|
 China has surpassed Germany as the world’s third largest economy. The Chinese government is expected to post first-half GDP growth of 11% this week. That will put it right on track to surpass Germany’s $2.9 trillion… and on the heels of Japan’s $4.4 trillion economy.
 But still a far cry away from the USA’s $13.2 trillion.
That’s right, baby…
Nevertheless, China’s move marks a very significant shift in global economic clout. “It’s been a remarkable run for China,” notes Chris Mayer, “which only as recently as 1999 was the world’s seventh largest economy. China has since bolted past Italy, France and the United Kingdom. Within the next 10 years, China has a shot at displacing Japan in the No. 2 spot. By some measures, China is already No. 2.
“All of this is interesting on many levels,” continued Chris. “Two of the world’s largest economies now reside in Asia. Increasingly less important are the European economies.”
Frankly, this occasion couldn’t have come at a better time (for our own interests, of course). We’ll be headed to Vancouver over the weekend to prepare a weeklong discourse on the amazing opportunity along the Pacific Rim. A good 700 of you have decided to join us thus far, and after reviewing all the itineraries, planned events and incredible speaker presentations, we think it will surely be our best symposium to date.
If you’re the “last minute” type, it’s not too late to join us! And if you can’t make it, fear not, Ian and I will continue to dutifully pen The 5 while in Vancouver.
 Of course, not all is well along the Rim of Fire. China suspended the importation of meat products from seven U.S. companies yesterday, according to our intelligence insiders at Stratfor.com. The Chinese General Administration of Quality Supervision, Inspection and Quarantine claims to have found unacceptable levels of salmonella, feed additives and veterinary drugs in waves of chicken shipments sent by the likes of Tyson, Hormel, Cargill and others.
"China's policies and actions to suspend these plants are inconsistent with the best available science," fired back American Meat Institute (great name) president J. Patrick Boyle. Could the Chinese be banning our goods in an effort to distract the world’s attention from their own food-safety shortcomings in 2007? Maybe, maybe not… but for now, the Maniac Trader is sticking to greens:
“I guess my ‘Made in Hell’ comment should, in all fairness, apply to the U.S. too,” said Kevin Kerr. “I have been to industrial meatpacking and slaughterhouses, as well as a Tyson plant in the Midwest, and let me tell you, after you go, you may never want to eat meat again.
“We may be opening up a dialogue the FDA is not ready for. Safety begins at home, and before we throw too many stones at China, we better have our own house in order. I suggest a salad for lunch today, without chicken. Bon appetit!”
 The Dow continued its rally yesterday, setting both closing and intraday highs at 13,950 and 13,989, respectively. As we predicted, “Dow 14,000” headlines are popping up left and right, and the investment world is starting to ask, “How high can it go?”
For comment, today we turn to the venerable Dennis Gartman: “The market is now going parabolic and is in the ‘blowoff’ stage to the upside,” says Dennis. “We have lived through blowoffs in the past, and there is no telling where and how they shall end. All we know is that prices can, and will, go so much farther than anyone can imagine and it is folly of the first order to make any projections…
“When shares begin to move parabolically higher, only the foolhardy stand in its way. Such is the demeanor of the U.S.... and indeed the world’s... stock market presently. This is likely to carry on into the middle of August, at least. As illogical as this might sound, one can buy almost anything between now and then... the momentum is that great and the short position is that large.”
 But we’re never ones to paint too rosy a picture. The Dow has not experienced a 10% correction in more than four years. In fact, we’re in the midst of its longest bull run since 1926. Is this Fukuyama’s “end of history”? Are we so omnipotent that our bull market could simply go on forever?
No.
“Nearly anything is possible in financial markets over the short term,” wrote Dan Amoss in his latest Strategic Investment dispatch, “including a ‘blowoff’ rally into the middle of August. But this doesn’t mean that such a rally will be sustainable. In fact, the faster the market -- or any stock -- rallies, the more likely a consolidation will reverse most, if not all, of those gains.
“In my view, the chance of a severe correction is high, so now’s a good time to identify sectors of the market that face the most danger. I’d put financial stocks, including banks, insurance companies and real estate investment trusts, near the top of that list.”
40% of the Dow’s companies report earnings this week, as well as a handsome portion of the rest of the financial world. A bearish bond market and the subprime/CDO meltdown might not be accounted for on this month’s P&Ls, but they will be by the year’s end. Buckle up, cupcake…
 Core inflation rose 0.3% in June (0.1% higher than forecast), thanks largely to a surge in domestic auto prices, said the U.S. Labor Dept. in a release this morning.
If this truly is the measure of inflation the Fed watches the closest, they should be noticing a trend. Core inflation ticked up at a similar pace in May. Chairman Bernanke is expected to continue expressing the Fed’s woes over rising inflation during his scheduled congressional testimony tomorrow. We’ll be sure to translate his comments for you soon after they’ve gurbled forth.
 The dollar and gold markets appear to be waiting for his wispy comments, too.
