Retail Sales Slam the Market, The Coming Commodity Correction, Angry Baby Boomers, and More!

by Addison Wiggin & Ian Mathias

  • February foreclosures fall from January heights… but a foreboding trend remains
  • The typically overlooked data point that’s moving markets today
  • Record highs for commodities across the board… why you should expect a pullback, and when
  • U.S. bank guesses SWFs will soon have greater spending power than global governments
  • A surprising knock-on effect of the U.S. water crisis
  • Plus, did we touch a nerve? Unusually angry reader mail, plus our response below

Foreclosure filings spiked another 60% in February, RealtyTrac reported this morning. Over 223,650 American homeowners filed for some form of foreclosure last month, 25% of whom lost their home to the bank.

On the bright side, filings were down a bit from January. But looking at the one-year chart… a sharp eye might be able to spot the trend:

 

Retail sales fell 0.6% in February, three times what analysts predicted. While this data point is typically insignificant, today, it’s moving markets. The Dow dropped nearly 2% on the Commerce Department’s release.

Yesterday’s market action was less than confidence inspiring; 24 hours after the Dow’s best day in five years, markets in the U.S. spent the whole day fighting to hold onto Tuesday’s gains.

In the end, the Dow and Nasdaq shed about 0.5%, while the S&P 500 fell just short of 1%.

The dollar fell to new record lows last night… a trend still under way this morning. So far, the dollar index has fallen as low as 71.8. We can only assume the word in the pits is a U.S. recession, more rate cuts and liquidity injections from the Fed.

The euro found itself at another record high, breaching $1.56 for a split second before “retreating” to very high $1.55. The European currency is up 10 full cents in less than a month.

The pound has regained $2.03… up 3 cents since Tuesday. And the yen — the currency of a nation that’s essentially been in recession for the past decade — has reached 100, a 13-year high versus the greenback.

Thus, it should come as no surprise that oil marched to another record high, too. Light, sweet crude prices rose as high as $111 on the wave of dollar weakness. The U.S. Energy Department’s weekly supply report showed U.S. stockpiles at 6.2 million barrels, more than three times the 1.6 million expected. Traders, clearly, couldn’t care less.

Gasoline inched up another penny, to $3.26, at your average national pump.

Gas is still priced lower than its inflation-adjusted all-time high. According to the Energy Information Administration, gas in March 1981 cost $3.40 in today’s greenbacks.

You can expect that price by this summer, if not sooner.

Gold snuck briefly past the mythical $1,000 mark while we were scribbling away this morning. But it has since retreated to $991. Stay tuned. This is likely to be the 00:00 headline story in tomorrow’s 5.

“The soaring commodities markets are not immune to a sharp, sudden sell-off,” warns Eric Fry. “In fact, a sell-off is exactly what the nearby chart seems to be anticipating. Investor sentiment has become quite extreme in both the grain and precious metals markets. The ‘dumb money’ has been buying aggressively in both sectors, while the ‘smart money’ has been selling.

“In general, the ‘large speculators’ buy into markets as they are topping out and sell into markets as they are bottoming out. The ‘commercial traders (commercials) tend to do the exact opposite. Hence, simplistically, the ‘large speculators’ represent the ‘dumb money’ and the commercials represent the ‘smart money.’ Obviously, this characterization is neither exactly fair, nor exactly helpful. But when either category of futures trader is amassing a record-high position on one side of the market or the other, prudent investors should probably pay attention.

 

“Over in the gold pits, the commercials have amassed their largest ever net short position. This large bearish bet by the ‘smart money’ does not guarantee a sell-off in the gold market, but it does raise the possibility.

“Your editors have been vocal, longtime fans of gold and most other commodities… and so we remain. We anticipate much higher gold prices and oil prices and grain prices… eventually. But we’d rather be a buyer on weakness than on strength… So if the current signals from the commodity markets are valid, we long-term commodity bulls might soon receive a fresh short-term buying opportunity.”

