U.S. Oil Prices Rise to over $62 a barrel and U.S.dollar plunges to near 15-year low

Commentary by Benjamin Train
November 29, 2006

Today's oil energy prices rose on a slight decline on U.S. inventories. Gold and Silver pulled back further, and the U.S. dollar fell to near a 15 year low. Right now the Euro is at resistance point. Euro/US Dollar at 131. The upper limit to this current move up in the Euro is around the 135 area. In a report by National Australia Bank economist, Gerard Burg, on Wednesday, which forecast an average gold price of $675/oz in 2007, up from his 2006 forecast of $606/oz. Tonights U.S. market close spot gold prices were at $636 as they entered the Sidney/Hong Kong market.

London stock trader and economist; Jerome R. Corsi, In an interview with CNBC, a vice president for a prominent London investment firm yesterday urged a move away from the dollar to the "amero," a coming North American currency, he said, that "will have a big impact on everybody's life, in Canada, the U.S. and Mexico."

Steve Previs, a vice president at Jefferies International Ltd., explained the Amero "is the proposed new currency for the North American Community which is being developed right now between Canada, the U.S. and Mexico."

Previs told the television audience many Canadians are "upset" about the amero. Most Americans outside of Texas largely are unaware of the amero or the plans to integrate North America, Previs observed, claiming many are just "putting their head in the sand" over the plans.

For a comprehensive look at the U.S. government's plan to integrate the U.S., Mexico and Canada into a North American super-state – guided by the powerful but secretive Council on Foreign Relations – read "ALIEN NATION: SECRETS OF THE INVASION," a special edition of WND's acclaimed monthly Whistleblower magazine.

Many analysts worldwide attributed the dramatic fall in the value of the U.S. dollar at least partially to China's announcement last week that it would seek to diversify its foreign exchange currency holdings away from the U.S. dollar. China recently has crossed the threshold of holding $1 trillion in U.S. dollar foreign-exchange reserves, surpassing Japan as the largest holder in the world.

Does this tell you that the U.S economy is over-extended? Here are a couple of articles that I feel you may find useful. Jan. Oil futures closed at $62.24, Jan. Unleaded closed at $1.6680 per gallon.

Where is the price of oil headed? Texas oilman T. Boone Pickens told central Arkansas business leaders Monday that the world has reached peak oil production and the United States, in particular, needs to find alternative sources of fuel.

"About 85 million barrels of oil are produced a day throughout the world, Pickens said. But because there are probably not any large, undiscovered oil fields left, the increasing demand for oil is rapidly diminishing the remaining supply," he said.

"Eighty-five million barrels is peak," Pickens said. "Will we find more oil? I think so, but we're going to have to go to alternative sources of fuel."



Oil Prices Rise on U.S. Supply Declines
Wednesday November 29, 4:06 pm ET

Oil Prices Climb More Than $1 to Surpass $62 a Barrel After U.S. Data Show Supply Drop

WASHINGTON (AP) -- Oil prices climbed above $62 a barrel Wednesday as colder weather drifted eastward across the U.S. and after fresh government data showed shrinking supplies of crude, gasoline and heating oil.

Other factors contributing to the market's upward momentum include a decline in the dollar, the currency in which crude oil is traded, and the possibility of further production cuts by the Organization of Petroleum Exporting Countries, which meets next month in Nigeria.

Citigroup energy analyst Tim Evans said the recent upswing in oil prices -- front-month crude futures have climbed by roughly $6 a barrel since settling below $56 on Nov. 17 -- may reflect traders' reassessment of OPEC's October decision to reduce its output by 1.2 million barrels a day.

Once extremely skeptical of the cartel's ability to carry out the cuts, the market now seems to recognize the significance of the cartel's action, Evans said.

"Maybe it was foolhardy on the part of some skeptics to take the opposite side of the trade from a cartel that has a 35 percent market share," he said.

"OPEC made a very clear statement that they intend to put a floor underneath this market," he added.

A strike by half the workers at a Valero Energy Corp. refinery in Aruba may also have influenced the buying, though a company spokeswoman said the 275,000 barrels-a-day plant is operating normally.

Light sweet crude for January delivery rose $1.47 to settle at $62.46 a barrel on the New York Mercantile Exchange. January Brent crude at London's ICE Futures exchange rose $1.86 to settle at $63.07 a barrel.

In other Nymex trading, natural gas futures climbed 31.2 cents to settle at $8.871 per 1,000 cubic feet, heating oil futures gained 6.7 cents to settle at $1.7953 per gallon on the Nymex and unleaded gasoline futures climbed 4.4 cents to settle at $1.6706 a gallon.

At year's end, the unleaded gasoline futures contract will be replaced by another as a result of changing environmental regulations. The new contract, known as the reformulated gasoline blendstock for oxygen blending, or RBOB, climbed Wednesday by 7.13 cents to $1.7084 a gallon.

The latest report from the U.S. Energy Department showed crude-oil inventories shrinking by 300,000 barrels last week to 340.8 million barrels, or 6 percent more than a year ago. Gasoline inventories declined by 600,000 barrels to 201.1 million barrels, or almost 2 percent below year ago levels. The supply of distillate, which includes heating oil and diesel, fell by 1 million barrels to 132.8 million barrels, or 1 percent above year ago levels.

