[Ninong]

Interesting numbers to contemplate today:

Crude oil is at an all-time high: $83.76/bbl.

Gold is now at a 27-year high ($745 spot gold and $752 December gold). The most recent high of $737/oz was set in May 2006 but that was taken out today. The all-time high for gold was $850/oz very briefly back in January 1980 but it quickly fell back to below $700/oz. That was when the Hunt brothers and a Saudi prince were trying to corner the silver market. They failed miserably, losing billions of dollars. (P.S. -- December gold closed today at $750.00 and spot gold closed at $743.10.)

The Canadian dollar is now worth more than the U.S. dollar! Each Canadian dollar is worth 1.00807 U.S. dollars. A U.S. dollar will buy you only 0.99200 Canadian dollars.

The euro is now $1.42816, a new all-time high. A euro cost only $0.83 during November 2000, when Bill Clinton was running up obscene budget surpluses.

The British pound is now at $2.0475.

Even the Australian dollar is now worth US$0.89.

What's it all mean? It means that all hell is going to break loose sometime soon -- maybe a few months, maybe several months -- but definitely before the end of 2008. It would not surprise me if the U.S. economy enters a severe recession sometime in the next 12 months. The real estate bubble has only just begun to unwind.


_________________________________________________

"Is our children learning?" -- George W. Bush, Jan. 11, 2000.

"Childrens do learn when standards are high and results are measured." -- George W. Bush, Sept. 26, 2007.

[Ninong]

Hell yeah! Let's drive up the price of oil some more because the oil companies aren't rich enough yet!

NEW YORK (Reuters) - The world's major powers agreed on Friday to delay a vote on tougher sanctions on Iran until late November at the earliest, depending on reports by the U.N. nuclear watchdog and a European Union negotiator.

The United States and France had sought swifter action to step up economic and political pressure on the Islamic Republic over its refusal to halt uranium enrichment, which the West suspects is aimed at developing nuclear arms.

But foreign ministers of the United States, Russia, China, Germany, France and Britain asked EU foreign policy chief Javier Solana to hold more talks with Iran's national security chief, Ali Larijani, while the International Atomic Energy Agency tries to clear up doubts about past nuclear activities.

[...]

French Foreign Minister Bernard Kouchner said the ministers reviewed a list of 14 possible sanctions, ranging from financial and investment freezes to travel and visa bans, an arms embargo and possible restrictions on oil trading.

P.S. -- This is what my late mother would have called "cutting off your nose to spite your face." Her other favorite line, used whenever we wanted something, was "people in hell want ice water, too." When I was about six and my brother was about five, he asked our mother, "Does that mean no?"


__________________________________________________

"Is our children learning?" -- George W. Bush, Jan. 11, 2000.

"Childrens do learn when standards are high and results are measured." -- George W. Bush, Sept. 26, 2007.

[Ninong]

Qatar and Vietnam ditch the dollar

Sure, they're little countries but this is just the beginning. Russia, China and Japan, and other countries, have been getting out of the dollar for the past few years now. They just try to keep it as quiet as possible.

If the dollar loses it status as the reserve currency of choice, all hell will break loose over here.

[Ninong]

Pssst... don't tell anybody but...

Right now the Canadian dollar is worth US$1.02 and the Australian dollar is worth US$0.90.



P.S. -- Since the end of 2002, the euro has risen more than 70% against the dollar and the Canadian dollar has risen more than 60%.

[Ninong]

What's next for oil? $100/bbl or $50/bbl? The recent runup to the $83/bbl range has been fueled by the falling dollar and the rumors that the Bush administration might be seriously considering an attack on Iran.

What happens if Bush doesn't attack Iran? What happens if a Democrat is elected president next November? If you take out the political risk premium, oil is probably worth about $50/bbl, assuming China's rate of growth begins to slow down.



As you can see from this chart, oil peaked at $39.50/bbl back in 1979-1980 following the fall of the Shah's government in Iran. Within five or six years, it was back down to $10/bbl. Then it peaked again slightly above $40/bbl in 1990 before falling back down around $10/bbl in 1998. The Bush administration's misadventures overseas have contributed to the steep rise in oil prices since the invasion of Iraq in March 2003. Instead of giving us $20/bbl oil as promised, they gave us $83/bbl oil. There was that brief correction back down to $50/bbl following the peak at $78/bbl due to Hurricane Katrina.

