May 17, 2007 by Addison Wiggin & Ian Mathias

• A glimmer of hope for housing? Don't hold your breath
• Good news for gold bugs: Global bullion buying up 22% in the first quarter
• “Savage bear market” ready to ravage the credit markets
• Clash of the titans! Can Mr. Magoo help what’s ailing Pimco?
• Refineries close, oil prices climb, OPEC enjoys the show… One easy way to protect yourself from rising energy prices
• A new Silk Road reunites the Middle East with Asian markets… Who stands to make the most $$$?

New home building permits fell nearly 9% in April, to a 10-year low. Bad news for housing, right?

“Wrong,” say the markets. The Dow responded by ending the day at yet another record high, clinging for dear life to this number: New home construction climbed 2.5%.

“I would not make much of the fact that housing starts increased for April,” wrote Ken Mayland, chief economist for ClearView Economics. “The real story is that they seem to be stabilizing at a moderate number.”

“Housing is stabilizing at a moderate number?” writes Mike "Mish" Shedlock. “How do they come up with these assessments? If this were a game of bridge, I would make a ‘penalty double’ of that call.” (Whoa… Mish… let’s try to keep it civil, eh?) 

What’s really going on? “New starts are, by definition, going to follow new permits. And the number of new permits is clearly crashing.”

The average college graduate leaves school with $19,000 of debt. Last year, roughly 2.75 million students graduated. Put two and two together… and you end up with one large and growing debt service business: $52 billion annually.

Next year should see “a fairly savage bear market for credit, a large rise in defaults and an end to easy liquidity conditions,” says Tim Bond of Barclays Capital. Along with a slew of other market analysts, Bond -- Tim Bond -- sees the massive U.S. credit industry finally getting what it deserves. 

Even Alan Greenspan is predicting a possible turn in the credit cycle. Last week, the former Fed chair gave the U.S. a 1-in-3 shot at slipping into recession by the end of 2007. Actually… ahem… excuse us… he predicted, “By algebraic implications, the odds are 2-to-1 we won't have a recession.” 

“In the long term [his approach] is destabilizing,”' Pimco’s Bill Gross said of Alan Greenspan’s tendency to lower rates when the going got tough. “It promotes speculative activity. That's the corner that Greenspan has painted the economy into.”  

We wonder what he’ll say now that the two are going to be cubicle mates?

Pimco announced yesterday they’ve hired Greenspan for his first post-Fed consulting gig. Gross’ track record at the helm of the world’s largest bond fund has been “meh” of late. For the first quarter, the Pimco Total Return Fund was up just over 1%, ranking near the bottom of the market for comparable funds. Over the last year, a return of 6% put it in the bottom quarter.

Global gold buyers spent $17.38 billion on gold in the first quarter… a 22% hike from the first quarter of 2006. Who can gold bugs thank for rising prices? India and China. These volatile (and booming) emerging markets have caused a flight to quality.

Indian buyers consumed 50% more gold in the first quarter compared with Q1 2006… China upped their buys by a third. 

Several U.S. refineries closed yesterday, sending oil back up to $63 a barrel. Coupled with record-high gas prices -- a $3.10 national average yesterday capped four record days in a row -- many of the Western world’s consumptive nations have called on OPEC to “open the taps.” 

OPEC’s response? “Heh.”

Collectively, the world’s third largest supplier of oil say they are “content with current prices.” OPEC’s next scheduled meeting is in September… and they don’t intend to act before then. 

At these prices, watch for the U.K., Canada, Australia and Norway to step up to the plate and fill demand. These four countries are still ripe with energy potential and have yet to declare jihad on the U.S. 

Chuck Butler and friends at EverBank have had their eyes on this trend for some time. They’ve created an FDIC-backed World Energy CD aimed to help mitigate, and even make money off the global trend toward rising energy prices. 

And because of our ongoing business relationship with them, we’ve managed to secure an exclusive offer for Agora Financial readers like you. You can lock in the World Energy CD long before your friends do, but you’ve got to act fast. For details, interest rates and potential upside, e-mail worldmarkets@everbank.com or call
800-926-4922. (For unparalleled treatment, tell them Addison sent you.)

“There’s a new Silk Road across Asia,” writes Chris Mayer. Early this week, Dow Chemical penned a $22 billion deal to begin building a chemical facility in Saudi Arabia. 

“A big cost to these companies is natural gas,” our Chris Mayer told us in a way-too-early e-mail this morning. “The local price of natural gas in the Middle East is cheap. Plus, these companies can also better serve booming demand in China.”

A number of companies, including Chevron and Japan’s Sumitomo, also have deals in the works in the Middle East.

The Middle East, particularly the members of the Gulf Cooperation Council -- Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait and Oman -- will enjoy not only an oil-induced boom, but also a new prosperity based on growing trade with Asia.

“There must be huge gaping holes all over China!” a reader writes. “What… are they selling futures on Chinese farmland now?” another questions.

We made a small error in yesterday’s 5. We wrote, “China's farmland has been scaled back by almost 200%.” From 793 million acres of farmland to about 299 million acres… We were so interested in this news that… well… we didn’t get the percentage quite right. Our back-of-the-envelope calculation should have brought us to a 62% decline. 

Apologies all around,
Addison Wiggin,
The 5 Min. Forecast