Inflation Abound, Jim Rogers, An Untapped Oil Opportunity, Racy Photos and More!

by Addison Wiggin & Ian Mathias

  • Dollar plunges to another low… one way to hedge against the ailing greenback
  • Jim Rogers on the “end of the Federal Reserve”
  • U.S. inflation numbers worse than expected… which rising prices are hurting wholesalers and consumers alike
  • Chris Mayer with an update on the biggest untapped oil patch in the lower 48
  • In 2007, hedge fund managers earned billions… each. Which mega-rich managers topped the list

The dollar dropped to a record $1.59 against the euro overnight — its worst daily performance versus the euro in over three weeks.

“Inflation in Europe jumped even higher than the previous 3.5%,” explains Chuck Butler, “hitting the 3.6% level in March. That’s the fastest pace of inflation in 16 years. The ECB isn’t going to go forward with a rate cut in May, or anytime soon, for that matter.”

By contrast, futures on the Chicago exchange still put the likelihood of a 25-point cut by the Fed on the 30th at 100%.

“It’s the official policy of the Federal Reserve to debase the currency,” Jim Rogers told Keith Fitz-Gerald in an exclusive interview published in the Rude Awakening this morning. “Washington has sent a very clear signal: ‘We want the dollar to decline. We’re gonna do our best to make it decline’…

“[Bernanke] and Greenspan together will probably bring [about] the end of the Federal Reserve. We’ve had two central banks in America that failed. This third central bank will probably fail, too, because of Bernanke and Greenspan.

“The Federal Reserve last week put $200 billion more onto its balance sheet of mortgages. Now I don’t know how big they can expand their balance sheet, but if they keep doing it, there’s only so much they can do. Maybe that balance sheet is infinite. I doubt it. And it can be said to be infinite; they just print money like Zimbabwe or someplace. But that has to come to an end, eventually…

“Well, everybody has to make their own decision. I’m trying to do what the Federal Reserve wants me to do, and I’m selling dollars… All Americans should…”

On cue, this morning’s wholesale and consumer prices show what the Fed’s policy doth reap. The producer price index (PPI) shot up much higher than expected, to 1.1%, in March — nearly double the median forecast from the Street.

Food and energy prices led the way: Energy climbed 2.9%, gasoline grew 1.3% and food rose 1.2%. The core PPI moved up to a yearly rate of 2.7% — the highest level of core inflation since 2005. But if you factor in food and energy, wholesale inflation is at 6.9%, a fraction below the 26-year high achieved in January.

On the CPI level, energy and airline tickets helped bring inflation for the everyday consumer up to over 4%.

We also note the Canadian, Australian and Norwegian currencies all enjoyed big gains yesterday, almost entirely fueled by oil’s stunning rise. Chuck and his crew at EverBank have put together a World Energy CD — indexed to the loonie, Aussie and krone — all of which should benefit from higher energy costs. This round of funding is exclusively available to you, a reader of The 5.

The U.S. stock market managed some small gains yesterday. Positive earnings from Johnson & Johnson and the Delta/Northwest merger pushed the S&P 500, Nasdaq and Dow up about 0.5% each. Record energy prices helped out utility and energy sectors, which clearly led the way.

This morning, we kick off the earnings season in earnest… with a surprise to the upside. J.P. Morgan beat Wall Street estimates in its premarket earnings announcement this morning. Of course, the news wasn’t exactly rosy… the bank posted a 50% drop in first-quarter income and revealed another $2.6 billion in mortgage-related write-downs. But earnings came in at 68 cents per share, 3 cents better than expected.

Couple that with good news from Intel and Coca-Cola and the U.S. stock market opened up over 1%.

U.S. homebuilders began construction on the fewest homes in 17 years during March, the Commerce Department admitted this morning. The coveted housing starts number came in at 947,000, down nearly 12% — more than twice the forecasted fall.

Year over year, starts are down 36% across the nation and in every region surveyed by the Commerce Department. Looking forward, building permits appear even worse. Permit applications fell 6% in March, down over 40% year over year.

Headlining the global food crisis, rice found itself another record high yesterday.

Futures in Chicago ticked up another 2.3%, to $22.67, per 100 pounds when the Philippines — the world’s biggest rice importer — put in a buy order for 1 million metric tons. That’s more than 50% of all the Philippine rice imports in 2007… clearly, the government is concerned about food supplies.

According to the USDA yesterday, only 2% of the Arkansas rice crop is in the ground. Arkansas, the biggest rice state in the U.S., had planted 31% of its crop this time last year. As Kevin reported yesterday about corn crops this year… too wet, too cold to plant.

Along with higher prices, “Here’s another concern facing the food exchanges,” notes Dan Denning, surveying the situation from Melbourne, “increased margin requirements.

