Gold & Silver Get Slammed, Home Price Update, U.S. Versus Russia, Buffett Buys, and More!

 
  If you’re long precious metals, you were just presented with a very intense “buying opportunity” — if you have the cajones for it, that is.

In fact, if you hold silver, most of the gains you’ve been bragging about this year got wiped out last night. Let’s go to the charts:

Ouch.

Gold fell to around $785, an eight-month low. Silver fell 12% over the last 24 hours, near a one-year low of $12 an ounce.

Just about every commodity got slammed yesterday… all due to a potent combination of remarkable dollar strength and a sudden shift in trader sentiment. The prevailing wisdom says the global economy is entering a slowdown and there’ll be less need for materials, especially “precious metals.”

What do we say to that? What we always say: “Au contraire, mon frere!”

  “No, the bull market in gold is not over,” insists our gold adviser Ed Bugos, in English. “The best is yet to come.”

“So what would it take to see the same love in gold that we saw in tech stocks in 1999, the housing market in 2003-05 or oil recently? The answer is simple: more of the same.

“You will see it in gold when all the usual anti-gold arguments fall flat on their faces. When people no longer believe that the ‘modern-day’ central bank has a handle on inflation and interest rates; that inflation is ‘caused’ by oil, growth or a shortage of goods; or that prices will one day come down. You will see it when people realize that the bubble in commodities is really a destruction of confidence in the medium of exchange.”

Aside from the reason above, Ed sent us another of his top 10 lists. Enjoy:

Top 10 Reasons to End Cheap Gold

• Cost inflation slowing down development pipeline, hence future production growth
• Political risks in frontier countries also shrinking available supplies
• Faltering global economy persuading central bankers to abandon tightening plans
• Soaring government deficits
• Saber rattling between Iran and Israel and other geopolitical tensions heating up
• Another GLD ETF just listed on Hong Kong exchange
• Some countries already experiencing crackup and heightened gold demand
• Shrinking official gold supply
• Seasonal trends turning bullish again into the new year
• Large producer Anglo has yet to cover all its hedges.

(By the way, you can gain access to Ed’s portfolio of favorite gold stocks, here .)

  As we mentioned, the greenback got another healthy boost yesterday. How’s this for twisted logic… we’ve been told that yesterday’s horrible CPI number, which showed U.S. inflation accelerating at a 17-year high, convinced currency traders that the Fed would refrain from lowering rates again soon. That fear boosted the dollar index to a 2008 high.

We’ve come full circle: The dollar is in such bad shape it’s REALLY in good shape.

The dollar index registers at 77 today. The euro sells for $1.47, a six-month low. The pound is dwelling around $1.86. You’d have to go all the way back to December 2006 to find the British currency that “cheap.”
 
The yen is worse off, back to 110.

  Deutsche Bank predicted a 2009 recession in the eurozone today. Europe, the bank says, is just as badly crisis stricken as the U.S. They revised current euro GDP forecasts way down to 1.2%, from 1.7%.

DB analysts also slashed their 2009 growth expectations from 0.8% to 0.1% and said they expect the ECB to cut interest rates by a full point in the first quarter of 2009.

  Back here in I.O.U.S.A., home prices fell again in the second quarter. This time, by another 7.6%. The median existing single-family crib now goes for $206,500, says the latest report from the National Association of Realtors, released this morning.

For what it’s worth, San Jose, Calif.,  has retained the title for the country’s most expensive median home price. The average house there is $755,000. On the flip side, Youngstown, Ohio, is the new home of housing bargain hunters… the median home price is a mere $71,700.

  Ironically, as home prices plummet, home equity loans are skyrocketing.

Since 1980, the value of home equity loans outstanding has multiplied 100 times over, from $1 billion to over $1 trillion. No surprise, the portion of home equity borrowers who are late on payments is currently 55% higher than the historical average. Banks are tracking down over $10 billion in outstanding lines of home equity credit.

  We admit we have a lot of fun with our marketing, but some of these slogans for home equity loans are amazing. Courtesy of today’s New York Times:

“There’s got to be at least $25,000 hidden in your house. We can help you find it.” — Citi (Really? So… it’s not really a debt, then?)

“Is your mortgage squeezing your wallet? Squeeze back.” — Bank of America (Ouch. Sounds painful)

“Seize your someday.” — Wells Fargo. (What does that even mean?)

  “Hmmm… how could I put the U.S. economy in even greater jeopardy?” wondered President Bush this week. “I know… let’s antagonize Russia!”

President Bush told reporters this morning that the U.S. is rushing to Georgia’s defense — even though they started the spat with the former empire to their north. Russia is a threat to the Georgian democracy, Bush asserted today. And of course, Bush, the neo-Wilsonian defender of democracy, feels the moral obligation to stick his nose in the affair.

Yeah… exactly.

The U.S. has, coincidentally, reached a deal to build a missile defense base in Poland. After 18 months of futile negotiations, the Polish suddenly agreed. The Russians responded this morning… they’re pissed.

We can’t wait until Russia and Cuba start chumming it up again. This is going to be fun.

  The oil market has yet to respond to the rising tension between Russia and the U.S. In fact, oil’s still trading inversely to the dollar. Since the greenback is up, oil prices are back down to $111 today.

