Home Prices Sink, 7% Inflation in U.S., Consumer Confidence Falls, Record High Gold, Silver, & Oil… and More!

by Addison Wiggin & Ian Mathias

  • Home prices fall at record rate… which markets sunk the lowest
  • Consumer confidence plummets… “future expectations” reach 17-year low
  • Producer inflation soars to 7.4%… Kevin Kerr on why the worst is yet to come
  • Dollar crashes to all-time lows… one price wild enough to “mark your calendar”
  • Commodities go through the roof… record highs for gold, silver, oil, wheat and more!
  • Plus, more pain in the banking sector… one great reason why you shouldn’t let it bother you

 

Home prices in 20 major U.S. metropolitan areas fell in December at a record rate, says the latest S&P/Case-Shiller home price index. The index fell 9% year over year in December, according to the index published yesterday.

In the 20-year history of the index, it’s never been this bad:

“We reached a somber year-end for the housing market,” said Robert Shiller, steward of the index. “Wherever you look, things look bleak, with of 20 metro areas reporting annual declines, and the remaining three reporting flat or moderate growth rates… 14 of the metro areas are also reporting record lows and eight are in double-digit decline.

Miami, Las Vegas and Phoenix topped the “worst of the worst” list, with declining annual growth rates of up to 17.5%.

And to add insult to injury… consumer confidence fell to a five-year low in February. The Conference Board’s index fell to 75.0, down from 87.3 the month before. Not since the start of the Iraq war have U.S. shoppers been more dismayed by their financial prospects.

In fact, according to the release this morning, perspective on “future expectations” hit its lowest level since 1991. “Current situation” confidence isn’t much better… it’s now at a seven-year low.

Inflation, too, is hitting the headlines… Producer prices inflated at a breakneck rate of 1% in January, says the Labor Department this morning. Year over year, producer inflation is up 7.4% — the worst rate of inflation since 1981. Core PPI rose 0.4%, also beating Wall Street estimates.

“None of this comes as any real shock,” says Kevin Kerr. “After all, we’ve all felt our wallets shrink a little more each week as gas and food prices take a bigger and bigger bite out of our incomes. Many ‘experts’ say that these high prices can’t last — I disagree.

“Commodities across the board are hitting all-time record prices. Everything from coffee to crude, gold to wheat is making new highs. In fact, wheat has been in such a record rally that the exchange had to officially expand the limits on the futures contract, and it’s still trading limit up.

“Consumers are faced with starting to have to make tough choices and also foregoing certain things that in the past would not have been an issue. While this may begin to dampen demand for certain commodities, we’re not seeing it yet.”

And yet… the Fed announced it had auctioned off another $30 billion in loans to cash-strapped banks yesterday.

In the sixth “term auction facility,” the Fed gave away money at 3.08%, the lowest rate of any auction since the Fed began the practice in December. If you’re keeping score at home, that’s at least $160 billion in freshly printed liquidity pumped into the financial system since the end of 2007.

Ben Bernanke testifies before Congress again today. If members of the House have their wits about them, they’ll nail him with this PPI number.

Yeah, like that’s going to happen. Heh.

So… given all that good news… this should come as no surprise to you: Mark your calendars — Feb. 27, 2008… euro: $1.50.

The euro traded for about $1.48 when we wrote to you yesterday. But as you can see, a flurry of bad data pushed the lowly greenback into record territory. The dollar index is looking all-time ugly too… down to a record low of 74.2.

But really… you had to see this one coming:

All the world’s tradable currencies rallied against the greenback overnight. The pound is up to $1.98. The loonie is a hair short of $1.02. Yen’s at 106. Peso, rupee, real… pick a currency… it’s up against the dollar this morning.

Even the Iraqi dinar is up on the greenback. It’s now worth 82 hundredths of a cent.

The spot price of gold hit another record high this morning — up to $965 per ounce. Gold had pulled back as low as $925 yesterday, but then rallied 40 bucks to its new all-time high.

Gold managed to drag its precious brethren to new highs, as well. Silver shot up almost a full dollar, to a record high of $19.43 per ounce. Platinum prices, which have nearly doubled since the start of 2007, jumped 20 bucks, to a fresh high of $2,166.

Had your fill of all-time highs for one day? One more and then we’re through… oil prices set a record high of their own yesterday — $102 per barrel. Like gold’s spike, oil’s rise can be mostly credited to an ever-weakening dollar.

Wheat finally backed off its recent high yesterday. Bushels in Chicago lost $1.35 to a closing price of $10.79.