“The year ends for Japan (fiscal year ends for companies) are at the end of March,” adds our friend Frank Holmes, hinting at when that short-term buying opportunity might reveal itself. “It’s basically our (North America) December, and we get a lot of disclosure.

“We’ve not heard much negative news about the subprime in Japanese banks. So odds favor that if there’s any type of news that comes negative out of Japan, that currency would all of a sudden go through a correction, the dollar would rally, gold would correct and then you get on with this wonderful bull market in gold.”

Frank, by the way, is a perennial favorite at our Vancouver Investment Symposium. This year, he’ll be just one of many esteemed speakers joining us for A View From the Peak. Mr. Holmes’ five-star hedge fund, the U.S. Global Investors Global Resources Fund, has risen over 680% since 2002. If you’d like to join us in Vancouver, please call Barb Perriello at 1-800-926-6575.

Sovereign wealth fund assets could soon be greater than the entire official foreign reserves held by central banks of the world.

Morgan Stanley analysts recently estimated SWFs control some $2.8 trillion in assets. According to their growth models, SWFs could easily become larger than the $12 trillion total net value of national holdings in the world — by 2015.

“The rate of growth is impressive,” said Morgan Stanley managing director Stephen Jen. “We are talking here of about $1 trillion per year in their asset pool, generated mainly by a boom in oil prices and other commodities.”

Jen later told Reuters that he expects most of this growth to come from Asia. Good old I.O.U.S.A. is still raising funds for its SWF… when checked this morning, it was looking like we’re at negative $9.4 trillion. Good start…

The Chilean sovereign wealth fund, one of the year’s many newcomers, will soon begin purchasing stocks. According to an announcement by the county’s international finance coordinator, Chile’s SWF will soon begin committing 15% of its $17 billion war chest to stocks and bonds around the globe.

Our Christopher Hancock is convinced that this wave of sovereign wealth investment might be just the ticket you need to ensure the safety of your own retirement. To find out more, read this report.

A surprising knock-on effect of the growing U.S. water crisis… stocks of Pacific salmon are at record lows. According to this morning’s New York Times, government officials will likely shut down salmon fisheries all over the West Coast in an effort to abate rapidly dwindling supply.

“The Central Valley fall Chinook salmon are in the worst condition since records began to be kept,” Robert Lohn, regional administrator for the National Marine Fisheries Service, told the paper. “This is the largest collapse of salmon stocks in 40 years.”

Such “central valley runs” are mostly surrounding the Sacramento River… “the focus of a water struggle between farmers and irrigation districts on one hand and environmental groups and fishermen on the other,” said the NYT.

In advance of our reader mail section this morning, let us give you this little nugget of information: The U.S. Treasury Department announced a current fiscal year budget deficit of $263 billion yesterday — an all-time high.

Clearly following Bush’s straight-as-an-arrow path to balancing the budget by 2012, the U.S. government’s current deficit since the start of the fiscal year (Oct. 1) is up 60% from the same period last year.

Not surprisingly, this nation managed to tally an all-time deficit while also raking in record high revenues for the period. The U.S. government increased earnings by 1.3%, to an impressive $967 billion since October.

Too bad government spending is up 10% in the same time, to $1.2 trillion.

And now to your ire:

“Literally speaking,” writes a reader, “baby boomers ages range from ages 50-62, not 44-wherever, as you indicated. Those six years in between are the represented ‘cohorts’ in Washington that you are unknowingly referring to, not the boomers. Boomers are going on entitlement rolls now, and no one in D.C. wants to do anything for the ‘Now Generation’ now that we will no longer contribute to the GDP, except on the debit side of the column.”

The 5 responds: If you want to get literal, the U.S. Census Bureau calls a baby boomer anyone born between 1946-1964. That would place them between 44-62, as we stated. And from a short smattering of officials in the current administration, it’s not hard to see that the boomers are the most highly represented demographic group in the U.S. government. For example:

George W Bush: 61 years old
Condi Rice: 53
Hank Paulson: 61
Robert Gates: 64
Ben Bernanke: 54
Average age of a U.S. senator as of January 2008: 62
Average age of a U.S. House member as of January 2008: 58

The government is dripping with baby boomers, and not even the younger ones in those ‘six years in between.’

