by Addison Wiggin & Ian Mathias
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Housing takes another turn for the worst… three data releases all indicate no bottom in sight
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Yet the U.S. consumer has a new No. 1 economic concern…
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Global strife keeps oil near record highs… Chris Mayer on the domestic oil play about to boom
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Rice backs off record highs… Thai trading chief calls for hefty correction
We begin today with a swan dive, deftly performed by the S&P/Case-Shiller Home Price Index :
The Home Price Index’s 10-city composite is now down 13.6% year over year. The 20-city gauge has fallen about a point less. All 20 metro areas fell between January and February. Nineteen of them are reporting negative annual returns. Seventeen of the 20 cities are seeing record low blowouts.
“There is no sign of a bottom in the numbers,” admitted David Blitzer, chairman of the HPI Committee.
What’s more, U.S. foreclosure filings in the first quarter of 2008 rose a stunning 112% year over year.
Nearly 650,000 homes filed during the period, up 23% from the previous quarter and more than double the first quarter of 2007. In other words, one out of every 194 U.S. homes was in some state of foreclosure during the first quarter of this year.
Nevada was hit the hardest again. An incredible one out of every 54 homes there received some sort of foreclosure filing during the quarter.
“Foreclosure activity hasn’t slowed down yet,” said Rick Sharga, spokesman for RealtyTrac, the stewards of this data. “But I was a little surprised that foreclosure filings more than doubled since last year.”
Still, the bottom is still a ways away, thanks to the $362 billion worth of ARMs yet to reset in 2008. “We expect to see another foreclosure peak in the late third or fourth quarter of the year because of the record number of resets coming.”
As foreclosures surge, we also learn today vacant U.S. houses have reached a record high. According to the Census Bureau, over 18.6 million houses are empty — up 1 million properties from a year ago.
That’s the biggest glut of vacant homes since the Census Bureau started keeping track in 1956. Most likely, this many homes haven’t sat empty since the Great Depression.
Our friend Kurt Richebacher rolled over in his grave so hard this morning he likely pulled a muscle.
But the crumbling housing market is old news, right? Gasoline prices are now the No. 1 economic concern among U.S. consumers.
According to a poll released by the Kaiser Family Foundation, 44% of Americans consider gas prices a “serious problem.” Gas ousted employment and health care in the KFF survey as the primary economic/financial concern.
“Paying the rent or mortgage” finished a distant fourth.
At $3.60, the national average price for gas has now set a record 15 days in a row. Even people earning more than $75,000 a year — the highest category on the pollster’s list — still cited gasoline as their No. 1 concern.
If you had to commute to Washington, D.C., yesterday, we’re sure you noticed this unusual event:
Two hundred and fifty truckers drove their big rigs around the White House and Capitol building yesterday, blasting their horns and yelling into loudspeakers, protesting high fuel costs. The geniuses had planned to “rally” at 9 a.m., but a Beltway traffic accident stalled the convoy sitting in traffic for three hours. Heh.
“Middle-class families are paying too much,” Hillary Clinton offered helpfully, while wasting campaign donations in North Carolina yesterday, “and oil companies aren’t paying their fair share to help us solve the problems at the pump.”
“My gasoline policy should help you… this much.”
Sens. Clinton and John McCain are endorsing a plan to suspend the federal excise tax on gasoline for the summer travel season. The suspension could drop 18.4 cents off each gallon.
Cutting taxes sounds like the right idea… it’s their motives we don’t trust. And how, you might ask them if you get a chance, is cutting the price going to help increase supply, exactly?
It is thus with little surprise that we greet this news this morning: Consumer confidence has hit a five-year low. The Conference Board’s consumer confidence index slipped to 62.3 in April — its lowest score since March 2003.
“This continued weakening,” comments Lynn Franco, director of research at the Conference Board, “suggests that not only has the feeble level of growth in the first quarter spilled over into the second quarter, but that economic conditions may have slowed even further.
“Looking ahead, consumers’ outlook for the economy, the job market and their income prospects remains quite pessimistic. In other words, the glass remains half empty.”
Thomas C. Tamuccio got a raw deal yesterday. Upon his retirement as a floor trader for the NYSE for 29 years, Mr. Tamuccio, accompanied by family and friends, got to ring the closing bell.
But the stock trading session was boooring all day. It looks like the Continental/American Air deal is off. Microsoft isn’t making any headway with Yahoo. Mars is buying Wrigley… yawn. The major U.S. indexes all finished flat.
Sorry, Mr. T.
The dollar, however, managed to beat the euro back down to $1.55. The pound gave it up to $1.97, too. The yen, at 104, is at a two-month low versus the dollar. The Fed rate cut of 25 points most Fed watchers expect tomorrow must already be baked into this price level.
Adversely, gold sank to $877 an ounce this morning.
Oil, after hitting a record high $119 yesterday, has backed off to $118. Apparently, the refinery strike in Scotland is on the mend.
The oil price is high “due to the fact of the recession in the United States,” OPEC bigwig Chakib Khelil reasoned yesterday, “and the economic crisis which has touched several countries, a situation which has an effect on the devaluation of the dollar, and therefore, each time the dollar falls 1%, the price of the barrel rises by $4, and, of course, vice versa.”
Using that same fuzzy math, the Algerian concluded, “If the dollar strengthens by 10%, one can bet prices will drop by $40.”
10% verus what? we’re inclined to ask.
