Goldman and Freddie Take Big Losses, Housing Accelerates Freefall, Taj Mahal Ditches the Dollar, and More!

by Addison Wiggin & Ian Mathias

  • Goldman puts market in a tailspin… but reveals a massive loss of its own
  • Freddie Mac joins the billion-dollar write-down gang
  • Housing permits, housing starts, builder confidence data revealed… and it ain’t pretty
  • Mike Muehleck on why 1.6 million citizens are planning on leaving the U.S.
  • Visiting the Taj Mahal? Don’t bring your greenbacks… they’re no longer welcome
  • Plus… Byron King on the Peak Oil “conspiracy”

 

As if it needed it, Goldman Sachs smeared the financial sector yesterday by downgrading Citi and just about every bank on the block. The Dow, Nasdaq and S&P 500 all responded by losing about 2%. The Dow now flirts with 13,000… a level not seen since the worst of this summer’s credit crisis.

Goldman reported its own prize quant fund, Global Alpha, may lose up to $6 billion this year, too — a 60% loss. The fund returned over 40% gains in 2005.


Freddie Mac joined the write-down gang this morning… in a big way. The government-backed mortgage firm announced an $8.1 billion write-down for the fourth quarter. Freddie Mac officials reported a net loss of $2 billion so far this quarter, and suggested that they may have to cut their stock’s dividend by as much as 50%.

Shares are down nearly 8% as we write.

Housing permits fell to a 14-year low in October, the U.S. Commerce Department reported this morning. Permits to build new homes sunk to an annual pace of 1.18 million in October, down from 1.26 million in September — the lowest seasonally adjusted level since July 1993.

Curiously, the same report revealed that housing starts rose by 3% in October, the biggest hike in eight months. But before you break out the party hats… nearly all growth of home starts in October came from the apartment sector, up 44%.

Construction of single-family homes fell for the seventh consecutive month, declining 7.3%.

And as you might expect, homebuilder confidence is at an all-time low. The National Association of Home Builders updated its builder confidence report yesterday. Builders ranked their confidence with a score of 19 — the lowest ranking in the index’s 22-year history.

A score of 50 marks neutral builder sentiment… any score lower indicates worsening confidence.

Write-downs… real estate… and the dollar. These 5 Min. Forecasts are striking a familiar pose as we head into the Thanksgiving holiday. The dollar got ambushed in the Asian markets overnight. The euro has pushed up close to 1.48. The pound is back into the $2.06 range, and the yen backed off its recent rally, to 110.

The national average for gas prices has risen 18 cents in the past two weeks. Now at $3.09, it’s a dime short of the all-time high set in May. The city with the highest average price? San Francisco… where a gallon of gas will set you back $3.48 this week.

Rising fuel prices are giving people rashes at all levels of “society.” Californian cruise lines Windstar Cruises and Majestic America Line announced this week that they will be adding a $8.50 surcharge on all passengers “cruisin’” after Dec. 15.

“We regret having to take this action and hope our guests understand the impact that fuel prices are having in today’s economic environment,” said Diane Moore, executive vice president of both cruise lines. Somehow, we don’t think this will slow the conga lines one iota… at least for now.

Here’s an interesting trend: 1.5 million U.S. households are preparing to move out of the U.S. A poll by Zogby Intl. of 115,000 Americans estimated that:

1.6 million U.S. households have already made the decision to leave
1.8 million are seriously considering and likely to leave
7.7 million are somewhat serious about leaving and may do so
3.0 million are seriously considering purchase of non-U.S. property
10.0 million are somewhat serious about purchase of non-U.S. property.

“We are not talking about the next major deployment of National Guard units to the Middle East,” comments Mike Muehleck in Strategic Investment.
“In fact, none of the emigrants are government workers or corporate employees leaving for temporary overseas assignments. This is a group of malcontents and adventurers. They consist entirely of private citizens and their families packing up and leaving the USA at their own initiative.

“Why do people leave home for strange foreign lands? While a handful might claim to leave for political or religious reasons, most seek greater economic opportunity. All of my grandparents emigrated from Germany or Lithuania in the early 1900s. My wife’s Chinese grandparents emigrated from China to Siam in the same generation. None came because of a burning desire to be ‘free.’ They all came because they wanted to make more money and thus enjoy a better life.”

Which, evidently, is getting harder to do in the U.S. Mike himself emigrated to Thailand years ago. You can find Mr. Muehleck’s comments in Strategic Investment.

The Taj Mahal, along with 120 other Indian tourist sites, will no longer accept dollars to pay for admission. The Archaeological Survey of India announced this week that a fixed rupee rate will be the only method of admission to the Taj and other sites.

The greenback has lost over 12% of its value to the rupee year to date.


The world’s most famous mausoleum… now also a milestone of the dollar’s demise

“Interesting, this news, on several levels,” reports Chris Mayer, fresh from his Indian investment excursion. “For one thing, it’s another marker along the road of Indian ascendancy. Its own currency, the rupee, long a redheaded stepchild among currencies, is now preferred over the good old American dollar. For another thing, it just shows once again how the dollar is really deep in the soup this time around. This is no normal dollar sell-off, of the kind we’ve seen countless times over the years. This is something big. Something history making. The dollar’s reign is really in jeopardy.

