The State of U.S. Housing, Greece & Bear Stearns, The Futures of Computing and Oil Tech, and More!

by Addison Wiggin & Ian Mathias

  • How’s housing? Depends whom you ask… The 5’s mission, reaffirmed below
  • IMF, Fitch say Greece disaster averted… Eric Fry on how the Spartans are “the Bear Stearns” of a much larger crisis
  • Patrick Cox expands your tech vocab… and explains the next revolution in personal computing
  • Byron King checks in from 200 miles offshore, where he says “the future is now”


  Every once in a while, we’re reminded why The 5 exists — and hopefully, why you read it. Check out this morning’s study in modern media:

Bloomberg: Home Prices in 20 U.S. Cities Rose 0.3% in January

Home prices in 20 U.S. cities unexpectedly rose in January, indicating the housing market is stabilizing as the economy expands. The S&P/Case-Shiller home price index climbed 0.3% from the prior month…

MarketWatch: U.S. Jan. Case-Shiller Home Prices Fall 0.4%

Home prices in 20 major U.S. cities fell a not-seasonally adjusted 0.4% in January compared with December, according to the Case-Shiller home price index released Tuesday…

Pardon our language, but it’s all BS. With enough political pressure, preconceptions, seasonal adjustments and ambiguous data, you can print whatever you want… so long as the masses don’t bother to check the source and think for themselves.

  So what’s really happening in the housing market? Well, just as you’d expect — not a whole lot. About half the states saw a marginal increase in home prices in January, while roughly half saw an equally small decline. In total, prices fell just a bit for the fourth month in a row.

“The rebound in housing prices seen last fall is fading,” said S&P’s David Blitzer. Year over year, the Case Shiller 20-city home price index is down 0.4%.

  However, expect a surge in home buying over the next month or so. With the government’s homebuyer tax credit set to expire (again) on April 30, buyers on the fence will likely scramble to get their free money (again). And if the government doesn’t bump back the expiration date (again), look for May and June to be rough.

“You don’t make drug addicts go cold turkey,” said Robert Shiller — father of S&P’s home price index and advocate for a gradual phaseout of the tax credit. “The credit interferes with the market in an arbitrary way, but ending it now would be psychologically powerful. People will be in a bad mood about buying a house.”

Heh… America, home of easy money addicts.

  The SEC announced today it’s launching investigations into almost two dozen major banks and brokers over the “Repo 105” scandal. As you recall from previous 5 Min. Forecasts, Repo 105 was an illegal repurchase tactic Lehman Brothers used to hide its losses and debt levels. Wouldn’t you know (gasp!) — other Wall Street firms were likely doing it too.

If the SEC weren’t so inept, we’d feel vindicated. Rest assured, just like the Bank of America/Merrill Lynch settlement we reported last month, whatever penalties might arise from this investigation will be so toothless that the firms implicated will simply yawn, write the check and return to business as usual.

Of course, the SEC won’t say which banks it’s looking into. That might cause a harmful market reaction.

  The IMF is working in “perfect harmony” with the EU in settling Greece’s debt disaster, IMF director Dominique Strauss-Kahn told reporters yesterday. In fact, he added, Athens might not even need help, as evidenced by the positive reaction to new debt sale announcements yesterday.

Right on cue: “The recently agreed package involving the IMF is positive for Greece, as it boosts their financial options," said a bigwig at Fitch Ratings soon after. No agency is yet to hike their Greek outlook, but we’re sure they have put Greece on some sort of “outlook double positive/half negative conviction hold” list.

Thus, while we’re not ready to lower our crash flag, many have given Greece the green light… crisis averted, it seems.

  “I view Greece as the Bear Stearns of the upcoming sovereign debt crisis,” the intrepid Eric Fry penned in yesterday’s Daily Reckoning. “You may recall that in June 2007, Bear Stearns stepped in to bail out two of its own hedge funds by pledging collateral for a $3.2 billion loan.

“Nine months later, in March 2008, JP Morgan Chase took over a functionally bankrupt Bear. And at that point, most of the official Wall Street elite believed that the crisis had been averted.

“But six months later, on Sept. 15, 2008, Lehman Bros. filed for bankruptcy. And the rest is history. It is amazing to remember that 15 months elapsed between the first signs of difficulty in the U.S. financial sector and Lehman’s bankruptcy. So mark your calendars; the sovereign debt crisis should unfurl by May 2011 — that would be about 15 months after the initial headlines about Greece.”

  We note, too, that despite talk of harmonious Greek rescues, the market is still cautious. Greek bond yields and credit default swaps on its debt are both rising this morning.

  With the help of euro stability, U.S. stocks continue their gentle rise. The S&P rose 0.5% yesterday and opened up by a small margin this morning.

  Here’s another tech vocab lesson from our tech investor Patrick Cox: “haptics.”

“Computer processing power, as you know, has been growing exponentially for decades. Our means of interacting with computers, however, have changed little since they first appeared. Computers still convey information to users almost exclusively through sight and sound, speakers and screens. We still give information to computers mostly through keyboards, track pads and mouse devices.”

