Thursday, February 24, 2011

Population Growth Vs. Oil Production

New Homes Sales January Plunge

New home sales fell 12.6% from December to January down to a 284,000 seasonally adjusted annual rate.

Less than 500 homes sold during the month above $750,000.

Only 19,000 homes sold during the month, the lowest number in history.

No words can describe how bad it is, only a picture:

Wednesday, February 23, 2011

Sprott On Silver

The following are highlights of a presentation that billionaire Eric Sprott gave during a Casey Research conference last fall.

Sprott launched the PSLV physical silver trust a few months ago.

The presentation is fantastic, and finishes with......

"There are approximately 1 billion ounces of silver above ground to purchase.  About which the ETF's already own half, and between you guys and us (Sprott Asset Management) we probably own the other half."

"Which means there is nothing left."

$100 Oil Crossed

I go to the grocery store every day during my lunch hour at work and I usually have a pretty steady routine of what I order.  Some days it's baked chicken and vegetables, other days I get a roast beef wrap.

Today I decided to go with the wrap and was surprised at checkout to find out the price had risen from $5.99 to $6.99.  The lady at the register told me the price had gone up this morning on all subs.

A 16% increase.

This is the new reality of stagflation in America.  The economy does not improve fundamentally in terms of job creation, but the cost of living has now begun to rise.

During the initial stages of inflation everything feels good.  Stock prices begin to rise, optimism enters all asset markets, and banks enjoy the ability to borrow at 0% and invest at a higher rate.

The problem is that money is like water flowing down a stream.  The Federal Reserve can pump trillions of printed dollars into the economy, but they cannot control where it goes once it gets there.

During the 1990's it went into the stock market.  In the 2000's it went into real estate.  In this decade I believe it will move into commodities, where it found a home during the second half of 2010 and has not stopped flooding in.

Agriculture (food), Energy (gasoline), Metals (gold), Cotton (clothes), and just about every tangible good in the world has surged in price over the last 9 months.

There are two problems with this:

1.  Inflation cuts into company "margins."  Let's say my grocery store was making $2.00 on every sub they sold at $5.99.  With food prices surging they are now only making $.30 cents and were forced to raise prices to $6.99.  This price increase means they will sell less subs at a lower margin = lower total profits.

2.  The poor around the world who can barely survive now cannot survive.  A protester in Tunisia on January 3rd of this year set himself on fire in protest of rising food prices.  The protester in Tunisia is now considered the spark that created the revolution in Egypt, which has since spread across Africa.

While the media cannot connect the dots, our Federal Reserve is the direct link to food prices rising around the world.

The first part of the inflation process (stock and real estate prices rising) is the "good" part of inflation.  The second part, the cost of living rising, is the "bad" part.

We have reached the second stage, called stagflation by the market, and we have a Federal Reserve Chairman in Ben Bernanke that will not slow the printing press for a second, even as millions die of starvation around the world, to ensure that the bankers here in America continue to collect above $700,000 in total salary every year.

We can only hope that the confidence in our debt markets for our bankrupt country can hold on for just a little longer.  When the confidence is removed from a bankrupt country, well, I can just show you what it looks like with a live video stream of the streets of Greece just this afternoon.

The person set on fire is a Greek police officer.....

Tuesday, February 22, 2011

Home Prices Accelerating Downward

Case Shiller released the home price index this morning for the month of December, which is an average of October, November, and December.

The index was down 3.9% in the fourth quarter and shows the month over month declines accelerating.

11 cities reached new post bubble lows, and the index is now down 31.2% from the bubble peak.

Robert Shiller, creator of the index, sees “a substantial risk” of declines of “15 percent, 20 percent, 25 percent.”


Monday, February 21, 2011

Presidents' Day Oil Explosion

The markets were closed for Presidents' day so there was little notice to what was taking place overseas with countries around the world in full revolution.

This movement has begun with smaller nations, but will soon move toward larger countries (such as the Eurozone) as the sovereign debt crisis picks up steam.

Angela Merkel lost a key vote in Germany this week with the new "no more bailouts" campaign now front and center.

The coming Irish elections will be an important event to watch as the favored party has now announced they want to re-structure the bail out that was put in place a few months ago.

This will not stop the bail outs from occurring, it will just change who picks up the tap.  The ECB (their version of the Federal Reserve) will just begin to purchase all government bonds around the Eurozone with the printing press.

This is what we do here in the United States.  The Federal Reserve is currently purchasing 100% of our deficit through the first half of the year and the announcement of QE3 in June will confirm they will purchase the rest.  It is a far easier tactic than trying to convince to people to pay for it.

Is there any consequence for this type of action?

Pull up a chart of oil and silver in today's overseas trading and you will see the consequences.

Oil up 10% on the day.

Silver just crossed $34 and has begun to move violently upward.

Stocks are down in futures market.

Flipping In Brazil

From the Financial Times this weekend:

Alexandre, a 37-year-old textile engineer from Morumbi, a smart neighbourhood of São Paulo a few miles north of the city’s Jardim Angela favela, has bought a penthouse apartment that is still being built but he is already thinking of selling it.

“I bought my first place in Morumbi in 2006 for R$100,000, sold it for double in 2010, signed up R$500,000 for this place in September and it’s going to get even higher when it’s finished,” he explains. “If I keep doing this I won’t even have to go to work any more.”

Oh no.  If only he could visit one of the flippers from California, Florida, or Las Vegas to hear how this story ends.

Brazil is a country that is importing America's inflation.  Similar to China, a great deal of the money is being pumped into real estate.