by Addison Wiggin & Ian Mathias
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Housing takes yet another turn for the worst… this one an all-time low
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Goldman sees more pain in the financial sector… far worse than previously predicted
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Dollar falls, but pundits are looking for a 2008 greenback rally… our currency forecast below
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Resources back on the rise… gold and oil surge on Pakistani assassination
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Brace yourself… Larry Kudlow makes his first 5 Min. appearance
“No matter how you look at this data,” lamented Robert Shiller yesterday, “it is obvious that the current state of the single-family housing market remains grim.” The S&P/Case Shiller home price index shows home prices fell in October yet again, bringing Shiller’s index to a record low.
The index’s 10-City Composite is down a record 6.7% year over year. The previous low was 6.3% back in April 1991.
“Not only did the 10-City Composite post a record low in its annual growth rate,” noted Shiller, “but 11 of the 20 metro areas did the same. If you look at the monthly figures, every MSA went down in both October and September.”
October’s home price index marks the 10th consecutive month of negative annual returns and the 23rd straight month of decelerating returns… ouch.
Citigroup, Merrill Lynch and JP Morgan Chase will write down an additional $33 billion in the fourth quarter, predicted Goldman Sachs analysts this morning.
Goldman Sachs economists forecast a 40% cut in Citigroup’s dividend, coupled with an additional $18 billion write-down. Merrill and JP Morgan will write down an extra $11 billion and $3 billion, respectively.
Berkshire Hathaway announced yesterday that it will pay $4.5 billion for a 60% stake in Marmon Holdings, a private conglomerate not unlike Berkshire itself.
President Bush signed a bill yesterday authorizing over $555 billion in government spending. “Congress dropped into the bill nearly 9,800 earmarks,” grumbled the president during the press conference announcing the bill, “that total more than $10 billion. These projects are not funded through a merit-based process and provide a vehicle for wasteful government spending.”
Uh… we agree with his assessment. But coming from the biggest spender in the history of the presidency, who assessed blame to Congress, and then signed the bill anyway, the statement rings a little hollow. The money will be spread all over executive branch agencies… and the trade-offs for those earmarks will add an additional $70 billion to the war chest for Iraq and Afghanistan.
The U.S. dollar fell again yesterday and overnight. The euro climbed back into the $1.45 range, and the pound regained its footing at $1.99. The dollar index now barely clings to a score of 77.
The dollar will gain 3.5% versus the euro next year, a Bloomberg survey suggests this morning. The news agency polled 42 “strategists,” and the majority claim that 2008 will mark the end of the dollar’s slump against the euro.
“I, for one, wouldn’t be surprised to see a 3% dollar rise after the euro hits $1.50!” proclaims our currency counselor Chuck Butler.
The dollar lost 10% to the euro in 2006 and then again this year. In the short term, a “contrarian” rally seems likely. In fact, we wouldn’t be surprised to see one through March or April. Just long enough to confuse everyone.
But at the end of the day, the fundamentals are still arrayed against the world’s reserve currency…
“If the [U.S.] federal funds rate continues to fall,” said the director of the Chinese foreign exchange administration, Hu Xiaolian, “this will certainly have a harmful effect on the U.S. dollar exchange rate and the international currency system.”
As he is one of the men responsible for overseeing China’s $388 billion in U.S. Treasury securities, it’s worth taking note: Hu is publicly nervous about the dollar’s worth.
Hu’s statement added a twist to the real currency story in the past 24 hours: The Chinese yuan gained 0.37% overnight
— its biggest gain since the Chinese central bank altered the yuan’s dollar peg.
The big jump was spurred on by the Chinese central bank, which has set high “reference” rates — some outside the yuan’s current trading band. The Chinese government appears to be experimenting with a wider trading band… this is a story worth paying attention to in the new year.
Crude oil prices took another shot at the $100 mark yesterday and this morning, rising over $2, to $97.
Analysyts are expecting today’s Energy Department report to show the sixth straight week of supply decline… coupled with the Turks and Kurds sharing some extra special holiday cheer this week, oil’s back on the rise.
Gold jumped to $825 overnight. “After Monday’s quiet half session,” reports Doug Casey, “gold came charging out of the box in New York yesterday. Combined with the strength showed during the latter part of last week, gold may well be signaling that the year-end position squaring is over and it’s ready to start the next leg up of this bull run. Of course, it didn’t hurt that yesterday also brought renewed weakness in the dollar and a rise in oil prices.”
