A Reason to Celebrate, Dollar Rebounds, Rice Still Crazy, Housing Outlook, and More!

by Addison Wiggin & Ian Mathias

  • The 5 turns 1… our birthday present to you
  • Dollar rallies… which commodities have pulled back and which rage ahead
  • U.N. chief calls for “immediate action” to solve a sudden “real global crisis”
  • Financial borrowing shows credit crisis has yet to peak
  • Stimulus checks ready to mail… cries already heard for a second round of rebates

 

It’s hard to believe, but we’ve reached a milestone today. One year ago, we began this little experiment called The 5 Min. Forecast. We hope you’ve enjoyed it as much as we have.

To celebrate, we’d like to extend you an invitation. This weekend, we’re opening the doors to the Agora Financial Reserve. You can get a huge discount on all of our best financial services… a lifetime of value… this weekend only. See details in the P.S. below. And thanks for reading!

One year, can you believe it? A lot has happened since April 25, 2007.


Nice rally in the dollar yesterday, eh? The index scooched its way back up to 73 overnight:

But you’ll have to forgive us… it’ll take a few more points before we’re impressed.

“The markets seem to think that next week will be the last rate cut by the Fed in this cycle,” says our currency counselor Chuck Butler, “and thus, we see a lot of dollar buying going on, even without a strong fundamental reason to do so.

“We’ve seen this type of dollar frenzy before. Then calmer heads come back to the table and point out the awful fundamentals that the dollar carries around like an albatross hanging from its neck…

“Once the markets get a strong dose of ‘Chuck was right’ and the Fed cuts rates, this dollar rally will end. At least that’s how I see it from the cheap seats!”

Oil and commodities took a breather on dollar strength yesterday. Oil retreated to $115 a barrel this morning. The U.S. Energy Department kicked the selling into gear Wednesday after reporting a higher-than-expected rise in domestic crude inventories.

Grains backed off, as well… for the most part. On the Chicago exchange, corn, wheat, soybeans — and even rice — all declined as traders took the time to bank some profits.

But looking overseas, we note that global rice prices are still giving a lot of people in the developing world a rash. Thai rice surged yet again overnight, this time up $80 a ton, to about $1,080.

“The price remains firm and is expected to rise further due to strong demand and tight supply,” Chookiat Ophaswongse, head of the Thai Rice Exporters Association, told Reuters this morning. Sometimes, we quote these guys just so we can say their names a few times. Try it.

“This steeply rising price of food,” U.N. leader Ban Ki-moon said this morning, “has developed into a real global crisis.” The U.N. World Food Program made an urgent appeal for additional $755 million to feed the world’s hungry this morning.

“The United Nations is very much concerned, as are all other members of the international community. We must take immediate action in a concerted way all throughout the international community.”

Gold didn’t dodge the commodity sell-off yesterday, either. The yellow metal fell as low as $880 in Asian trading this morning.

“It wasn’t a blood bath,” writes Doug Casey about the rout in Asia last night, “but the cumulative effects of the past few days of downward-trending trading are fraying the nerves of those long the precious metals.

“Yesterday’s losses were undoubtedly exacerbated by a sharply strengthening dollar and easing oil prices. And with equities also enjoying a solid day, attracting money away from other sectors, a triple whammy was laid on gold and silver.”

Have you seen what’s happening in the bond market lately? Barring a stunning rally today, Treasuries are about to experience their worst two-week run since 1982.

Yields on the two-year note are up 72 basis points since Monday the 14th.

We’ve been suggesting for some time that if the government continues to borrow from foreign investors and central banks the way it has been, future financial decisions are no longer going to be made by people who have the best interests of the American people in mind. That includes interest rates.

The U.S. Federal Reserve gave away nearly $60 billion of Treasury securities yesterday, in exchange for mortgage-backed securities and other irksome investments.

In its fifth Term Securities Lending Facility, the Fed has now lent big investment houses over $210 billion in Treasury notes. Or in other words, the Fed has added $210 billion worth of subprime-backed garbage to its laundry list of liabilities.

Somehow, Wall Street interpreted this as good news. Since the Fed was willing to auction off as much as $75 billion, this “lack of interest” is a sign that the credit crisis is easing. Or so goes the theory. Either that, or investment banks are just finding better ways to hide losses. Heh.

Ben Bernanke testified before Congress right after the Bear Stearns Easter Sunday bailout, saying he believes the Fed will make every penny back from this short-term facility… and then some.

U.S. banks have also been borrowing at the discount window at a near-record rate. This week, they borrowed an average $10 billion from the Fed’s discount window — per day.

That’s more than at any other time during the credit crisis. In fact, it’s the biggest daily average since the week of Sept. 11, 2001.