But with the development of 3-D virtual worlds (VWs), expect a boom in haptic technology, “aka computer touch,” says Patrick. “Haptics adds touch feedback to our means of communicating with the digital world. This is one of the technologies that will fundamentally change computing, because touch is so critical to our everyday lives.

“In advanced simulations, users can touch and feel desks, walls, steering wheels, scalpels and catheters, as well as the tissue they affect, using robotic mechanisms to convey sensations that feel like the real world. Already, crude attempts have been made to bring tactile information to gaming. The Wii’s and Sony PlayStation controller’s primitive vibrations are examples.

“All of these haptic applications take place in 3-D virtual worlds. It is critical that you understand that these worlds are coming fast to your PC. They will not only be gaming environments. They will be educational, productivity and social apps. Your computing experience will transform from a series of flat walls to 3-D offices with intuitive storage spaces as well as conferencing rooms for business and recreation.

“Such 3-D haptic technologies have been available for a while, but costs have limited their usage to those who can afford mainframes. For the first time, however, a serious haptic foray is being made into VWs at PC costs.”

Patrick delivered this lesson to his Breakthrough Technology Alert readers yesterday — along with a company at the forefront of this innovation. For details, along with access to the rest of Patrick’s remarkable portfolio of breakthrough innovations, look here.

  Oil prices popped almost two bucks a barrel yesterday, to $82 and change. The stars aligned for higher prices… the dollar was down, stocks were up and that nasty bombing in Russia brought the fear trade back in full force.

Today, eyes are on Cancun, of all places. That’s the site of the biennial International Energy Forum. News should start to creep from there today, where members of OPEC, the IEA and most major oil companies — basically, the global majority of oil producers and consumers — will meet.

(What’s up with a Cancun conference at the end of March? Are they blissfully unaware of the hundreds of thousands of spring breakers about to descend upon them? Maybe those oil guys like to party.)

  “By the time you read this, I’ll be at sea in the Gulf of Mexico,” reports our oilman Byron King. “I will have taken off from an airport near New Orleans in a helicopter, and flown south for over two hours. The distance will be well over 200 miles, toward a spot in the open ocean where the water depth is over 7,000 feet…

“The idea is for the pilot to circle into the wind, and put the helicopter down on the deck of the vessel pictured below. Here she is, in all her haze gray glory. Meet the Transocean Discoverer Inspiration.

“What is this floating giant? In the big scheme of things, Inspiration is the future of the world’s oil supply. Inspiration, and other ships much like her, is the great, gray hope for anyone who plans to use liquid hydrocarbons anytime in the next 50 or 100 years. If you use oil, then you had better want this baby to work as advertised…

“There’s a new deep-sea gold rush going on, except the prize is oil. Inspiration is among the vanguard of a new class of technology. The designers have been building ’em bigger, stronger and more powerful. The ships can lift more, string longer drill systems, go farther down and find the really hard stuff.

“Inspiration is among the largest drilling vessels ever to hit the water, and oh, what a career is laid out for her. In case you missed it, the future is now.”

If you’ve read Byron’s latest report — The Great Oil Hoax — you know this kind of technology is needed now more than ever. Stay tuned for more from Byron’s offshore adventure.

  Last, for all of Dubai’s woes, it’s good to see they still have that “free speech” problem locked down. The big headline today for the Middle Eastern metropolis comes courtesy of a 56-year-old Brit. He was spotted flipping the bird (to an Arab, no less!) and arrested… eight months ago. His “trial” is expected to begin this week, where he faces up to six months in jail.

  “Can’t believe you reported on your conversation with that soccer mom,” a reader writes of our last line in yesterday’s 5. “Seems like something Homeland Security would be very interested in learning more about. Have you received your subpoena yet?”

The 5: She’s lucky we’re not based in Dubai! Or Michigan

  “It’s a strange thing, isn’t it?” another writes of our militant/revolutionist soccer mom. “These nut jobs profess to be anti-government, but are perfectly willing to allow the craziest, most irresponsible, bloated, trigger-happy, repressive, abusive segment of that very same government — the military — take over and run everybody and everything. I can’t even imagine how a real live adult could wrap her empty head around that.”

  “Yes, I am single and would like to request a date” for the Chill 2.0 weekend at Rancho Santana, a reader wrote. “Preferably tall and rich with lots of gold for backup and a waterfront home in South America… any lunch or dinner is fine with me, just give me a couple of days notice, dinner is out of the country.

“I am sure this was not the kind of date you wanted us to request, but thought I would try it.”

The 5: Heh, touche. We’re picking up on some serious interest in another “Chill Weekend” at Rancho Santana, so if you have some requests and dates — calendar dates — in mind, send us a note.


Ian Mathias

The 5 Min. Forecast

P.S. Attention long-term investors: Just last week, we unveiled an offer specifically catered to our die-hard troop of long-haul stock pickers. The response so far has been great, and we can understand why… it’s easily the best deal we’ve offered in years. Find out if it’s right for you, here.

P.P.S. Check us out tomorrow for a report on the future masters of the universe. As this editor polished off today’s 5, Addison was delivering a presentation for Towson University’s MBA program. That could get interesting… details to come.


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