Of course, the most recent rise in the price of oil is tied to the Fed cutting 50 bps off the Fed Funds Rate in an attempt to bail out the mortgage boys who lent money to anybody with a pulse for the past five years. This has caused the dollar to plunge against the euro but it the ECB decides to cut interest rates over there, then the dollar will rise somewhat against the euro and oil will fall. With the euro above $1.40, the European Union countries are going to have a hard time selling their products to Americans. BMW, for example, will only go so long before being forced to adjust their prices for the U.S. market to reflect the true value of the dollar. And who's going to order French wines? I don't anyway, I always order California wines, but what about the people who do order French wines? Will they be willing to pay the higher prices? Sooner or later the ECB will be forced to drop interest rates, especially if the Fed continues to cut as expected.

Here is what I predict for the price of oil: it will fluctuate. If we attack Iran, it goes over $110/bbl overnight. If we don't attack Iran and if it appears almost certain that a Democrat will be our next president, the price of oil will fall... at least in the short term.

I think the price of gold is in a long-term upward trend. I think it's more likely that gold will rise above $1,000/oz within the next year or so rather than fall back below $550/oz.



As you can see from the above chart, the invasion of Iraq has been very good for gold. It has risen from the 330's to the 750's since March 2003.

[Ninong]

Originally Posted by Ninong

Pssst... don't tell anybody but...

Right now the Canadian dollar is worth US$1.02 and the Australian dollar is worth US$0.90.



P.S. -- Since the end of 2002, the euro has risen more than 70% against the dollar and the Canadian dollar has risen more than 60%.

The Canadian dollar is now worth US$1.03

...but don't tell anybody because we don't want to spook the stock market which is still rising, believe it or not. The stock market thinks that the prospect of another two or three 25bps cuts in the Fed Funds Rate over the next several months is going to be good for business.

Everybody is ignoring the reason for the cuts and whether the cuts will actually do what the Fed intends. The cuts will have very little effect on the impending real estate crash and instead will spur inflation. The recent rapid decline in the value of the dollar has not yet been reflected in the cost of imports but it soon will be and inflation will be off to the races.


__________________________________________________

"Is our children learning?" -- George W. Bush, Jan. 11, 2000.

"Childrens do learn when standards are high and results are measured." -- George W. Bush, Sept. 26, 2007.

[Ninong]

Crude oil is above $85 right now! (Update: Crude oil is now above $86 as of 4 p.m. ET today!)

Crude is making new highs again, it's above $85 $86. Gold is above $760.

The goofy U.S. stock market is finally taking notice. The Dow is down more than 100 points at the moment. Let's see if they can figure out an excuse to rally or if they will finally realize what's about to happen? (Update: The Dow finished the day down 108.)

P.S. -- Not to worry! The government has a way of pretending that inflation doesn't exist -- they just ignore the two areas where prices are skyrocketing right now: food and energy. Sure, if you don't count food or energy, core inflation doesn't look all that bad at all. It's sort of like the way they calculate unemployment. They simply ignore the chronically unemployed. That's been going on for years and years now.

[Ninong]

Time to invade Iran to drive down oil prices!

What's that? You don't think oil prices will drop if we invade Iran? Obviously you're not a Republican!

In September 2002, when the price of gas was $1.40 per gallon, White House senior economic adviser Laurence Lindsey predicted regime change in Iraq would lower oil prices:

As for the impact of a war with Iraq, “It depends how the war goes.” But [Bush senior economic adviser Laurence Lindsey] quickly adds that that “Under every plausible scenario, the negative effect will be quite small relative to the economic benefits that would come from a successful prosecution of the war.”

“The key issue is oil, and a regime change in Iraq would facilitate an increase in world oil,” which would drive down oil prices, giving the U.S. economy an added boost.

P.S. -- William "The Bloody" Kristol was even more specific. He promised that crude oil would drop to $20/bbl once we took over Iraq's oil fields and increased production. Crude oil was then in the low $30 range. Crude oil is now above $85/bbl and Iraq's oil production is below pre-war levels.