Oil prices are down more than 20 percent since hitting a high above $78 a barrel in mid-July. They haven't settled above $62 a barrel since Oct. 1, 2006.



US setbacks see dollar plunge to near 15-year low
By Ambrose Evans-Pritchard
Last Updated: 12:16am GMT 30/11/2006

The dollar tumbled to a near 15-year low against sterling yesterday on fresh signs of economic trouble in the United States.

An 8.3pc crash in US industrial orders and an admission by the Federal Reserve chairman that Washington does not know how bad housing really is set off another day of wild gyrations on the currency markets.

US house prices fell 3.5pc to an average $221,000, the third month of declines. Stocks of unsold homes rose to 7.4 months' supply, the highest since 1993. The US consumer confidence index fell sharply to 102.9.

The "truckers index" of tonnage shipped by US haulage companies was down 1.8pc in October, a leading indicator of contraction. Merrill Lynch called the fall "borderline recessionary".

The dollar continued its slide against the euro, dropping to $1.3194 after the Federal Reserve chairman, Ben Bernanke, said the housing slump "would be a drag on economic growth into next year". Mr Bernanke said official figures did not pick up the "sharp increase" in cancellations on house deals and might understate the inventory glut.

"Any significant effect on consumer spending arising from further weakness in housing would have important implications for the economy," he said.

The pound briefly touched $1.95 and surged to eight-year highs against the yen.

The Japanese currency has been in freefall for months on repeated weak data. It suffered a fresh blow yesterday after retail sales fell for a second month, increasing fears that Japan's export-dependent economy may slow in lock step with America.

The OECD club of rich nations gave warning yesterday in its bi-annual economic outlook that the world's second-biggest economy was still too fragile after years of debt deflation to risk a rapid rise in rates from 0.25pc.

"The return to price stability is proving longer and less assured than expected. Further monetary tightening should wait until a fully-fledged exit from deflation finally materialises," it said.

The OECD downgraded its global growth forecast for the 30 leading economies from 2.9pc to 2.5pc in 2007, and said the US might need to start cutting interest rates next year.

Chief economist Jean-Philippe Cotis said there was no cause for alarm, arguing that the US would achieve the "soft-landing" it eluded after the dotcom bubble in 2000. "What the world may be facing is a rebalancing of growth," he said. "In the euro area, recent hard data suggest that a solid upswing may be under way. Growth should remain buoyant in China, India, Russia and other emerging economies."

In a rare piece of good news that helped calm Wall Street after the equity rout on Monday, Mr Bernanke said inflation had been "somewhat better behaved of late".

David Lereah, chief economist for the US National Association of Realtors, said there might be light at the end of tunnel for the housing market, citing a slight rise in transactions.

Wall Street stock futures point to flat open

Monday, November 27, 2006
By Benjamin Train

Before Market Opens base metals are flat to declining, gold is at $637.90 down from $642, and silver futures are at $13.39 down from the London/Hong Kong high at $13.52. Jan. Crude oil futures are level at $59.55, Unleaded is holding at $1.592, and Jan Natural Gas $8.302.

Mon Nov 27, 2006 5:18am ET

LONDON (Reuters) - Shares on Wall Street looked set to open flat on Monday following last weeks dollar weakness that raised questions about the continued attractiveness of U.S. equities to foreign buyers.

By 1000 GMT, U.S. stock futures were barely changed, suggesting a mediocre start.

The Dow Jones industrial average <.DJI> closed 0.38 percent lower on Friday, while the broad S&P Index <.SPX> dropped 0.37 percent. It came as the dollar fell sharply against major currencies.

Angus Campbell, market strategist at Finspreads in London, suggested in a note that investors may reckon the stock price drop "simply presents a buying opportunity".

But Wall Street investors face a challenging week with a raft of economic data ahead, starting with October durable goods orders and existing home sales for October plus November consumer confidence on Tuesday.

© Reuters 2006. All Rights Reserved.

Market Update: European shares closed lower on Thursday as oil and gas companies weighed down indexes already under pressure

Thursday, November 23, 2006
By Benjamin Train

The Narrow Trading Patterns Continue
The market is now trading range bound. U.S. crude oil Jan. futures prices moved up Thursday from $59.24 to $60.05 per barrel, and U.S. Unleaded rose slightly from $1.58 to $1.5873 per gallon. Crude Oil and the Gold have not been in synch for a while now. This "breakup" began on October 5, 2006.

From time to time they attempt to get back into synch, but haven't been able to hold on. I expect that will change as we get into the deep winter, once the weather turns cold. Come spring, I expect to see Crude Oil much higher than it is now, in preparation for next summer's driving season.

Crude Oil prices are attempting to stabilize between $55 and $60 a barrel. Gasoline prices are roughly 9-cents lower than they were at this time last year while Crude Oil is nearly $20 lower than its July 14th peak of $81.14.

It appears that the financial markets have adjusted to overall historically high energy prices. While it's much too soon to state that Crude Oil has seen its' low, it's not in appropriate in my opinion to say that breaking oil prices don't seem to be dragging Gold prices lower.

