May 10, 2005
MARKET NEWS DIGEST
-> S&P slashes GM, Ford ratings to junk -MW
-> Kerkorian's aim to double GM stake sparks rally -MW
-> Fed raises rates again.. and again (gold up!) -CNN
-> Gold Rises as Dollar Declines After Fed Statement
-> Buyers camping out to get a dream home -AZR
-> Should you sell in May and buy another day? -LT
-> Social Security sacrifices expected -USAT
-> The Oracle of Omaha Speaks -CNN/Money
-> Selloffs Suggest Looming Credit Crunch -Peter Eavis
-> 'Godforsaken' ANWR: To drill or not to drill? -CRS
-> Are You Ready to Sign Up for the $100 Oil Club? -BL
-> Stagflation is back -- and that's good for gold -MSN
-> Talk radio to cover 'Iran Liberty Walk'-WND
-> Christianity taking over planet? -WND
-> ~ MOTHER'S DAY ~ PERFECT PEACE by Tom Stewart
FOUNDERS QUOTE OF THE DAY
"The natural progress of things is for liberty to yield and government to gain ground."
MARKET NEWS DIGEST
S&P slashes GM, Ford ratings to junk -MW
By Shawn Langlois, MarketWatch
May 5, 2005
SAN FRANCISCO (MarketWatch) -- Standard & Poor's, in a double whammy hitting the heart of American industry, cut General Motors and Ford debt ratings to "junk" Thursday.
S&P pinned its decision on a combination of flagging product lines, crushing overheads and intense overseas competition facing the nation's two carmakers.
The downgrades sent shares of General Motors Corp. and Ford Motor Co. reeling. Dow component GM closed down $1.94, or 5.9%, at $30.86 while Ford lost 46 cents, or 4.5%, to end at $9.70.
The move, expected by investors for months, took the shine off the sector one day after GM's stock saw its biggest jump in decades as Kirk Kerkorian's bid to double his stake in GM ignited a vigorous rally in the auto group. See full story.
In stark contrast to Wednesday's news, the downgrades slammed just about every issue in the automotive sector.
Delphi Corp., one of GM's main parts suppliers and part of the GM fold before it was spun off in 1999, saw its shares thrown for a 7.3% loss to end at $3.57. Ford spin-off Visteon dropped 5.1% to $3.74.
But the damage spread far beyond the sector, abruptly turning a modest gain on the Dow Jones Industrial Average into a 44-point decline to close at 10,340.
S&P said the timing of the downgrade decision had nothing to do with Kerkorian's announcement.
Kerkorian's aim to double GM stake sparks rally -MW
Shares of GM and Ford rally on $868 million Tracinda plan
By Shawn Langlois, MarketWatch
May 4, 2005
NEW YORK (MarketWatch) -- General Motors Corp. shares surged more than 18% Wednesday, triggering a broad market rally after billionaire corporate raider Kirk Kerkorian said he intends to more than double his stake in the world's largest automaker.
The news, which swept through auto row, lifted GM bonds and, ultimately, the Dow Jones Industrial Average, comes just weeks after Kerkorian suffered a legal defeat in his $3 billion lawsuit over Daimler-Benz's takeover of Chrysler.
U.S. stocks logged their fourth straight day of gains Wednesday with a surge in General Motors Corp. driving blue chips to a three-week high.
"The GM news makes people feel better that a major investor thinks that there's value in a company, it's positive that the Fed meeting is behind us...and the economic reports still continue to paint an OK economy" said Al Goldman, chief market strategist at A.G. Edwards.
Analysts seized on the move as a sign that long-struggling GM is now a bargain, forcing investors to take a fresh look at the underlying value of the Detroit giant.
General Motors provided little public reaction, waiting until after the market closed to acknowledge Kerkorian's bid.
Kerkorian's Tracinda Corp. plans to offer $31 a share for as many as 28 million shares. The cash tender offer, valued at about $868 million, would boost Tracinda's stake to 8.8%.
Currently, the Los Angeles investment group owns 22 million, or about 3.9%, of GM's shares outstanding.
The offer price, 13% above the closing price of $27.77 on Tuesday, pushed GM up $5.03 to finish at $32.80.
GM's top U.S. rival Ford Motor Co. saw its shares jump 7.3% to $10.16 following the announcement, while DaimlerChrysler gained 4.2% to $40.95.
'Investment purposes only'
Tracinda said it became aware of rumors of the bid over the weekend. But since the acquisition "is solely for investment purposes," the group decided to make the offer "to remove any uncertainty in the marketplace as to its investment intent."
Joseph Amaturo, analyst at Calyon Securities, echoed the prevalent sentiment on Wall Street, saying that the buy could ultimately prove to be more than a passive investment.
He told clients in a note that the 9% stake "will give Kerkorian a 'license' to put pressure on management and/or the UAW at some point down the road."
"Tracinda could be the catalyst needed to drum up major structural changes at GM as well as in the entire automotive industry," he said.
He raised his rating on the stock to add from sell and pushed his price target to $35 from $20.
As for the dividend, Tracinda said offering stockholders will still be entitled to receive GM's 50-cent per-share payout slated for June.
A long term catalyst?...Full story
5-5-05 -- S&P cuts GM ratings to junk status, outlook negative -MW SAN FRANCISCO (MarketWatch)-- Standard & Poor's Ratings Services on Thursday cut its long- and short-term corporate credit ratings on General Motors Corp. (GM) , General Motors Acceptance Corp., and all related entities by two notches to "BB/B-1," or junk status, from "BBB-/A-3". The rating outlook is negative. S&P said the move reflects its conclusion that management's strategies may be ineffective in addressing GM's competitive disadvantages, though it notes that GM shouldn't have any difficulty accommodating its near-term cash requirements. The bid by Kirk Kerkorian's Tracinda Corp. to increase its ownership stake in GM represents an additional uncertainty, S&P said, but said this was not a factor at all in the current rating action.
