May 2, 2007 by Ian Mathias

• Dead Dollar Bounce... Why the Greenback Is Just off Its All-Time Lows
• May Day! May Day!  Americans in a State of Tax Rebellion \
• The Rogues Gallery: Chavez on the Loose in South America...who stands to gain?
• China's NEW Resource Boom... Yet More Voices in the Bubble Bust Chorus
• Russia's Next Great Commodity Shortage... Homo Sapiens
• Military to Pay in Gold? That Would Be the Day...

Wow. We kick today off with rare positive news for U.S. manufacturing and the U.S. dollar...

Manufacturing in the U.S. grew in April at the fastest pace in almost a year, say purveyors of the ISM factory index. "This positive news overshadowed the pending home sales data which unexpectedly fell to the lowest level in four years," commented EverBank's Chuck Butler. The dollar bounced back from its all-time low versus the euro. 

Next up? The Fed is facing (and has focused the markets' attention on) Friday's jobs report.

Nationwide tax assessments are spawning a "grassroots rebellion." As we predicted as far back as 2001, the housing bubble has given rise to a record number of tax assessment appeals in all 50 states. 

The National Taxpayers Union (a group, ironically, co-founded back in the '70s by Agora's Bill Bonner) estimates 30-60% of all homes are over-assessed. Homeowners who appeal their assessments win 50% of the time. Keep that in mind when the tax man cometh.

Yesterday, Hugo Chavez reclaimed Venezuela's last remaining privately run oil fields... cementing his knucklehead reputation. 
 
Oh, what a difference a decade makes. Back in 1990, when oil was $10-15 a barrel, Mr. Chavez was too busy plotting a coup to stop big league oil companies like Exxon Mobil, ConocoPhillips, Chevron and BP from harvesting the tricky Orinoco Belt. But now that a tank of gas costs more than the average dinner for two, Chavez wants all the oil he can get his hands on. 
 
So what does this mean for you and me? 
 
"The heavy oil that would otherwise have gone into the pipelines of the Western oil companies," our oil pro Byron King told The 5, "will in all likelihood be loaded into tankers that are bound for China." 
 
Byron's currently at the annual Offshore Technology Conference in Houston, where oil industry quants from around the world have gathered to discuss the future of offshore drilling.  Byron has been keeping Outstanding Investments readers up to date on his blog... check it out here.

 "Now you can add timber to the list," Chris Mayer told us yesterday.  According to the U.K.'s Office for National Statistics, wood prices have inflated 13 cents last month alone -- the highest rate in more than 10 years. "China seems to be consuming mind-boggling amounts of wood right now," David Sulman, head of the Scottish Timber Trade Association, recently told the FT.

The result, according to Mayer, will be much higher prices for wood products, including fencing and decking, if not outright shortages of materials. 

And yet... more prognosticators are calling for a bursting of the Chinese bubble. Bill Bonner, writing in our own Daily Reckoning yesterday, passed along this bit of judgment from former Morgan Stanley economist Andy Xie: 
 
"I think it's going to bust very soon," said Xie, laying the blame on the usual suspects: excess liquidity, rising inflation and rich valuations. "People will be surprised. When the end comes, it's going to be pretty bad," says he.
 
The Chinese central bank has a cash hoard of U.S. dollars mounting up toward $1 trillion. "If the Chinese chose to, they could send the U.S. dollar into free-fall, force American interest rates up sharply... and drive the U.S. economy into a slump," Bonner writes.
 
How DO you say "bubble" in Mandarin?

The Russian boom is coming... but will there be any Russians left to enjoy it? Greg Grillot, managing editor of Whiskey & Gunpowder and guru of all things strange, sent The 5 this piece of news, which was just too odd to not mention: 

According to the Wharton School of Business, if current trends do not subside, Russia's population will DECLINE by up to 43 million people by 2050. That's more deaths than Stalin and World War II caused... combined! 
 
Wharton attributes disease, poor health care, unhealthy lifestyles and pollution to this amazing and tragic issue. Also cited are frequent vodka-induced accidents, "shootings, stabbings and other violent deaths." We're not kidding... you have to read this to believe it.
 
If this trend continues, any progress Russia has made through marginally improved leadership and enhanced global economic standing will be squashed by simple labor shortage. Will this affect the U.S. economy? Probably. In the meantime, we think we'll take Siberia off The 5's coveted "places to visit" wish list.  

 "I was tempted to disagree with Kevin Kerr regarding the government's motives," a reader writes in response to indictments handed out to the online transaction service "e-gold." "Then it occurred to me that Kerr has probably forgotten more about this business than I will ever learn...
 
"The e-gold case could, however, have unforeseen consequences for the federal government. Article I, section 10 of the Constitution prohibits the states from making 'any thing but gold and silver coin a tender in payment of debts.' There is no such prohibition on the federal government, hence our lovely depreciating fiat currency. This case could result in the government declaring gold to be 'a tender in payment of debts.'
 
"Would this not bind the federal government to payment of its debts in gold? I'm a military retiree -- I wouldn't mind receiving a few ounces of gold per month in lieu of dollars. I wouldn't turn my nose up at silver, either."

Our options guru, Steve Sarnoff, is short on words, but long on trading ideas. He sent us this position update yesterday:
 
"Addison,
Our UPS put, triggered April 30, 2007, at $155, trades this morning at $225, up 45% in one day. We anticipated weakness in the high-flying Transport sector turned into a quick winner, as UPS shares are trading down 2% from Monday morning (from $71.50 to $70). Steve"   
 
Sarnoff also made QQQQ recommendations late in April on the high-flying Dow and S&P 500. Those rec's saw a rise in value of 72% in just under a month.
 
(A reminder: to inaugurate a few refinements to his trading system, we're offering Steve Sarnoff's Options Hotline for half off its regular fee. But the offer won't last long.) Click here to learn more.  

Until tomorrow,
Addison Wiggin,
The 5 Min. Forecast

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