The Dollar and Gold are now tracking an inverse relationship. This Dollar's influence again took hold just as Crude Oil prices began to break away from their long standing "direct" relationship with Gold. When Oil went up Gold went up and vice versa. If the Dollar maintains its current inverse relationship with Gold and if OPEC becomes successful in regaining control over Crude Oil prices, together this will provide Gold with very bullish case for much higher prices. the impact of the falling US Dollar and rising European Currencies are having an impact on Gold.

Gold prices are right now at the top end of its trading range. I see $638 as the current resistance and upside price target.

U.S. Crude Oil slides Wednesday as crude stocks prices swelled

Build of 5.1 million barrels is far higher than analyst predictions; gasoline supplies show surprise gain as well.

Oil prices fell Wednesday after the government reported swelling crude supplies and gasoline stocks that showed a surprise build.

U.S. light crude for January delivery lost 77 cents to $59.40 a barrel on the New York Mercantile Exchange. Oil traded up 3 cents just prior to the report's release. A sizable build in Gasoline stocks and weather forecasts calling for average to above average temperatures in the eastern half of the US also weighed on Oil prices. The initial sell-off wiped out all of yesterday's gains from the slowdown of Oil movement through the Trans-Alaska Pipeline due to severe weather.

In its weekly inventory report, the Energy Information Administration said crude stocks ballooned by 5.1 million barrels last week. Analysts were looking for a gain of 600,000 barrels, according to Reuters.

Distillates, used to make heating oil and diesel fuel, fell by 1.2 million barrels while gasoline supplies rose by 1.4 million barrels. Analysts were looking for a 1.2 million barrel drop in distillates supplies and a 900,000 barrel decline in gasoline stockpiles.

Oil prices have fallen over 25 percent from highs reached in July and have been range-bound near $60 for the last several weeks.

But stocks of oil majors, including BP (Charts), ExxonMobil (Charts), ConocoPhillips (Charts) Chevron (Charts) and Royal Dutch Shell (Charts), have stopped mirroring crude prices and have rebounded since mid-September as traders bet on rising oil prices and search for deals in a sector many see as undervalued.

Wednesday, November 23, 2006
A lower Brent-crude price limited downside for transport stocks, but weighed on oil and gas producers such as BP (BP : bp plc sponsored adr News , chart, profile, more
Last: 66.61-0.40-0.60% 4:00 pm 11/22/2006 Delayed quote data

InsiderDiscussFinancials

BP66.61, -0.40, -0.6%) (UK:BP: news, chart, profile) and Royal Dutch Shell (UK:RDSA: news, chart, profile) (RDS.A : royal dutch shell plc spons adr a News , chart, profile, more
Last: 70.05-0.21-0.30%4:00pm 11/22/2006 Delayed quote data

InsiderDiscussFinancials

RDS.A70.05, -0.21, -0.3%) , which closed down more than 0.7% in London's FTSE 100 index (UK:UKX: news, chart, profile) . The FTSE itself fell 0.33% to 6,140.00.

The pan-European Dow Jones Stoxx 600 index (ST:SXXP: news, chart, profile) slipped 0.73% to 355.07, and the German DAX Xetra 30 index (DX:1876534: news, chart, profile) finished flat at 6,476.12. U.S. shares finished higher Wednesday, with trading closed Thursday for Thanksgiving. See Market Snapshot.

"We're not going to get a lead from Wall Street because of Thanksgiving. Markets are relatively quiet, and we are drifting a little bit," said Philip Shaw, chief economist at Investec Securities.

Shaw also noted that the Ifo indicator of the German business climate rose to a joint 15-year high of 106.8 in November from 105.3 in October. This was ahead of expectations of a slight decline.

The French CAC-40 (FR:1804546: news, chart, profile) dipped 0.51% to 5,424.86.

Shares in Air France-KLM (AKH : air france klm sponsored adr News , chart, profile, more
Last: 41.67+1.37+3.40%4:01pm 11/22/2006 Delayed quote data

InsiderDiscussFinancials

AKH41.67, +1.37, +3.4%) (FR:003112: news, chart, profile) lost 6.5% after Europe's largest airline reported a below-forecast second-quarter operating profit and added to M&A speculation in the airline sector by stating that it had held exploratory acquisition talks with struggling Italian carrier Alitalia (IT:AZA: news, chart, profile) . See full story.

Bush’s Chernobyl economy; hard times are on the way

By Mike Whitney
Online Journal Contributing Writer
Nov 9, 2006

In the next few months, a financial crisis will arise somewhere in the world which will jolt the American economy and trigger a swift and precipitous decline in the value of the dollar.

This is not speculation; it will happen and there is nothing that the Bush administration can do to stop it.

All of the traditional supports for the dollar have been removed by a shrinking economy, a massive $800 billion account deficit, dramatic increases in the money supply, and the reckless manipulation of interest rates.

Now, the noose is tightening. Our foreign trading partners can see that we are bobbing in an ocean of red ink and are refusing to buy back our debt in the form of US Treasuries. This is a death sentence for the dollar. It means that in a matter of months the once-mighty greenback will crash through the floor and free-fall through open space.

Mike Swanson of the WallStreetWindow explains the worrisome details related to last month’s trade deficit, “Just a few days ago the US Treasury reported that the net capital inflows from the rest of the world into the US fell for a 6th month in a row. Private from abroad fell to $34.7 billion in August and from $72.9 billion in July. Asian central banks made up for the shortfall. If they hadn’t the current account deficit would have exploded. The NY Times quoted Ashraf Laidi, a currency analyst at MG Financial Group as saying, 'foreign central banks saved the dollar from disaster. The stability of the bond market is at thee mercy of Asian purchases of US Treasuries.'”

