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 Bear Stearns President and COO Warren Spector resigned over the weekend… heads are officially rolling.
 "These times are pretty significant in the fixed-income market," said Bear Stearns CFO Sam Molinaro on a conference call with analysts on Friday. "It's been as bad as I've seen it in 22 years. The fixed-income market environment we've seen in the last eight weeks has been pretty extreme."
 U.S. markets sunk like a stone on Friday. The S&P 500 and Nasdaq found the deepest depths… both lost over 2.5%. The Dow faired slightly better by falling 2%.
Traders attributed Friday’s sell-off almost entirely to Molinaro’s words. Lousy employment numbers certainly didn’t help, but it’s become quite clear that all eyes are on the financials. Once Molinaro let the cat out of the bag, Bear Stearns stock fell 6% and the market shed over 1%. Simultaneously, S&P downgraded Bear Stearns to “negative.”
 “If Sam Molinaro had been around longer than 22 years,” our friend Jim Rogers commented in an interview with CNBC’s Christine Tan, “he would have said this is the worst fixed income market he’d seen in 40, 50 or 60 years.”
“We have never had this kind of bubble in the credit market,” Rogers said. “These guys still have a long way to go,” Rogers wrote the foreword to a book we wrote with Bill Bonner in 2001. In the foreword, he suggested that Fed policy in response to the collapse of tech stocks on Wall Street would mutate a stock market bubble into a “housing and consumption” bubble. His words couldn’t have been more prescient. (More from the casualties of this meltdown -- an employee and an investor in AHM -- below…)
 “It is going to take at least another year and maybe 18 months for a bottom in the housing market to develop,” says our friend John Mauldin. Take look at this chart:
 “The chart shows the amount [in $ billions] of adjustable-rate mortgages that reset each month for the first half of this year and will reset for the next 18 months,” explains John. “Note that these reset numbers are a driving factor in the increasing rise in foreclosures. Pay attention to the numbers I highlight in red for January through June of 2008. The largest portion of mortgage resets is not until next year.”
“We have just seen $197 billion of mortgage resets so far this year. That is less than we will see in two months (February and March) of next year,” says John. “The first six months of next year will see more than the total for 2007, or $521 billion. This suggests to me that the number of foreclosures is due to rise dramatically from the already high current levels, putting more homes into a weak housing environment.
“These homes that are going to see reset prices are for the most part not going to be able to be rolled over into a traditional 30-year mortgage, because there is not going to be enough equity to get a traditional mortgage. While the total increase in payments, an estimated $42 billion, is not all that large in the grand scheme of things, to the individuals who are paying the increase, it is a large increase in their housing costs. My estimate is that this is about one-half of 1% of total consumer spending.
“Along with inflationary rises in food and energy,” Mauldin concludes, “this is going to continue to put pressure on consumer spending.”
 The dollar index dropped below the 80 mark for the first time in 15 years -- a key psychological benchmark. The index of global currencies versus the dollar dropped to 79, albeit briefly. The euro is back up to $1.38, hundredths of a cent off its recent all-time highs. The pound rests at $2.03.
 Gold, finally, is showing its hedging qualities… as the market sinks, gold is steadily rising. Spot prices rose as high as $674 per ounce today.
“Right now, the reward in owning the precious metals, in my view, clearly outweighs the risks,” wrote James Turk of GoldMoney.com. “In fact, I think the circumstances today are such that the bigger risk comes from not owning the metals, rather than owning them.” James sees $700 gold just around the corner, and perhaps even $800 by the year’s end. Gold: The Once and Future Money
 “The July jobs report was massaged,” reports John Williams of Shadowstats.com. For the record, we get especially worried when John blows the whistle on a guv’mint stat that is already viewed as negative. If you recall, Friday’s jobs report showed new job growth cut by a third and a slight increase in unemployment numbers.
“The only thing surprising about the July employment and unemployment report was that the rigging was not set to show stronger numbers,” reports John. “As with other recent monthly reports, applying consistent not seasonally adjusted year-to-year change to the seasonally adjusted numbers yielded lower-than-advertised jobs growth. Applying July's unadjusted annual growth rate to the adjusted numbers yields suggests an adjusted monthly July payroll increase of 47,000, about half of the official 92,000 gain.”
 The much anticipated Cerberus/Chrysler deal has gone through. What was Cerberus’ first action as the new owner? They’ve hired former Home Depot chief Bob Nardelli as the CEO. Heh. Nardelli built himself such a large compensation scheme at Home Depot that shareholders forced him to resign. Quit he did… but not before writing himself a $210 million severance check.