This morning, as news of Benazir Bhutto’s assassination crossed the wires, we saw a small flight to quality into gold. The attack pushed gold up to $834.
Domestic trading was mostly a nonevent yesterday. A lack of blockbuster news and (we suspect) a few eggnog hangovers still lingering left the market largely unchanged. The Nasdaq crept up 0.4%, while the Dow and S&P 500 finished even.
We end today with possibly the strangest testament to the power of daily saving we’ve ever heard. Last week, 70 year old Paul Brant carted over $25,000 in spare change into his local Dodge dealership and bought himself a half ton pickup.
Brant in his new change-mobile… sweet hat
The Indiana resident hauled in hundreds of pounds of coins… so many that the dealership had to hire an armored car to pickup and deliver the bounty.
“(The old truck) didn’t have four-wheel drive, and living in the country, I figured I better get a new one to help get me through the snow,” Brant humbly explained. That old truck, by the way, was also bought with spare change. Brant’s 2007 pickup will be the third car he’s purchased using only coins.
We could go on an on about how many trucks Mr. Brant could have bought had he spent a fraction of that money investing in our newsletters, or at the very least kept those coins in a high yield savings account… but we’re guessing he’s just not that type of fellow.
“As long as you don’t put your hands back in the till, it really adds up,” he said. This guy should run for president.
“The reader who spoke of hydrogen as explosive, as opposed to flammable, has their facts reversed,” writes a reader. “Hydrogen, being lighter than air, is simply not dense enough to be explosive. A pressured tank, punctured by a rifle bullet, produces a torch-like flame at the puncture points — the heat is limited to the near proximity of the flame, and a person standing within a few feet feels only moderate heat, and the burning gas rises and dissipates. I know because I have seen this demonstrated more than once. I would dare the above reader to stand within five-10 feet of a full can of gasoline, on the other hand, while a bullet hits it, but I doubt that he/she would be such a fool.”
“The blame for the catastrophic fire that struck the Hindenburg,” agrees another reader, “has recently been attributed to its aluminum paint; of course, the H2 burned, but the fire’s rapid spread was due to the flammability of its paint-impregnated skin.”
A third reader sent us this quote and commentary from CNBC’s Larry Kudlow:
“‘Calendar year 2007 looks set to produce 3% growth in real gross domestic product, nearly 3% growth in consumer spending and over 3% growth in aftertax inflation-adjusted incomes. Meanwhile, headline inflation (including food and energy) will have run at 2.5%, with only 2% core inflation.
“‘Jobs are rising more than 100,000 per month, and the stock market is set to turn in a respectable year, despite enormous head winds. Low tax rates, modest inflation and declining interest rates continue to boost Goldilocks, which is still the greatest story never told.’
“My guess is you won’t be printing these facts in your 5 Minute waste of time,” the reader then comments. “Our current deficit as a percentage of GDP is the lowest it has been in 40 years. You missed that fact, as well. I am long gold, long oil, long the Dow and short your opinions on the health of the world. Doomsayers are right like a broken clock.”
The 5 responds: Aw, shucks… you’re right. We missed all those numbers. We forgot to write about them here, missed more “facts” here and just plain ignored them on purpose here. Darn. You’re good.
While, like you, we’ve been long gold and oil for some time… and long alternative energies, emerging technology and infrastructure plays, too… we’re short banks, retailers and homebuilders. We apologize… and really feel bad about it.
And it’s true we’re not long the Dow. We’re sorry for that, too. But we have a good reason, we promise. We prefer mostly smaller caps, where you get a bigger bang for your buck. If you had been following along with our January Reserve focus list, for example, which matures in less than a month, you’d be up 19%. During the same period, the Dow has returned 8%.
And you’re right about debt as a percentage of GDP, too. Somehow we managed to write three books and produce a movie on the subject, but we completely missed the fact that debt as a percentage of GDP is the lowest since we were paying off the World War II debt. Thanks for pointing it out.
I guess you’re right: The 5 is just a waste of time. We’re so grateful for your wisdom, we’ll acquiesce and give you what you’re really after:
“Attaboy, Larry! Go USA!!!”
Does that help?
Regards,
Addison Wiggin
The 5 Min. Forecast
P.S. The Reserve focus list is just one of the prime features of the Agora Financial Reserve, currently open for new membership. If you’d like more details, including how to get our newest short selling service free, please read the following.
ADDITIONAL RESOURCES
Man buys half-ton pickup with half-ton of spare change
President Bush Signs H.R. 2764 into Law
Home prices post record decline