“While I was India, you could pay for many things with dollars. I wonder how this new announcement will change things on the street. Good thing I’m back home. U.S. visitors to India can expect to pay 30% more to visit Indian historical sites. I’m sure other places will follow suit.”

Merrill Lynch launched its largest ever investment plan into Indian real estate this morning. The famous investment bank bought a 49% stake in a portfolio of residential projects managed by DLF, worth about $377 million.

Merrill’s share involves seven midincome residential projects in Chennai, Bangalore, Kochi and Indore, reports the Financial Times. Merrill’s total investment in Indian real estate now exceeds $550 million.

Brazilian defense officials announced plans to build their first nuclear submarine last week. Is Brazil preparing for war? Worried about foreign nations patrolling their waters? No… just looking after their oil…

“When you have a large natural source of wealth discovered in the Atlantic, it’s obvious you need the means to protect it,” said defense minister Nelson Jobim last week. Brazil, which has been discussing nuclear submarine production for decades, is finally moving forward, thanks to the gigantic Tupi oil discovery it reported earlier this month. The Tupi field is believed to contain up to 8 billion barrels of oil.

Brazil has no official enemies in South America, nor has it been the target of any significant terrorist threat. However, the Tupi field could boost Brazilian reserves by as much as 62%… Brazil doesn’t seem interested in taking any chances.

MTV Arabia launched over the weekend. Headquartered in Dubai, MTV Arabia will feature 60% international music and 40% Arabic music. MTV spokespeople said the network will focus on hip-hop and R&B, popular yet underserved genres in the UAE, but promises to be “culturally sensitive” by censoring much of the profanity and sexuality you expect from American music.

The network was launched by a taped performance by rap star Ludacris… famous for songs like “Move Bitch,” and “Pimpin’ All Over the World.”

Your characterization of Chavez as a dictator displays either genuine ignorance,” writes a reader, “willful ignorance or is a gesture of ‘playing to the gallery’; whichever the case, your image as a savvy international investor is damaged by such rhetoric.

“Additionally, you call the leaders of 13 countries ‘nutjobs.’ I have two comments. One, I suppose that this kind of talk is par for the course for someone from a rapidly failing empire; and secondly, there is the old saying about people in glass houses — your country’s leader, the semiliterate former alcoholic who is furiously banging the nails into America’s coffin, is probably the leader that most people in the world would call a nutjob.

“I’ve always found it a bit unsettling when Americans completely denigrate any foreign leader who displays a lack of enthusiasm for America’s agenda — but I suppose that the effects of having had the privilege of empire include a lack of respect for ‘inferior’ people, as well as diminished critical faculties.

“I had assumed that someone who poses as an astute investor might have escaped these effects. Apparently, my assumption was in error.”

The 5 responds:
Eh, we didn’t call the leaders of OPEC nutjobs. Just Chavez and Ahmadinejad. And yeah, we’d throw Bush in there, too. They deserve each other. Of course, the last time we said that, we didn’t hear the end of it for weeks. So thanks.

As for your comments on empire… we wrote a book on the subject, so you’re not exactly shocking us with insight. That you assume we share enthusiasm for “America’s agenda” — whatever fascist vision you may have of the current administration — is equally as ‘unsettling.’ Or perhaps you just haven’t been reading very long…

“There is much more talk about Peak Oil these days as we have approached $100 per barrel, especially from your leading expert, Byron King,” writes a reader. “But I wanted to ask your thoughts on the whole self-renewing oil field theory. There is growing opinion by scientists that the amount of oil we have on Earth is not fixed, but continually renews from within the Earth itself. There have been many cases in which depleted oil fields have essentially refilled and begun producing again.

“Is the Peak Oil theory a conspiracy set in place to keep us paying large sums of money to tyrants for our oil?”

The 5 responds:
We passed this note to our resident geologist and oilman, Byron King. According to Byron, “Our reader is raising a point concerning what is called the ‘abiotic’ theory of hydrocarbon origination. And yes, there is a small kernel of validity to the idea that hydrocarbons are present deep within the mantle of the earth. For example, there are methane seeps coming from some areas of the midocean ridges and from deep hard rock mines in some parts of the world.

“Some of these small quantities of hydrocarbon may even date back to the formation of the planet, 4.5 billion years ago. But no, these methane seeps are not and — for reasons of basic physical chemistry — cannot be the ultimate source of the oil deposits of the world. Virtually all of the oil and gas deposits of the world can be linked directly to ‘organic’ origins. This means that ancient life forms died and have been preserved and contained within the rock column.

“So the bottom line is that Peak Oil Theory is not some sort of rip-off conspiracy. It is a very real phenomenon that you ignore at your peril.” You can read more from Byron on “abiotic” oil in Whiskey & Gunpowder.

You can also learn the names and tickers of five companies that are prepared to capitalize on the alternative energy source with the most progressive chance of helping wean the U.S. off its dependence on foreign oil here. This report will be published at 5 p.m. tonight, so don’t wait:

Secret California Energy Site — 5 p.m. tonight.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. You’ve got just a few hours left to get four free months of Byron’s Energy & Scarcity Investor. We allotted 2,500 spaces for the inaugural wave of ESI subscribers, and as of this writing, less than 800 remain. After tonight, what few spots are left will be sold at full price. Click here to learn more about your last chance to get ESI free for four months.

rspertzel

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