Swanson poses an interesting theory, but it can’t be verified since the Fed stopped printing the M-3 that would provide the relevant facts about the current cash inflows.

Jim Willie of GoldenJackass.com, offers an entirely different theory in his recent article “Spent Dollar Momentum.”

Willie opines, “Behind the scenes are the many illicit London-based firms busily buying US Treasury Bonds with freshly-printed money from the Dept of the Treasury. Their tracks are covered by the blackout on the money supply statistic. (M-3) An isolated US government with a well-oiled printing press as the primary support device makes for a dangerous currency situation.”

Willie’s theory jives nicely with the US Treasury’s figures on the “Foreign Financing of US Government Debt” (June 2006) Surprisingly, between 2005 and 2006, our friends in the United Kingdom purchased another $142 billion of USD bringing their stockpile of dollars to 201.4 billion.

Why?

Why would UK investors suddenly stock up on dollar assets when everyone else in the currency market is moaning about the greenback’s systemic problems?

Could it be that banks in the UK are just hiding the paper trail for friends in America who wanted to forestall a collapse in the dollar until after the election?

Of course there is another explanation for the irregular activity in cash inflows, (purchase of US Treasuries) that is, that we’re still living in a "faith-based" Wonderland where foreign trading partners are only too happy to buy an endless supply of worthless paper from a well-meaning giant who is busy spreading democracy to the "great unwashed" in developing world.

Of course, that is an utter fiction. The world is backing away from the dollar and dollar-based assets while the Federal Reserve attempts to conceal the details until we get through the election-cycle. It's that simple.

There is nothing accidental about the crisis we'll soon be facing. The officials at the Federal Reserve and the US Treasury are fully aware of the devastating effects of massive trade deficits, increasing the money supply, and interest rates. They have set the country on the path to ruin as part of a broader scheme for remaking the global system according to well-known precedents. In truth, the plan to modify the present system has a long history; going back to the 1980s when many of the same actors in government today were in positions of power in the Reagan administration. For the last six years they have been patching together their strategy; producing record deficits, unfunded tax cuts, mammoth government expansion, and doubling the money supply.

Who can possibly argue that they did not understand the implications of their actions?

Did Greenspan know that by lowering interest rates in 2001 to 1.5 percent that he would sluice trillions of dollars into the real estate market, producing the largest equity bubble in history? And, if he didn't know, then how is it that the Fed provides the statistics which actually tell how large the housing bubble is?

Can’t Greenspan read the charts and graphs his own organization puts out?

And why did Alan Greenspan support the “no down payment,” “interest-only” loans and adjustable rate mortgages (ARMs), which allowed “high risk” people to qualify for mortgages when the Fed knew, according to their own figures, that if interest rates went up, foreclosures would skyrocket?

Of course he knew; they all knew. How could they NOT know? They produce the facts and figures themselves! It’s all part of a madcap scheme to shift wealth to the top 1 percent and drive a wooden stake into the heart of the middle class. When Greenspan saw that doomsday was approaching, he got “cold feet” and bailed out. Now the scholarly Ben Bernanke is left to supervise the economic meltdown and face the public scorn.

Trouble Ahead

Currently, the U.S. economy is held together by the slimmest of threads; literally duct-taped together by massaging all the crucial economic numbers, pumping as much cheap fiat-currency into the system, and by "increasingly suspicious" maneuverings in the futures markets. With the elections over, there will be no reason to conceal the rot at the heart of the system. After all, we are not facing an unforeseen catastrophe, but a planned demolition intended to increase the disparity between rich and poor to such an extent that democracy, as we know it, will no longer be possible.

Nothing is more repugnant to America’s ruling elite than the notion that every man, however broke and insignificant, can participate in our system of government.

The Federal Reserve's bloody fingerprints are all over our present dilemma. The privately-owned Fed has never operated in the public interest. By doubling the money supply in the last seven years and keeping interest rates artificially low, the Fed has generated a $10 trillion housing bubble while, at the same time, ignoring a $800 billion trade deficit which is sucking up American assets and crushing American industry at an unprecedented rate.

This massive expansion of debt has increased the likelihood that an unexpected event, like a bank failure or a teetering hedge fund, will cause a major disruption in the markets, sending tremors through the global system. Even if nothing explosive happens, the faltering real estate market will continue to swoon, consumer spending will dry up, and the fragile economy will crash to earth. In fact, this is taking place right now; retail sales are anemic, residential housing dropped a whopping 17 percent in the last three months, and economic growth shrunk to a measly 1.6 percent in the third quarter. The only thing keeping the economy from collapsing entirely is the sudden drop in oil prices that “conveniently” coincided with the midterm balloting.

This won’t last. According to industry analyst Matthew Simmons the world production of oil may have already peaked, setting the stage for a leveling-off period before the inevitable decline. Simmons has data to show that “world supply of oil has declined to 83.98 million barrels per day in the second quarter after hitting 84.35 million bpd in the forth quarter of 2005.” Oil production is going backwards not forwards.