I hope people realize what happens when Republican idiots run everything. They run amok! With any luck, they won't be in charge of anything for the rest of my life.

[Ninong]

Right this minute crude oil is at $88.05/bbl

The market obviously expects Turkey to invade Kurdistan. If we're getting this much action just because of the possibility that Turkey might enter northern Iraq, think how high the price of oil will go if anybody actually attacks Iran. I used to think it would hit $100/bbl overnight but now I think that's too conservative -- probably more like $110/bbl overnight.

Gold was around $767/oz earlier today but it's down around $760 right now.

P.S. -- Coming soon to a gas station in your area: $4.00/gal gasoline! Back in early 1999, gasoline prices briefly dipped below $1/gal. That was when crude was hovering around $10/bbl. Gasoline was only around $1.40/gal when George W. Bush took office in January 2001 and it was only around $1.49/gal two years later just before he invaded Iraq. Those prices are gone forever.

P.P.S. -- The MSM has finally noticed that crude topped $88 earlier this morning:

NEW YORK - Oil futures rallied to a new record over $88 a barrel Tuesday on concerns about disruptions in Middle Eastern crude supplies and a growing view that domestic supplies aren’t sufficient to meet fourth-quarter demand.

Traders are concerned that a Turkish incursion into Iraq in search of Kurdish rebels could disrupt crude supplies from northern Iraq.

[Ninong]

Right this minute crude oil is at $89.64/bbl

But don't tell anybody because once they figure out what happens when you combine rising energy prices and rising food prices with falling home values, they might panic. And no one has any idea how much money the banks are really going to lose in the mortgage meltdown.

Spot gold is at $767/oz (Dec. gold is $769/oz but it was above $771/oz earlier today).

The euro is at $1.43 and the Canadian dollar is at $1.03. The Swiss franc is at $0.86. When I was in Switzerland in 1977, the Swiss franc was $0.40 and everything was extremely expensive there compared to Italy. I can't imagine what it would cost today in American dollars for a cup of coffee in Switzerland?

P.S. -- Update: Crude oil traded above $90/bbl today but closed on the NYMEX at $89.47/bbl.

[Ninong]

October 19, 1987

"Black Monday," October 19, 1987, exactly 20 years ago today. Alas, I remember it well. The market crashed that day, falling 23% in one day. That's the largest percentage drop in history. Even during the October 1929 market crash, the Dow never dropped more than 12% in one day.

Back in 1987, the market topped out in August and started selling off. The Friday before "Black Monday" was a bad day. People got to think about what had happened all weekend long and Monday morning the sell orders were stacked sky high. You couldn't reach your broker even if you wanted to. All phone lines were jammed all day long. And that was before customers had access to online trading.

The downdraft continued Tuesday morning for the first hour and a half and then the market bottomed out and started to rise. They called that Tuesday "Turnaround Tuesday." I was unable to reach my broker to sell anything all day Monday and then when I tried to place an order to buy something Tuesday morning, it took me more than two hours to get through, so I changed my mind.

The Dow is having a bad day today, October 19, 2007. Right now it's down about 240 points. Looks like they finally realized that things are a lot worse than they thought.

The market sold off 10% in August because they feared what was about to happen with the mortgage meltdown. Then the Fed cut 50bps off the Fed Funds Rate in September and the Dow went crazy. That's because historically the Dow almost always rises about 15-20% in the year following a Fed Funds Rate cut. Usually.

What these morons didn't realize is that this rate cut was a desperate act that won't really solve the problem. It may make people feel better for a few months, maybe several months, but in the long-term, real estate prices are going down. In fact, they're probably going down for the next three or four years at least. In one particular San Francisco Bay Area suburb (way out suburb, Antioch), homes that sold for $150,000 in 1994 were selling for $550,000 in late 2005. Those same homes are now selling for $425,000 and the market is saturated with bank repos. That particular area was way below the average home prices in the Bay Area, but as a starter-home community, it attracted first-time buyers who were conned into some of the dumbest mortgages ever dreamed up. In fact, prices in San Francisco are still rising but that won't last either. Median home prices in the entire SF Bay Area are still over $700,000 and they are ripe to fall at least 20-30% over the next three years, just like what's happening right now in South Florida.

