No Housing Bottom Yet, The Real Problem With Greece, Investing in Drugs and Uranium, and More!

by Addison Wiggin & Ian Mathias

  • Housing recovery still out of sight… the latest list of brutal housing truths
  • Markets shudder over Greece’s fate… Knuckman, Soros, Roubini identify the real issue at hand
  • Rob Parenteau shares a “wild, unwritten story of the recession”
  • How to invest in developmental drug companies without the fly-by-night risk
  • Plus, Byron King with a must-know tech for 2010 uranium investors

  More than one in five homeowners were “underwater” in their mortgages in the final quarter of 2009. That’s the word from the data site this morning.

The year-end recap doesn’t indicate a recovery in housing any time soon:

  • U.S. home prices dropped 5% in the fourth quarter, year over year. A record 12th straight quarter year-over-year fall… interesting too compared to the S&P/Case Shiller’s more optimistic home price index
  • For all of 2009, about 29% of homes sold in the U.S. went for less than what the most recent occupants originally paid
  • Over 1,000 homes were repossessed in December, a Zillow record
  • Bank sales of foreclosed properties accounted for one-fifth of all U.S. sales in December.

There were a record 2.8 million U.S. foreclosures last year. Zillow goes on to forecast as many as 3 million this year.

Who could have seen this coming? We wonder. Hmmmn…

  Alas, the markets will worry about housing on another day… today, they’re still feverish with the swine flu. The smallest of the PIGS — Greece — is still a cause for concern… and hallucinations. The Dow and S&P shot up 1.5% yesterday, their best day in more than a month, on rumor that the EU was assembling a debt bailout for the Greeks.

“Greece is not a critical weight-bearing pillar of the euro house of cards,” counters our Alan Knuckman, advising resource traders on how to process concern over the PIGS. “It must be noted that Greek GDP is rather small — when compared with individual U.S. states, it sizes up between No. 13 Massachusetts and No. 12 Michigan.

“As a native Michigander, that makes me think…” Knuckman ponders on. “I am inclined to separate local difficulties from concerns of potential global downfall. Michigan, home of Detroit and the longest freshwater shoreline in the county, is in the process of fighting through the impact of the Big 3 auto manufacturers’ demise, and holding on mainly because we’re Built Ford Tough.  But a setback in Detroit shouldn’t be responsible for a downfall of the U.S. currency — and likewise I don’t believe this much weight should be placed on Greece.

“Put another way, I cannot see the over 200 inches of annual snowfall in my hometown solving the water crisis in California any more than Greece taking down the EU.”

  “I’m actually confident Greece will do whatever is necessary to meet conditions to remain a member of the euro to qualify for financing by the ECB,” George Soros told the press yesterday. We hasten to add, despite all his political controversies, Soros made his mega-fortune trading currencies — most notably, shorting the pound at its moment of weakness.

“I think the markets are generally concerned on sovereign debt and Greece is at the forefront of that issue.”


  “If countries remain biased toward continuing with loose fiscal and monetary policies to support growth,” Nouriel Roubini adds, “rather than focusing on fiscal consolidation, investors will become increasingly concerned about fiscal sustainability and gradually move out of debt markets they have long considered ‘safe havens.’

“Most central banks will withdraw liquidity starting in 2010, but government financing needs will remain high thereafter. Monetization and increased debt issuances by governments in the developed world will raise inflation expectations. These governments will have to offer higher real yields or investors will move to more attractive emerging markets.”

  “This is one of the wild, unwritten stories of this recession,” The Richebacher Letter’s Rob Parenteau wrote us this morning. “The primary reason why the government fiscal deficit has widened out beyond 12% of GDP is because tax revenues collapsed as private sector profit and household income went into deflation (a fall in dollar level terms).

“As displayed below, total government expenditures (local, state and federal, including investment spending) as a share of GDP have risen less than two percentage points — about what they did in G.W. Bush’s last recession when the New Economy bubble derailed.

“Remember, much of the spending in American Recovery and Reinvestment Act has a long tail to it (so there would be goodies for the midterm elections and beyond, no doubt). This is one of the jokers President Obama is holding up his sleeve (although he is probably wishing he had not held it for so long), along with the Census hiring, that will juice up the payroll employment results this year.”

  The U.S. trade deficit expanded by $40.2 billion in December, up 10% from the month before.

  “Here’s a way to earn consistent profits on drug development stocks without the massive risk,” Jim Nelson writes.

“Drug development is one of the largest gambles you can invest in. It takes more than eight years and up to $2 billion to develop a new drug candidate. Years of clinical trials and FDA studies are required before a single pill is sold to a patient.

“Of course, once all this is done and the drug is commercialized, it can bring an enormous windfall of profits. So imagine skipping all the trials and costly spending of development — and still receiving all the benefits. Today, you can…

“You see, to pay for the massive upfront costs of drug development, many biotechs sell a portion of future sales of the drug candidate, which pay only if it is commercialized. They sell these rights at a fraction of the potential payout.

“It’s like selling options in the stock market. You are selling the right to reap the benefits of future assets for a fraction of what they’ll be worth.”