Preview of Exclusive WND weekly column for next Monday, May 9th ...
GM: A jewel one day, junk the next?
Beware: Perception is stronger than reality on Wall Street.
By Craig R. Smith
May 5, 2005
The premise on Wall Street is that perception creates reality.
Is it true? Or, does reality create perception?
Just ten days ago the big talk on the street was that General Motors, the largest car company on the planet, might go bankrupt. Why?
* Exploding heath care costs.
* Large unfunded pension liabilities.
* Ever-shrinking market share in a car industry now dominated by foreign manufacturers
* Bond traders were on the verge of downgrading GM bonds to "Junk" status (which the S&P ultimately announced the next day!)
* GM's stock languished below $30, when the company announced a first-quarter loss of $1.1 billion after a $5 billion loss in 2004.
But that was yesterday’s news. It's was a whole new day, according to multibillionaire casino operator and financier, Kirk Kerkorkian, whose wholly-owned company Tracinda made a bid to acquire a 9% stake in GM at $31 per share last Wednesday.
Suddenly GM stock is bid up 17% and Ford stock jumps 10% in a matter of moments. Happy days are here again in corporate America, right?
Wrong! (more next Monday...) Read this week's WND commentary below:'Godforsaken' ANWR: To drill or not to drill? -CRS
Fed raises rates again -CNN
Central bank boosts interest rates a quarter-point to 3% and says more "measured" hikes are likely.
May 3, 2005
NEW YORK (CNN/Money) - The Federal Reserve raised a key short-term rate by a quarter of a percentage point Tuesday. The move, widely expected on Wall Street, was the eighth such increase since last June as the central bank tries to fight off inflation.
The fed funds rate, which banks use to determine the interest they charge for loans, now stands at 3 percent. While still near historical lows, this is the highest that interest rates have been since September, 2001.
In addition, the Fed's Open Market Committee said in its closely watched statement that it would probably keep raising rates at a "measured" pace, which many economists and market observers interpret to mean that more quarter-point hikes are likely during the next few months.
The Fed has been raising rates in order to keep pricing pressures at bay. Relatively high oil prices have sparked concerns that businesses would start passing off higher energy costs on consumers. But other recent data indicates that the economy hit a soft patch in the first quarter and that has raised fears about a slowdown.
5-3-05 -- FED REVISES STATEMENT TO CALL INFLATION 'CONTAINED' -MW ... Fed says made ommission in FOMC statement By Greg Robb -- WASHINGTON (MarketWatch) -- The Federal Reserve said that it made an ommission in the Federal Open Market Committee statement released Tuesday afternoon. The Fed said it left out a sentence saying that inflation expectations "remain well-contained." Economists had seized on this language as a sign that the Fed was more hawkish on inflation - meaning that it would continue to hike interest rates.
5-3-05 -- No end in sight for interest rate hikes -AP - WASHINGTON - The Federal Reserve, worried about rising inflation, pushed a key interest rate higher Tuesday and signaled that Americans' borrowing costs are likely to keep climbing in the months ahead. In response, commercial banks began lifting their prime lending rates, which are used for many short-term consumer and business loans.
May 2 (Bloomberg) -- Crude oil rose more than $1 a barrel in New York after Algeria's energy minister Chakib Khelil said that global fuel demand remains ``very strong.''
Supply may not be sufficient to meet demand in the fourth quarter, which is when consumption peaks, Khelil said in an interview in Washington. The producer group has between 1 and 2 million barrels a day of spare production capacity and would need perhaps 4 million to provide a cushion that would keep prices in check, Khelil said.
``With OPEC close to capacity it is hard to see how they can increase production when it's needed,'' said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago. ``If there is any disruption we will see prices soar.''
Crude oil for June delivery rose $1.20, or 2.4 percent, to close at $50.92 a barrel on the New York Mercantile Exchange. Futures touched $49.03 in early trading, the lowest since Feb. 22. Prices are up 36 percent from a year ago.
Oil in New York has declined 13 percent since reaching $58.28 a barrel on April 4, the highest since the contract began in 1983.
``The dramatic sell-off last week brought in the value buyers,'' said John Kilduff, senior vice president of energy risk management with Fimat USA Inc. in New York. ``The upsurge in violence over the weekend didn't help either; it's bringing back some of the security premium.''
There was no trading of Brent crude oil futures on the International Petroleum Exchange in London because of the May Day holiday.
The 11-member group agreed at a March 16 meting in Isfahan, Iran, to boost oil-production quotas by 500,000 barrels a day to 27.5 million barrels a day. The group also pledged to add another 500,000 barrels as early as May should prices continue to rise. The group has not implemented the second increase. OPEC's next meeting is June 15 in Vienna.
``My point of view is that OPEC should, because of the tremendous demand in the fourth quarter, build up inventories to meet that demand,'' Khelil said.
World oil consumption will rise 2.1 percent this year to 84.27 million barrels a day, the International Energy Agency said last month. Demand grew 3.4 percent last year, the fastest pace in a quarter-century.
U.S. crude-oil inventories probably climbed 1.5 million barrels in the week ending April 29 from 324.4 million barrels the previous week, according to the median of forecasts by 13 analysts before an Energy Department report on May 4.