“In one famous example, regulators shattered the Hunt brothers in the silver market in the early 1980s by raising margins so much that all but the most cashed-up speculators had to flee their long positions. When the highly leveraged buyers left the market, the futures price collapsed. The same is a risk for the corn wheat, corn, soy and rice markets today.

“One difference: The futures markets are much deeper and more liquid these days. Market manipulation by regulation may be harder to achieve, especially when it competes with the forces of physical reality. Raising margins would only drive out speculators.

“Most of what is driving the grain markets is real demand. Exporters are hoarding crops, shopping for higher prices or, worse, being forced by governments to sell product into the local market to satisfy the crowds in the streets. The fundamental problem is in the allocation of global resources. We have a lot of people on this old furry ball… and a lot of people are starting to wonder if there’s enough food to last for the whole dinner party.”

Gold is quietly creeping up the charts this week. The precious metal has slowly, but steadily added on about $40 this week, trading this morning for $945.

Oil jumped up to another record high this morning. Light sweet crude is now well into the $114 range, like yesterday, mostly on news of a weaker greenback.

The national average prices for gas and diesel ticked up to brand-new highs again overnight. They’re fetching $3.39 and $4.12, respectively, this morning.

Still, here’s some good news on the domestic energy front. The Bakken Trend — a huge expanse of land in the Dakotas, Montana and parts of Canada, long believed to be hiding up to 500 billion barrels of oil — has been a speculative bet thus far, but a report from the U.S. Geological Survey last week, well… changed everything.

“The Bakken Formation estimate is larger than all other current USGS oil assessments of the lower 48 states,” the USGS report says “and is the largest ‘continuous’ oil accumulation ever assessed by the USGS.”

“Holy smokes!” remarks Chris Mayer following the story. “The USGS announced a 25-fold increase in the amount of oil recoverable in the Bakken Trend. Who knows exactly how much oil lies beneath the Bakken. The point is it seems to be a whole hell of a lot.”

We’ll hear more on the Bakken Trend from Chris as the story develops. Or be among the first to check out his Bakken play in Mayer’s Special Situations… here.

Despite a few notable blowups, hedge fund managers logged their best year ever in 2007. The top 25 hedge fund managers made at least $360 million a piece — more than 18 times the minimum salary 25 five years ago.

 

The total top 25 made over $29 billion combined… about the annual GDP of Vermont.

We mentioned John Paulson yesterday. He made $3.7 billion last year on the right side of the U.S. housing and mortgage-backed securities trade.

But there’s no sign that people of the world are spending their money any smarter, either. After all, somebody’s actually giving these fund managers their money. And others, well, are buying nude photos:

An unnamed collector bought a nude photograph of Carla Bruni, wife of French President Sarkozy, for $91,000. That’s 20 times the expected auction price. Granted, she’s hot:

Christie’s, auctioneers of the pic, pledged to donated the proceeds to a Cambodian pediatric medical group. But the group rejected the money, saying that the children of Cambodia would sooner suffer and die than accept money raised by selling pictures of naked ladies.

So Christie’s decided to give the profits of the sale to Sodis, a project aimed at preventing a global water crisis. Heh. Good choice.

“I take exception to your comment,” writes a reader. “‘The average doctor specializing in elderly care, despite requiring more training than your average plastic surgeon…’ This statement is absolutely incorrect. The vast majority of board-certified plastic surgeons have completed seven years of postgraduate training after medical school. This is typically five years of general surgical training followed by two years of plastic surgical training. The very minimum of postgraduate training to be a board-certified plastic surgeon is five years. However, most current physicians have gone the seven-year route. To become a board-certified geriatric physician takes, at most, four years of postgraduate training. This includes three years of either an internal medicine residency or family practice residency, followed by a one-year training program in geriatric medicine. A correction in the next 5 Min. Forecast would be appreciated.”

The 5 responds: Obviously, you take your profession very seriously. We made our comments in jest. Relax.

“Great idea about opening these geriatric medical clinics,” writes a reader, “and watching your profits go up as the demand explodes. One small problem with your scenario… Medicare bureaucrats dictate how much money you can bill! Not the markets, not the quality of care you deliver, not the frightening increases in the cost of running a medical practice. Just some bozo in Washington telling every doctor in the U.S. what their extremely in-demand services are worth.

“Your patient has several complicated problems in one visit? One hour and 50 pages of red tape later you are lucky to get $36.72 for your troubles. Botox, wrinkle fillers, cosmetic nonprice-controlled services anyone? I practice dermatology in an affluent area of Los Angeles. People do not bat a fake eyelash at dropping $1,000 for a little filling and plumping, but, “Hold on there, Doc!” If they have to pay for the skin cancer surgery that will save their previously surgically enhanced nose, oh, no.

“People’s priorities are completely out of whack. The real crisis is coming when we physicians get sick enough (excuse the pun) of being raped by the system and drop out of the socialist Medicare scam altogether!”

Cheers,

Addison Wiggin
The 5 Min. Forecast

rspertzel

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