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 A decaying steam pipe ruptured on 41st Street in NYC yesterday, killing one man and sending many more into “possible terrorist attack hysteria” mode.
“This impromptu event in Midtown comes as a surprise to us,” writes Eric Fry, who recently sold a loft near the blast site. “We're surprised it didn't happen sooner!”
The 24-inch steam pipe responsible for the blast has been underground, pumping the island's steam, year in, year out, since 1924. Eric and Chris Mayer predicted a rash of development in response to decaying infrastructure over a year ago in Rude Awakening. Yesterday’s explosion might be the tipping point event they were looking for.
“Explosions sometimes result in a call to arms,” Eric writes, “Other times, they result in a call to brokers. We're thankful this appears to be a case of the latter.”
 U.S. markets opened way down yesterday in response to an implosion of another sort: Bear Stearns’ disturbing revelations from Tuesday. The Dow lost well over 100 points by lunchtime. Then, traders stepped out for a few martinis, lost track of time, came back to the floor and resumed their irrational buying. By close, most losses were recovered, and the major indexes managed to lose less than half a percent. Phew…
 For the benefit of headlines, Ben Bernanke predicted rosy, hold-hands-as-we-run-through-the-meadow growth through 2008 before Congress yesterday. The Fed chair said he expects the U.S. economy to grow 2.25-2.5% this year and 2.5-2.75% in 2008.
Later, under his breath, Bernanke came clean about the effects of the housing predicament:
“To a considerable degree,” Ben said, “the slower pace of economic growth in recent quarters reflects the ongoing adjustment in the housing sector [which] will likely continue to weigh on economic growth over coming quarters.”
Still later, he whispered:
"Rising delinquencies and foreclosures are creating personal, economic, and social distress for many homeowners and communities -- problems that likely will get worse before they get better."
 The National Association of Home Builders confidence ndex dropped 4 points in July, to 24 -- a 16-year low and the third lowest since the survey started in 1985.
The index itself is comprised of three readings. Builders are asked to share their sentiment on current home sales, future home sales and “traffic of potential buyers through developments.” Of those three criteria, the index for current sales dropped to 24, the third lowest ever. The index for future sales sunk to 34, the fifth lowest ever. The index for buyers' traffic plunged to 19, the fourth lowest ever.
How your home could be worth 43% less a year from now: Find Out More >>
 And yet investors poured $382 billion into commercial real estate in the first half of the year -- a record high.
“As with housing,” comments Chris Mayer, “loose credit terms and easy money fuel the commercial frenzy. The hot money flock has left housing and now roosts in commercial real estate. Whereas we once read tales of consumers flipping condos, now investors are flipping commercial property -- buying buildings and selling them quickly to make a fast buck.
“The Second & Seneca Building in Seattle, for example, has changed hands four times since February. Most recently, a Tishman Speyer bought it for $234 million. It’s like a high-stakes game of hot potato.
“I don’t when it will end,” concludes Chris, “but I know how. In a word: Badly.”
Mish Shedlock believes commercial real estate will be the first victim in the second wave of the housing tsunami: Find Out More >>
 The euro, pound, and Chinese renminbi all furthered record highs versus the greenback yesterday. The kiwi and Aussie dollars traded at 20- and 16-year highs, respectively.
These record highs, and the concomitant bummer sentiment that goes with them, are putting contrarians in a quandary… including yours truly. Could it be time to go long the dollar?
“Not yet,” says Chris Gaffney on the EverBank trading desk. “Sure, the pound sterling is at $2.05, the euro has traded up to $1.38, and the Australian dollar is close to $.90, but the central banks of these countries remain vigilant against the threat of further inflation. Interest rates in these countries will continue to move up, while rates in the U.S. will stay unchanged. These currencies still have a way to go.”
 Gold, on the other hand, “is on a tear,” as our trusty confidant Ian Mathias likes to say. In light of a bad day for the dollar and Bernanke’s testimony that inflation and housing are sources of worry in the marbled halls of the Federal Reserve, gold is trading at a lofty $673.
“Traders are calling $670 a key resistance level,” writes Ian. “If it can stay above that for a few days, word on the street is that we’ll see quite a rally.”
 Moody’s was in tears yesterday.
On April 10, as revelations in the CDO market were coming to light, Moody’s announced they would “raise subordination levels” and tighten standards for ratings they give to mortgage-backed securities. Issuers of these securities immediately started “rating shopping” with other agencies for the highest rating possible.