We’ll go out on a limb here and suggest that if the dollar rises 10% versus the euro (to $1.40-something), oil won’t be at $80. If the dollar index, on the other hand, manages to pull itself up 10%, back to 81… well, maybe.
But Exxon is doing its part to keep oil at lofty levels. The oil giant is temporarily shutting down nearly all its Nigerian oil production. Nigerian rebels are now depriving the world of 800,000 barrels per day.
A recent rebel attack crippled Shell’s Nigerian facility, as well. The company estimated last Thursday’s pipeline bombing is now costing the company 350,000 barrels per day.
As Big Oil’s getting their hat handed to them across the globe, Chris Mayer recommends you take a look at some domestic energy producers. Just yesterday, his play on local oil shot up 20% in a single session.
“The Bakken is one of the hottest oil plays in North America right now. In the U.S., it’s a stretch of rock across North Dakota and Montana. Oilmen have long known that the region is oil rich, but it’s frustrated most exploration efforts until recently, because we haven’t had the ability to crack shale profitably. Now we have better techniques and a much higher oil price, which makes the Bakken a great under-the-radar opportunity.
In April, the USGS revised its estimate of the recoverable oil in the Bakken. The new estimate is 3-4 billion barrels of oil — a 25-fold increase over the previous estimate, in 1995. If the USGS new estimate is on target, the Bakken could be the largest continuous oil deposit in the continental U.S.
“Needless to say, the boom is on. How to play it? Shares of Kodiak Oil & Gas are up 95% since Feb. 19, when I recommended them to readers of my letter, Mayer’s Special Situations. But I think the stock will hit $6 per share, possibly a lot more. We bought in at about $1.94 per share. Today, it trades for $3.79.”
Thai rice, the world’s most frequently traded rice, took a break from its daily record breaking yesterday. Now around $1,000 a ton, the stuff is still three times more expensive than it was in January.
“It is very likely that prices will ease,” said Korbsook Lamsuri today, leader of the Thai Rice Exporters Association, and another name we’ve been having fun pronouncing. “The market is likely to correct up to 20%, even if the bans by India and Vietnam remain.” Lamsuri cited likely record crops this year from Thailand and a decision today made by Thai bureaucrats to resume exporting the country’s 2.1 million ton rice stockpile.
Even if Thai rice corrects 20%, as he predicts, it would still cost around $800 per ton — or over double the price a year ago.
Any Philippine trader found hoarding rice will be sentenced to life in prison, the Philippine Justice secretary decreed yesterday.
By order of Justice Secretary Raul Gonzalez, Philippine government agents have been raiding warehouses across the country, returning hoarded rice to the nation and throwing traders in jail… for a very long time.
Corn futures, on the other hand, are still on the rise. Now over $6 a bushel, corn is just a breath away from passing its record high from a few weeks ago.
Corn’s trip to $6 comes on the heels of the latest USDA planting progress report. According to the government, U.S. corn farmers have planted 10% of their 2008 corn crop as of this week… far behind the five-year average of 35% and trade estimates of 15-19%.
Kevin Kerr left the Midwest with the impression the median price for corn in 2008 would be $7.50… a buck fifty higher than today. Trade accordingly.
“Are we supposed to feel sorry for the farmers because of skyrocketing fuel costs?” asks a reader. “As an industry, they jumped headlong into the Great Ethanol Scam of ’07, either through stupidity or greed… most likely, the latter.
“I see a delicious irony in the fact that they are getting crunched by diesel costs while they count their profits from the gross overproduction of corn. While U.S. consumers are getting killed by rising commodity prices, it’s only fair that farmers get their heads handed to them in this mess they helped create…screw ’em.”
“What’s truly galling about Sen. Chuck Schumer’s remarks,”
writes another, “about rebate checks going ultimately to the Mideast oil barons is his own gall: Why aren’t we drilling offshore like Brazil did and discovering oil reserves larger than the Mideast fields? Why are other countries like China drilling off the American continents, not us? Where are the refineries we need to process more fuel? Where are the nuclear plants we need?
“Why? Because leaders in Congress like Chuck Schumer have listened to the environmentalists over the years and legislated America into the pecuniary position we are in today. But he’s not alone. I blame all of those in Congress since the 1973 oil crisis for not doing the right thing for the American citizens. Instead, both sides have engaged in bitter partisan politics, the public be damned. There’s no real leadership, no real statesmanship in Congress — only petty politics engaged in by petty people who should know and do better.
“Look at the present ethanol debacle. Ethanol, we’ve discovered, is energy negative and is causing a vertical spike in food costs. Our elected leaders seem to be a bunch of know-it-all idiots who truly deserve to be booted out on their asses as soon as possible. What good have they done for us since the oil crisis?”
The 5 responds: Yeah! And what about that mound of debt they’re leaving with us?!
Give ’em hell.
Addison Wiggin
The 5 Min. Forecast
P.S. We’re excited to announce that Jim Rogers will be the keynote speaker at our Investment Symposium this summer in Vancouver. The legendary founder of the Quantum Fund, author of Investment Biker and other bestsellers, and one of the few internationally recognized commodity investing gurus… Rogers will be a great addition to our event. He’ll be traveling from his Singapore home all the way to British Columbia to give Symposium attendees an exclusive presentation.
Rogers’ addition, along with our huge array of speakers, the luxurious Fairmont Hotel, and Vancouver’s stunning summer atmosphere makes this a “can’t miss” event.