by Addison Wiggin & Ian Mathias
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Rich get richer… more global millionaires, despite rocky markets
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More bad news for housing… Congress unveils its latest bailout plan
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U.S. debates drilling offshore, banning speculation… another Asian nation quietly plans commodities trading exchange
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All eyes on the Fed… John Williams on the FOMC’s real agenda
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Kevin Kerr on the commodity ready for “one more big rally” before it’s time to get short
For the first time, 10 million people of the world are now certifiable “millionaires.” According to a Merrill Lynch report released yesterday, the millionaires club grew by 6% in 2007.
Browsing through the Merrill report, a few stats really jumped out at us… first, one in three millionaires lives in America, the most of any nation. Heh, we’ve nicked this cover before, but it bears repeating:
That’s right, baby.
But maybe more importantly, the millionare growth potential outside the U.S. is staggering. The number of millionares in India, for example, grew 23% last year… faster than in any other region. China and Brazil were close behind. For all the potential in Africa, Latin America and the Middle East, only 10% of the world’s millionares live there… combined.
Last, we note the number of “super rich,” those worth more than $30 million, grew at an even faster rate in 2007 than the “normal” millionaires. 103,000 people were classified as “super rich,” 9% more than in 2006.
But while the rich get richer, not all is well in I.O.U.S.A. For starters, new home sales fell 2.5% from April to May. That’s not quite as bad as economists had predicted for today’s report, but still… far from bullish for housing.
The Census Bureau reported this morning a stunning 40% drop in year-over-year new home sales. Coupled with yesterday’s Case-Shiller HPI , the housing crisis still appears to be diving into the abyss.
Furthermore, mortgage applications are at a yearly low. Applications fell 9% last week, the Mortgage Bankers Association said today. The group keeps an index of this sort of thing… it’s down to a score of 461 — the lowest point of the year.
Interestingly, the index is based on application volume in 1990, which gets a score of 100. All scores after 1990 are a multiple of that original score. So today’s application activity is scored 461… or 4.61 times higher than in 1990. The index hit a high in 2003… of 1,856!
But fear not… Congress is on the verge of passing a mortgage aid bill. Under the heavily supported plan, the Federal Housing Administration would back $300 billion in new home loans for about 400,000 struggling borrowers who wouldn’t normally qualify for government-insured fixed-rate loans.
We’d say that sounds like Congress is creating a “super-subprime” class of homeowners… putting a taxpayer backstop behind a group of borrowers who have proven they can’t afford their mortgages. Congress has another way of putting it:
Under the current proposal, loan limits could run as high as $730,000 for the approved borrowers. While Senate approval could come as early as today, President Bush has already threatened to veto the bill.
Meanwhile, the state of Illinois is suing Countrywide Financial and its former chief, the extremely tan Angelo Mozilo. The state says the nation’s biggest lender, among other things: relaxed underwriting standards, mislead consumers, hid fees, falsified marketing claims and intentionally structured loans with risky features likely to harm the borrower.
The state is asking for an unspecified amount of money, specifically requesting that Mozilo contribute some of his personal stash. The big kicker… if Illinois gets its way, Countrywide would have to “rescind or reform” every “questionable” loan it sold in the state from 2004 to present.
Mozilo… pissed
Oil ticked up just a bit today. The recent turmoil in Nigeria is yet to be abated, and some dollar weakness helped inch crude up to $137.
“Conservation and efficiency improvements are necessary responses,” to high oil prices, reads the latest from the American Association of Petroleum Geologists. “But equally important is increasing long-term supply from stable parts of the world, such as our very own federal lands and Outer Continental Shelf.”
“This is serious stuff!” cries our oil adviser Byron King. While the AAPG comments seem tame, the group very rarely takes a political stand. “But on the issue of ‘use it or lose it’ for federal leases, AAPG comes down hard on the side of opposing the Democratic Party and its leadership,” says Byron. The group sent its latest report directly to Speaker Nancy Pelosi and other House leaders.
“Policies that increase exploration costs, decrease the available time to properly evaluate leases and restrict access to federal lands and the Outer Continental Shelf do not provide the American people with short-term relief from high prices and undermine the goal of increasing stable long-term supplies.”
Hong Kong is planning to launch a commodities exchange by 2009. Funny… just a day after Congress threatened to end commodity speculation in the U.S., another oil exchange emerges. If the Hong Kong exchange gets off the ground, it will be the fourth crude oil exchange to escape American oversight. Such exchanges are already up and running in Japan, UAE and India.
Goldman Sachs predicted today that corn will soon strike — and maintain — another record high. Futures for the crop have backed down a bit, as the worst of the Midwest flooding appears to be over. But analysts at Goldman predicted today that corn will surpass its previous record of $7.50 and maintain at least $7.70 for the next 12 months.
