Markets Back to Square One, Asia Falls, Worst Housing Year Ever, Private NYC Tunnels, and More!

by Addison Wiggin & Ian Mathias

  • Asian stocks crash, another hectic market week begins… but has anything truly changed since this time last week?
  • Latest home sales data seals the deal… 2007: Worst year for housing on record
  • Chuck Butler on the inflating prices of things we actually use
  • Another all-time high for gold… why the latest African crisis could be more than a flash in the pan
  • A private attempt to end NYC traffic… building the world’s longest tunnel with no government support

After all the huffing and puffing — ups and downs, surprise rate cuts, Asian crashes, European rogues and American “stimuli” — the market barely budged last week.

The S&P 500, our broadest litmus test, opened on Friday the 18th at 1,333 and closed a week later at 1,330 — down 3 points.

As bad as last week seemed, the market has yet to atone for the sins of this speculative economy.

Still, judging by Asian trading this morning… Americans may get yet another chance this week. The Shanghai Composite, for example, took a swan dive overnight, down 7.2%. Last year’s belle of the ball is now down 10% year to date and currently dwelling at six-month lows.

The Hang Seng, Hong Kong’s benchmark index, fell 4.3%. In India, the Sensex sunk 3.5%. And Japanese stocks fared little better. The Nikkei is off 4%.

And in Europe, traders are continuing what their Asian brethren have started. Most major indexes are down about 2% as we write.

In 2007, new home sales suffered their worst yearly decline in history, reported the Commerce Department today. December sales registered an annual rate of 604,000 in the last month of 2007, down from 634,000 in November, thus bringing the total new home sales number for 2007 to 774,000. That’s a 26% drop from 2006’s 1.05 million new homes sold… the biggest annual drop since the government began tracking new home sales in 1963. The median price of such homes also fell by a massive margin… down over 10% from 2006, from $244,700 to $219,200.

So let’s take a second to absorb all of 2007’s housing data… The NAR reported the first ever annual decline in the average existing home prices, along with the largest fall in the pace of existing home sales in 27 years. Then the Census Bureau told us housing starts posted their biggest decline in 27 years. Now this, from the Commerce Dept: the worst year for new home sales on record.


But there’s a lot more to come. In fact, if you’re a data geek like your nerdy editors, you’re going to love the week ahead.

We just got home sales. Tomorrow, keep your eyes peeled for durable goods and consumer confidence. Wednesday, you’ll see the latest GDP and private sector job numbers. And of course, the Fed’s next rate cut decision.

Then, on Thursday, you’ll get personal income and consumption data. And Friday? Nothing more than the ISM’s manufacturing index and the BLS jobs report.

Big numbers week. Big. In a market like this… anything could happen. Or… a whole lot of nothing, like last week. Either way, we’ll be geeking on the numbers ourselves… so we’ll keep you posted. Stay tuned.

“The Fed has turned its back on inflation,” our buddy Chuck Butler writes this morning ahead of the Fed decision on Wednesday. “Here are some items that you won’t see in the CPI data…

“These are the things we talk about all the time,” Chuck reminds us, “in that an individual can feel the inflation eating away at his wallet. These are just some simple food items… I’m not even talking about things like tuition… insurance… medical… gas… movie tickets… and so on.”

Crude oil continues to hover around $90 on this fine Monday.

A quick peek at futures and options positions tells us traders of the world are betting the days of $100 oil are over, for now at least. Outstanding $80 put options for June 2008 have jumped fourfold since November.

Likewise, $100 calls for June fell 25% during the same period. If you’re keen on speculating your way through these markets, don’t miss Mr. Kerr’s advice in RTA

Gold struck another new all-time high of $923 on Friday. As global stock markets flailed up and down all week, gold investors banked a steady 3.3% gain.

Your usual suspects helped push gold to its latest record — crumbling dollar, swelling debt, sinking markets, etc. — but according to our friend Doug Casey, we ain’t seen nothing yet.

Last week’s electricity pinch in South Africa may be much more than the usual African “here today, gone tomorrow” crisis:

“The bad news out of South Africa,” reads Casey’s Daily Resource PLUS, “which affected platinum mostly, will have an ongoing and profound impact on gold, as well. The country’s major miners, already struggling with stagnating production, have been hit with severe power outages that have forced mine closures.

“Leading miners, including Gold Fields and AngloGold Ashanti, halted operations on Friday after the companies agreed to curtail use of electricity as the state-run utility, Eskom, struggles to generate enough power to meet the country’s basic needs. There just isn’t enough left over to protect workers who need all the juice they can get when toiling as deep as 2 miles down.

At least when the power goes out in our office… nobody gets killed. Holy crap.

“The present emergency is estimated by the companies to last as long as two-four weeks. All told, about 29,000 ounces of gold and 19,000 ounces of platinum production will be lost every day of the shutdown. And looking further out, Eskom flat out stated that problems will persist until ‘at least 2013.’

