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Giving Homes Away

"Senator Sherrod Brown, D-Ohio, left, accompanied by Sen. John Kerry, D-Mass., gestures during a news conference on Capitol Hill in Washington, Tuesday, June 24, 2008, regarding the housing and mortgage crisis on Capitol Hill in Washington. (AP Photo/Charles Dharapak)"


Summary

A massive foreclosure rescue bill cleared a key Senate test by an overwhelming bipartisan vote of 83-9. Next steps include complete passage by the Senate, reconciliation with the House version, and submission to President Bush who has vowed to veto it.

The measure would let the Federal Housing Administration back $300 billion in new and cheaper home loans for an estimated 400,000 distressed borrowers. These homeowners normally would be considered too risky to qualify for government insured fixed-rate loans.


What This Really Means

During the days of sub-prime easy money, homeowners were given loans that they later were unable to pay back.

These same homeowners are unable to qualify for "normal" government-backed loans.

But instead of letting the homeowners foreclose on the homes, and letting the banks get what they deserve, Congress has decided to let the FHA provide new loans to these homeowners.

And if the homeowners get in trouble again, that is no problem for the FHA. The taxpayer will come to the rescue.

So as Agora's 5 Min. Forecast said today, "Congress is creating a “super-subprime” class of homeowners… putting a taxpayer backstop behind a group of borrowers who have proven they can’t afford their mortgages."

Weekend Trivia: Sunday Marks One Year Of What?

Answer
Today will mark the completion of one year for my blog.


Accomplishments, Problems and Plans

I'm happy and proud to say that I was able to publish something every single day this past year. Special thanks to my guest writer (TL) who did help me out upon several occasions.

Looking back on my postings, I'm surprised at the amount of material and the quality of the content that I was able to publish. Writing has never come easily to me. I've always preferred math over reading and writing.

While I think that there is a critical message tied up in all of these postings, I think that I need to do a better job of coordinating and summarizing all of this information. The blog tends to read like too many random postings.

I also think that it is now time to market this blog to a much wider audience.

With these improvements in mind, I plan to take this blog in a different direction. Stay tuned for more details.


Favorite Postings From The Past Year

---Weekend Trivia Question: 02/10/08 discussion of the tulip bulb mania

---Weekly Chart: 06/25/07 discussion of world population trends

---Fun Money: 10/21/07 discussion of Quasi Universal Intergalactic Denomination money

---Worthless Money: 05/22/08 discussion of Zimbabwe's $500,000,000 note that is worth about $2 US

---Most Interesting: 06/10/08 discussion of abandoned property

---Best Editorial: 01/15/08 discussion on sharing the blame for the sub-prime mortgage crisis

---Long Term Trends: 03/05/08 discussion of the falling dollar over the past 138 years

---Government At Its Best: 10/24/07 discussion of ethanol politics

---Scary Implications: 08/12/07 discussion of our military being active in 148 countries

---Panic: 09/19/07 discussion of a run on the bank at Northern Rock

---Big Numbers: 02/07/08 discussion of the $1 quadrillion derivative exposure

---Most Disturbing News Item: 12/12/07 discussion of the $19 million sexual-discrimination verdict awarded to the Fresno State University basketball coach

---Naive American Public: 04/24/08 discussion of a chain letter proposal to lower oil prices

---Outstanding Question: 11/01/07 discussion on the future of the petrodollar

---Long Term Prediction: 04/22/08 discussion of crude oil hoarding

---Best Investment: 11/04/07 discussion on how to invest in gold

---Hope For America: 06/18/08 discussion of the entrepreneur spirit in the country

And More June Quick Hits

ENERGY MARKETS

---On Monday, Crude oil prices peaked at $139 per barrel and unleaded gasoline prices peaked at $4.08 per gallon. Prices have been very volatile all week, but generally flat.

---Breitbart.com reported that "OPEC president Chakib Khelil said on Friday it was illogical an irrational to ask the oil cartel to increase output so as to take the pressure off soaring prices."

