China Overtakes U.S., Home Sales Drop Again, The Latest Commodity Boom, Japan’s Butter Shortage, and More!

by Addison Wiggin & Ian Mathias

  • China overtakes U.S…. twice. Which major U.S. titles now belong to the Red Nation
  • Latest housing stat stinks… but didn’t disappoint. Is a bottom approaching?
  • Food prices finally take a breather… blame game begins for the global food crisis
  • Oil hits $118… Byron King on the “perverse” U.S. policy propping up energy prices
  • Chris Mayer on a little-known global resource shortage… and how it probably affects your portfolio

 

China has overtaken the U.S. and is now the world’s second largest exporter.

The World Trade Organization released numbers this morning that show China exported a stunning $1.2 trillion worth of geegaws in 2007 — up 26% from the year before.

Next in China’s sights: Germany, with $1.3 trillion.

U.S. producers exported a record $1.1 trillion of their own.

China, we learned this morning, also now hosts the world’s largest Internet community.

The Chinese research firm BDA reports that around 210 million Chinese were online at the end of 2007, compared to about 216 million in the U.S.

“Based on the assumption that these markets have continued to grow in 2008 at the same rates that they grew in 2007,” said Bin Liu, the analyst behind the report, “we can conclude that China has by now comfortably surpassed the United States as the world’s largest Internet population.”

Guess we’ll have to get used to these kinds of hallmarks.

While China booms, the U.S. housing market continues to bust. Existing home sales fell another 2% in March, reports the National Association of Realtors this morning. And after a surprise rebound in February, sales of used homes fell back to an annual pace of about 5 million.

The median home price for existing homes fell again too. It’s down 7.7% year over year, to $200,700. The glut of home inventories jumped to a bloated 10-month supply.

But it’s worth noting that while the median price is down year over year, it did improve from February’s $195,600. And… for whatever it’s worth… March is the second month in a row when existing home sales were better than Wall Street expectations.

It’s not a bottom, but it would appear the housing market has pulled out of an accelerating tailspin… at least for the moment.

The mortgage crisis is starting to burn renters now, instead. The average rent will rise 5.3% this year, up from the 3.1% rise in 2007, says the National Association of Realtors (NAR). Foreclosed former homeowners and timid would-be homebuyers are flooding the rental market, driving up prices across the country.

In fact, more folks entered the rental market in 2007 than in the previous five years combined. The number of renters in professionally managed apartments grew last year by its largest margin since the tech bust.

Food prices finally took a breather yesterday. Corn futures in Chicago fell back to $5.78 a bushel. Wheat and soybeans followed suit, down significantly, to $13.11 and $8.39, respectively.

Rough rice trading in Chi-town backed off 43 cents, to $23 and change.

 

You may have to look closely, but if you do, you might be able to see an upward trend on this chart.

Japan is suffering a butter shortage.

The spiking cost of feed around the world has put a serious squeeze on the few dairy farmers in the land of the rising sun. We read an article this morning from Kyodo, The Associated Press of Japan. Check out these sound bites:

“Butter is disappearing from the shelves…”

“Supermarket and other retail stores are facing supply shortages…”

“‘Products arrive only once a week,’ a grocery clerk said. ‘All products sell out on the day of arrival.’”

“Prices of butter for business use are also surging, making it difficult for some restaurants to offer bread with butter.”

Perhaps most telling, in a recent government poll, 80% of Japanese said they are “frightened about what the future holds for their food supply.”

“Our economists have looked at all the data available,” said Bart Chilton yesterday, the director of the Commodity Futures Trading Commission, “and there doesn’t appear that any inordinate speculation has caused prices to move.”

Naturally, as food prices go through the roof, jilted consumers are looking to blame some evil, greedy speculators deep in some dark trading pit, manipulating wheat, corn and rice while twisting their greasy mustaches and cackling heartlessly.

Sorry, it just ain’t so, said the CFTC said yesterday. Commissioner Chilton suggested that the surge in food prices has more to do with the falling dollar, global demand, poor weather conditions, lousy harvests and record-low inventories. Go figure.

“It is an election year,” our friend Dennis Gartman told BusinessWeek yesterday. “To think you won’t have senators and congressmen blaming high prices of things on speculators is naive.”

Oil, for its part, held onto record highs. The black goo touched $118 briefly overnight and stayed there this morning. Bloomberg tells us that $118 came courtesy of a labor strike at a Scottish refinery… and more of your typical Nigerian rebel disruptions.

As we write, oil’s trading for $119.

Why is oil such a big deal to Americans anyway? This chart helps to show.

As our friend James Howard Kunstler likes to say, since World War II, Americans have engaged in the largest epoch of misallocated capital and wealth in human history.

“It’s a shame that we in the U.S.,” Byron King tells us, “take such collective, if not perverse, pride that almost all of our outer continental shelf is off limits to exploration and drilling.”

Byron’s has been lamenting U.S. exploration policies with renewed anguish this week. And not just because it’s Earth Day. Brazil announced recently that it found 33 billion barrels of oil off its own cost. A Brazilian energy official hinted last week that the recently discovered Carioca field, just outside of Rio, might single handedly triple Brazil’s oil reserves.