5-4-05 -- Are You Ready to Sign Up for the $100 Oil Club?: Matthew Lynn (Bloomberg) -- The club of people who say that oil is headed for $100 a barrel is growing steadily. The price of oil has certainly been climbing. In New York, it rose to a peak of $58 last month, from $38 a barrel in May last year. It is now hovering near $50. To some analysts, the market is taking a short pause for breath in what may be a bull run lasting a decade or more. At the bar of the $100 Oil Club, you can certainly find some respectable company...
May 4 (Bloomberg) -- Gold rose in Asian trading as the dollar declined against the euro, increasing the appeal of U.S. currency-denominated metal as an investment.
The dollar fell on speculation the Federal Reserve, which yesterday raised the benchmark rate to 3 percent, may cut back on the pace of further increases after saying ``longer-term'' inflation expectations remained ``well-contained.''
``There was a wave of short covering'' by traders and investors who had earlier bet gold will fall if the Federal Reserve indicated it would quicken the pace of rate increases, Gordon Cheung, director of precious metals at Mitsui Bussan Precious Metals (Hong Kong) Ltd., said in a phone interview.
Gold for immediate delivery rose as much as $1.55, or 0.4 percent, to $429.45 an ounce, from yesterday's close of $427.90 an ounce in New York. It traded at $428.98 at 1:08 p.m. Singapore time
``Gold is taking cue from appreciating euro,'' Bharath K. Rekapalli, head technical analyst at Angel Commodities Broking Pvt. said from Hyderabad. ``Gold has found support at $427 and is likely to move up in short term and there will be fresh buying if it closes above $432 in the next few days.''
The dollar fell 0.7 percent to trade at $1.2963 against the euro at 1:09 p.m. Singapore time, from $1.2872 late yesterday in New York according to EBS, an electronic currency dealing system. The dollar fell 0.5 percent yesterday.
``We had the Fed going into a meeting, raising interest rates which put gold on the defensive,'' said Alastair McIntyre, the Hong Kong-based head of precious metals marketing at Scotia Mocatta. ``What you'll see after these type of meetings is that the market will revert to its trend, which is weakening dollar and strengthening gold.''
Buyers camping out to get a dream home -AZR
Valley builders are using lotteries, e-mail deals to end overnight stays
The Arizona Republic
Apr. 30, 2005
On any given weekend across the Valley and Pinal County, new-home buyers are camping out overnight to be the first in line at the sales office to grab new lots as soon as they are released for sale.
Realtors and builders call campouts another sign that affordable housing can't be built fast enough to meet the soaring demand. That demand is continuing to rise, especially in the far eastern and western corners of the Valley despite increasing gas prices, long commutes, traffic congestion and rising home prices.
"They can't wait to get a lot, so you end up having a sense of urgency for these folks. It's not a great situation," said Charlie Spencer, sales manager for Solera by Del Webb at Johnson Ranch. advertisement
Added Dean Severns, a real estate agent with Keller Williams in Queen Creek, "I've been investing in real estate since 1988, and I've never seen a market like this."
Some builders and agents have turned to the Internet or other lottery systems to end the campouts.
"There's a lot of frustration out there right now," Severns said. "It's like waiting in line for a restaurant."
Should you sell in May and buy another day? -LT
Lessons from history show old adage is likely to hold true
By George Trefgarne, London Telegraph
It was a vintage year, 1776. Adam Smith published The Wealth of Nations, Thomas Jefferson penned America's Declaration of Independence and in September of that year, an Irish colonel called Anthony St Leger first ran his flat race at Doncaster.
The London Stock Exchange had been founded just three years earlier and what the illustrious colonel could not realise is that his classic race - still being run today - would also lend its name to one of the City's oldest and most successful trading strategies.
"Sell in May, go away, buy again on St Leger's day" is much in the air at the moment as the markets enjoy some traditional spring turmoil.
The FTSE 100 has dropped five per cent in the last six weeks to 4801.7 yesterday. The FTSE 250 index of mid-caps has lost nine per cent - including a near 300 point fall this week - to close at 6728.9 yesterday. As for the celebrated Aim index of smaller companies, it has lost 15pc since March.
Nobody can be quite sure why markets so frequently drop in late spring/early summer, or when the "sell in May" strategy originated.
The first recorded written reference occurs in the Financial Times in 1964. But that is no guarantee that it had not been in wide circulation for some time.
Douglas Eaton, who at 88 is thought to be what the old Stock Exchange would call the Father of the House, is still working as a broker at Walker, Cripps, Weddle & Beck.
He says he remembers old brokers using the adage when he first worked on the floor of the exchange as a Blue Button, or messenger, in 1934. "It was always sell in May," he says. "I think it came about because that is when so many of those who originate the business in the market start to take their holidays, go to Lord's, and all that sort of thing."
What is surprising is that not only is "sell in May" a successful strategy, it is one which is shared across the world. On Wall Street, there is: "Sell in May and buy again on Labor Day" (the first Monday in September, after which the holiday season ends and Ivy League types are supposed to put away their white shoes for the winter).
And according to Robin Griffiths, a strategist at Rathbone Brothers, the Japanese have an expression which goes: Setsuban Tenjo Higan Zoko. That may not be quite as catchy as the St Leger version, but it roughly translates as "Ceiling at Setsuban and low at Higan" (two festivals).
Social Security sacrifices expected -USAT
By Susan Page, USA TODAY
May 2, 2005
WASHINGTON — A solid majority of Americans predict that their benefits will have to be cut or their taxes raised to ensure the long-term future of Social Security, a sign that most people are prepared to endure some pain to preserve the nation's retirement system.