The U.K.’s GDP grew at a sluggish 0.4% in the first quarter of 2008. According to London bean counters, that’s the worst quarter since 2005. U.K. officials cited a worsening financial sector and the worst English housing slowdown since 1992.

Unemployment in Spain unexpectedly shot up a full point during the first quarter, to 9.6%. According to the country’s National Statistics Office this morning, that’s the steepest rise since the first quarter of 1993. It’s worth noting that Spain slipped into recession in the second quarter of 1993. Spain is also in the middle of its worst housing slump in decades.

Both the Bank of Spain and IMF have chopped their yearly growth expectations in half… Spain is now expected to grow only 1.8-2.4% this year.

And inflation in Japan hit a 10-year high this morning. But… it’s at only 1.2%, which is very low compared with the West. And a sign that the Nipponese still haven’t shrugged off the effects of their own deflating credit bubble. Officials say rising prices of oil, raw materials and food are hurting their economy… whatever.

“Anyone doing business with the U.S. is going to feel the effects,” says Jim Rogers of the global contraction. “Some parts of the world economy are going to feel nothing at all. If you are in the Asian water treatment business, for instance, you don’t care if America falls off the face of the Earth. You won’t even know.

“If you are involved with America, or people who are tangentially involved with America, like people in Europe, you will feel the effects of an American slowdown.”

U.S. consumer sentiment has fallen to a 26-year low, say pollsters at the University of Michigan. Their gauge of consumer feelings fell more than expected in April, to 62.

For reference, the index averaged 85 in 2007.

The consumers who were surveyed had worse expectations for the next six months than a similar set did in March. They’re also anxious about inflation. The average survey participant, for what it’s worth, expects prices to rise 5% over the next 12 months.

Greenwich, Conn., homeowners are feeling down on their luck these days too. The infamous home of Wall Street millionaires and hedge fund billionaires is experiencing a wave of foreclosures.

The community logged 34 filings in January — six times the normal rate. The number should be higher still, say people who study these things at RealtyTrac. Folks in these sorts of neighborhoods have a knack for finding the cash at the last minute.

“Housing production will continue to drag on the economy until the first quarter of 2009.” David Seiders, chief economist for the National Association of Homebuilders, said today.

“All this downward momentum in home prices is really screwing up the financial markets,” Seiders went on to say. “After the stimulus checks take their effect, the economy will need something else to support it in the first quarter of 2009, or else the economy is in trouble.”

“Beginning Monday, the effects of the stimulus will begin to reach households,” beamed President Bush on the White House front lawn this morning. The U.S. government will send out 800,000 checks a day, starting Monday, for an estimated total injection of about $110 billion.

“This money is going to help Americans offset the high prices we’re seeing at the gas pump, at the grocery store, and will also give our economy a boost to help us pull out of this economic slowdown.”

“Authorities must act quickly,” writes Bill Gross, “with a shot of adrenalin straight to the heart of the problem: home prices. Since homes are the most highly levered and monetarily significant asset that American consumers own, if they decline much further, they will drag the rest of the economy with them.”

According to Mr. Gross, the government will need to provide additional “stimulus” if it cares to keep the other shoe from hitting the floor.

“Home price declines of 20% are, in fact, much more of a shock to the American economy than the popping of the Internet bubble and Nasdaq 5,000,” says Gross, “because the amount of homeowner leverage is so much greater. A 20% negative adjustment not only wipes out all ownership equity for millions of Americans, it turns their homes ‘upside down’ — incentivizing them to let their gardens grow weeds, instead of lettuce.

“The decline needs to be stopped quickly in order to avert additional crises.”

The 5: Right. We’re sure Congress will get right on that, Mr. Gross.

“I pay for Kevin Kerr’s advice by subscribing to RTA,” writes a reader, “and have great respect for his cautionary comments concerning ‘staying’ on the sidelines while gold falls.

“However, I hope you will share the fact that there is a relatively new inverse gold ETN through Deutsche Bank. The sticker symbol is DZZ and it is one of those funds that pays two times the move. So there is still a way of staying in the game, hedging long positions and maybe making some money while gold falls and the dollar ‘rallies.’

“I hope you pass this information onto your loyal readers, since so many share a long-term view that gold will go back up above and beyond $1,000 per ounce.”

The 5: Consider it passed on.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. More than ever, a wedge is being driven between the world’s rich and poor. As we’ve discussed more than once in these pages, the middle class is being shoved to one side or the other… they are either driven to wealth by good fortune and intelligent investing, or squeezed into obscurity by skyrocketing food and energy costs, sinking employment, and a stagnant economy.

We created The Agora Financial Reserve to help you stay on the right side of this trend. For a one time, discounted fee, you get all our investment advice for life… our 100%, all-out effort to protect and enhance your wealth.

As we mentioned before, we’re opening the doors to The Reserve to celebrate The 5’s first birthday… but for this weekend only. Learn more, here.

rspertzel

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