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May 9, 2007 by Addison Wiggin & Ian Mathias
- Party like its 2007? How the current bubble tops 1999
- The Fed meets today… yawn… stretch…
- The City of Angels in flames… a first hand account
- Housing numbers make Helicopter Ben a liar, a fool, or both?
- The guv’mint gets it right with gas… well, almost
- Ethanol: “Greatest idea of the century”? Not if you do the math…
 Speculators are borrowing money to buy stocks at a rate never seen in history -- not even during the height of the tech mania. “Margin debt” in March totaled $317 billion… well over the bubble record of $300 billion back in March 2000.
“High levels of margin debt could mean the stock market’s record highs are built on shifting sands,” Chris Mayer told The 5 in an e-mail from the Value Investing Congress in West LA yesterday. “The first little correction we get and these people will be heading for the exits all at once.”
If you’re a buyer in waiting, that’s great news. If you have your life savings plus a few thousand of your broker’s money in a “hot fund” you can’t remember the name of… ehhh… you might want to rethink your strategy.
 LA is on fire.Yesterday, we were working on a storyboard of our untitled federal debt documentary at the American Film Institute when we got word that Griffith Park was on fire. Not having spent a lot of time in the area, we asked, “Where’s that?”
“It’s about a block away,” came the reply. Outside, the parking lot was already clouding over with smoke. By the time we left at 7 p.m., neighborhoods to the west of us were being evacuated. We could see the flames burning from downtown Hollywood all night.
 The Federal Reserve will issue its vaunted press release today. The 5 will have gone to press before the meeting’s conclusion… but allow us to spare you the suspense. Everyone who’s anyone predicts the Fed will hold steady on rates. Much as we hate to mimic the masses, we concur.
 At last month’s meeting, Mr. Bernanke told us the housing sector has largely stabilized. This week, the National Association of Realtors projected a 1% drop in median price for an existing single-family home in 2007… the first negative projection since the NAR started making them in 1968. They also expect home sales to drop 2.7%, to a four-year low.
What’s more, twice as many U.S. homeowners entered the foreclosure process in April than a year ago. According to Foreclosures.com, four out of five U.S. subprime loan recipients can no longer afford their mortgages. But…
 On Friday, the Agricultural Ministry of Brazil quietly announced that it expects to produce 5.34 billion gallons of ethanol in 2007. That's the most ethanol ever produced in a year... a 13% rise from 2006.
 “Excluding housing, the U.S. economy is doing just fine.” That's what supporters of the Bush administration's tax cut strategy say. A 4.6 percentage point cut in the top marginal tax rate and 5-point reduction in the top capital gains rate will protect the economy from any and all ills.
“To say that ex-housing the economy is doing just fine,” comments Mike "Mish" Shedlock of The Survival Report, “is tantamount to claiming that, ex-Iraq, Bush's Middle East policy is a rousing success.”
Besides the fact that the nation’s balance sheet is getting blown apart, how valid is the claim that outside of housing everything is hunky-dory? Let's go to the videotape to see how housing-centric the U.S. economy's weakness really is:
Click here to learn more about The Survival Report and Mish’s forecasted “second wave” of the housing-bust tsunami.
 The U.S. Department of Energy’s “Short-Term Energy Outlook” jacked up its estimate of this summer's average gas price from $2.81 to $2.95 per gallon. The guv’mint agrees with our Dan Amoss, pointing out that ongoing refinery problems and strong demand are to blame.
But wait… isn’t the average national gas price already over $3?
Yep… it’s $3.04.
Good thing we’ve got a crack team of quants in Washington looking out for us.
04:04 “It's not too late to plant corn,” a reader and longtime resident of Ohio responds, disagreeing with our Maniac Trader. “There may be yield reductions due to planting in late May, but it depends on the weather the rest of the year. Corn needs a certain number of heat units to mature. If you plant a full season variety in late May, it's possible that the corn could freeze before maturing, but in 60 years, I have never personally observed it.
“Typically, it will be too wet or too dry somewhere in the Corn Belt. My experience is that drought is typically a greater influence on yield than too wet at planting. Here where I live, it was wet a month ago, but it is now drier than normal for this time of year.”
“Maybe you have not heard of BRAZIL?” Another reader demanded we explain why we agreed with Charlie Munger when he called ethanol “the dumbest idea” he’s ever heard. The reader goes on to suggest that the Brazilian government’s focus on ethanol production is “the best idea of this century so far.” Brazil uses sugar to produce ethanol, which we’ve been told is a more efficient process.
It might be a good idea with corn here in the U.S., if researchers at Cornell University and the University of California, Berkeley, hadn’t proved that it takes 29% more fossil energy to turn corn into ethanol than the amount of fuel the process produces. Send us your thoughts: 5minforecast@agroafinancial.com
Warm regards,
Addison Wiggin,
The 5 Min. Forecast
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Sat. May 5, 2007: 