No one believes the price of oil is going down any time soon. As energy prices rise and the housing market falls; consumer spending, which added $825 billion from home equity into last year’s economy, will continue shrivel. Thus, the Fed will have to make the tough choice of whether to loosen the purse strings and lower interest rates to keep the economy sputtering along or ratchet up rates to attract more foreign investment. (Keep in mind that the real estate market is already in retreat, even though the full force of the Fed’s interest rate increases won’t be felt for up to six to 12 months after they have been raised. The worst is yet to come)

Most economists believe that Fed Chairman Bernancke will be forced to lower rates sometime in 2007 to try to stimulate the economy and to affect a “soft landing” in the housing market, but don’t count on it.

I believe the Fed is more likely to either keep rates the same or raise them to outpace the anticipated increases in Europe and Asia. The reason for this is simple: it presently takes nearly $2.5 billion per day to maintain our current account deficit. To continue to attract foreign capital, US Treasuries must offer a higher rate of return than their foreign competitors. Now that the economies in Europe and Asia are growing, their interest rates are going up accordingly (to slow inflation). That means that the only way that America can continue to expand its debt, through the exchange of fiat currency for resources and manufactured goods, is by raising the return on Treasuries. And, that is probably what Bernanke will do, even though it will skewer the struggling American worker and the US economy at the same time.

The secret to running the global economic system is to control the issuance of currency and thereby be in a position to expand one’s own debt as one sees fit. The Federal Reserve must preserve its “dollar hegemony” if it wants to maintain the greenback as the world’s “reserve currency.” To accomplish that, the dollar must stay one step ahead of its competitors (higher rates) and prove that it is on solid financial footing. This is impossible now that the US economy is contracting, so Washington has decided to do the next best thing; corner the oil market. By controlling Middle East oil, US policy-makers believe that they can force foreign nations to accept the debt-plagued greenback regardless of the faltering US economy. It is no different than any other extortion racket.
If the plan succeeds the dollar will remain the de facto international currency. But it is a difficult task and the escalating violence in Iraq suggests that the results are far from certain.

Corporate Colonization

“Free Trade” is the Holy Grail of neoliberalism. It is essentially a public relations scam intended to disguise the shifting of wealth, jobs and resources from either the middle class or the public sector to the corporate and banking establishments.’ Despite the zealous cheerleading of Thomas Friedman and his ilk; the basic facts have been thoroughly examined and are not in dispute. Free trade has been a dead loss for everyone except the people for whom it was originally designed; the wealthiest and most powerful men on the planet. It has served them quite well.

For example, “since NAFTA went into effect in 1994, the US has lost over $4 trillion to foreigners through its trade deficit” . . ."During that 11.5 year period , foreign ownership of US assets skyrocketed an amazing 400 percent from $3 trillion to over $12 trillion” . . ."Foreign interests now own 46 percent of US Treasury debt, 26 percent of corporate bonds, and 13 percent of US corporate equities. Now nearly 100 percent of ongoing borrowings by the government are funded by foreign interests.” . . ."Foreign interests also control a majority of US domestic industries such as movies, music, publishing, metal ore mining, cement production, engine and power plant production, rubber and plastics and are major owners of US industries such as pharmaceuticals, chemical manufacturing, industrial machinery manufacturing, motor vehicles, and electronic equipment and components . . . In addition, the US has lost 3 million manufacturing jobs over the last decade, real wage growth after inflation has been essentially zero,” and personal debt has never been higher. (Data from Thomas Heffner EconomyInCrisis.org)

Since 1980, 13,730 major companies have been sold to foreign corporations. We no longer produce what we need to sustain ourselves.

These facts may have a mind-numbing affect on the reader, but they make a point that is simple and unavoidable. The country is being colonized by corporate predators and its main assets are being sold off to the highest bidder. This rampant carpetbagging is taking place in full view of the American public that still clings to the spurious idea that “free trade” is generally beneficial for all. It is not, and we are about to experience its full-effects as America’s “straw house” economy topples from its loss of manufacturing-capacity and its staggering account imbalances.

“Foreign investors now own 46 percent of US Treasury debt” over $3 trillion dollars! The Federal Reserve and its corporate wolves are planning to prolong the hemorrhaging of US wealth as long as possible, extracting every last farthing from the prostrate corpse of the waning republic.

Now, we are at the brink. Energy prices will go higher after the elections, manufacturing will continue to flag, and the housing Zeppelin is drifting towards the high-tension wires. To make matters worse, the American consumer; the “engine for global economic growth,” is drowning in a sea of personal debt.

There’s no place to go but down.

Every part of this bleak picture was anticipated by its architects. That’s why they hastily slapped together the requisite legislation for a modern day police state. After passing the Military Commissions Act of 2006 (which allows the president the arrest whomever he chooses without charges) and overturning the Posse Comitatus Act (the president is now free to deploy the military within America against US citizens), the Bush administration is as ready as they can be. Apparently, they feel like they can manage the public shock and outrage with detention camps and water cannons.

We’ll see.

In any event, the trap has been set and any minor disruption in the hedge funds or derivatives markets will put the economy into a violent tailspin forcing our "Decider” president to activate his plans for the new world order.

