May 10, 2007 by Addison Wiggin & Ian Mathias

• The Fed's telling "sweet little lies"
• Newman's own housing crunch...
• Hurricane Season starts early... OJ in the cross hairs
• U.S. infrastructure: The world's biggest plumbing job... and a huge profit opportunity
• Hugo Chavez is "steeling" more resources

"The Fed defused the time bomb ticking on the dollar yesterday," writes Chuck Butler. "At least for another day, that is!" As we predicted, the Fed left rates unchanged.

We're not sure what Chuck put in his coffee this morning, but ummm... he's got some choice words for Bernanke and crew:

"Back in the late '80's, Lindsey Buckingham of Fleetwood Mac fame, recorded a song that reminds me of Big Ben's statement yesterday... 'Tell me lies, tell me sweet little lies, oh, you can't disguise...'

"While we only created 88K jobs in April... and first-quarter GDP fell to 1.3%, the Fed said in the statement that they still look for the economy to expand at a moderate pace going forward. Maybe 1.3% is 'moderate' to them, eh? And they still fail miserably at recognizing the rot on the housing sector's vine... That's sad, isn't it? But then again, they say a dog can't smell his own you-know-what."

Chuck thinks that since the Fed is the root of the problem in housing (when they kept interest rates so low for too long and then flooded the economy with money supply) may be they can't smell their own you-know-what!

On the other side of the pond, the Bank of England raised rates to 5.5% -- a six-year high.

 It's not just subprime anymore. The housing bust has now reached the "untouchable" market. Fifteen of the 24 most elite and wealthy New York, Connecticut and New Jersey suburbs of N.Y. City have declined in value in as of late. According to Bloomberg, some of these neighborhoods have given back 18% from the market top. Houses in Westport, Conn., home to Paul Newman, among others, have lost 8.2% of their value in the first quarter of 2007.

The first hurricane of 2007 is alive and kicking. Subtropical storm Andrea got her name yesterday, and while she doesn't seem to be posing a threat, many commodities traders have begun warming up for a wild summer.

Our Maniac Trader, Kevin Kerr, is expecting a particularly juicy year of OJ profits, especially if a hurricane lands in Florida early in the season. Last October, Kevin bought orange juice calls that brought in 355% gains in less than a month.

Mueller Water announced it will begin construction on the first iron pipe plant in the U.S. to be built in the last 55 years. Why? Because this country's water infrastructure systems are in a rapid state of decline. Residents of New York City consume a billion gallons of water a day, but because of leaky pipes, the city loses up to 325 million gallons -- more than a gallon of water for every person in the country, every day.

"The average New Yorker buys a new toothbrush every three months," write Eric Fry and Chris Mayer in their report on the global water supply , "but he brushes his teeth with water that flows through 100-year-old tunnels and pipes." Many of the current American water transportation systems predate World War I. Old water infrastructures like Boston's and New York's are thought to leak up to 30%.

"There is an infrastructure crisis in this country for water and sewer," says the president of U.S. Pipe, Ray Torok.

"The water infrastructure in most of the rest of the nation isn't much newer than Manhattan's," say Fry and Mayer. "It should be no surprise, therefore, that water pipes are rusting and crumbling all across this great land of ours."

Some infrastructure insiders estimate the nation's water infrastructure will require a $1 trillion overhaul over the next 20 years. That will mean big business for many water infrastructure companies.

Is the indomitable U.S. consumer reaching her credit limit? Earnings for Sears, Wal-Mart, Target and Circuit City have all been disappointing this week.

"The International Council of Shopping Centers," reports the WSJ, "said its measure of chain store sales last week was running only 1.7% higher than a year ago." That puts the index near its four-year low.

Consumer spending makes up more than 70% of U.S. GDP. If weakness in the housing and mortgage markets is, in fact, slowing consumer spending... that's an endgame we're not sure we want to see played out.

"Is anyone who values people over corporations automatically a 'nut job'?" a reader asked after remarks we made about Venezuelan President Hugo Chavez. Instead of responding, we figured sooner or later Chavez would open his mouth again and validate our claim. Well... it was sooner:

"We're going to force you to supply, first and foremost, the Venezuelan domestic market before you take [the steel] to other countries," Chavez told Paolo Rocca, who owns 60% of the Venezuelan steel maker Sidor. "If you don't agree, give it to me. I'll grab your company. Give it to me, and I'll pay you what it's worth. I won't rob you."

Chavez had "summoned" Rocca back from his home in Argentina to not-so-politely inform him that Rocca's shares of Sidor, along with the rest of Venezuela's steel, was about to become national property.

"Whether there is a steel supply issue or not," comments our Byron King. "Chavez was recently granted special powers by his nation's National Assembly to decree laws. Essentially, Chavez can rule his nation via executive orders, without going through the niceties of a legislative process that includes any political opposition.

"This is, of course, a form of one-man rule," Byron told The 5. Chavez likes to qualify his supreme power by saying he leads "in the name of the people" or in "defense of the sovereignty" of Venezuela. 

What's Chavez's next move? He says he wants the central bank next.

Nut job...

"I understood it was cheaper to buy ethanol from Brazil than to make it here," said a reader. "But our crazy subsidy system is going to result in a shortage of food grains and higher food prices, rather than trying to keep foodstuffs steady by buying ethanol.

"But we ought to get a lot of bootleg whiskey out of the politicians' messing with economics." Hmm... whiskey... now that's a corn product we would consider consuming.

Warm regards,
Addison Wiggin,
The 5 Min. Forecast