Cost of Chinese Quake, A Canary in a Coal Mine, Kevin Kerr’s Big Buying Opportunity, World’s Most Expensive Car, and More!

by Addison Wiggin & Ian Mathias

  • Chinese quake begins to hurt the Street… first estimates of financial losses emerge
  • Which canary in a coal mine is squawking for a Dow recovery
  • Inflation rises again… why Ben Bernanke might be particularly bothered by the latest PPI
  • Two grains crash in Chicago… Kevin Kerr with what might be the “best buying opportunity of the year”
  • Plus, the world’s most expensive car

Markets around the world are finally beginning to feel the effects of the earthquake in China. The Shanghai Composite plunged 4.5% last night.

The 7.9 magnitude quake in the Sichuan province of China killed an estimated 71,000 people, displaced over 12 million more and made day-to-day life very difficult.

Xi Guohua, vice minister of industry and information technology, suggested yesterday the quake would cost Sichuan’s 14,000 companies around $10 billion. And according to the state-owned Chinese media, the quake would trim 0.2% off of China’s total annual GDP.

We have a friend who’s been building a cement plant in the far reaches of the province. He reports back that his factory wasn’t nearly as damaged as the one next door. And only one family member of his workers was killed in the quake. He’s trying to organize a relief drive. If and when he pulls it together, we’ll let you know.

U.S. stock indexes snored through another flat day of trading yesterday. The Dow and S&P 500 managed some itty-bitty gains, while the Nasdaq shed 0.5%.

The high note of yesterday’s trading goes to the transports. As most major indexes are struggling to break even for 2008, the Dow Jones transportation average has been killing it:

An all-time high for Dow transports.

While U.S. truckers are getting crushed by rising diesel prices, railroad companies and dry shippers have brought the 20-company index to a record high. Transports have historically led the broader stock market into and out of bear markets… so this is a good sign. We’ll keep an eye on ^DJT for you.

Inflation at the producer level rose less than expected in April, or so the Labor Department claims today. Their producer price index (PPI) rose 0.2% during the month, just below expectations.

But that doesn’t necessarily mean inflation is under control. The PPI is up 6.5% over the past year.

We suspect inflation is even starting to give Ben Bernanke a rash. The Fed’s favorite “core inflation” — which strips food and energy out of the equation — rose way more than expected in April. By jumping 0.4%, core prices for wholesalers are inflating at an annual rate of 3% — their fastest pace since 1991 and well over the Fed’s target of 2% or less.

The Labor Department said energy prices fell during April — just as they did with the CPI release last Thursday. Using seasonal adjustments, energy prices sunk 0.2% during the month even though — by the Labor Department’s own admission — real, nominal energy costs were up 2.9%.

“While there is a seasonal pattern to gasoline prices,” notes our government watchdog John Williams, “suggestions that the recent surge in gasoline prices — in tandem with record high oil prices — is more than accounted for by normal seasonal variation are simply not credible.”

Food prices in the U.S. will rise 5% this year — their highest rate of inflation since 1990. According to the U.S. Department of Agriculture, cereals, bread and other wheat-based goods will lead the way. These baked goods are forecast to cost 8% more in 2008.

“That’s what happens when wheat prices double in six months,” said Ephraim Leibtag, a USDA economist. Thanks, buddy.

Eggs and oils will also increase 5% more. And while meats are expected to become only marginally more expensive this year, Leibtag and his associates say they’ll be telling a different story in 2009. The rising costs of feed and grains this year will limit meat production next year… and by extension, the price for your favorite steak will rise.

Despite the USDA’s forecast, traders in Chicago are taking profits on grains… big-time . Check out these corrections:

That’s at a 20% drop in rice and another 40% in wheat.

“This could be one of the best buying opportunities of the year,” says Kevin Kerr, our Maniac Trader. He explains: “Wheat prices and rice have had a parabolic rise lately, but, most recently, have had a sharp correction. Now it seems the selling in wheat is way too premature.

“I’m reminded of the old farming adage ‘It’s not what you put in the ground… it’s what you take out.’ Expectations of a high-quality, high-yield winter wheat crop have been dashed. In Kansas, the nation’s largest wheat-producing state, all one has to do is walk the fields to see the result of heavy rain and flooding.

“At the same time, reality is sinking in about the winter wheat crop. Demand for wheat is picking up from many key countries. Wheat has been gaining good support, but may have much, much further to go…

“The rice market has been so volatile it was overdue for a correction. In Myanmar, the cyclone is feared to have destroyed anywhere from 7-20% of the Burmese rice crop.
The full impact of the devastation coupled with high demand is likely to support high prices for rice in the long run.

