|
 Cyclone Gonu touched down in Oman on Wednesday, shutting down Oman’s oil and gas exports for the third consecutive day. After leaving Oman, Gonu was weakened to Category 1 status and turned toward our favorite Gulf state, Iran.
Crude oil traded up very slightly, to $66 and change. The Strait of Hormuz -- the world’s most-watched oil “choke point” -- dodged a bullet on this one.
 But oil prices may yet get a kick in the arse. OPEC Secretary General Abdalla El-Badri threatened to blackmail the entire Western world this week. El-Badri hammered the West’s infatuation with ethanol and biofuels, calling them unsustainable and impractical. So far, from what our sources on the ground report, we agree. But then El-Badri becomes unhelpful…
If the U.S. is successful in cutting petroleum use by 20% over the next decade,
El-Badri said, OPEC would cut investments in new oil production and send oil’s price “through the roof.” OPEC controls 40% of the world’s oil supply. So they could do it…
“Energy security,” comments Free Market Investor’s Christopher Hancock, “or the threat to energy security, is only going to get worse. This statement will strengthen the resolve of both Putin and Chavez.” Who doesn’t want to handcuff the West by manipulating prices at the pump?
 U.S. markets continued to sell off yesterday. The Dow fell nearly 200 points, and the S&P 500 and Nasdaq both recorded losses… down nearly 2% across the board.
 “The full extent of the subprime lending problems isn't known,” wrote Marc Faber in yesterday’s Rude Awakening, shedding light on the market’s jitteriness near the top. “But since at least 12% of the mortgage market -- whose total size is over US$1.2 trillion -- is comprised of subprime loans, the fallout could be considerably worse than expected.”
The recent poor performance of banking and brokerage stocks belies the trend.
“What's bad for financial stocks is probably terrible for the overall stock market,” Faber explains. “Earnings in the financial sector of the stock market have risen 14-fold since 1990, to an annualized US$251 billion.” By comparison, the rest of corporate earnings have only gone up fourfold, to US$636 billion.
If you include profits from speculating in derivatives and the like, financial stocks make up nearly half of the S&P’s profits. If the markets fail to keep reaching new highs, financial earnings would begin to decline… and so, perhaps, would S&P 500 earnings.
“In the past,” says Faber, “poor performance of financial stocks has always been an unfavorable indicator for the entire stock market. In an economy that has become addicted to credit growth, this should be even more so.”
 Aside from the financial stocks, the energy and natural resource sectors have made up the bulk of S&P earnings. Never before have energy and “financials” contributed so much to S&P profits. The recent market records are great… but precarious. Be careful.
 Across the pond, European markets were also down... for the fifth day in a row. The pan-euro Dow Jones STOXX 600 has lost over 5% this week.
 10-year Treasury bond yields, on the other hand, surged above a 5% yield for the first time since August 2006. Yesterday, they closed at 5.23%. Bill Gross, a bond market bull for quite sometime, called himself a “bear market manager” this morning and changed his forecast for the 10-year yield from 5.5% to 6.5% on the high side.
Gross said he expects strong global growth and mild inflation in the coming three-five years… a marriage that “is not necessarily bond friendly.” On March 5 of this year, Options Hotline’s Steve Sarnoff recommended a put on the Treasury ETF (TLT) at $175. That put traded as high as $530 yesterday, up 203% in just over three months.
 “Most of the better indicators continue to confirm a deepening economic contraction,” wrote John Williams in the latest issue of Shadow Government Statistics. Money supply growth, by his reckoning, recently topped 13%, “rivaling levels seen before the severe 1973-1975 inflationary recession.”
“A natural consequence of creating lots of dollars is that those dollars eventually lose purchasing power,” explained our Chris Mayer. “People normally call that inflation. Interest rates also tend to move higher, eventually. This reflects the fact that people will no longer loan dollars without factoring in a little something extra for that inflation.”
“The market seems to have suddenly figured out that higher inflation is in the works and low interest rates may go away like the dogwood blossoms of spring,” concluded Chris. “A replay of the 1970s bodes well for commodities and tangible things… not so good for dollar or bond investors.”
 The dollar, in the meantime, is enjoying an eight-week high against the euro.
 The Bank of New Zealand surprised the world by raising rates again… sending the kiwi to a 22-year high versus the dollar. New Zealand’s central bank set rates to 8% this week, causing a rush of investments from yen carry traders. Across the Tasman Sea, Australia is experiencing remarkable currency growth as well… currently at an 18-year high versus the dollar.
“Nothing but good news coming from Australia recently,” comments EverBank’s Chris Gaffney. “ Their economy grew at the fastest pace in more than 3 years in the first quarter.”
Investments in Aussie mining companies have increased as the world's largest exporter of iron ore and coal expands to meet surging Asian demand. Aussie consumers are spending freely.
 And just a “couple” miles northwest… the world’s most polluted river:
The Citarum, near Jakarta, Indonesia, is so overloaded with pollution that fishermen have given up fishing in exchange for bottle collection. It even choked the local hydroelectric dam to a halt.
“I’ve been following the water crisis and related stocks for some time,” commented Chris Mayer, “but I’ve never heard of a river clogging up a hydro dam. These pictures are astounding…”
 The Northeast, Great Lakes and Midwest regions of the U.S. can expect a hotter summer than normal, according to AccuWeather.com. Global warming, right? We can almost hear you think it. Not so fast. AccuWeather estimates conditions to be no worse than those experienced as far back as the 1930s. Still…
“If these forecasts are right,” writes our commodities trader Kevin Kerr, “every commodity from corn and soybeans to natural gas and OJ will be driven higher. A hot surge in the heavily populated Northeast is likely to drive up energy costs, increase blackouts and reduce consumer spending.”
Summer hurricane season, is a busy time for commodities traders. In past years, Kevin has seen gains of 60%, 204% and 379% in sugar, 16%, 50% and 70% in corn and 110%, 200% and 355% in OJ. If you’d like to join Kevin, read more about Resource Trader Alert here.
 “I beg your pardon,” writes a reader, spoiling for a fight. “It's the Democrats that have always fostered regulation after regulation.” He’s responding to our expose on mad cow testing bans established by the Bush administration.
“Hell, the Clinton administration almost doubled the regulations on American business. This is one reason we can't compete with the world anymore. It's the Republicans that have been trying to ease regulations, only to be thwarted by the wily Democrats that rule the subsections of the government.”
Heh. A pox on both of their houses, as Bill Bonner is wont to say.
 Ron Paul was one of the top search terms on blog-spanning site technorati.com in the month of May. He often occupied the #1 spot on their list, ousting search terms the likes of Paris Hilton, YouTube, and MySpace. Who knows, maybe he does have a shot…
Best regards,
Addison Wiggin
The 5 Min. Forecast
P.P.S. “I have been a subscriber to Chris Mayer’s Capital & Crisis for just about a year,” writes another reader, “and have been extremely pleased. I take care of my father’s account for him, and he is up $10,000 on CNQ and $3,000 on NBR alone. Since doing so well on these few picks, I just signed up to be a Reserve Member and can't wait to start putting more of the "whole team" into play!!
“I know one can't enter all trades, but it sure is nice to know there are now many facets that I can stare at and find to fit my style. Thanks again!!”
No… thank you. And you’re right, you probably won’t want to enter all the trades. But that’s why we produce a “focus list” for Reserve Members, to help you pick the right trades for your risk profile. Details inside: The Agora Financial Reserve
|
While working with Citigroup in Hong Kong,
