by Addison Wiggin & Ian Mathias
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Home prices continue momentous fall… all major cities post annual declines
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Consumer confidence plunges… inflation outlook and “future expectations” at record worst
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A classic “sign of the times,” courtesy of Donald Trump
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California gets a one-two punch… drought and fuel costs have consumers heading south of the border
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How $2 gas and $65 oil could be just 30 days away
The Case-Shiller Home Price Index swan dive gets more startling every month:
The latest record low rendition of the index shows U.S. home prices plummeting over 15% from April 2007-April 2008. Home prices in every one of the 20 cities surveyed declined… 13 fell at a record rate. Las Vegas and Miami remain the sore spots of the survey. Both saw 26% year-over-year declines.
“With credit markets in such disarray,” reads a recent Harvard study, continuing the theme, “the for-sale housing inventory at record levels and only small declines in interest rates, emerging from today’s housing slump could take some time.”
Consumers appear to agree. Consumer confidence has plunged to a 16-year low. The Conference Board’s monthly index fell to a score of 50.4 in June… way lower than economists expected and the fifth lowest reading in the history of the index. For perspective, consumers got a score of 110 back in July 2007.
Inflation topped the wall of worry surrounding the U.S. consumer. Consumers polled expected prices to rise an average 7.7% over the next year, a record high. Their gauge of “future expectations” sank to 41, an all-time low
Donald Trump, on the other hand, seems to be taking the housing crisis in stride. Trump made two record-high real estate deals this week… not only impressive considering the market, but also classic “signs of the times.”
First, The Apprentice star sold a $100 million beachfront Florida mansion on Sunday. According to Trump (and as far as we can tell), that’s the most expensive single-family home sale in U.S. history. The kicker here… the buyer was Dmitry Rybolovlev, a 41-year-old Russian who made his billions in the fertilizer business.
We also hear Trump is about to set the record for the most expensive Dubai apartment sale. The penthouse of his yet-to-be-built Trump International Hotel & Tower will likely be sold for $30 million… the most expensive apartment in Dubai.
Naturally, the apartment sits atop a curved glass tower… being built at the center of a man-made island… that’s shaped like a palm tree.
According to the FT, Dubai property prices were up an average 78% in the first quarter of 2008.
The average U.S. gas price ticked down for the second day in a row. It’ll be $4.06 a gallon today, up 3.5% from last month and 37% from this time last year.
Californians are driving across the border just to fill up their gas tanks. The Wall Street Journal reports today that many Southern Californians are retrofitting their pickup trucks with huge fuel tanks and stockpiling down in Tijuana. There, along with other border towns, Mexico’s heavily subsidized gas prices equate to around $2.50 a gallon. We’re not sure what a 98-gallon tank of gas does for fuel efficiency and aerodynamics… but we can’t blame ’em for trying.
Ironically, Californians driving into Mexico are likely buying U.S. gasoline. Mexico’s state-owned energy industry is a net exporter of oil, but its refining capacity is so underdeveloped that it imports much of its gas from the U.S. In effect, Mexico is selling the U.S. oil, buying it back in the form of gasoline and now selling that gas back to American consumers for below the going rate. Ouch.
Mexico spent an estimated $1.8 billion on gasoline subsidies in the first quarter of 2008.
“In California, an acre-foot of water now sells for $1,000 on the open market,” reports Joel Bowman with another California crisis. The West Coast state is currently plagued by the worst drought since 1992, and already, rising water rights costs have skyrocketed. The $1,000 price tag Joel mentions will grant you around 326,000 gallons of water… likely the most expensive H2O in U.S. history. Such a volume of water, by the way, would satiate an average family for only one year.
“Perilously low water reserves have forced Schwarzenegger to declare nine counties disaster areas. Fresno County, caught smack-bang in the middle of the crisis, is the largest agricultural county in the U.S. and serves up around $4.8 billion in crops to American plates every year.”
For more from Mr. Bowman, be sure to read this morning’s Rude Awakening .
Gas prices have forced United Airlines to lay off 950 pilots. The second largest U.S. airline said yesterday it will fire nearly 15% of its pilots in preparation for previously announced capacity cuts. United spokespeople said it was the only way for the airline “to compete in an environment of record fuel prices.”
Higher fuel costs are causing another paradigm shift… this time in the shipping industry. UPS unloaded a dreadful second-quarter forecast this morning. The world’s largest package delivery biz said an “anemic” U.S. economy and the 30% quarterly rise of jet fuel prices have hurt its second-quarter numbers.
