Consumer Sentiment Plummets, OPEC Loses Member, Fed Prints Billions, Grease is Gold, and More!

by Addison Wiggin & Ian Mathias

  • Consumer sentiment hits 28-year low
  • Oil pulls back… the rationale behind yesterday’s $7 sell-off
  • OPEC drops only Southeast Asian member… the winners and losers of the cartel’s shift
  • Dollar rebounds… Fed celebrates, plans to print $225 billion more
  • Mind your trash cans… what former gross garbage has become a theft-worthy commodity

  Consumer sentiment is in the dumps.

Today’s Reuters/University of Michigan poll tells us that consumers haven’t seen their immediate futures so dimly since Ronald Reagan declared, “It’s morning again in America.”

  But maybe this will cheer them up. The Commerce Department reports consumer income in the U.S. rose 0.2% in April — far “better than expected”…

Uh, until you read the fine print. Personal spending rose by a 0.2% during the month, too. And the department’s gauge of inflation rose by the same measure… 0.2%. So net-net, consumers spent all the more they earned… which bought 0.2% less than it did in March.

Oh, well…

  Maybe this will do the trick. Light sweet crude fell as low as $124 yesterday. The Energy Department said fuel demand had fallen 0.7% last week, despite the dawn of the “summer driving season.” Crude has since pushed back to $127… but it remains on track for shedding the most weight in a week since March.

Still, it’s up 86% over the past 12 months. Darn.

  Gas prices hit another record high today, $3.96 a gallon. That’s not going to help sentiment, either. Geez, can’t a consumer catch a break?

The average price at the pump has now risen 75 cents from this time last year. We won’t tell you how many days in a row the national average has struck an all-time high. It’s Friday, try to enjoy it.

  Indonesia announced this week it will be leaving OPEC. We doubt consumers will give a hoot about this nugget. But it’s still interesting to your editors.

Indonesian officials said that the country’s demand for crude matched with dwindling national output leaves it no choice but to leave the oil cartel. In fact, Indonesia probably no longer qualifies for the club. Most gauges suggest the country is a net importer of crude.

“If you were Indonesia,” asks our colleague Martin Hutchinson in this morning’s issue of Money Morning, “which countries would you rather have as your buddies? A bunch of sleazy, corrupt, idle ‘lottery winners’ such as Nigeria, Venezuela and Angola? Or would you prefer a set of hardworking and diligent neighbors such as Singapore, Malaysia and Thailand? Not to mention two of the largest-growth economies in the world: India and China?

“Believe me, when Indonesia left OPEC, it wasn’t to save the paltry $3 million annual dues. Like Groucho Marx, Indonesia decided it didn’t want to be a member of a club that had such low standards for membership.”

  The dollar continued to rally yesterday. The dollar index has risen a full point since Wednesday, to a point on the compass slightly north of 73.

“The dollar bulls were all dancing in the streets,” reports Chuck Butler from the EverBank World Markets trading desk, “when the revision to first-quarter GDP took the growth number up to 0.9%. Now, I would have one question for the dollar bulls, if I could just get them to stop with the dancing in the streets, and that is… what’s so good about GDP at 0.9%?

“Let’s say, for instance, that we didn’t get a preliminary of 0.6% and this was the first printing. Most observers would gasp for air and turn into Chicken Littles all screaming that the sky was falling.”

The euro has fallen another cent, to $1.54. The pound and yen stayed put, at $1.97 and 105.

  Since those dollars are getting stronger, why not print some more? The Fed announced that they intend to add three TAFs in June. In each, the central bank will auction up to $75 billion in short-term loans to U.S. banks desperate for easy money.

Should each of these auctions sell out (which is likely), the Fed will have doled out nearly $700 billion since the TAFs were introduced in December 2007.

  Until the next wave of money auctions, the Fed has been content this week to exchange $16 billion worth of Treasury notes for mortgage- and asset-backed securities.

In its 10th TSLF yesterday, the Fed gave desperate investment houses another chance to dump their worthless derivatives for good ol’ American IOUs. To date, brokerage firms have dumped $175 billion on the Fed’s balance sheet.

It’s worth mentioning the Fed put a cap of $200 billion when it first unveiled these TSLFs… will they stick to their guns? Stay tuned.

  The U.S. stock market rose yesterday. Banks defied gravity and led the way up. The J.P. Morgan/Bear Stearns buyout was approved by BSC shareholders. And the SEC gave the green light to the Bank of America/Countrywide deal. Those two deals gave traders a shot of courage, albeit a small one. The Dow and S&P 500 each gained about 0.5%.

The Nasdaq rose 0.8% on strong earnings from Dell.

  Asian and European traders managed to stop gold from hemorrhaging this morning . After falling as low as $875 yesterday, the metal bucked back up to $885 before the New York opening.

  Home prices in the U.K. fell by 2.5% in May — their steepest monthly decline in at least 17 years. According to the Nationwide Building Society, the drop in May was the worst since it started keeping track in 1991. Year over year, U.K. homes are down an average 4.4%… the worst decline since 1992.