A USA TODAY/CNN/Gallup Poll taken Friday through Sunday also finds most are skeptical about both parties on the issue. Nearly two-thirds worry that Republicans will go too far in changing the system; an equal number fear that Democrats won't go far enough.
President Bush, who has put Social Security at the top of his second-term agenda, gets the worst approval-disapproval ratings of his presidency, 35%-58%, on the issue. The idea he endorsed last week of "progressive indexing" — maintaining future benefits for low-income workers but reducing initial benefits for the middle-class and affluent — was opposed by 54%-38%.
"Ideally, people would like for nothing to change, but that is not an option, and they are coming around to the realization that it is not an option," says GOP pollster Whit Ayres. "But they have not yet coalesced around any alternative plan." Democratic pollster Geoffrey Garin sees bad news for Bush. "The more time he spends on this, the worse it gets for him," Garin says. "At some point, you conclude the American people aren't buying what the president is selling."
The findings underscore how difficult it will be to enact anything anytime soon. Asked what action this year would be best for them in the long run, 27% choose passing a Republican plan, 22% choose passing a Democratic plan — and 46% choose passing no plan this year.
The survey of 1,006 adults has a margin of error of +/—3 percentage points. Among the findings:
• Americans agree major changes are needed in Social Security. A 45% plurality say they should be made in the next year or two; 36% say within the next 10 years.
• Nearly two-thirds, 62%, say fixing Social Security for the long haul will mean cutting their benefits or raising their taxes. If they had to choose, 53% would choose higher taxes, 38% lower benefits.
• Sixty-two percent are very or somewhat worried that Republicans will "go too far" in changing Social Security; 61% are very or somewhat worried that Democrats "will not go far enough."
• Bush's proposal to allow workers to divert some of their payroll taxes to individual investment accounts was supported by 44%, opposed by 52%. That's slightly better than in a survey in April but slightly worse than one in March.
5-2-05 -- LATEST POLL: MOST ARE PRO-CHOICE ON SOCIAL SECURITY -Conservative Voice- ... You’d never know it listening to the mainstream media, but poll after poll shows big majorities for private Social Security accounts. And the numbers are increasing, fast. A month ago, pollsters found 60 percent of Americans backing private accounts, from a low of 54 percent among seniors to a high of 76 percent among those under 30. This was in spite of an ad blitz by the AARP designed to scare seniors (and everyone else) out of their skins.
The Oracle of Omaha Speaks -CNN/Money
Warren Buffett and Charles Munger warn of real estate 'bubble,' the risk of terrorist nukes.
May 2, 2005
By Jason Zweig
OMAHA (CNN/Money) - It was below freezing here early Saturday morning, with frost silvering the golf courses and rolling lawns of the city where Warren Buffett's Berkshire Hathaway Inc. is headquartered.
Warren Buffett spoke in elaborate paragraphs when replying to shareholders' questions, while Munger spoke in terse, tart sentences. The two often disagree about political and social policy, but for much of this meeting they sounded like identical twins. What follows is an edited and approximate transcript of their remarks.
On real estate
Buffett: "A lot of the psychological well being of the American public comes from how well they've done with their house over the years. If indeed there's been a bubble, and it's pricked at some point, the net effect on Berkshire might well be positive [because the company's financial strength would allow it to buy real-estate-related businesses at bargain prices]....
"Certainly at the high end of the real estate market in some areas, you've seen extraordinary movement.... People go crazy in economics periodically, in all kinds of ways. Residential housing has different behavioral characteristics, simply because people live there. But when you get prices increasing faster than the underlying costs, sometimes there can be pretty serious consequences."
Munger: "You have a real asset-price bubble in places like parts of California and the suburbs of Washington, D.C."
Buffett: "I recently sold a house in Laguna for $3.5 million. It was on about 2,000 square feet of land, maybe a twentieth of an acre, and the house might cost about $500,000 if you wanted to replace it. So the land sold for something like $60 million an acre."
Munger: "I know someone who lives next door to what you would actually call a fairly modest house that just sold for $17 million. There are some very extreme housing price bubbles going on."
The trade deficit and the value of the dollar
Buffett: "That really is the $64,000 question. It seems to me that a $618 billion trade deficit, rich as we are, strong as this country is, well, something will have to happen that will change that. Most economists will still say some kind of soft landing is possible. I don't know what a soft landing is exactly, in how the numbers come down softly from levels like these....
"There are more people [like hedge-fund managers] that go to bed at night with a hair trigger than ever before, it's an electronic herd, they can give vent to decisions that move billions and billions of dollars with the click of a key. We will have some exogenous event, we will have that. There will be some kind of stampede by that herd....
"When you have far greater sums than ever before, in one asset class after another, that are held by people who operate on a hair-trigger mechanism, then they lend themselves to more explosive outcomes. People with very short time horizons with huge sums of money, they can all try to head for the exits at the same time. The only way you can leave your seat in burning financial markets is to find someone else to take your seat, and that is not always easy...."
Munger: "The present era has no comparable referent in the past history of capitalism. We have a higher percentage of the intelligentsia engaged in buying and selling pieces of paper and promoting trading activity than in any past era. A lot of what I see now reminds me of Sodom and Gomorrah. You get activity feeding on itself, envy and imitation. It has happened in the past that there came bad consequences."
Buffett: "I have no idea on timing. It's far easier to tell what will happen than when it will happen. I would say that what is going on in terms of trade policy is going to have very important consequences."
Munger: "A great civilization will bear a lot of abuse, but there are dangers in the current situation that threaten anyone who swings for the fences."
Buffett to Munger: "What do you think the end will be?"