But you’re right. The “first boomer” started collecting benefits this year. You’re heading into the period in your lives when you need health care and retirement programs more than ever. But your timing couldn’t be worse. The coming retirement of the baby boom generation is, in the words of David Walker, “a tsunami that threatens to swamp the ship of state.”

The government is already faced with exploding budget deficits and a rapidly compounding national debt. The public is bereft of savings. The economy has been hollowed out from the inside. We suspect there will be lots of blame being thrown around before we recognize the real crisis… and, unfortunately, not a lot of solutions.

“I am not a baby boomer,” writes another reader, “having been prewar issue, i.e., prior to World War II. However, I am constrained to deliver comment on your response to the reader who wrote in defense of his (baby boomer) generation.

“I am sure what he was reacting to was your acid comment, ‘God forbid the baby boomers ever take responsibility for their own actions.’ This was a totally irresponsible and insulting assertion that has little basis in fact. Further, you do not present evidence, even of the scantiest sort, to back up your statement — which amounts to an accusation — no doubt because there is none. You were further disdainful of your reader’s commentary which rang truer than not. After he took the trouble to write a thoughtful and courteous letter to you, you blew him off in a fit of arrogance and defensive rhetoric.

“Mr. Wiggin, I have bought and read every book of yours, including those co-authored. I enjoy your dry wit and satirical barbs at those who would divest us of our freedom and fortunes. But when you turn this persiflage upon one of your faithful, you have stepped over the edge of responsible authorship. I must say that you have disappointed me very much.”

The 5 Responds: Thank you for the kind rebuke. We’re impressed with your use of the word “persiflage” and apologize if we’ve disappointed you. We do, however, appreciate your restraint. You could have responded like this gentleman:

“The 5 is the most stupid group of idiots around,” he writes. “I worked hard, paid my debts and neither party represents my interests. And as for insurance, I paid out over $800 per month for insurance with high copayments and limited coverage. Now that I am 65 my coverage is no more and Medicare is a joke.

“Mr. Addison ‘Whoever’ is an educated idiot. All I can say is you will need more than money to survive. I would suggest a .357 Magnum… if you have the guts. You had better stay behind your high-priced gated prison. While the rest of us who do not know what instant gratification may be…

“My 2000 Express van has nearly 170,000 miles on it, because I cannot afford a new one. I know that all of your high-priced special services are for individuals with six-figure incomes. As for me, I have slow-speed dial-up service and rabbit ears on the old TV, which, as I understand, will be obsolete in 2009.

“So please do a little research for the rest of the country. The most I ever made in one year was $34,000, and that was the last year of my work. I usually read your 5 with respect, but Mr. Addison is a jerk of all jerks. After tonight I am blocking all e-mail from the stupid 5 group.

“The 5 makes me sick.”

The 5: Emotional subject, this one, eh? It’s only going to get worse.

“Ironically,” Ian writes by IM this morning, “this next bit comes from a Money magazine interview with Ben Stein published this morning:”

“Q. Are you totally sanguine about the outlook for the economy?

“A. No. There’s a real economic crisis highballing down the track. And that’s the baby boom’s retirement. There are going to be 20 million or 30 million people coming up quite short of the money they’ll need to live on. I’m terribly worried about that.

“Q. What’s the problem with boomers?

“A. A shortage of intelligent behavior. We’re a lazy, undisciplined generation. I don’t exempt myself: I spend way too much, even though I make a good income.”

Best regards,

Mr. Addison, “jerk of all jerks”
The 5 Min. Forecast

P.S. Don’t forget… our special offer on the Resource Reserve ends tonight. Click here for your last chance to get all our commodity letters for a heavily discounted fee.

rspertzel

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