Just two days ago, Jim advised Lifetime Income Report readers to pick up shares of such a drug development investor. “Their rights are already bought and paid for,” Jim notes, “leaving the company with virtually zero continued costs, big royalty payments and a fat dividend.” If you haven’t already, you can add it to your portfolio too… subscribe here today.

  The dollar’s right about where we left it yesterday, up just one-tenth of a point, to 80.1. Roubini, by the way, also forecast an end to the dollar rally yesterday. He expects it to drop 20% from here. We’ll investigate further and get back to you.

  Gold’s tapping the brakes on its recent rebound. After rising as high as $1,080 an ounce yesterday, it’s back down to $1,065 as we write.

  “If you want to invest in uranium, you need to know about in-situ leach (ISL) recovery,” writes our resident rock hound Byron King. “2010 will be a year in which the nuclear power industry revives, and I’ve got a uranium ‘miner’ that gets its yellowcake by pumping mildly acidic water.

“With ISL (also called in-situ recovery, or ISR), you pump mildly acidic water through the rock to dissolve the minerals and reverse the mineralization process. Then you recover the acidic water with dissolved uranium minerals suspended in it.

“You run the liquid through a resin that separates out the uranium minerals. You wind up with wet, yellow goop that you dry out — called yellowcake. This is what you sell.

“So once your project is up and running, the process is fast, low cost and environmentally low impact, and you get a saleable product out the back door with minimal hassle.”

This is exactly what two uranium miners in Byron’s Energy & Scarcity portfolio are up to. Get their tickers — along with a slew of other future resource stars — right here.

Note: Byron was also featured prominently in a piece by Peter Brimelow this morning. Have a look, here.

  Last today, an oddball investment bucking the current trends: Cattle.

Live cattle, despite all the market malaise, has rallied to a six-month high over the last week. With the help of Doug Casey, we’ve alluded to this before… cows may have found a bottom, so to speak.

  “My wife and I happened to be visiting Dubai when the Burj Khalifa opened,” a reader writes, responding to our note yesterday that the Burj has already been shut down, due to electrical problems. “By a quirk of luck and happenstance, we were among the first 25 of the general public to visit the 124th floor observation deck.

“My take on Dubai: kind of like Las Vegas, but lacks the warmth and charm. After observing the massive number of huge, empty skyscrapers, the hundreds of new ones still under construction and the incredible number of abandoned half-constructed ones, I can’t imagine how they can right this sinking ship, irrespective of the price of oil. It reminds me of Edward Bennett Williams’ comments about his then-coach of the Washington Redskins. ‘I gave him an unlimited budget and he exceeded it.’

The 5: Heh. We’re not sure where you’re finding warmth and charm in Vegas.

  “Silver Lake, Colo., still holds the world record for snowfall,” a reader writes, less than sympathetic to our situation here in Baltimore. “76 inches in 24 hours. Quit whining, and keep shoveling!”

  “Keep in mind that digging out of snow is a very popular way to die,” a reader writes with the opposite advice. “First, you work very hard at shoveling snow for a few hours; then you take a well-deserved break or rest. During the rest,  typically an hour or two after the work stops,  your heart stops. It is caused by not doing much physical work most of the time and having a heart problem that you may or may not know about. Middle-aged men are most susceptible, but it is not limited to a specific demographic.

“Some respond to the problems of deep snow in the way by using the religious system: God put it there, God will take it away. Sometimes, there is a great deal to be said for that approach.”

The 5: Hmmn… popular way to die? I didn’t realize snow shoveling ranked among the favored methods of hara-kiri. Either way, it has to be among the more painful… my back, ooh, my back. The City of Baltimore just initiated “Phase Three” of their snow removal strategy. That indicates “blizzard conditions”. No cars are being allowed on the streets except emergency vehicles for the next several hours.


Addison Wiggin
The 5 Min. Forecast

P.S. The same weather pattern that is causing snowstorms to converge on the mid-Atlantic is causing record rainfall in Vancouver… just days before the Winter Olympics are set to begin. We’re told event organizers have been loading helicopters with snow miles away and then flying the stuff to the Olympic ski slopes. We haven’t seen them come as far as Baltimore, but would welcome the sight should they choose to.

Our own advance team (symposium director Bruce Robertson) has been stranded in Denver since last week, unable to return to Baltimore from his trip to the Olympic city. Fun times.

Even so, “More people are becoming buyers of Olympic commemorative coins than ever before,” our friend Nick Bruyer tells us. “During the 2000 Sydney Olympic Games, for example, First Federal Coin was an official distributor for the Olympic coin program. We sold more than $10 million in Olympic coins. In 2008, we were an official distributor for the Beijing Olympic Games coin program, and our sales topped $24 million.

“Now we’re an official distributor for the 2010 Vancouver Olympic Winter Games coin program. I can tell you with all confidence that this is the largest coin program in the history of the Olympic Winter Games.”

Because of our unique relationship with Nick, he’s set aside one of the most coveted Vancouver Olympic coins for readers of The 5. “I have exactly 23,” Nick writes. “I repeat — just 23 first-edition 2009 Silver Kilos.” And he’s prepared to offer them at substantial savings to you.

A kilo of silver? Nutty. Still, we bet these 23 will go fast. If you’re interested… look here. We expect silver — like gold — will be in a bull market for years to come.


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More