“The gold market hasn’t even begun to contemplate what this means,” Casey concludes. “This week could be a doozy.” Look for gold to continue its march toward $1,000.

Mr. Casey has had his fingers on the pulse of the mining industry for over two decades. If you really want the inside scoop on mining stocks and their output, check out his work here.

The dollar traded flatly over the weekend. The dollar index rallied ever so slightly, but gave back its gains in Asia this morning. The index currently scores about 75.6… a point above its all-time low.

The euro trades for $1.47; the pound for $1.98; and the yen, 106.

A private developer has bid to build the world’s longest highway tunnel, across the Long Island Sound. The New York State Senate is currently reviewing Vincent Polimeni’s proposal to construct a privately owned, 16-mile tunnel from Oyster Bay, Long Island, to Rye, N.Y.

Polimeni budgeted the project at around $10 billion, the cost of which he intends to recuperate by charging drivers $25 each way and selling advertising on the tunnels walls.

The project, to our delight, has managed to piss off a variety of special interest groups. Residents near Rye and Oyster Bay are protesting, asserting that traffic congestion has already reached critical mass. The state government, too, is pacing nervously, wondering aloud if they ought to allow a privateer such, umn… power, and, if so, how they’ll get their hands on the lion’s share of profits.

The “infrastructure and construction” communities are, no doubt, salivating… a 16-mile underwater tunnel would take a bit of manpower, concrete and steel, to say the least. Although they’re probably not salivating nearly as much as they were before and during the Big Dig in Boston. Heh. Not nearly as much graft on a private project, we suspect.

In the ’70s, Robert Moses, the father of New York City bridge construction, was a breath away from convincing Nelson Rockefeller to build a bridge almost identical to Polimeni’s tunnel. Rockefeller bailed, but only in fear of public backlash ruining his re-election prospects. We’ll keep you updated as to how it works out this time around…

“So with all the hand-wringing and ‘I told you so’s,” writes a reader, “that Tuesday’s market action proves that the U.S. is in or is going into recession, how come no mention of that little $7.2 billion loss from Monday? I know Societe Generale denied it, but isn’t there just a slight possibility that its attempts to unwind that trade on Monday had a little something to do with the big declines in Europe on Monday and the U.S. issues on Tuesday?”

The 5 responds: No doubt it did. And we expect a lot more of these events as the credit markets unwind. The trick is to spot from whence these “surprises” will arrive and get your tuchis out of the way ahead of time.

As for the hand-wringing and ‘I told you so’s… there’s a lot about which to be anxious these days. And as in the months following the tech bust, we’re fully aware you’d prefer to lynch the messenger than examine the source.

“Why doesn’t someone downgrade the ratings agencies?” asks another reader. “Moody’s, Fitch, S&P… not only is the ‘service’ they provide completely inadequate, it’s like yelling ‘Fire!’ after the building has burnt down.

“I really don’t understand why the market continues to give so much credence to incompetent organizations/people. Ahhhh, but therein lies the problem… let’s stop looking and relying on government and other institutions to do the thinking for us. Their track record proves they cannot be trusted.”

The 5: You’d think investors would stop relying on the rating agencies… or government data…or CNBC… or the Fed, for that matter. But curiously, you — as we do — crave something to believe in… to a fault. Better to plan for the worst and hope for the best than some version of the other way around.

“I found the Reuters comparison of your movie (I.O.U.S.A.) to An Inconvenient Truth to be disconcerting,” a reader tells us. “I hope you are not working toward the same result… untruth and fraud.”

“I am assuming that I.O.U.S.A. has more substance and fewer false statements and wild exaggerations than An Inconvenient Truth provided,” writes another reader. “At the same time, we can only hope that your message is understood by the masses and they demand Congress and the feds start acting responsibly.

“The fall election will show if your message was understood by the general public.”

The 5, again: Two ideas seemed to have resonated with the press in Park City, Utah, last week. The first is that Patrick Creadon, having directed a documentary on The New York Times crossword puzzle, seems to be a good fit to tell the story of our national infatuation with debt. And second, that the story is equally as unpalatable as global warming. But our film makes it fun.

The comparison to An Inconvenient Truth helps on two levels, too. Al Gore’s snorefest didn’t play well among industry types as the festival. And really, who would expect a two-hour PowerPoint presentation to do so. Secondly, once it caught on with the public, the film didn’t need them.

We can’t really speak to the “truthiness” of An Inconvenient Truth. But we will give you a fun nickname to use while referring to it with your friends: An Inconsistent Truth. Try it. It just rolls off the tongue. And before you know it, you won’t be able to refer to the film by its published title.


Addison Wiggin,
The 5 Min. Forecast

P.S. Tomorrow at 5 p.m. EST, we’ll publish Dan Amoss’ very best “paddle strategy” play. If you’re interested in profiting from falling stocks — “shorting” the market, as they say — it’s not to be missed. Dan’s Strategic Short Report will focus exclusively on short selling and put options — a powerful trading combination during this bear market. Tomorrow night, SSR subscribers will get his favorite pick. Join them here.


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