Battle Stations, Battle Stations

Last week an article by Ambrose Evans-Pritchard appeared in the UK Telegraph, where he stated: “[Treasury Secretary] Paulson re-activated the secretive support team to prevent markets meltdown. Judging by their body language, the US authorities believe that the roaring bull-market is just a sucker’s rally before the inevitable storm hits. . . . the plunge protection team is a shadowy body with powers to support stock-index, currency, and credit futures in a crash. Otherwise known as the working group on financial markets, it was created by Ronald Reagan to prevent a repeat of the Wall Street meltdown in October 1987.” . . . Paulson has set up “a command center at the US Treasury that will track global markets and serve as an operations base in the next crisis.” (Members include the heads at Treasury, Federal Reserve and Securities and Exchange Commission)

Evans-Pritchard adds: “Mr. Paulson has asked the team to examine ‘systemic risk posed by hedge funds and derivatives, and the government’s ability to respond to a financial crisis . . . We need to be vigilant and make sure we are thinking through all of the various risks and that we are being very careful here. Do we have enough liquidity in the system?'’”

And, finally, Evans-Pritchard asks, "[Do] Mr. Paulson and Mr. Cox [SEC] know something that we do not: whether other hedge funds are in the same sinking boat as Amaranth Advisors and Vega Management, keel-hauled by bets on natural gas and bonds? Or whether currency traders with record short positions on the Japanese Yen and Swiss Franc are about to learn the perils of the Carry Trade, a high-stakes game of chicken where you bet against fundamentals with high leverage to make a quick profit. Everybody knows it will blow up if the dollar goes into free fall.”

So what is Paulson anticipating?

Gabriel Kolko offers us a clue in a CounterPunch article, “Why a Global Economic Deluge Looms,” “The entire global financial structure is becoming uncontrollable in crucial ways its nominal leaders never expected. Instability is its hallmark . . . Contradictions now wrack the world’s financial system, and if we are to believe the institutions and personalities who have been in the forefront of the defense of capitalism, it may well be on the verge of serious crisis.”

Deregulation and reduced market transparency have created a plethora of financial instruments that are relatively untested and extraordinarily volatile. By eliminating the rules of the game, market savvy investors have raked in the profits but reshaped the economic landscape in a way that no one can predict what the ultimate outcome will be. Hedge funds are now loaded with over-leveraged debt instruments that promise a generous return in an up tempo market, but certain doom in an economic downturn. Now, that all the arrows are pointed towards recession, the devastating effects of this new “liberalized” system will be felt throughout the global economy.

No one knows what is in store for these high-risk hedge funds which have only been in existence for a short time and into which Americans have dumped trillions of their hard-earned savings. As Kolko says, “The credit derivative market was almost non-existent in 2001, grew fairly slowly until 2004, and went into the stratosphere, reaching $17.3 trillion by the end of 2005.”

Is it any wonder why the main players at the Fed, the Treasury and the SEC are feeling a bit jittery?

Any shock to the markets could set off a system-wide catastrophe. Just this week, for example, Taiwan was bracing for a stock market crash following the surprise indictment of first-lady Wu Shu-chen. Even relatively small incidents like this on the other side of the world create the potential for contagion that can spread rapidly in this new world of globalized markets. The danger is even greater when those markets are built on foundations of sand.

Hank Paulson was doubtless selected as Treasury secretary as the best possible “industry-insider” to oversee the unwinding of America’s humongous account imbalances and flimsy “deregulated” markets. His job is to ensure that, at the end of the day, US banking giants, the Federal Reserve, and western elites still control the global economic system and that the dollar reigns supreme. Whatever happens to the American middle class in the process is of no consequence.

But Paulson faces an insurmountable task from this point on; fudging the numbers only works for so long. So far, the greenback has benefited from the manipulation of oil prices, but that will soon end. (Better “fill ‘er up” now) The US economy is a shriveled shadow of its former self; housing and manufacturing are in a shambles and growth depends entirely on the expansion of debt. As GDP begins to nosedive, foreign investment will dry up, capital will flee to more promising markets in Asia and Europe, and the American people will totter into a barren world of soaring unemployment, hyperinflation, and 1930s type deprivation.

Unsurprisingly, the Bush administration still believes that their plan to remake the world’s strongest economy into a corporate fiefdom is a prudent way to meet the exigencies of the new century. Their foolishness defies description.

The country is now facing a Chernobyl-type meltdown and there’s nothing we can do to stop it. The foundation blocks for sound economic growth and prosperity have been replaced by a misguided faith in military adventurism and police state repression. The results are plain to see.

We are now more vulnerable to a seismic economic event than anytime since the Great Depression. The corporatists and the money-enders have absconded with the nation’s wealth; gutting the manufacturing sector, creating enormous equity bubbles, and raffling off our vital industries to foreign predators. Their unchecked avarice has left the country teetering on the verge of ruin. At the same time, the Bush administration has sown dragon's teeth across the world; leaving the US with precious few friends who will throw us a lifeline when the ship starts listing.

Hard times are on the way; only this time it’ll be detention centers instead of soup kitchens.


Mike Whitney lives in Washington state.
He can be reached at: fergiewhitney@msn.com.
Copyright © 1998-2006 Online Journal
Email Online Journal Editor

Housing Slumps, Market Slumps and Recessions

Fortune on CNNMoney.com
November 4, 2006
By Jon Birger

Real estate downturns have a way of leading to recessions and stock market slumps. So far the damage has been limited, but the numbers keep getting worse, says Fortune's Jon Birger.