  Gasoline is down again today, to a national average of $3.77. That’s a three-month low… and starting to feel cheap. Who would have thought that a year ago?

The Energy Information Administration reported today that for every $1 decline in crude oil, gas prices fall by about 2.4 cents a gallon. If refineries were to pass on all their savings from lower oil prices (a big “if”), gasoline would be costing around $3.40 these days. As we’ve suggested, this is likely to be the trend through November.

  But here’s an unfortunate byproduct of recent gas prices: Motorcycle deaths are surging. Motorcycle deaths were up nearly 7% between 2007-2006, the National Highway Traffic Safety Administration reported today. That’s the 10th consecutive year of rising motorcycle deaths… particularly interesting considering that car-related deaths are on the decline. High gas prices have motorcyclists riding more miles, and are also encouraging new motorcycle purchases.  

Still more fuel-efficient… still hated by mothers everywhere

Since hitting a low in 1997, motorcycle deaths have risen 128%. They are now involved in 13% of all fatal traffic accidents.

  The U.S. stock market enjoyed a day of modest gains yesterday. The dollar strength/oil weakness trade continued, and traders managed to completely shake off that nasty CPI report. Financials led the way, despite some bad legal news across the sector (more on that in a minute). The Dow rose 0.7%, the S&P 500 inched up 0.5%, and the Nasdaq rose a whole 1%.
 

  We also note a few interesting purchases made by the legends of Wall Street yesterday. SEC filings showed Warren Buffett doubled his stake in Union Pacific, a U.S. train operator. He also gobbled up 3.2 million shares of NRG Energy, a power wholesaler.
 
For his part, George Soros bought a huge stake in Lehman Bros. The billionaire investor, forecaster of the credit crisis and longtime critic of Wall Street mentality, bought 9.5 million shares of LEH. He now owns about 1.5% of the company. Soros has yet to comment on the SEC filing, but we can only assume he feels this particular financial has fallen too far, too fast.

  Several more brand-name financials have announced auction-rate securities settlements. We told you about UBS’ and Citi’s $25 billion repurchase agreements last week. Today, three more mega-banks have been busted for selling these debt instruments as “sure thing” securities. J.P. Morgan and Morgan Stanley agreed with the New York attorney general’s office to buy back $7 billion worth of the stuff. Wachovia announced today it would repurchase $8.5 billion.
 
Investors haven’t taken these stocks out to the woodshed over the matter. In fact, financials have been on the up and up all week. But it’s hard to believe these banks have an extra $40 billion lying around to buy back illiquid securities. Steer clear.

  “We are told,” writes a reader, “that when Social Security was created, there were double-digit contributors for each recipient, and now we continue to be told there are fewer and fewer contributors for each recipient. Please explain why the number of contributors continues to decrease while the population continues to increase. Is the baby boom bubble that big? Is this increase in population insignificant? However one feels about population control, we are growing — the numbers indicate by almost 10% more than expected. That should increase the tax base and Social Security revenues. Or am I missing something?”

The 5 responds: The baby boom bubble is that big. And due to increases in the quality of health care, people are living longer. By 2017, the Social Security program will no longer be running a surplus… and that’s when the crotte really starts to hit the fan.

“Second question: If our population is growing so old, why not allow more immigration, instead of imposing more restrictions? Wouldn’t more immigrants provide an increase in tax revenues? (Of course, we would have to quit giving it away faster than it comes in, but that is a different issue.)”

The 5: We’re with you on that one. Why not allow more immigrants legally?

  “It is amazing how your readers do not want to hear the truth,” writes a reader, responding to yesterday’s suggestion that your editors might have to commit hara-kiri if the U.S. pulls itself out of the mess we’re in. “These are people who have access to your excellent stuff. Imagine the average bloke or ‘Joe Six-pack’ who doesn’t have a clue. A country that elects George W. Bush twice must have a disproportionate share of meatheads.
 
“The U.S. should not seek external foes when overspending; driving big cars and SUVs; and saving nothing; plus greedy, unregulated mortgage originators, packagers and sellers set off this current crisis. Let’s hope reaction to the situation in Georgia and the two separatists enclaves do not cause more problems for the U.S.
 
“Spanish is more useful that Cantonese or Mandarin at this juncture, in my opinion.

“Keep up the good work.”

  “I think you were a little hard on your last reader,” writes another. “For the record, I do want an alternative viewpoint to the large media outlets. I don’t bother watching them, because they are short on analysis and facts and long on relentless optimism. To me, they are truly the talking heads of Max Headroom fame. They are a waste of time and create pointless noise that prevent analysis, rather than encourage it.

“However, at age 34, I feel like I’ve lived my entire life in an age when patriotism is something left for rednecks and country music fans. No one with even a vaguely intellectual bent would supposedly have feelings so gauche. (Can you say Jim Rogers?) I think because of that, I’m beginning to feel the ‘America bites’ mantra fatigue. Do we have to be No. 1 and ‘pure’ (if we were ever that) to be proud of our country? When did we get to a point where we must be perfect to be ‘good enough’?”

The 5: Amen.

Addison Wiggin
The 5 Min. Forecast