Wheat had surged an incredible 17.5% in the last four days alone, the biggest four-day run since 1999, striking a record price of $12.89 Monday. But prices retreated yesterday on news of better-than-expected wheat planting intentions from the USDA.

However, in after-hours trading, we’re already seeing wheat futures back up in the $11 range.

Luxury homebuilder Toll Brothers handed its shareholders another dreadful quarterly earnings report this morning. The builder posted a net loss of $96 million in the first quarter, with pre-tax write-downs of $245.5 million and a 23% decline in year-over-year revenue.

“Ceaseless talk of a recession continues to dampen the mood of consumers in general, whether or not a recession actually occurs,” grumbled Robert Toll, chairman and CEO. Toll is “not yet seeing much light at the end of the tunnel,” he later admitted.

Strategic Short Report editor Dan Amoss recommended shorting a competitor of Toll Brothers in his alert last week. According to Dan, this homebuilder not only is neck deep in the worst housing markets in the country, but also has sizable positions in the infamous mortgage-backed securities market.

You can learn about Dan’s latest short — which is still below his “buy price” — by subscribing today. Don’t forget, our offer for three free months of Strategic Short Report ends tonight. Click here to give it a try.

UBS officials spent today begging shareholders to allow a $12 billion sovereign wealth fund injection.

The Swiss bank normally pulls in some 2,500 heads for its annual get-together. But 2007 was a “special” year for UBS. $18 billion in annual subprime losses, the first annual net loss in the bank’s 150-year history… and this morning, shares were down over 50% from their 2007 highs.

 

No mystery then why it’s standing room only in the 7,000-seat arena hosting today’s annual UBS shareholders meeting.

The major task at hand in today’s meeting is a vote on the $12 billion in proposed bailout injections — most of it from Singapore’s Government Investment Corp., with a couple of billion bucks from the crowd fave, “unidentified Middle East investor.”

Another banking crisis could kill thousands, warns the Financial Times this morning.

Literally.

According to a University of Cambridge study, the average “systemwide” financial crisis over the last 40 years has increased deaths from cardiac distress by over 6% in wealthy nations… and even more in developing countries.

In a case study examining the contemporary banking crisis, Cambridge researchers estimated up to 5,130 souls would leave this world should “a significant proportion of banks” suffer a crisis similar to that of Northern Rock’s last fall.

The researchers interviewed folks in what appeared to be a rather tame “bank run” at the Rock last year. As is turns out, some of those in line were experiencing intense stress… similar to the unease experienced in natural disasters or terrorist incidents.

So… when the s&^% hits the fan in 2008… take it easy… have a glass of wine. Chill out.

“I can’t see any benefit for the U.S. economy in stealing money from consumers or taxpayers,” says one reader, “by any form of regulation to subsidize inefficient U.S. versions of lower-cost foreign industry. Jobs will go where the production and business efficiency is the highest and the ideas of the local entrepreneurs are the best.

“The U.S. can’t provide either of those by banning anything. The export of jobs isn’t going to help anyone. The corollary in your Baltimore example, banning the import of streetcars and dome supports, wouldn’t have helped the Clipper Mill survive in a world where nobody wants streetcars or dome supports!”

The 5 responds: Not that we’d be interested in building anything else… but who said those imports were banned?

“True wealth is created only by ‘added value,’” adds another. “This comes about by converting materials into something that becomes an object that is purchased by the buyer to satisfy a want. This is carried out by the manufacturing industry. By moving this function offshore, we are eliminating the creation of wealth generation.

“The service industry produces no added value, but only moves money around. The only increase in currency volume is government controlled and does not ever generate added value (wealth), but causes nothing but inflation by making the dollar worth less and less due to dilution.

“Until we regain the manufacturing industry in our countries, we cannot increase our overall standard of living for the general public.”

“I was surprised by Kevin Kerr’s suggestion to take profit on silver,” writes our last reader. “What do we know about silver? Historically, its ratio to the gold price is roughly 18-to-1, which indicates that silver would be fairly valued at about $50 in today’s world. According to one of the foremost silver analysts, Ted Butler, there is less physical silver on the ground today than there is gold. Also, silver has many more industrial uses than gold, which implies that silver will be consumed at a greater rate than gold.

“These factors could create a shortage in silver, making the current run look modest at best. I would argue that now may be a good time to buy more silver. Thanks for all of the great work at Agora, and specifically with The 5.”

The 5 responds: We spoke with Kevin on this matter at our meeting yesterday. Along with the rest of the editors, Kevin thinks that silver’s got plenty of room to rise from current levels. His advice was only to grab some profits now while you can… we suspect he’ll be buying back in on the dips.

Cheers,

Addison Wiggin
The 5 Min. Forecast

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