Tucked away in the briefcase of Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., is a chart so scary she's hesitant to show it to investors. It plots the National Association of Home Builders' Housing Market index - a monthly measure of builder confidence - against the Standard & Poor's 500 stock market index, with a one-year lag.

It turns out that the mood of builders is a terrific stock market bellwether: The correlation between current builder confidence and future stock market returns over the past ten years is downright unnerving.

Not only did the NAHB index presage the start of the post-1994 bull market in stocks, but its decline starting in 1999 foreshadowed the equity market collapse that came the following year. Builder confidence rebounded in November 2001 - a year ahead of the stock market upswing that began in October 2002.

Why is Sonders worried now? Just look at the chart. Over the past year, the NAHB housing index plummeted 54 percent. Were stocks to follow suit, the S&P - 1400 in late October - would be trading below 700 this time next year.

Sonders isn't predicting anything so apocalyptic, but she doesn't hide her concern about housing and her pessimism about stocks.

"In terms of consumer spending, I don't think we've felt anywhere near the brunt of all the adjustable-rate-mortgage resets and the massive increase in defaults and foreclosures in states like California," she says. "Housing downturns happen in a fairly slow-motion way, and I really think we're just at the beginning of the impact on the market and the economy."

The latest omen: GDP grew at its slowest pace in three years in the third quarter, hurt by the housing slump.

Such bearishness flies in the face of the euphoria now rampant on Wall Street. The Dow Jones industrial average keeps hitting new highs, and the S&P is a stone's throw away from its own record (although in inflation-adjusted terms, they're still below their peaks).

Third-quarter earnings? One report seems better than the next, with key companies like Google (92 percent profit growth), IBM (54 percent), and Bank of America (41 percent) all posting stellar numbers.

"The effects of the housing correction will be entirely contained within the housing sector," says Mike Englund, chief economist of Action Economics. Corporate balance sheets are stronger than they've been in years, with U.S. companies sitting on $600 billion in cash. Interest rates are stable, and may decline. Falling energy prices are easing the burden on energy-intensive industries like chemicals and airlines.

And as PNC chief investment strategist Jeff Kleintop points out, there have been only two midterm election years since World War II when the stock market did not stage a fourth-quarter rally. The bulls' bottom line: Housing may be a risk factor, but there's too much other good news for it to be the catalyst for a recession or stock market meltdown.

That may turn out to be wishful thinking. All the economic activity generated by home sales - new mortgages, realtor fees, outlays to painters and handymen, the inevitable shopping trips to Home Depot and Best Buy - played a huge part in digging the economy out of a recession in 2001 and 2002. Given the importance of home sales on the way up, it may be shortsighted to minimize their importance on the way down.

"The historical record is extremely negative in terms of what comes next," says economist Ed Leamer, director of the UCLA Anderson Forecast. "We've had 11 sharp declines in the housing market since World War II, including this one. Eight of the last ten were followed by a recession."

For now, there's little hard evidence that the housing slowdown is dragging down the economy. Construction materials like concrete, wallboard and structural steel should be the canaries in the economic coal mine, yet their prices keep climbing.

Construction-related employment has been rising too - up fractionally from August to September and up 3 percent over the past 12 months, according to the U.S. Bureau of Labor Statistics.

But folks in the trenches paint a much darker picture, lending credence to the idea that we're living through the lag - the period before the realities on the street show up in economists' spreadsheets.

Business is so bad for real estate brokers that Steve Murray, a realty consultant and publisher of the Real Trends newsletter, thinks the industry might end up paring 15 percent of its workforce. That equates to 200,000 agents, which is more than the total layoffs at Ford Motor Co. since 2000.

"I don't think the macro statistics reflect accurately what's going on in many local markets," says Bruce Karatz, CEO of national home-builder KB Home. In many once-hot regions, order cancellation rates are running above 40 percent, new-home sales volume has dropped 50 percent, and new-home prices are down 10 percent to 25 percent. Karatz says the current downturn is worse than any he has seen - even the early 1990s market that left so many big builders reeling.

If housing starts and sales were the only casualty, the economy probably wouldn't be in such peril. Gary Gordon, an executive vice president at mortgage investment firm Annaly Capital and a former chief U.S. equity strategist at UBS, expects construction to fall to 4 percent of gross domestic product from 6 percent today - itself not enough to push the economy (now growing at a 2.6 percent annual rate) into recession.

The big risk is the ripple effect. Consider Annamarie and James Vasiloff, a New Castle, N.Y., couple who until recently had been shopping for a bigger home. Had they found the right one, Annamarie says, they were prepared to spend a few thousand dollars on new furniture. But frustrated with high prices and worried that real estate was about to crash, they put their home search on hold.

Housing turnover is a leading indicator of furniture sales, which is why analysts keep trimming earnings estimates for home furnishing retailers like Pier 1 and Ethan Allen.

Another big concern is what happens if consumers can't keep using their homes as cash machines. By Gordon's estimate, U.S. homeowners pulled more than $450 billion in equity out of their homes last year and are on pace for a similar bonanza in 2006.