The economy has been heading down for the past year or so but nobody has been paying attention. And now that the real estate bubble is beginning to burst, that will just accelerate the downturn. Unwinding the dot-com bubble was painful but unwinding the real estate bubble could be even more painful.

The economy needs 150,000 new jobs created every month just to keep pace with population expansion and avoid a rise in unemployment. The average monthly gain over the past 12 months has been 136,000, but the pace slowed to only 112,000 during the past six months and only 97,000 the past three months. Unemployment was 4.4% in March and it's 4.7% now. That's still historically low but it's rising. And they've been playing games with the unemployment numbers for a long time now. The true unemployment rate is much higher than what the government claims.

The economy is slowing down because people can no longer use their home equity as an ATM machine. It will really, really slow down once people start losing their homes because they can't refinance their crazy interest-only and even negative amortization loans that are due to reset.

We can thank Alan Greenspan for this sorry state of affairs. He's the genius who told people they should consider adjustable rate mortgages when the fixed interest rates were at 45-year lows. He's also the guy who said the stock market was experiencing "irrational exuberance" when the NASDAQ was around 3,000. It rose all the way to 5,100 before crashing miserably due to the bursting of the dot-com bubble. He was right but he was more than two years too soon in his prediction. Cisco Systems fell 90% from it's March 2000 high. It's still down 60% today from its high. People who bought Cisco in early 2000 may not live long enough to break even. The NASDAQ fell 75% from its 2000 high. It's still down almost 50%. Only the Dow and the S&P500 have finally managed to come back above where they were during the last year of the Clinton "42" presidency.

[Ninong]

Originally Posted by Ninong

The Dow is having a bad day today, October 19, 2007. Right now it's down about 240 points. Looks like they finally realized that things are a lot worse than they thought.

Things only got worse since I posted that:

The Dow lost 367 points (2.64%) today. The NASDAQ dropped 74 points (2.65%). The S&P500 lost 39 points (2.56%) and the Russell 2000 dropped 26 points (3.18%).

Monday might be rough.

P.S. -- The euro is $1.43 and the Canadian dollar has climbed to US$1.04. That's because Canada doesn't import oil, they export it. And they have balanced their federal budget for the past ten years straight.

Crude oil is $88.50/bbl and gold is $765/oz.

[Ninong]

Real estate crash is starting to hit the SF Bay Area

"In the Bay Area - which, by the California Association of Realtors' measure is made up of Alameda, Contra Costa, Marin, San Francisco, Santa Clara, San Mateo and Solano counties - sales of existing, stand-alone homes plunged 45.6 percent between September 2006 and September 2007, while the median sales price slid 5 percent to $702,240. September's median was a whopping 17.7 percent below May's peak of $853,910."

P.S. -- Until very recently, the year-over-year median sales prices for homes in the Bay Area were still rising even as the volume of sales was falling but prices are finally starting to fall. The median price in September 2007 was only $702,240, which is down 5% from September 2006. But that's not the important number here. The important number is the 17.7% drop from May 2007's peak of $853,910. That's a very big drop for a 4-month period! And the 45.6% drop in volume from last year is nothing to sneeze at either.

The speed of this correction is really surprising. I figured it would take at least three or four years to trim 20-30% off the median prices but it's looks like that estimate was way, way too conservative.

In case you live somewhere in the middle of the country and you think $850,000 is a fortune for a home, you have no idea what prices are like in San Francisco. You can't get anything for $850,000 in San Francisco. Even 1,200 sq. ft. two-bedroom condos go for $750,000 and up. That's why people move to the suburbs and commute 50 miles or more through very heavy traffic to get to work in San Francisco.

[Ninong]

This is hilarious!

Talk about spin! Check out this headline: New home sales rise. "The Commerce Department said new single-family home sales rose 4.8 percent to an annual rate of 770,000 units..."

Talk about making chicken salad out of chickensh!t. This morning the Commerce Department revised the August 2007 new home sales data down by 7.6% from what they originally reported just last month and at the same time they announced that September sales grew by 4.8% from the newly revised August figures.