Buffett: "We're like an incredibly rich family that owns so much land they can't travel to the ends of their domain. And they sit on the front porch and consume a little bit of everything that comes in, all the riches of the land, and they consume roughly 6 percent more than they produce. And they pay for it by selling off land at the edge of the landholdings that can't see. They trade away a little piece every day or take out a mortgage on a piece.
"That scenario couldn't end well. And we, also, keep consuming more than we produce. It can go on a long time. The world has demonstrated a diminishing enthusiasm for dollars in the last few years as they get flooded with them – every day there's $2 billion more going out than in. I have a hard time thinking of any outcome from this that involves an appreciating dollar.
[But, Buffett later added, he is not predicting an end to U.S. economic power.] "If you have a good business in this country that's earning dollars, you'll still do okay. Twenty years from now, a couple percentage points of GDP may go to servicing the deficit, but you'll do fine.... I don't think trade deficits will pull down the whole place; the country will survive those dislocations. I'm not pessimistic about the U.S. at all.... We have over 80 percent of our money tied to the dollar. It's not like we've left the country." The threat of terrorism
Buffett: My job is to think absolutely in terms of the worst case and to know enough about what's going on in both [Berkshire's] investments and operations that I don't lose sleep. Everything that can happen will happen.... It's Berkshire job to be prepared absolutely for the very worst. A few years ago we did not have NBCs [nuclear, biological and chemical attacks] excluded from our exposure, but we do now....
"If you go to lastbestchance.org, you can obtain a tape, free, that the Nuclear Threat Initiative has sponsored, that has a dramatization that is fictional but is not fanciful. We would regard ourselves as vulnerable to extinction as a company if we did not have nuclear, biological and chemical risks excluded from our policies. There could be events happening that could make it impossible for our checks to clear the next day."
Selloffs Suggest a Looming Credit Crunch -Peter Eavis
Senior Columnist, Thestreet.com
The credit boom is still on schedule to collapse in early 2006, taking the economy and the stock market down with it. What's more, the stock market is starting to see that scenario as increasingly likely.
Many expected 2005 to be the year when the economy turned in a robust performance, finally putting the destabilizing factors of the past five years -- overpriced assets, erratic demand, whipsawing consumer confidence and a gaping trade deficit -- in the rearview mirror.
But for the economy to escape those things, it has to ditch its addiction to easy money in the very near future. And there is no sign of that happening as we approach the middle of this pivotal year. In fact, just the opposite has occurred. As hard as it may be to believe, nearly every key indicator shows that the dependence on credit has gotten markedly worse.
And the stock market is obtaining an increasing distaste for the credit bubble, even though it has helped shore it up since 2001. The lackluster performance of market indices -- the S&P 500 is down 4% so far -- needs to be explained.
To do that, it's worth looking at valuation. The S&P 500 is trading at 15 times forecast 2005 earnings, which is cheap compared with the price-to-earnings ratios of the past eight years. With interest rates at low levels historically, this cheap-looking P/E ratio would normally provide the basis for a ferocious and sustained move upward in stocks. The fact that the indices have sagged suggests that the market sniffs real trouble around the corner. It might be that investors feel that analysts have overestimated the earnings being used in the P/E ratio calculation.
But analysts always overestimate marketwide earnings, so something else must be spooking the market. That something is almost certainly the fear that the intoxicating fuel that has driven stocks higher in the past -- cheap credit -- will soon have to be switched off, either by the Fed or by banks that finally see the need to be more circumspect with their balance sheets.
And the market has had no shortage of credit-boom numbers to worry about of late.
The housing market has gone from nerve-wracking to downright horrifying. It's got to the point where there is simply no defense left for skyrocketing house prices.
First, even at today's very low interest rates, mortgages are eating up the biggest proportion of income since the early '90s. In the fourth quarter, mortgage payments were equivalent to 10.12% of disposable income, the highest reading since the first quarter of 1992 (and of course in many mortgage-paying households, the share will be much higher -- a fact that is lost in highly aggregated national numbers).
Here's the stunning difference between now and 1992. Back then, the interest rate on a conventional mortgage was 8.5%. Today, it's just under 6%.
In addition, the market value of residential real estate is at a record high in relation to after-tax income, Paul Kasriel, chief economist at Northern Trust, points out. Again on a nationwide basis, the market value of real estate is close to 200% of disposable income now. That ratio's previous high was in the late '80s, when it climbed close to 160%. A ratio close to 200% cannot last more than a few months. It is the equivalent of Nasdaq trading over 5000.
One of the defenses the housing bulls always made was that once a borrower locks in a 30-year mortgage rate, higher interest rates won't hurt that borrower, because the cost of the loan is fixed. But in one of the most worrying developments of late in the lending sector, the amount of adjustable-rate mortgages, or ARMs, has soared.
In mid-April, ARMs made up 35% of mortgage activity, according to the Mortgage Bankers' Association. Two years earlier, the share was half that. It might make sense to take out an ARM when interest rates are expected to fall, as the cost of the loan would fall if rates dropped. However, rates have risen since last year and they are more likely to rise than decline from now on. So why are more ARMs being extended to borrowers?
Because they offer a lower interest rate, at least initially, compared with a fixed-rate mortgage. In other words, to save a few bucks now, borrowers are taking on more interest rate risk just as interest rates are going against them. That shows just how unaffordable mortgages are right now to most people, and second, it shows that the blind speculative fervor of the last eight years is still a force to be reckoned with.