---China raised gasoline and diesel prices by 18% this week. This was the first increase in eight months and the largest increase on record. Reaction was the same as in the US.

---The Federal Highway Administration reported that for the six months ending in April, a total of 30 billion less miles were driven on our roads. This 1% drop is the the biggest since the Iranian revolution in 1979.

---AP reported that San Diego residents are increasingly going to Tijuana, Mexico to fill up their car with $2.54 a gallon gasoline.

---Legendary oilman T. Boone Pickens said the import of foreign oil is "the biggest transfer of wealth in the history of mankind."


COMMODITY MARKETS

---Agriculture prices continue to increase, primarily due to the flooding in the Midwest. Corn set an all-time record price on Monday.

---The Financial Times reported that "US meat, dairy and poultry producers yesterday urged regulators to re-examine ethanol mandates, which are tightening limited grain supplies and forcing a run-up in feedstock prices that threatens their livelihoods."

---The newspaper also reported that Mexico is freezing the cost of 150 basic food stuffs in an effort to combat rising inflation. Unfortunately, the history books are filled with examples of the futile efforts of price controls.

---Stock markets around the world are down sharply this week over continued worries about commodity prices and inflation in general.

---Obviously, Kellogg is being impacted by higher agriculture prices. But instead of raising prices, they announced instead that they would reduce the size of boxes by an average of 2.4 ounces for 14 items.








CONFLICTING OPINIONS

---Telegraph.co.uk reported that "The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.....Such a slide on world bourses would amount to one of the worst bear markets over the last century."

---In an opposing opinion, the World Bank raised the outlook for China with a forecasted GDP growth of 9.8% this year.


ECONOMIC INDICATORS

---Wholesale prices (Producer Price Index) increased 1.4% in May, contributing to an increase of 7.2% over the last year. The core rate (excluding food and energy) only rose by 0.2%, but this is not exactly relevant in our everyday lives.

---The European Union's statistical office reported that Eurozone inflation increased to 3.7%, the highest level in 16 years.

---The Conference Board reported that the leading economic indicators rose at 0.1% in May, equaling the 0.1% increase in April and up marginally from the 0% change in March. Cannot get much flatter than this.

---A survey by the Business Roundtable showed the the CEO Economic Outlook is currently at a five-year low.

---And finally, none of this is lost with the American public. An AP-Ipsos poll showed that 80% of the country believes that the country is moving in the wrong direction. This is the lowest level in the five year history of the poll.


REAL ESTATE

---The Commerce Department reported that the number of new housing starts fell in May to the lowest level in 17 years.

---In the Sacramento metropolitan area, home sales inched upward for the second consecutive month, recording their highest level in 20 months. But particularly disturbing is the fact that 51% of existing home sales were foreclosures that were owned by banks. Homes are moving, but prices are in a free-fall.

---YahooNews reported that "More than 400 real estate industry players have been indicted since March - including dozens over the last two days - in a Justice Department crackdown on incidents of mortgage fraud nationwide that stem from the country's housing crisis."

---The Tampa Tribune reported that "Condo Company Unwraps Plan For Clothing-Optional Pool.....Swimmers will have the option of wearing nothing at all at the Arbors at Branch Creek, a complex of 390 homes that landed on the idea to help move units in a down market."


OTHER INTERESTING ITEMS

---Burger King introduced a $190 burger in London which features Japanese Wagyu beef, an Iranian saffron bun with organic mayonnaise, white truffles, pink Himalayan rock salt and onions fried in Cristal Champagne. All proceeds are going to a charity that helps London's less advantaged children.

---Breitbart.com reported that "A luxury flat in Hong Kong has sold for 225 million Hong Kong dollars (28.8 million US), the most expensive apartment per square foot ever sold in Asia."

---The internet continues to play havoc with the music industry. The Financial Times reported that sales of physical music (mostly CDs and music DVDs) declined by 13% during 2007.

---Telegraph.co.uk reported that "Martha Stewart has been refused a visa to Britain because of her criminal convictions for obstructing justice."