The annual rate of sales in September is being reported as 770,000. The annual rate of sales in August was originally reported as 795,000. That means that September sales were 2.5% below the annual rate originally reported in August. In any case, current sales are below what they were a year ago. Bear in mind that it is quite possible, even likely, that the Commerce Department will revise these September figures next month! They do that a lot. In fact, if you check their economic numbers just before an election and then look at the revisions they make to those numbers just after the election, you would think that they do this stuff on purpose. The revised numbers that are released right after an election are always less rosy than previously reported.

This is like the White House reporting that the number of casualties in July fell from the previous month without telling you that they rose over the numbers reported for July the previous year and the year before that and without explaining that the numbers always fall in the hot summer months in Iraq because it's too hot to run around blowing up stuff.

[Ninong]

Here's how AP is reporting it. This was posted just 6 minutes ago:

Stocks Up After New Home Sales Rise- AP
Stocks turned higher Thursday after a surprise gain in new home sales eased some of Wall Street's concerns about the housing sector.

P.S. -- That's absurd! Either the AP writer is a complete idiot or somebody is handing him a line of bull. The market was expecting new home sales to come in at an annual rate of 780,000. They came in below expectations at an annual rate of 770,000. If the market is up at all, it's not because of any rise in new home sales because the reported number is BELOW expectations. Maybe somebody told the AP writer that the market is up because they really believed the numbers would be even worse than expected and they're thrilled that they aren't as bad as they secretly feared?

The stock market is extremely volatile right now as would be expected given the uncertainties in so many different areas (e.g., financial sector due to mortgage woes and the overall uneasiness caused by geopolitical tensions). Yesterday the Dow dropped 200 points in the morning and then gained all of it back to close down only one point.

Update posted 2 hours later:

The market has finally figured out that the headlines were bogus and that the Commerce Department was trying to play them for fools. The Dow is now down more than 100 points. Sometimes I think these guys don't read past the headlines.

That link that I posted above to open this post now leads you to this revised AP headline: Stocks Slip Despite New Home Sales Rise

What a bunch of idiots! They're still pushing the Commerce Department's bogus claim that new home sales are rising.

P.S. -- The Dow ended the day down 3 points. It rose about 80 points early in the day, then it plunged 200 points from its morning high, then it pulled back up to close almost even on the day.

[Ninong]

Still clueless! Merrill Lynch has no idea what its exposure really is! None whatsoever!

The financial institutions have no idea what their real exposure is to the mortgage meltdown. Earlier this month Merrill Lynch said they would have to write down $5.5 billion but yesterday they reported that they actually took an $8.4 billion write-down due to their subprime mortgage holdings.

Here.

These are enormous losses! Gigantic losses! And they're going to hit worldwide because we resold these bundled mortgage instruments all over the globe. Most banks can't move them at any price now because they have no idea what's really in them and no way to price them.

In effect, this was a legalized Ponzi scheme and the SEC ignored it and the Federal Reserve's Alan Greenspan encouraged it. When fixed rate mortgages were at a 45-year low and Greenspan had already cut the Fed Funds Rate to an all-time low of 1%, he said prospective home buyers should consider adjustable-rate mortgages!

[Ninong]

Crude oil hit new highs today: $90.60/bbl; it settled at $90.46/bbl in New York.

When will we hit $100/bbl?

[Ninong]

Right now crude oil is at $91.41/bbl and gold is at $777.60/oz.

Looks like the Asian markets think Bush is getting ready to bomb Iran sometime in the near future.

[Ninong]

Oil hit another new high last night: $92.22/bbl

Gold hit $782.30/oz.

Everyone expects the Fed to cut another 25bps off the Fed Funds Rate at the next meeting. This is causing oil and gold to rise and the dollar to fall.

The stock market will open considerably to the upside in another three minutes. No telling which way it will go later in the day but it's looking like a pretty good opening. Everybody's catching fed fever. No telling what would happen if the Fed doesn't cut rates at the next meeting Oct. 31.

The poor dollar is still sliding: euro = $1.44, Canadian dollar = $1.04, Australian dollar = $0.92, British pound = $2.05. I remember not so long ago when the Aussie dollar was only $0.58, the Canadian dollar was $0.68, and the British pound was $1.05.

[Samper]

What does all this mean long term for our country and way of life? If you were in a position to bring about a change what do you think could be done?