Considering the low level of interest rates, there hasn't been marked improvements in the health of the credit industry so far this year. Indeed, there are signs of stress. The large credit card lender MBNA (KRB:NYSE) missed the market's first-quarter earnings forecast because its borrowers are paying down loans more quickly than expected. Again, that shows that borrowers are balking at higher rates, but it also shows two other worrying trends. First, other credit card companies are likely charging lower rates than MBNA and taking away business. But that's foolishness, not competitiveness, at this point in the credit cycle. This is not the time to be taking share by driving down rates.
Second, it suggests that the borrowers are still borrowing on their homes' equity to pay down more expensive credit card debt. But when house prices cool off in the very near future, the luxury of cheap home-secured credit won't exist.
Given how sensitive the credit market is to changes in rates, there doesn't have to be a big catalyst to floor the U.S. economy. The Fed will of course try to forestall the inevitable by pushing the theory that the economy can grow its way out of its overleveraged state. But the only way the Fed thinks the economy can sustain its growth is by keeping rates low. What that does, however, is blow more air into the credit bubble, making the ultimate crunch much worse.
When the history books get written, the corporate crooks of the '90s will have a certain lasting notoriety -- and deservedly so. But the villain of our era will most certainly be the man who created and then sustained the biggest bubble the U.S. economy has ever had to deal with -- Detox's old friend, Fed Chairman Alan Greenspan. TheStreet.com
'Godforsaken' ANWR: To drill or not to drill? -CRS
May 2, 2005
By Craig R. Smith
"Our dependence on foreign energy is like a foreign tax on the American people."
- President G.W. Bush, April 27, 2005
Experts warn us that the world is about to run out of cheap oil forever. Within the next few years, global production will peak, yet demand will keep rising. Unless swift action is taken, this oil "crisis" will create economic and political discontinuity of historic proportions.
Here's the problem in a nutshell ...
* Gasaholics: The United States has less than 5 percent of the world's total population, but consumes 25 percent of the world's total supply of oil. U.S. demand for oil was up 3.4 percent in 2004, while daily imports of crude oil have climbed to a record 11 million barrels a day. (SUV sales/GM, watch out!)
* Price inflation: Oil prices have jumped from $17 per barrel in 2001 to over $55 per barrel in 2005 - skyrocketing 40 percent in the last year alone! Rising inflation brings rising commodity prices on everything, which boils down to less money in our pockets. (Stock Market bulls, watch out!)
* Growth drain: According to Merrill Lynch, each one-cent rise in gas prices sucks about $14 billion a year from consumer spending - that's over $500 billion siphoned out of consumers' wallets since 2001. (GDP growth, watch out!)
* Dependence: U.S. dependence on foreign oil rose after the Arab oil embargo in 1973 from approximately 35 percent to more than 55 percent in 2004. The U.S. Energy Information Administration predicts this figure will increase to 64 percent by 2020 if domestic supplies do not increase.
* Maximum capacity: OPEC is already pumping at its highest level since 1979 and has said it will raise production to 30.5 million barrels per day, yet prices still rise. (Watch out for oil wars with China and India!)
* Alternatives: Alternate energy sources - like wind power and nuclear - will reduce our dependence on foreign oil, but won't eliminate it. Anything we do to become more energy efficient will take time. That is Bush's No. 1 argument for getting started now, not putting it off. (Watch for creative, long-term solutions.)
The 'Godforsaken' Alaskan Arctic: To drill or not to drill?
ANWR - the Arctic National Wildlife Refuge - is 19 million acres. If you think of ANWR as a football field, the drilling area is smaller than a postcard. The experts at the U.S. Geological Survey say there could be 16 billion barrels of oil there - about the same as 30 years of imports from Saudi Arabia.
House and Senate negotiators met last Wednesday to discuss legislation that supporters of oil drilling in ANWR say holds the most promise for reducing foreign oil dependency.
"Environmaniacs" claim ANWR is a "crown jewel," referring to the beautiful Brooks Range mountains seen in all the anti-drilling photos, yet they're actually 50-100 miles from the coastal plain. The potentially oil-rich area is just flat, treeless tundra.
Winters on the ANWR coastal plain last for nine months - there is total darkness for 58 consecutive days and temperatures drop to 70 degrees below zero. Spit, and your saliva freezes before it hits the ground. But the nasty conditions mean drilling can be done with ice airstrips, roads and ice pad platforms.
When spring finally arrives, the ice pads would all melt, leaving no sign of the drill crews. The caribou would return, along with arctic fox, geese, shore birds and swarms of vicious mosquitoes ("large enough to slow dance with a turkey"). Incidentally, in the arctic, mosquitoes hatch in such multitudes they can actually turn the sky gray.
Opponents of drilling in ANWR say, "it's the nation's last true wilderness, a hallowed place, and a pristine environmental area." But last summer in a Washington Times article titled, "Hardly a Pretty Place: Use ANWR for Oil Exploration," Jonah Goldberg described it this way: "[I]f you wanted a picture to go with the word 'Godforsaken' in the dictionary, ANWR would do nicely."
Are you tired of allowing Middle East oil monopolies to hold America in a black gold stranglehold by making us pay $2, $3 and soon $4 for a gallon of gas? Me, too. That's why I'm in favor of Alaska drilling. If we're going to have to continue importing oil, I'd rather send my dollars to Alaska, instead of to the Middle East. How about you?
Report: "$5 Gas Coming Soon?"
Stagflation is back -- and that's good for gold -MSN
A slowing economy and rising inflation are here. That's great for precious metals, though it hasn't helped gold and silver stocks yet. Their time will come.
By Bill Fleckenstein
Last week brought macro confirmation of what we've been seeing at the micro level: The economy is slowing down. That obvious fact came via 1) the news that durable-goods orders saw their biggest drop in two years and 2) the report on second-quarter gross domestic product (GDP), which weighed in at 3.1%, vs. expectations of 3.6%.