These are the details that make “late degenerate capitalism,” as the good doctor Richebacher would call it, fascinating. It’s not about building things anymore, but rather how much you can pillage from the investment markets. We’ll keep you posted on this one…
 The Shanghai Composite is up another 3% since Friday’s correction. If you missed it, you can learn a myriad of ways to take advantage of the Asian boom by grabbing a set of audio CDs from our Rim of Fire Investment Symposium held last week in Vancouver >>
 New water wells are becoming so scarce in the Western states that real estate investors, hotel developers… even wineries have turned to black magic to find water. According to The Wall Street Journal, “water witchers” are being hired in droves to work their funky voodoo and find water. Rob Thompson, the witcher highlighted in the WSJ story, said business is “better than ever.” Thompson uses a subtle combination of “faith in God, electrical impulses, magnetic fields, intuition” and two metal rods to point him and his clients to water. Good luck.
 American Home Mortgage (AHM), which you’ve been reading about for the past week in The 5, filed for bankruptcy protection this morning.
 “As an employee of AHM,” writes a reader, “I’d like to say we were not a subprime mortgage company! We were an A Alt-A company, and very little subprime. Why do you not get the facts correct?
“Unfortunately, there were many people stuck in hotels, apartments and other places waiting to get money funded so they could move into their new home! Being in this industry for nine years, I wonder when the next shoe will drop. I have heard there are a few others struggling, and I hope somehow they can survive. Purchasing a home was supposed to be an achievement, not for every Tom, Dick and Mary. And therein lies the problem. ‘What loans can we create to fit for your financial situation today?’ Many of the loans have been around a long time (option ARM), but they were not meant to be for first-time homebuyers! Same with interest only -- unless you are doing full-documentation loans. Anyway, time to move on and find new employment!”
Right… we do have our facts straight. We may have called AHM a “very screwed lender,” and a “casualty of the subprime bust,” but never a “subprime lender.” Either way, your assessment of these loans correctly identifies the cracks in the subprime lending market. The real problem is the fact that an entire house of cards was erected overnight on subprime derivatives. When these newly minted securities hit the market with AAA ratings, fund investors never stood a chance. Now panic is in the air. No one is safe. See: Lipstick On A Credit Pig
When the dust clears, AHM will be but a footnote in the financial history books. Investors are not going to dilly over such distinctions as “subprime” versus “A Alt-A”… they’re going to try to get their money out of the entire sector ASAP. And the house of cards will tumble… er, is tumbling.
 “The reader who was grousing about the high cost of the letters struck a chord with me,” wrote another reader. “It is fine for you folks to say that, overall, a particular letter has produced such and such results. That's marketing. I understand.
“However, I was quite disappointed with the due diligence that went into the AHM recommendation. You saved your editorial bacon with a trailing stop, but in the next breath indicated that the fundamentals were good and that you would consider re-entry at a lower price. I took that as an endorsement and bought in again, only to lose my ever-loving ass. There have been several other stocks not quite in the same category, but with similar comments. My suggestion would be to watch what you put in print. We are paying for well-researched opinions, and frankly, every word counts. Think of yourselves as the Fed chairman having your every word dissected for meaning…”
Unfortunately, my friend, you are confused. No one from Agora Financial would have touched AHM with a 10-foot pole this year or last. As far as we can tell from our research, you must be a subscriber to Porter Stansberry’s Investment Advisory. Porter recommended AHM and then got stopped out of the stock.
Keep in mind Porter and his associates are distinct from Agora Financial. They share a very different opinion of the housing market from our analysts. Granted, since our two groups are related by a parent company, Agora Inc, we may appear to hold investment strategies in common, but the truth is we rarely do. Choose your guru carefully. In this particular case, we’ve been rather shy -- to put it mildly -- of anything housing or mortgage related since 2001.
“Nobody has a monopoly on good ideas,” noted the stalwart Ian Mathias this morning. “Stansberry and Associates have certainly made people money, too.”
Thanks for reading,
Addison Wiggin
The 5 Min Forecast
P.S. If you need to find water, you can hire Rob Thompson and his God-powered electromagnetic rods for $200 an hour, plus commission on the water he finds, which he admits happens a few times a year. However, we’d recommend reading Chris Mayer’s report on the water crisis and investing in his “Blue Gold” Water Portfolio instead. Your returns will no doubt be more substantial. Get in before the price goes up >>
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August. 2, 2007:
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. 