Consequently, Moody’s has been passed over for 75% of the commercial mortgage-backed securities rating assignments in the second quarter. A considerable loss to their business, given the enormity of this market over the past three years:
Gracias a nuestros amigos a WSJ por esta carta.
 “Yesterday, Coca-Cola’s second-quarter results beat Wall Street’s forecasts, thanks mostly to a 9% growth in shipments in international markets,” reports the newly minted Bulletin Board Elite’s editor Greg Guenthner. “But investors aren’t buying it -- or Coca-Cola stock, for that matter.”
Traditional soda sales are down in the United States and Canada. “People’s tastes are changing,” says Gunner. “They’re beginning to buy more sophisticated, healthier alternatives. That’s why Coke coughed up $4 billion for Glaceau, parent company of the popular vitaminwater.
Gunner’s been flipping through the Pink Sheets looking for other “alternative sodas” that could get bought up in this trend -- many made with natural ingredients, instead of the standard high fructose corn syrup. One small soda maker -- who uses natural ingredients, instead of the standard high fructose corn syrup -- is a bulletin board stock eyeing massive growth in the next few years. For details, grab your space in Bulletin Board Elite before it’s gobbled up: Find Out More >>
 China’s economy grew at the fastest pace in 12 years during the second quarter. The world’s third largest economy grew at an 11.9% pace, almost a full 1% higher than anticipated.
How could this happen? Well for starters, "The economic overheating trend is even clearer. Inflationary pressure continues to increase, especially food and house prices," said some functionaries in Beijing. "The government is highly concerned about the overly rapid rise of food prices and will closely watch domestic and overseas price movements to reasonably guide rising prices.”
“Chinese officials will watch the domestic inflation rate cautiously,” says Christopher Hancock. “Some analysts believe higher farm prices in China have become structural, rather than cyclical. Rising wages are also contributing to the pressure on prices. Beijing's No. 1 goal will always be stability. They'll go to great lengths to ensure working-class Chinese aren't priced out of food and water.”
 Meanwhile, an epidemic of “blue ear pig disease” has helped boost  pork prices in China by 74% this year. The Chinese Ministry of Agriculture blames increased feed costs and the epidemic for a low second-quarter yield.
“I’ve returned 5 times the Dow in 2007!”
“It will take half a year to complete a pig breeding cycle,” says a ministry mouthpiece, “That is why it's so difficult to make a turnaround in supply-demand relations.” Food prices were responsible for over half of the Chinese inflation rate during the first half of the year.
 China exported $112.5 billion more than it imported in the first six months of 2007, an increase of 84% from a year earlier.
 “Like you, I watch the bigger picture and think, ‘Surely, something has to give here,’" wrote a reader. “Like you, I wonder how a global credit bubble, a housing disaster in slow motion, an absolute -- uh excuse me, I mean containable -- subprime fiasco, hopelessly underfunded government liabilities, an unsustainable trade deficit, negative U.S. savings rates, a collapsing dollar, oil depletion and a derivatives house of cards will impact the markets.
“So I repeat the ‘First inflation, then deflation, then hyperinflation’ mantra and write off recent gains to asset inflation and final high-wire hedge fund acts. But I do wonder if the stock market will double before it declines by 50%. In the meantime, I'll enjoy watching the bouncing ball as I'll continue to enjoy your daily commentary.”
Remember to enjoy yourself,
Addison Wiggin,
The 5 Min. Forecast
P.S. Longtime friend and colleague Dan Denning stopped by for dinner last evening. He’s making his way from his home in Melbourne, Australia, to our symposium in Vancouver next week.
As always, Dan was on fire about… something. He’s reading a book that likens the war in Iraq to the Spanish Civil War of the 1930s. As the Spanish conflict was perceived to be a proving ground for the fascists before World War II, the author of Dan’s book suggests Iraq II is the testing field for whatever larger global conflict comes next, most likely a resource grab of epic proportions. While he’s not entirely done formulating his thoughts, the “future of terrorism and the end of globalization” forms the basis of Dan’s speech next week. He speaks on the first day, right after Rick Rule and Bill Bonner.
As always, this conference looks like it’s going to be a doozy. We’re looking forward to seeing our old friends and getting into some steamy debates. Who knows, we might even learn how to turn some of these events to our advantage. Hope to see you there.
At this late date it’s a long shot, but if you’re not signed up and are still interested in coming to the conference, we’ll still let you in the door: Find Out More >>
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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. 