---In a followup to previous postings, Senator Arlen Specter has finally agreed to let go of Spygate. Apparently the government has figured out that there are more urgent problems in this country than a football scandal.....it took almost a year to figure this out.

---YahooNews reported that "In this Oct. 28, 1958 file photo, professional golfer Sam Snead gyrates with a hula hoop on the golf course in Miami Springs, Fla. It's hard to believe in age of action-packed video games and other whiz-bang gadgets, the Hula Hoop once was the hippest toy around. The hoopla started 50 years ago Thursday, June 19, 2008 when entrepreneurs Richard Knerr and Arthur 'Spud' Melin sought a trademark for a plastic cylinder that had inspired by a similar toy that had enjoyed modest success in Australia's school yards. (AP Photo)"

Drastic Measures For A New Energy Policy

It's amazing what $4 a gallon gasoline will do. The entire country is in a panic. CNBC now has a permanent ticker called "America's Oil Crisis." After decades with essentially no energy policy for the country, the politicians are suddenly making headlines in an attempt to fix the problem.

Yesterday, I think that I may have heard the best idea for a new policy since I was waiting in gas lines during the last oil crisis in the 1970s.

Also yesterday, however, I heard perhaps the worst idea for an energy policy. This makes a "no energy policy" seem like a wonderful thing.


Resurrection Of Nuclear Power

YahooNews is reporting that "Sen. John McCain called Wednesday for the construction of 45 new nuclear reactors by 2030 and pledged $2 billion a year in federal funds 'to make clean coal a reality,' measures designed to reduce dependence on foreign oil.....

He said he would set the country on a course to build 45 new ones by 2030, with a longer-term goal of adding another 55 in the future"


The National Oil Refinery Of The United States

Responding to President Bush's call for Congress to lift the moratorium on offshore drilling, House Democrats called for nationalization of oil refineries.

FoxNews.com is reporting that at an off-camera briefing, "Rep. Maurice Hinchey (D-NY), member of the House Appropriations Committee and one of the most-ardent opponents of off-shore drilling [said] We (the government) should own the refineries. Then we can control how much gets out into the market. [emphasis added]....

Rep. Rahm Emanuel (D-IL) [said] They (Republicans) have a one-trick pony approach.....

Rep. Nick Rahall (D-WV), Chairman of the Resources Committee [said] You cannot drill your way out of this."

The stupidity of these remarks cannot be overemphasized.

Crude oil goes into a refinery and gasoline comes out of the refinery. The refinery operations are not the reason prices are going thru the roof. In fact, refinery companies have suffered during this crisis as their margins have been squeezed.

And who really believes that the government and all their bureaucracy can run a company more efficiently than the private sector?

As I'm reading this, I have thoughts of Chavez and how he has run the Venezuelan National Oil Company into the ground.

As this blog has highlighted in many postings, there are numerous culprits for the current energy crisis. In my humble opinion, however, Congress is at the top of the list. They've had no energy policy and their mismanagement of the dollar is the biggest reason for the increase in gasoline prices. Prices are actually flat when measured in terms of gold. And if you use the government formulas for determining inflation from the 1980s, inflation-adjusted oil prices have actually declined over the last 30 years.

You have to ask yourself what this country is all about: Do we support a free market economy, or are we to become a socialist state? Everyone will have a vote in November.

The Entrepreneur Spirit Is Alive And Well

As this blog has attempted to demonstrate over this past year, our country faces many complex and challenging problems.
I've been accused of being too critical at times, but my response has been that I'm just presenting a realistic analysis of the problems out there. It is my strong belief that if we are going to move forward, it will be led by the small businesses of America.

I had the opportunity to attend "The New California Hall of Fame Celebration" last night. This annual event was hosted by Golden Capital Venture Funds and recognizes business leaders in the Great Central Valley of California. These top 100 companies generate more than $50 billion annually in revenue and employ more than 250,000 people.

It is often said that the foundation of our country is made up of small businesses. This was very apparent at this event. While some of the names are very recognizable, most are not household names. But that doesn't take away from the great things that these companies are doing.