But with home values falling, homeowners may lose that source of ready spending money. Should cash-out refinancings fall back to 2001 levels, he estimates, it would drain $300 billion from the economy - which would have roughly the same impact as a $60 jump in the price of a barrel of oil.

And that doesn't include the added bite when homeowners who took out adjustable-rate mortgages a couple of years ago face rate resets that raise their payments.

It's hard to overstate the damage of losing so much potential buying power. Merrill Lynch economist David Rosenberg has argued that cash-out refis were the only reason the economy weathered the gas-price hikes this year and last. Gordon is so worried about the disappearance of cash-out refi money that he's predicting a recession in 2007 or 2008.

When stock investors hear dire warnings like this, one natural response is to get defensive. That's tricky when some signals - namely equity markets hitting new highs - are bullish.

The smartest (and safest) way to protect a portfolio against a real-estate-fueled slowdown may be to shift some assets to intermediate-term bonds (which would benefit if the Federal Reserve starts cutting rates next year to spur growth).

A more aggressive tactic would be to start bargain hunting among troubled housing stocks. This approach is obviously for only the patient and steely-nerved.

Even some badly battered stocks may have further to fall, while others haven't been battered enough. With that caution in mind, here's a look at the prospects for seven prominent stocks in three housing-related sectors.

Homebuilders

Stocks like KB Home, DH Horton, and Lennar are all trading at four or five times their earnings for the past 12 months - making homebuilding the cheapest sector in the S&P 500. Problem is, P/Es are meaningless if you can't predict the "E."

Bruce Karatz, KB's CEO, thinks it will be next summer at the earliest before homebuilders work through all existing inventory. In the meantime, he's hopeful that a big upswing in free cash flow - builders have essentially stopped buying new land - will get companies like KB back into Wall Street's good graces.

If not, don't be surprised if some builders emerge as takeover candidates. One investor to keep an eye on is Warren Buffett. His company, Berkshire Hathaway, has been nibbling around the edge of the housing industry for years, with various acquisitions.

A bargain-priced homebuilder would fit nicely into Berkshire's portfolio - something that has occurred to Karatz, though he hastens to add he is not talking to Berkshire about selling KBH. "I'm very good friends with [Berkshire vice chairman] Charlie Munger, and I just know he's a very astute student of real estate markets," says Karatz.

Mortgage lenders

With homebuilders, an argument can at least be made that much bad news is already priced into their stocks. The same can't be said of mortgage lenders. This year, shares of Washington Mutual and Countrywide Financial have returned 3 percent and 11 percent, respectively, despite questions about how they'll fare during the housing downturn.

Not only is there the likelihood of declining: mortgage and home-equity-loan origination but they face increased credit risks as well, particularly if a weakening economy sparks defaults. UBS analyst Eric Wasserstrom is already predicting a 40 percent increase in credit losses at Washington Mutual in 2007.

Countrywide Financial is even more mortgage-dependent than WaMu. Bank of America analyst Robert Lacoursiere, who has a neutral rating on WaMu, calls Countrywide a sell, citing a cooling housing market and the likely downturn in mortgage originations. So we'd avoid these stocks for now.

Home-improvement stores

We recently recommended Home Depot as a potential long-term play for patient investors. Trading at 11 times estimated 2007 earnings, the stock already reflects a lot of pessimism. While the price may drop further - the company's earnings tend to rise and fall with home sales - Home Depot is using its ample cash to revamp stores, make strategic acquisitions, repurchase stock, and boost its dividend.

Home Depot's archrival Lowe's has its own virtues, including brighter, friendlier-looking stores. The stock is trading at 14 times this year's estimated earnings, its lowest valuation since 1991.

Lowe's smaller size - 1,300 stores nationwide, vs. 2,100 for Home Depot - makes it easier to open new stores without cannibalizing existing ones. And according to Morgan Stanley analyst Gregory Melich, Lowe's has significantly less exposure than Home Depot to extreme "bubble markets" like San Diego and Miami.

Analysts expect Lowe's to earn $2.20 a share this year. Were the market to bump Lowe's P/E back to 18, that would translate to a share price of $40, up from $30 today.

Some real estate stocks are still sizzling

The housing market may be sagging, but you wouldn't know it from the stellar performance this year of real estate investment trusts. Some of the big winners: Equity Office Properties (EOP) and Vornado Realty Trust (VNO) have both gained 39 percent; Simon Property Group (SPG) is up 26 percent. REIT Mutual funds like Cohen & Steers Realty (CSRSX) have soared as well.

Most REITs fall into one of two categories -office REITs that own and manage commercial properties and residential REITs that specialize in apartment buildings.

Office REITs are benefiting from the flood of private-equity money bidding up building prices. The impact of private equity has been less pronounced on the apartment side, but there the cooling housing market has actually helped, encouraging more people to rent rather than buy.

The problem is, REIT share prices have been rising faster than earnings. As a result, the rich dividend yields that are REITs' calling cards aren't so rich anymore, with Equity Office Properties and Vornado yielding 3.1 percent and 2.8 percent, down from their ten-year averages of 6.4 percent and 4.8 percent, respectively.

The last time Equity Office's yield was this low was early 1998, a year the stock fell 16 percent.

To read the entire article, in its original context, Visit:
Yahoo Finance:
http://biz.yahoo.com/weekend/ecslump_1.html