The GDP deflator (a measure of the economy's average price level), which I don't consider an accurate representation of inflation, at least got the direction right, as it printed at 3.2%, vs. expectations of 2.1%. Therefore, by the government's own calculations, inflation is now running at a higher rate than GDP. (If the true rate of inflation is running at 4% to 5%, that would whittle down real GDP to about 1% to 2% in real growth.)
This is a mild version of stagflation, though I don't know that if the headline numbers were 1.5% real GDP growth and 4.5% inflation growth, people would be consider that a "mild" version or not. Nevertheless, in my opinion, that's what we are dealing with. Banks and insurers check your credit. So should you.
The stag horns of a dilemma
In my April 2004 column, "Game over for stocks and real estate," I wrote about inflation/stagflation being the best outcome I could see going forward. It's a theme I've talked about a fair bit since. I think we are clearly in a state of stagflation, though I don't know how long it will persist.
There's obviously a good chance that, when the stock market really tanks and the real-estate market goes with it, and given all the debt that's piled up, we could experience the break to deflation that many people are expecting. That said, the Federal Reserve would fight deflationary symptoms tooth and nail by printing more money, so it's not clear how the dollar would survive that.
What the GDP and durable-goods data also point out is the fact that the Fed is trapped. With the economy slowing down, I'm sure they'd like to reduce their tightening, but inflation is too high. However, I don't believe the Fed cares very much about inflation. In my opinion, the Fed will be swayed by GDP weakness, not by inflationary pressures.
Meanwhile, it seems clear to me that the beneficiaries of these problems are the precious metals, though, given the crosscurrents in the metals arena, it's possible that people won't come to that conclusion just yet. (The precious metals will also benefit ultimately from the weakness in the currencies.)
Talk radio to cover 'Iran Liberty Walk'-WND
Live updates from G. Gordon Liddy, Craig Smith, Farah
May 2, 2005
The "Iran Liberty Walk" - a 209-mile journey to promote democratic change in Tehran - will will be covered live by talk-radio, including the G. Gordon Liddy Show on some 200 stations nationwide.
Last week, the Iran Freedom Foundation announced the route that will take hundreds of Americans through towns and cities between Philadelphia and the nation's capital.
The two-week event, led by IFF founder Jerome Corsi, will begin May 16 at the Liberty Bell and culminate with a large demonstration on the Capitol Mall.
Along with sending a signal for peaceful change, the IFF is calling for civil disobedience from Iranian citizens.
Corsi and the IFF urge Iranians to flood the streets June 17, the date of the presidential vote, and vote "no" in the "sham elections the mullahs are planning."
Corsi, author of the newly released "Atomic Iran," said live updates from the walk will be featured on at least two other national shows, "Joseph Farah's WorldNetDaily RadioActive" and "American at Night."
In addition, reports from the walk will be broadcast to Iran via radio, television and the Internet.
5-3-05 -- Iran Rejects Efforts to Halt Its Nuclear Program (Bloomberg) -- Iran rejects U.S. and European efforts to block its development of nuclear technology, and is determined to continue a uranium enrichment program, Foreign Minister Kamal Kharrazi said at the United Nations.
Christianity taking over planet? -WND
New book makes case it's fastest growing faith on Earth
April 28, 2005
What is the fastest-growing religion on Earth?
Most news reports suggest it is Islam.
But a new book makes a compelling case it is a new, or, perhaps, old form of biblically inspired evangelical Christianity that is sweeping through places like China, Africa, India and Southeast Asia.
In "Megashift," author Jim Rutz coins a new phrase to define this fast-growing segment of the population. He calls them "core apostolics" - or "the new saints who are at the heart of the mushrooming kingdom of God."
Rutz makes the point that Christianity is overlooked as the fastest-growing faith in the world because most surveys look at the traditional Protestant denominations and the Roman Catholic Church while ignoring Christian believers who have no part of either.
He says there are 707 million "switched-on disciples" who fit into this new category and that this "church" is exploding in growth.
"The growing core of Christianity crosses theological lines and includes 707 million born-again people who are increasing by 8 percent a year," he says.
So fast is this group growing that, under current trends, according to Rutz, the entire world will be composed of such believers by the year 2032.
"There will be pockets of resistance and unforeseen breakthroughs," writes Rutz. "Still, at the rate we're growing now, to be comically precise, there would be more Christians than people by the autumn of 2032, about 8.2 billion."
According to the author, until 1960, Western evangelicals outnumbered non-Western evangelicals - mostly Latinos, blacks and Asians - by two to one. As of 2000, non-Western evangelicals outnumbered Westerners by four to one. He says by 2010, the ratio will be seven to one.
"There are now more missionaries sent from non-Western nations than Western nations," he writes.
This trend, says Rutz, has been missed by Westerners because the explosive growth is elsewhere.
Hundreds of millions of these Christians are simply not associated with the institutional churches at all. They meet in homes. They meet underground. They meet in caves. They meet, he says, in secret.
And what is driving this movement?
Miracles, he says.
"Megashift" attempts to document myriad healings and other powerful answers to the sincere prayers of this new category of believer, including, believe it or not, hundreds of dramatic cases of resurrections - not near-death experiences, but real resurrections of actual corpses.
"When I was a kid in Sunday school, I was really impressed that 3,000 people were saved on the Day of Pentecost," he writes. "I thought, 'Wow, that'll never happen again!"
But, Rutz says, it now happens around the globe every 25 minutes.
"By tomorrow, there will be 175,000 more Christians than there are today," he writes.
