May 18, 2007 by Addison Wiggin & Ian Mathias

• Gas, Iraq, immigration and the "guv'ment" top list of disappointments for Americans
• A manufacturing mirage shows signs of strength... gold gets trampled in the ensuing trading stampede
• China's richest man is bracing for a correction...
• A first in history: World's population shifts to cities... are you ready to reap the profits?
• Iowa study makes dire "deathanol" predictions... the Maniac Trader says it could be even wors

Surging gas prices giving you a rash? You're not alone... in fact, yesterday's Gallup poll revealed a direct correlation between recent pain at the pump and general satisfaction with the state of the union.

American "overall satisfaction" with our country dropped 8% from April. That number looked familiar to us here at The 5. A quick trip over to GasBuddy.com refreshed our memory... gas prices during the same period in which the Gallup poll tested surged just over 9%. Coincidence? We think not...

The top issues getting under Americans' skin:
1. Iraq
2. Immigration
3. Health care
4. Then a three-way tie for terrorism, the government and gas prices.

At its worst last year, gas prices were seen as the No. 1 source of dissatisfaction by 22% of Americans.

In a "rare occasion," both industrial production and capacity utilization numbers indicate some stronger manufacturing going on in the U.S.

(If you're keeping score at home: Industrial production in the U.S. increased 0.7% in April, above the forecasted 0.3% gain. Overall, the last two months have seen a combined gain of 0.4%. The capacity utilization rate also increased to 81.6%, from the revised 81.2% rate in March.) 

Of course, dollar traders pounced on this minuscule sign of improvement and started buying dollars left and right. Signs of a turnaround for the greenback, obviously.

"WRONG!" Chuck Butler exclaimed in this morning's Daily Pfennig.

"Geez, Louise, let's get our heads on straight, and realize this is simply a technical correction in the dollar. We've seen these over and over again during the weak dollar trend that began in February of 2002...

"An asset begins a weak or strong trend because of a fundamental reason, and the trend will not end until that fundamental reason is corrected. The [dollar] trend, however, is not even close to being over."

In reaction to that news, gold lost $13.

Li Ka-shing, Asia's richest man, said China's stock valuations "must be in a bubble" and prices are likely to decline. "As a Chinese, I'm worried about the stock market in China," Li told reporters in Hong Kong. He joins Central Bank Governor Zhou Xiaochuan in saying China's stock prices are excessive, only a day after Premier Wen Jiabao warned of "problems" for the economy.

China's benchmark CSI 300 index rose 2.1% yesterday, bringing gains for 2007 to 85%. Investment in factories and real estate jumped 25.5% in the first four months. The economy grew an incredible 11.1% in the first quarter.

"When the correction occurs," writes our Christopher Hancock, who's been anticipating a fall in the Chinese market, "I suspect many solid, fairly valued companies like Mr. Li Ka-shing's Cheung Kong Holdings will get swept up in an aggressive sell-off.

"Of course, predicting the precise moment a bubble will burst is like trying to predict the precise moment a dark cloud will make you wet. I've had little success with both the former and the latter."

So what's the battle plan? "This is still a great time to pick up solid companies at very good prices, because the long term still looks good," says Christopher. He's got his eye on Henderson Land Development Co., Guoco Group and possibly one of the large state oil or coal companies.

Christopher also picked one "bubble-proof" stock he calls the "World's Greatest Retirement Stock." Learn more here: The World's Greatest Retirement Stock

"Sometime this year, for the first time in history," our Chris Mayer told us, "more people will live in cities than not." 

The Economist recently estimated that in less than 10 years, the world will have almost 500 cities with more than 1 million inhabitants -- by 2020, nine cities will have more than 20 million souls. 

"This trend has an impact on global demand for infrastructure," said Chris. "We'll need lots more of the arteries and bone structures of cities -- roads, railways, air and marine ports, water and wastewater systems, power grids, housing, schools, hospitals and more. It also means finding ways to deal with pollution and growing slums."

Some of the world's largest cities are already feeling the sting of inadequate infrastructure: In Shanghai, only three-fifths of the population lives in buildings connected to sewers. In Jakarta, only 3% of the population has access to main drains.

"These are problems that need solutions. Companies providing them should have years of good business ahead of them."

BTW, if you bought Chris' recommendation on the Mexican airport stock ASUR, you just got out for 100% in a little over two years. If you're not already a subscriber, you can learn more about Chris Mayer's Capital & Crisis here .

 "We are reaching a tipping point," reads a study from Iowa State University. "Over-reliance on corn-based ethanol to meet mandates would further drive up retail food prices, reduce domestic meat and poultry production and erode our meat and grain export markets."

"If the United States was producing 14.7 billion gallons of ethanol and experienced yield losses similar to what occurred during the 1988 drought," the researchers found, "corn and soybean prices would increase to $4.75 and $8.50 per bushel, respectively." 

The study suggests a 60% decline in U.S. corn exports isn't out of the question.
"The results of this study are no surprise," says our Kevin Kerr. "In fact, after having seen much of the planned overplanting of corn on my recent tour through the heartland, I'd venture they may be understating the influence of the ethanol boom."

Kevin's new book, BTW, was just picked by Mad Money's James Cramer as book of the week on TheStreet.com. Check it out here.

 "Bill Bonner's comments concerning the Chinese people, cited in the May 11 5-Min. Forecast, are nothing short of disgusting," a not-so-happy reader told The 5 this week.

"People coming out of a decades-long famine only to find themselves merely dirt-poor tend to be just a bit under-educated, through absolutely no fault of their own (not to mention the lives of millions of them torn apart by Japan's rape of Manchuria and elsewhere; nothing held against present-day Japan -- that was then). Such people tend to grasp at straws and desperately seek even a particle of hope, and they tend to be easily brainwashed THROUGH NO FAULT OF THEIR OWN.

"At least at Mao's death (finally) there began an -- altogether too slow -- turning away from dumb political theory.

"So can you hear that I am certainly no China apologist? Supercilious and repulsive -- that's what your words were, Mr. Bonner. Attaway to give your fellow man a break. Eating dirt and so literally dirt-poor, that's what millions and millions of 'these people' were. Do you get it? Mr. Bonner, I have always given attention to your words, and I am hoping that you will return the favor."

"My first thought on the housing starts and why the market liked it is..." a reader writes, and then goes on to give us his second thought, too:

"A: The market, and most people that are in it, are either insane or suicidal. This might actually sum it up nicely. On the other hand, I don't think the people who drive up this market are playing with their own money, or at least that's what the pattern looks like, so they have no fear because there is no real risk to them. Look at the trader that blew up Amaranth a few months ago. He's got a new fund and new money. What does he care?
 
"B: On the other hand, fewer housing starts is actually a good thing for the owners of existing homes, because it cuts down on the supply, and might actually stabilize the price of their existing homes. The last thing they want to see is more houses on the market, being sold at discounts. So less price collapse, less foreclosures, less chaos, and everybody can pretend everything is fine, for a while at least. Until next time.

"Nice publication, by the way. I quite enjoy the brief nature of it."
 
Enjoy your weekend,
Addison Wiggin,
The 5 Min. Forecast