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 Heat in the East must be making investors sleepy lately. The markets and the dollar haven’t done anything for days…
Gold looked like it might do something interesting when it jumped up five bucks at yesterday's close, but the yellow metal gave it all back today.
 Maybe investors are bracing for nasty weather. Merrill Lynch announced today that it plans to sell $800 million of the Bear Stearns fund we highlighted in yesterday’s 5: (link).
Bear Stearns’ High-Grade Structured Credit Strategies Enhanced Leverage Fund and High- Grade Structured Credit Strategies Fund hold about $20 billion… and they appear to be completely underwater. Individual investors have been asking for their money back for months. Today… the first of the bigwigs came knocking, too.
Thus, the ripple effect of the subprime bust begins on Wall Street.
 Only two questions remain: How long and how far down?
“It's a blood bath,'' suggests Mark Kiesel, a big shot at Pimco. “We're talking about a two-three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually, it will take the stock market and corporate profits.”
“The investment banks, insurance companies, pension funds and asset management firms that hold some of the U.S.'s $6 trillion of mortgage-backed securities have yet to suffer the full effect of subprime loans gone bad,” said David Viniar, CFO at Goldman Sachs. “I continue to believe that we haven't seen the bottom in the subprime market. There will be more pain felt by people as that works through the system.”
“The markets seem to be waking up to the fact that the housing market is nowhere near the bottom,” says Chris Gaffney of EverBank. “Borrowers are being squeezed by the Treasury market’s recent sell-off, which has increased 30-year mortgage rates the most since 2004. The national median home price is poised for its first annual decline since the Great Depression.”
“It's not just a housing recession anymore -- it looks more and more like an economic recession,” says Nouriel Roubini, a former economist with the Clinton administration.
"We've been expecting to see housing weakness take a toll on California,” Ryan Ratcliff, an economist at UCLA, said this morning. “The fact that it hasn't has been a surprise to us. But based on the historical record, it wouldn't be wise to say we'll dodge the bullet.” Second Wave of the Housing Tsunami
 Yesterday, the Bank of England telegraphed a soon-to-be $2 pound. The minutes from their last meeting were released and reveal BoE governor Mervyn King, along with three of his policy wonks, urging the bank to raise rates again.
King and his supporters were overruled this month 5-4, but “with King calling for a rate hike and inflation looking like it will again exceed the BoE's 2% target, a surprise 50-basis point move may be just what the British economy needs,” comments Chris Gaffney. The pound rallied above $1.99, and with an almost-certain additional rate hike this summer, the $2-plus pound is just around the corner.
 A very dry summer may force Idaho Dept. of Water Resources Director David Tuthill to shut off junior holders of Idaho water rights by using “sheriffs or Idaho State Police officers if necessary.” The state is about to cut off 13 cities, a dozen dairies and several food processing plants (for a net loss of at least $28 million) in order to meet the demand of two trout fisheries, which own senior rights.
“I think of this as a harbinger for what will become much more common in the American West as water supplies start to dwindle,” Chris Mayer tells us. He's been following water for several years now. For a full understanding of the investment angle related to dwindling water supplies, click here: Blue Gold!
 China is experiencing a drought of its own… the worst in 30 years. Bad weather all over China could drive wheat prices past the current 11-year high.
“The drought is affecting over 831,400 hectares of farmland,” says Kevin Kerr, who’s keeping an eye on the situation for us, “and leaving over 1 million people thirsty and desperate in northern China. Ironically, China's southern regions have seen 128 people killed and more missing in floods this year… and 1.22 million hectares of crops are suffering because of it.”
Wheat has been the most significant imported grain in China this year. “China is a major importer of grains,” says Kevin. “As drought conditions worsen and demand climbs, imports will likely follow suit.” But from where?
As we’ve been detailing for you in The 5 Min. Forecast, the U.S. grain market, particularly wheat, is having a rough bout with the weather this year, too. Prices are already at decade highs. With demand rising from China, the Maniac Trader is betting on them going even higher. To place your bets, click here.
 Could algae be the next alternative energy source? According to this month’s Popular Science, the microorganism produces an oil that can be converted into biodiesel. It’s cheap, can be grown almost anywhere and multiplies at breakneck speed.
A little startup called Solix is working to commercialize the process. We’ve got our Over-the-Counter sleuths Greg "Gunner" Guenthner and Craig Walters on the case… details to come.
 The “godless dollar” is back.
Back in March, the Philadelphia mint gaffed. They struck the new George Washington dollar coins without “In God We Trust,” “E Pluribus Unum.” The year and mint mark normally inscribed on the edge were missing, too. The minters fixed the problem, but not before an unknown number of coins were distributed.
Today comes word they’ve gaffed again. This time, the mint has released the Adams dollar without the edge inscription “In God We Trust.”
“It’s too early to put a final price tag on the collector value of Adams presidential dollar errors, because no one knows how many others will turn up,” says Ron Guth, a coin grader.
The Washington and Adams dollars are the first two in a series of presidential coins that will be released annually up to 2016. At this rate, there will be “godless dollars” all over the place. Oooh, so rife with irony, isn’t it? We won’t go there today.
 A few small New England towns have ditched the dollar altogether and have begun printing an alternative currency.
Towns surrounding Great Barrington, Mass., have adopted the “BerkShare.” The going rate is 90 cents for one “BerkBuck.” Businesses that accept the funky currency (which is adorned with the likes of Norman Rockwell and Herman Melville) treat them in parity with the dollar… essentially giving all BerkShare users a 10% discount.
$759,600 BerkShares are currently in circulation, and growing rapidly. “How long before Uncle Sam starts taking interest?” we can’t help but wonder aloud.
 “As an addendum to the note from my compatriot regarding the Ottawa idiots selling all of the nation's gold reserves,” writes a reader, “yes, they did, and what's more, they sold it when gold was near its lows. And these are the clowns with our destiny in their hands. Need I remind you of what they did as a Halloween gift for us with their treatment of the income trusts? And that after promising, during the previous election campaign, to leave them, the trusts, alone and unchanged.
“Great concept… The 5 Min. Forecast, that is! Thanks, guys.”
 “I think another reason the loonie is going to par with the greenback,” writes another, “is so that both currencies will be at the same level when they adopt the new currency, the ‘amero,’ in 2010, when we become part of the North American Union. Why is nobody discussing this?”
Uh… maybe because it’s not going to happen?
 “While hardly an expert on ethanol production,” admits a reader, “I know that the sulfuric acid and fungal enzymes used in fermentation of corn and present in DGSS are natural and not a danger to our environment or the integrity of our food production system. Maybe the reader upset with DGSS would also like for brewers to cease their evil ways?”
That would be a travesty. Don’t even think about going after the vintners.
Regards,
Addison Wiggin,
The 5 Min. Forecast
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