And last week, FedEx reported is first quarterly loss in 11 years. The shipper shared the same sentiments as UPS… "Record high fuel prices and the weak U.S. economy dampened volume growth and substantially affected our bottom line,” read the company release.
While we doubt overnight shipping will go the way of the dodo, maybe the once affordable process will soon become a luxury. FedEx and UPS have each tacked on fuel surcharges of over 30% this year, while jet fuel prices have risen 90% in the past 12 months.
Overnight shipments are down 4% year over year at UPS, 7% for FedEx.
Oil edged up to $137 today, just shy of its record high. Crude climbed a few bucks after Chevron announced Nigerian militia attacks have forced another facility closure.
Up to 71% of Nymex crude oil futures are held by “speculators,” says a recent report from the Commodity Futures Trading Commission. In April 2000, only 37% of the market was controlled by speculators — namely, hedge and pension funds. According to the study, a speculator is defined as anyone who does not take delivery on the commodity they purchase.
Accordingly, gasoline and oil prices would be cut in half if Congress regulated energy speculation, hedge fund manager Michael Masters told the House yesterday.
The House Energy and Commerce Committee is considering legislation that would, among other things: impose higher margin requirements, set position limits, require more disclosure… maybe even ban pension funds and investment banks from owning commodities all together. Congress pulled in four of their favorite energy analysts to testify. Like his last appearance , Masters provided the headlines:
Should the Congressional Committee enact proposed legislation, Masters testified that gas would sink to $2 a gallon, while oil would fall to $65 — within 30 days!
We wonder… what’s to stop “speculators” from simply taking their business elsewhere? Last we checked, commodity futures are sold in more places than I.O.U.S.A.
“$2 gas?” asks Kevin Kerr. “That’s wishful thinking. Gasoline will go back to those levels only if there are massive breakouts of walking in the U.S.… never going to happen.”
The dollar gave back all its recent gains today. The dollar index is back to 73.1, after digesting the Case-Shiller and Conference Board reports. Thus, the euro has inched back to $1.55. The pound and yen are still at yesterday’s levels… $1.97 and 107, respectively.
And as the dollar falls, gold climbs. The spot price traded as high as $893 this morning, up $16 from yesterday.
“All the elements are in place for gold’s next leg up,” reads Doug Casey’s latest Daily Resource. “But until traders are fully convinced it’s happening, they are going to be careful, and are likely to wait until the evidence is overwhelming that it’s under way before jumping in with both feet.
The U.S. stock market finished unchanged yesterday. Traders had no fresh data to digest, and judging by today’s equally boring trading… all eyes are on the Fed. They’ll emerge from the FOMC meeting tomorrow. We’ll get you the highlights ASAP.
“The reader who thinks that he owns physical gold and silver because he owns stock,” writes a reader, “does not understand what owning means.
“That reader owns stock — or pieces of paper in some company that apparently mines these metals. This company then probably sells the metals to make money of a different sort.
"What the reader owns is a company that does not keep the metals — thus, he does not own physical gold or silver. If the mine blows up, has a fire or a strike — then he owns a problem. If silver and/or gold go down, he has a problem. If the government confiscates gold and/or silver, he has a problem, because his company will not get as much money for its wares as before.
“By the way, if your reader insists he still owns the physical metal, does that mean if he owns stock in a company that makes aircraft that he owns aircraft too? If the company he owns stock in makes pizza boxes, does he own pizza boxes? Ridiculous.”
“Those reader’s comments are completely wrong, and frankly absurd,” chimes in another. “The government cannot declare lead, beryllium, chromium, vanadium, copper, zinc, gold, silver, etc…. as being ‘not legal tender’! If our government did, then the others in the world wouldn’t. And if they are not legal tender, but still worth huge amounts of ‘value,’ then they are still worth huge amounts of ‘value’ irregardless of what the government says.
“Mining companies will take care of your gold for you? Hahahahaha (I quote from the Mogambo Guru on that). Why would you even publish a comment like that?”
The 5 responds: The same reason we’d publish the thoughts of someone seriously using the word “irregardless.”
“EFTs are pie in the sky,” says our last reader. “The odds of the actual metal being there when you need it are very slim, indeed. Mining stocks present similar risks… there are so many things that can go wrong over which an investor has no control. Only by taking physical possession of numismatic coins can you ensure the value of your ‘collection.’ A word of advice: Skip the gold and go directly to silver. Then sit on it.”
Best,
Ian Mathias
The 5 Min. Forecast
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