“The USDA may try to put on a happy face on June 30, when it releases its acreage report,” says Kevin Kerr, “but the fact is the crop will be ‘crap.’
“A heat wave is now headed for the Midwest, and that will seal the fate of this year’s crop. Immature corn will wither, and any fragile bean crops will also be lost. I think corn has one more big rally in it, and then it may be time to reverse course and buy puts for next year.”
Kevin’s Resource Trader Alert readers just bagged 122% profits on their soybean trade and are currently up even more on an open corn call spread. If you’re not riding along with our Maniac Trader, you’re missing some serious profits. Learn how to join RTA, here.
Stocks traded in a tight range again yesterday. Like Monday, it seems as though all eyes are on the FOMC interest rate announcement today, around 2:15 Eastern. Major indexes closed the day mostly unchanged or slightly lower.
“The markets are expecting,” writes John Williams , “no change in the targeted fed funds rate out of Tuesday’s FOMC meeting… Mr. Bernanke has been spouting nonsense about the lessened risk of a serious recession (it already is in place) and taking the position of the new champion of the U.S. dollar and defender against inflation.
“Anecdotal evidence remains strong, however, of ongoing difficulties in the banking system. Thus, it is worth reiterating that the primary drivers of Fed policy and activity remain the salvation and stability of the banking system. In the continuing banking solvency crisis, inflation and recession concerns remain secondary or tertiary matters for the Fed. The U.S. dollar usually is also of secondary concern, unless dumping the greenback poses risk to domestic systemic liability. Such a crisis remains in the offing.
“Under such circumstances, having the potential to influence the reporting of key headline economic data remains an extremely powerful and inexpensive tool for the Fed.”
Elsewhere in the equities market, Kuwait’s sovereign wealth fund bought $5 billion worth of U.S. financials. According to a statement from the Kuwait Investment Authority, the SWF bought $3 billion of Citigroup and $2 billion worth of Merrill Lynch when both companies were raising funds in January. The two banks hinted then that Kuwait played a role in their emergency offerings, but didn’t disclose the amount until this week.
And Kuwait wasn’t alone… Singapore and Korea’s SWFs snatched up some shares of Citi and Merrill, as well.
Currency traders seem to be holding their breath for the Fed, too … the dollar index remains at yesterday’s levels. It scores around 73.2 as we write.
Ditto with gold … its been hovering between $880-890 all week. If the action picks back up after the FOMC statement, we’ll let you know.
Last, we note that the billionaires and architects in Dubai have achieved a whole new level of absurdity. Behold… the world’s first “building in motion”:
Construction will soon begin on the world’s first moving skyscraper. The 80-story, Italian-designed building will feature spinning floors attached to an immobile core. You can see above, that allows for all sorts of funky building poses. Sales begin in September and are estimated to go for around $3,000 per square foot. Dramamine not included.
“I have a question for you,” writes a reader, “prompted by yesterday’s advice regarding the possession of physical gold and silver. The point of view offered is that unless you have the real thing, you will risk that the paper versions — stocks and ETFs — may someday be worthless. I definitely hear that, but the advice seems to ignore another risk: If you put money into gold or silver, what happens when they too go through the whole cycle of boom to bust? What happens when the crap hits the fan?
“That is, you guys acknowledge that gold and silver won’t remain up forever. Even though the bubble phase may, indeed, still lie ahead, what lies ahead of that is bust. If you buy physical gold, which is harder to unload than an ETF or a stock, then what about the risk that you will be left holding the bag — a substance of deteriorating value — when the cycle completes itself?
“Your advice, which is similar to what one hears from others in your field, seems not to address the risk that you guys are RIGHT, that gold and silver will go up big time, but eventually crash.”
The 5: We think you need to decide if you’re a gold investor or a gold bug. The former is objectively seeking ways to get out at the top, and the latter will cheer the hunk of metal all the way back to $253 an ounce. The key is distinguishing short-term events from long-term trends… all before the “crap hits the fan.”
Owning the metal as a buffer against a falling dollar has been a good move since 2002. And in our opinion, it will continue to be a good buy as long as the fundamentals for a weakening dollar remain: federal, trade and savings deficits and either an inability or a lack of desire on the part of policymakers to address these issues.
Trading options with Kevin Kerr is a good way to speculate on the short-term trends. In the medium term, guys like Ed Bugos and Byron King have their fingers on the junior miners, ETFs and other equities that will benefit from a sustained bull market in gold, silver and oil. Chris Mayer, Dan Amoss and Eric Fry have their own ways of playing trends related to the commodities bull and its flip side — sustained weakness in the dollar and financial stocks.
There is more than one way to skin a cat, the saying goes. That’s why we’re offering all their advice — on a limited basis — for a drastically reduced price. You can learn about it, here.
Cheers,
Ian Mathias
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