 Oil will hit $95 by the end of the year. That’s according to Goldman Sachs, in a statement by analysts yesterday, who wish to thank OPEC production caps for the expected spike.
"Our estimates show that keeping OPEC production at current levels and assuming normal weather this coming winter,” the quants at GS say, “total petroleum inventories would fall by over 150 million barrels by the end of the year, which would push prices to $95 a barrel without a demand response.” They want Saudi Arabia, Kuwait and the United Arab Emirates to boost production by the end of the summer to avoid the price spike.
“This is doubly bad in the long-term situation,” responds our Byron King, editor of Outstanding Investments. “All the nations of the world will get to Peak Oil at the same time, if we are not already there. But the U.S. will find itself uniquely barren of its former petroleum reserve base, and still living in its glorious historical past of the collective national myth.”
“With 2% of reserves and 6% of daily extraction,” Byron continues, “the U.S. is draining itself first and fast.”
 Gas prices have shot up 7 cents in the last seven days, bringing the national average back up to about $3.04 a gallon. For the first time since early April of this year, gas prices appear to be walking hand in hand with crude oil:
 The U.S. Department of Housing and Urban Development (HUD) is “begging” China to buy mortgage-backed securities. HUD chief Alphonso Jackson met with Chinese central bank officials over the weekend in an effort to pull some of China’s $1.33 trillion in reserves into Ginnie Mae securities.
“The U.S. government has no business pimping mortgages,” writes Mike Shedlock, “But that’s just what they’re doing. Alphonso Jackson and the HUD is one of many reasons we are in a housing bubble in the first place.”
In 2002, the total Chinese investment in U.S. agency mortgage-backed securities was just over $100 million. By June 2006, $107 billion -- almost a 1,000% increase in less than five years. There’s no telling how bad they’ve been (or will be) burnt by holding such a significant stake in the subprime mess. But it sure will be entertaining to find out.
 “I am a farmer in Southern California and I am frustrated by our immigration problems,” declared one reader.
“I work with so many wonderful recent Hispanic immigrants who embody the American experience of our forefathers. However, I have a hard time when I hear how much they save our economy by working for low wages. It costs about $7 a box to grow cabbage and another $2 to harvest it. Each box weighs 55 lbs. So the cost of harvesting is less than 4 cents a lb. If we doubled wages to farm labor, we would see harvesting costs go to around 7 cents a lb. for cabbage. Harvesting is about half of the labor cost to producing cabbage, so we would actually see about a 7 cents a lb. increase in the total cost of producing cabbage.
“I checked today and saw that Albertsons was selling cabbage for 79 cents a lb. and Vons had it for 59 a lb. This means that there is a huge margin in the price of cabbage where prices can fluctuate 33% between retailers who buy from the same producers. Obviously, we could absorb the increased cost of labor easily at the retail level. Even at an average price of $13 a box for cabbage (reflecting a doubling of labor costs), that works out to only 23 cents a lb. to produce cabbage.
“What I wonder is what we could do in a free market economy to pay people a good wage where they are above needing government assistance. How would we compete with foreign produce? How would we encourage Americans to transition into work as farm laborers? How did we ever get into this mess?”
The 5 responds: Good question. We don’t make a living as farmers anymore, but every generation of Wiggins from 1630 to the one that died in the 1990s did. Much of our work at Agora Financial, the Daily Reckoning, here in The 5 Min. Forecast and in our books and this leviathan documentary we’re making has gone into trying to answer that same question. My best 5 Min. answer? We’re victims of our own success... and if history is any guide, it’s going to take a mammoth financial crisis and/or a war larger than the fictitious war on terror to make us return to our humble roots.
Cheers,
Addison Wiggin,
The 5 Min. Forecast
P.S. Our launch of Greg "Gunner" Guenthner’s Bulletin Board Elite has been met with a much more positive reaction than we expected. Because of the nature of the product and the size of the stocks recommended, we're forced to cap the number of readers in the service. For details, click here.
P.P.S. This won’t be news to silver bulls, but it is worthy of note… Silver continues to bump up against critical resistance at $14…
A break through $14 could send it somewhere into the stratosphere, like what happened back in the glory days of the Hunt brothers… here:
One safe way to play this trend… 100% principal-protected silver CD, on offer from EverBank for the first time today. The CD is indexed to the price of the metal itself. And as we have a business arrangement with EverBank, we’re authorized to let you know well in advance of other media outlets.
We may receive a fee if you open an account, but as with the other CDs from EverBank we tell you about, we think this is a unique way to play a trend in the marketplace… and boost your savings at the same time. If you’re interested, check out this link and be sure to ask lots of questions.
|
Recent guerilla attacks in western Mexico have authorities on both sides of the Mexican border scrambling to protect billions worth natural gas pipelines. Companies such as Hershey’s, Honda, and Kellogg’s are losing up to $7 million a day as local rebels bomb energy sites left and right. Meanwhile, several little known organizations are well positioned to profit from a sudden energy grab... or… worse yet, a full blown U.S. / Mexico Border War. 