The essence of Rutz's book is about how Western Christians can tap into what he sees as a mighty work of God on Earth.
"Very few people realize the nature of life on Earth is going through a major change," he writes. "We are seeing a megashift in the basic direction of human history. Until our time, the ancient war between good and evil was hardly better than a stalemate. Now all has changed. The Creator whose epic story flows through the pages of Scripture has begun to dissolve the strongholds of evil. This new drama is being played out every hour around the globe, accompanied sometimes by mind-bending miracles."
As a very special added bonus, when you purchase "Megashift" from WND's online store, you can also receive - FREE - three issues of our acclaimed monthly Whistleblower magazine, which many have called the best news magazine in the world. That's a $22.50 free value! (Offer good in the U.S. only.) Watch for the free offer during checkout.
Order your copy of "Megashift" online, or if you prefer ordering by phone, call our toll-free order line: 1-800-4-WND-COM (1-800-496-3266).
M - is for the million things she gave me
O - means only that she's growing old
T - is for the tears were shed to save me
H - is for her heart of purest gold
E - is for her eyes with love-light shining
R - means right and right she'll always be.
Perfect Peace in the midst of chaos, just a myth or an eternal truth?
"Thou wilt keep him in perfect peace, whose mind is stayed on thee: because he trusteth in thee. Trust ye in the LORD for ever: for in the LORD JEHOVAH is everlasting strength" : -Isaiah 26.3
* Peace in knowing that you are a good mother, and are one of life's greatest rewards -- Both now and in eternity.
* Peace in knowing that you always have a Heavenly Father to draw near to -- Both now and in eternity.
* Peace in cherishing font memories of your children's growth -- Both now and in eternity.
I thank God you are my Mom --Both now and in eternity.
P.S. ... a few words on how to maintain perfect peace ... during a time that chaos is all around ...
PERFECT PEACE by Tom Stewart
The LORD Jesus promised us tribulation, while we were in this world. "These things I have spoken unto you, that in Me ye might have peace. In the world ye shall have tribulation: but be of good cheer; I have overcome the world" (John 16:33). However, not only have we been promised deliverance from the Tribulation Week, i.e., "Watch ye therefore, and pray always, that ye may be accounted worthy to escape ALL these things that shall come to pass [via the Pre-Tribulational Rapture], and to stand before the Son of man" (Luke 21:36), but we have been promised His peace while we endure these short testings in the meantime.
Perfect Peace is given only to those whose mind and heart recline upon the LORD, i.e., "whose mind is stayed on Thee: because he trusteth in Thee" (Isaiah 26:3). Our peace is perfect because it comes from God. "Peace I leave with you, My peace I give unto you" (John 14:27). Further, this peace is not oblivious to the world, but is confident that God is completely in control of our circumstances. "But be of good cheer; I have overcome the world" (John 16:33).
How are we to attain and maintain Perfect Peace?
First of all, peace is evidence that we are walking in the Spirit. "But the fruit of the Spirit is love, joy, peace, longsuffering, gentleness, goodness, faith, meekness, temperance: against such there is no law" (Galatians 5:22-23).
Second, peace comes from abiding in the Word of God. "Great peace have they which love Thy Law: and nothing shall offend them" (Psalm 119:165).
Finally, the peace that the LORD Jesus Christ gives, flows from a life that abides in prayer. "Be careful for nothing; but in every thing by prayer and supplication with thanksgiving let your requests be made known unto God. And the peace of God, which passeth all understanding, shall keep your hearts and minds through Christ Jesus" (Philippians 4:6-7).
REAL MONEY PERSPECTIVE Archives~ FEATURED COMMENTARY Archives
Welcome to the 21st century paradigm shift
-- from a "stock-driven era" to a new "commodity-driven era."
In "Economic Solutions for the 21st Century" you'll discover ...
* SOCIAL SECURITY REFORM ... A plan to unify America
* WHY YOU MUST OWN assets that offset a DECLINING DOLLAR
* WSJ SAYS: "You don't have to be rich to invest in COINS."
* WHY SILVER could rise to $50, $75 or even $100 per ounce.
* "ATOMIC IRAN" spells the beginning of a new U.S. "Dirty War"
ECONOMIC SOLUTIONS for the 21st Century -- FREE Offer! ($19.95 value) ... LISTEN: "A Must Read" ... LISTEN: "I SLEEP BETTER!" -Michael Savage
NEW!! -- ECONOMIC SOLUTIONS CD Offer! --
Michael Savage Interviews Craig Smith -- Recorded: March 24, 2005 (37:00 trt)
ABOUT THE EDITOR
David M. Bradshaw is Editor of REAL MONEY PERSPECTIVES, a new, syndicated daily financial/cultural news digest. In 2001, he published REDISCOVERING GOLD IN THE 21ST CENTURY: The Complete Guide to the Next Gold Rush and has been an economic commentator since 1987, when he produced the World Economic Perspectives radio show. In 2004, he produced "A CITIZEN'S GUIDE TO COUNTER-TERRORISM" a free-to-the-public educational resource on DVD and CD. In 2005, he released a new CD, "WHAT'S YOUR WORLDVIEW?" a one-hour CD sample from his 24-hour series, "THE BIG PICTURE: The Shape of Things to Come" discussing geopolitical, economic and spiritual trends in the 21st Century. MORE ... PERSONAL NOTE: Youngest daughter Braida Zoe (age 15 mo.) is now feeding herself, running, says "hi" and "bye-bye," her name, "mama" & "dada." Shown with her mom (and loving wife) Micki among some bright Spring flowers!
DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.