 As the world battles inflation and rising commodity prices, we’re seeing increasing evidence of people becoming… well… cheap. For example:

The market for counterfeit goods — from knockoff Louis Vuitton purses to phony Viagra — has exploded in Europe. Seuzures of fake goods are up 17% there since last year and have nearly doubled since 2004.

For what it’s worth, China is the source of 60% of all the seized counterfeit goods in Europe. Oddly enough, the fake drug market is dominated by Switzerland and India. Together, they shipped 75% of the world’s fake pharmacuticals last year.

  And in the U.S., theives are targeting resturant owners and their precious supplies of… used fryer grease?

“Fryer grease has become gold,” the pizza dude pictured above told The New York Times. “And just over a year ago, I had to pay someone to take it away.” Now he’s considering installing surveillance cameras to watch his backyard stash of spent french fry oil.

The price of used vegetable oils — the primary ingredient in a variety of biodiesel fuels — has skyrocketed fivefold since 2000. The stuff nets $2.50 a gallon these days. A barrel like the one above could net a crafty thief $125. Fryer grease thefts have been reported in 20 states across the U.S.

  “It appears that at least once a week,” writes a reader, “I read that a different country is going to significantly increase the amount of nuclear power facilities it has. This seems like a great investing opportunity and wanted your thoughts on the best way to invest in the nuclear revolution.”

The 5: Check out your latest issue of Outstanding Investments. Wednesday, Byron released his favorite play in the nuclear sector, and it’s still well below his buy-up-to price.

If you’re not currently a subscriber, you can fix that here.

  “Your edition yesterday made me giddy,” writes another, “despite its usual spate of bad news. When I got to 4:36 and read your paraphrase of Greenspan’s comments, my initial reaction was one that you use often — ‘Oy.’

“When I got to 5:00 and saw your new-and-improved Time cover [link], I laughed out loud. If your movie ever comes to the Philadelphia area, I will make a point to see it. In the meantime, I can only imagine that the reason you would bother to interview Greenspan at all is for some comic relief.”

  “I take it you were not willing to ask Mr. Greenspan the really tough questions, like: ‘Fess up, Alan, you former Ayn Rand disciple, why did you *^@# up the American economy with unsound fiat money?’

“Maybe you’re just too much the gentleman?”

The 5 responds: Hmmn…

 “The end of the Cold War? The fall of the Iron Curtain? Who’s Alan Greenspan kidding?” asks our last reader, slightly more incensed.
“Spoken like a man on the defense. Here is Greenspan, saying as little as possible in as cryptic a fashion as he can manage. It used to sound profound. Now it comes across as pathetic, even delusional.
“Greenspan is used to giving people the mushroom treatment — keep ’em in the dark and throw in some manure every now and again for nutrition. Worked for 18 years in his appearances before Congress. Those fools never appreciated the utter con job that Greenspan was pulling on them.

“But now Greenspan has to know that he is in the fight of his life… a race for naming rights to his reputation.

“Will Greenspan go down in economic history as the most despised man since Herbert Hoover? Heck, Hoover was basically OK except for his actions after the 1929 stock market crash. But I doubt that anyone will be naming any big dams after Greenspan. If anything, Greenspan should be concerned that his burial site be kept a state secret, lest marauding citizens dig up his body and abuse his corpse.

“Really, Greenspan knew better. He was an old gold bug. If he had an ounce of honor, he’d have stood up to the politicians and Wall Street suits and said, ‘No, I will not expand the money supply by even one more dollar. Enough is enough.’ Then he and the nation — if not the world — would have taken the necessary recession. His effigy would have been burnt on a thousand lampposts in the land of populism and easy money. But Greenspan would have squeezed the economic poison out of the economy. The bankruptcy courts of the world would have done what bankruptcy courts do. And in time, we’d have moved on.

“Instead, Greenspan mentioned the term ‘irrational exuberance.’ He took some heat because the market declined. Thereafter — spooked by the media circus, the equivalent of the flash-bang grenades of ignorant commentary — he just wimped out and opened the credit valves.

“Opening the credit valves was not Greenspan’s job. Greenspan’s job was to keep the currency stable, not to keep the Wall Street houses flush with bonus checks. Destroying the dollar was not the trust to which he was appointed. Greenspan was steward of the nation’s currency, and instead, he set it on a trajectory into the dirt.

“Now we can all suffer because the dollar is declining. Inflation lurks. And inflation destroys capital. Greenspan opened the Pandora’s box of loose money and false expectations. When people figure it out, I would not want to be Alan Greenspan.”

The 5 responds: Unfortunately in life, as in markets, all things correct, even the reputations of men.

Have a nice weekend,

Addison Wiggin
The 5 Min. Forecast

P.S. “By June 17,” says our top financial analyst, Dan Amoss, “one of Wall Street’s biggest firms could be forced by law to reveal embarrassing data…” We want to show you how to make three times your money on it before the end of 2008. We’ll tell you how later today…


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