“As the Brazilians demonstrate time and again,” Byron notes, “there actually may be something to discover out there. But first you have to look. Instead, we burn half the corn crop to make marginal quantities of motor fuel. And if we need additional barrels of fuel, we simply import them from nations that tend not to like us very much.

“It’s such a shame. Governance does not have to be this dumb.”

Gas prices, yet again, set a record high this morning. The U.S. is now up to an average $3.51 a gallon. And this… without a hint of a U.S. refinery emergency; Katrina-esque disaster; or the mainstream media favorite, “summer driving season.”

Here’s a little-watched commodity skyrocketing off the charts: sulfuric acid. You could score the stench for around $90 per pound in fall 2007. Today? A pound will set you back $330.

“Sulfuric acid is one of the most widely produced chemicals in the world,” writes our crisis and opportunity watchdog, Chris Mayer. “We use it in mining to extract copper, nickel and uranium. We use it in steel production and in making fertilizers. We use it to refine oil and treat wastewater. It goes into the plastics we make and a bunch of other things. So a shortage matters.

“What’s the cause? The biofuel boom has kicked off a big increase in the demand for sulfuric acid. In fact, some 60% of the sulfuric acid ends up in agriculture. The surge in ethanol production is a double whammy for sulfuric acid. First, all that corn needs fertilizers. And second, the ethanol facilities themselves also use sulfuric acid in their own processing. A typical ethanol facility requires 2,000-4,000 tons of sulfuric acid per year.

“Then there is that great demand pull from China and India. Traditionally, these two countries produced what they needed. But now their own rapid industrialization has turned the tables. They’ve switched from being exporters to importers of sulfuric acid.”

For Chris’ favorite sulfuric acid play (never thought we’d utter those words), check out his latest in Mayer’s Special Situations. Not a subscriber? Fix that, here.

Gold continues to trade tightly this week. The precious metal is mired in around $920. “It was especially disconcerting,” writes Doug Casey, “since the usual suspects, the declining dollar and rising oil, lined up in the metal’s favor. But gold was clearly caught up in the broad-based commodity selling that took place yesterday.”

In the stock market, bad news from Bank of America proved to be too much for investors to bear. National City added fuel to the fire, revealing some lousy earnings and big write-downs of its own. But the gloom and doom is de rigueur these days. The S&P 500 and Dow fell by only about 0.2%.

The Nasdaq managed to rally a few points on big moves from SanDisk and Apple.

The dollar continued trending down overnight, slipping a little lower into the 71 range…still less than a point above its historic low.

After its weekend reprieve, the euro is back to record high levels. At $1.59 this morning, the Esperanto currency is about half a penny shy of its all-time high.

“Eurozone inflation is well above the ECB’s tolerance threshold,” ECB bigwig Axel Weber said yesterday, practically slamming the book shut on an upcoming rate cut. As a rule, we don’t mess with dudes named Axel, so we’ll renew our call for euro $1.60 by the end of the week.

“These impassioned arguments against universal health care you’ve been printing,” writes one reader, “are simply an extension of libertarian arguments against taxation and societal coercion in general terms, arguments that most readers of The 5 already support, I believe. There is no difference between using income taxes to fund universal health care and using taxes to fund any other government program. It’s all ‘stealing,’ if that’s what you want to call it. Unless you believe that the government will stop collecting income taxes anytime soon, the argument is really only about how tax revenues should be spent.

“Since we’re already spending far more than we take in and can ever hope to take in, the whole discussion, on both sides, has a deliciously ludicrous fin de siecle quality to it. I never thought I’d be ready to join the Mogambo Guru in his bunker, but I’m getting closer to building my own every day.”

The 5 comments: The Mogambo had a heart attack last week. He’s doing fine now. But thought you might like to know.

“My husband and I eat rice at least twice a week,” writes a reader in response to our highlight of U.S. food rationing yesterday, “and we usually buy it in 10-25-pound bags at Costco. When I read in today’s 5 that Costco was going to start limiting rice purchases, I ran out during my lunch hour to stock up.

“First I stopped at a back street discount/restaurant supply store to check the prices, thinking I’d do some comparison shopping. The discount store had various brands of brown rice in bags ranging from 3-50 pounds, but the rack sections where the bags of elephant, basmati and jasmine rice are normally stacked were empty.

“I dashed over to Costco and found pretty much the same situation. There were dwindling stacks of brown rice still available, but except for Uncle Ben’s instant rice, all the white rice was gone. I grabbed 50 pounds of brown rice while the getting was good.

“I suspect every Chinese, Japanese, Thai and Indian restaurant in town has snatched up all the white rice they can get. I wonder how long I’d have to hang out in the rice aisle at Costco to see a food riot right here in the U.S.”

The 5: If it weren’t so serious, we’d find a food riot at Costco fairly amusing.

Cheers,

Addison Wiggin
The 5 Min. Forecast

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