. In London, it’s currently fetching $795.

“Notice that the selling took place amid no especially noteworthy dollar gains or an extraordinarily large drop in crude oil,” explains Jon Nadler of Kitco. “This was more about the weight and fatigue of the market overall, and the dimming prospects of quickly regaining the $850 level.”

Food prices in China have become so inflated that three shoppers were killed this week in a cooking oil sale stampede.

When doors opened for the start of a Carrefour oil sale this past weekend, shoppers rushed in to grab their rapeseed oil with quite a frenzy. A few shoppers slipped in the Chongqing supermarket, and the ensuing trampling left three dead and 31 injured… all for this:

20% off rapeseed oil… worth dying for in China?

This incident is the second reported supermarket stampede in the past few weeks. Fifteen shoppers were injured last month at a cooking oil sale in Shanghai.

“Officially, prices are rising at a 6.5% annual rate in China,” commented Bill Bonner in The Daily Reckoning. “Even at the official rate, the Chinese have not seen so much inflation in nearly 11 years. But food is rising faster… at a 17.6% rate. This is a big problem in China — because people don’t earn much money, they have to spend a lot of it on food. That’s why people got killed trying to get a good deal on cooking oil.

“We recall what Jacques Diouf, director general of the U.N.’s Food and Agriculture Organization, predicted only weeks ago: ‘If prices continue to rise, I would not be surprised if we began to see food riots.’”

Well, there you are, Mr. Diouf. You were right.

You may recall, a few months back, we showed you a photo of the Ron Paul Dollar minted by our erstwhile friends at the Liberty Dollar Mint. At the time, we mentioned we’d known Bernard von NotHaus, Liberty’s founder, for well over a decade.

Well, this morning… we have some sad news to report. Yesterday, the Liberty Dollar offices in Evansville, Ind., were raided by the FBI and Secret Service agents. “For approximately six hours,” a statement issued by the Liberty Dollar Thursday morning says, “they took all the gold, all the silver, all the platinum, and almost 2 tons of Ron Paul Dollars that were just delivered last Friday. They also took all the files and computers and froze our bank accounts.”

Bernard, a numismatist by training, maintains the Constitution grants him the right to set up redemption centers for certificates payable in silver. Our own attorneys suggested he was just itching for a chance to settle the matter with the Feds in court. Today, it looks like he’ll get the chance.

We wish Bernard well. And hope he proves the Feds have overstepped their bounds.

“Addison Wiggen [sic] keeps forgetting to put on his pants when he writes The 5,” wrote a reader on The Daily Reckoning Forum.
“He keeps falling for Internet hoaxes. The latest:

“‘In what was the most widely read story on the financial Web sites last week, it was reported that supermodel Gisele stopped taking payments for her work in U.S. dollars. Turns out the whole story was a figment of a Brazilian blogger’s imagination.’”

The 5 Responds:
Or maybe that we screwed up was a figment of yours.

Turns out that the source for this reader’s refute was his own feeble newsletter. We got the story from Bloomberg. And as far we can tell, Gisele’s sister said they wanted out of the dollar and denied it when they realized Bloomberg, the IHT, the AP, BusinessWeek and the entire global blogosphere were going to jump on the story.

Heh. You might want to get your facts straight — and learn how to spell names correctly — before you start making accusations. Although you are right about one thing: We often forget to put our pants on before heading into the office. It’s not a pretty sight.

Ironically, the popularity of the Bundchen myth proves one contrarian investing rule: When sentiment is so heavily arrayed against a particular asset… a rally is imminent. The dollar has jumped nearly 2 cents since the story broke.

Have a nice weekend,

Addison Wiggin
The 5 Min. Forecast

P.S. “Heedless of the impact to the environment of the Middle Kingdom and abroad, China commissions a new coal-fired plant every five days,” reports Byron King this morning from the Geothermal Finance & Investment Summit. “Yet in the U.S., there has not been a new coal-fired power plant permitted in about a year. So over time in North America, the older systems are passing away. The question is what will take their place?”

Read Byron’s answer here.
P.P.S. In case you haven’t heard, online registration for the 2008 Agora Financial Investment Symposium is now open.
To celebrate our online launch, we’re offering quite a discount on next year’s event. Some of the world’s brightest investment experts, global economists, writers and thinkers will again convene in Vancouver to deliver their favorite investment recommendations… If you sign up by Nov. 18, you can join us on the cheap. Learn more here.

Stampede at Carrefour cooking oil sale in China kills 3 shoppers
Wells Fargo: All’s Not Well
Yen Heads for Second Weekly Gain


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