“I would be very careful shorting this market. But I wouldn’t rush out to my Costco with a U-Haul and stock up, either. Better to wait for the shakeout to end. Then buy some futures for the longer term. The best view in rice right now is from the sidelines.”

For more precise trading instructions, collect your “guest pass” here.

Currency traders sold the dollar this morning after the producer price report came out. The dollar index sunk about half a point, to the low side of 72. The euro inched up a cent, to $1.56, as did the pound, to $1.96.

The yen bucked the trend and weakened a bit, to 103. Apparently, traders didn’t like the Bank of Japan’s decision to leave rates unchanged.

On dollar weakness… gold shot up this morning. The yellow metal is up to $914 in New York this morning. Go yellow.

Oil closed at a record high $127 yesterday.

“The oil market is balanced,” asserts OPEC chieftain Abdullah bin Hamad al-Attiyah yesterday. “There is no threat to or crisis in supply. I don’t think there is a situation that is big or dangerous that requires a meeting before September. Why should there be this meeting when oil prices go up?”

Heh… good question.

The black goo is not letting up this morning, either. Oilman T. Boone Pickens said this morning he expects oil to reach $150 by year’s end. By 10:00 a.m., the price had pushed past $129.

Retail gasoline prices hit a record high this morning, too, for the fourteenth day in a row. We’re now up to a national average of $3.80 for the cheap stuff. Ouch.

According to a AAA survey, the price is finally starting to have an impact on consumption… maybe. For the first time since 2002, the majority of Americans say they will drive less on Memorial Day weekend this year. Whether they actually will drive less or not remains to be seen.

Americans do appear to be flying less. Demand for jet fuel in the U.S. fell to its lowest level in five years during April. American air carriers averaged 1.5 million barrels per day — down over 6% from a year earlier. For the past six months, year over year, jet fuel consumption has fallen.

The average price for jet fuel hit a record $3.43 a gallon in April — up 67% from this time last year.

The Spanish government has formally demanded that Odyssey Marine return the $500 million in sunken treasure it discovered this time last year.

You may recall we have an intimate interest in the issue. In May 2007, Odyssey uncovered one of the biggest underwater treasures in modern history, a sunken Spanish vessel chock-full o’ gold coins and artifacts worth half a billion dollars. Having a close relationship with Nick Bruyer, the man who was brought in to assess the value of the coins… and the man most likely to bring them to market… we were excited to bring this news to you. You stand a good chance of getting a first right of refusal on these coins, should they ever make it out of court.

Unfortunately, the Spanish government has a distinctly different idea of what’s going to happen here. After seizing Odyssey’s ships last year, the Spaniards sued the underwater exploration company. In court, the Spanish attorneys likened the site of the sunken navy ship to the hallowed memorial surrounding the USS Arizona in Pearl Harbor. And claimed that Odyssey disturbing the site for gain is an offense against humanity.

Yeah.

Odyssey says in rebuttal that the site is over 200 years old. That what they found is a debris field with no ship intact, or even partially intact. There are no human remains, and the Spanish didn’t even know where the site was before they located it. Odyssey says raising the name of the Arizona is an attempt by the Spanish government to inflame public opinion against the company. And under international law, “Finders keepers…” you know the rest.

Oy, we were hoping for a speedy resolution. Nick even suggested we might get a chance to check out the booty ourselves. Instead, it looks like this might be the sort of thing that ends up in court for years and years… we’ll let you know if anything changes.

Lastly, who says there’s a growing gap between the super rich and the rest of us working schlubs?

Well, Sotheby’s, for one. Here you see a 1961 Ferrari 250 GT SWB California Spyder, sold over the weekend at a Sotheby’s auction in Italy. The winning bid was… drumroll, please… $11 million, a world record for a vintage car sold at auction.

And you though your car was a depreciating asset.

“Do you know of any way to get Zimbabwe currency?” asks a reader. “There is likely a novelty value in playing ‘high stakes’ poker with a Z$1,000,000 ante. That’d be, what, half a cent U.S.?

“I see you and raise you $2 billion. Sounds like a fun game. Someone out there should be promoting this on eBay — US$100 worth of Zimbabwe dollars would finance a pretty impressive sounding game of Texas hold ’em or five-card stud.”

The 5 responds: Ummmn… plenty of Zimbabwe paper for sale on eBay . Score some of your own before it’s fueling fires across Africa.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. Don’t say we didn’t warn you… our Investment Symposium in Vancouver this summer is nearly sold out. As of this morning, we’ve got less than 200 seats remaining for our July event. If you’re interested in joining us for one of a kind presentations from the likes of Jim Rogers, Bill Bonner, Rick Rule, Kevin Kerr and many more… it’s time to pull the trigger. Learn more, here.

rspertzel

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