The entrepreneur spirit helped build our country. This event demonstrated that the entrepreneur spirit is still alive and well. If the government can stop itself from interfering, there is hope for the country.

Ross Perot Is Back With His Charts

Remember Ross Perot when he ran for president in 1992 and 1996? He may be best remembered for his charts. While the public tended to laugh at these charts, I thought they did a great job of demonstrating his points. As they say, a picture is worth a thousand words.

Well, Ross Perot and his charts are back.


Website Launched Yesterday
According to the press release on PerotCharts.com:

"Ross Perot Launches Public Information Website About U.S. Economic Crisis

PerotCharts.com Illustrates that We Are Running Out Of Time to Stop Deficit Spending

DALLAS, TEXAS - JUNE 16, 2008 /PRNewswire/—Ross Perot, business leader and former presidential candidate, announced today the launch of 'PerotCharts.com,' a public information website that contains objective, factual information about the current economic crisis in America. The site is being launched as an alert and appeal for American citizens to inform themselves about federal government spending. Perot said, 'The U.S. national debt reached $9.4 TRILLION on April 30, and it is increasing by more than $1 billion every day. We are leaving our children and grandchildren with debt they cannot possibly pay.'

PerotCharts.com consists of three major components: a video featuring Ross Perot discussing the purpose of the website, a blog where new charts and other information are posted daily for study and comment, and a narrated chart presentation explaining the economic problems our country faces.

The website is not affiliated with any political party or candidate. Most of the data and research for the charts is gathered from official government sources.

'The economic crisis facing America today is far greater than anything since the Great Depression,” said Perot. “Our federal government continues to spend us deeper into debt. The American people must get directly involved and demand an end to deficit spending. This website will provide information for citizens to do just that.'"


Example Of What Can Be Found On Website




Launch Includes Charts In Following Categories:
Budget Deficit, Challenges, Education, Federal Budget, Gross Domestic Product, Healthcare, Medicare and Medicaid, National Debt, Population, Savings, Social Security and Taxation


Check It Out
An initial review of the site is very impressive. Just as exciting to me is that the theme is very similar to what I'm attempting to present in this blog.

Weekly Chart: Corn Prices Continue To Set Records

Chart: Chicago Board of Trade; July 2008 Corn Contract


















Corn Cannot Catch A Break

First, it was the biofuel program; corn farmland was diverted to the production of ethanol.

Then, it was higher fuel costs; surging diesel costs made it more and more expensive to grow corn.

After that, inflation began to impact other raw materials for farmers; fertilizer costs have gone thru the roof.

And now, the Midwestern floods of 2008 have wiped out many of the corn and soybean crops.

Is it any wonder that corn prices have skyrocketed to new records on a daily basis? It is simple supply and demand.


Surging Prices

Friday's trading action saw corn prices higher for the 12th straight consecutive day, including seven consecutive days of record closes. Corn for July delivery closed at $7.32 per bushel on Friday.

In early trading today, corn jumped 3% to a new record, before settling back.

Weekend Trivia: What Is The Misery Index?

Defintion

Misery Index (9.7 = Unemployment rate (5.5) + Inflation rate (4.2)

According to the official Misery Index website, "The misery index was initiated by economist Arthur Okun, an adviser to President Lyndon Johnson in the 1960's. It is simply the unemployment rate added to the inflation rate. It is assumed that both a higher rate of unemployment and a worsening of inflation both create economic and social costs for a country. A combination of rising inflation and more people of out of work implies a deterioration in economic performance and a rise in the misery index."

The website has quite a bit of historical detail and analysis.


Today's Status














Source of charts: WSJ

During the last ten days, the government has reported that between April and May, 1) unemployment increased from 5.0% to 5.5% and 2) inflation (CPI) increased from 3.9% to 4.2%. With these deteriorating numbers, the Misery Index is getting renewed attention.






Additional Information
For additional information on the Misery Index, check out Wikipedia.

Weekend Trivia: What Is The Misery Index?

The answer will be published in the Sunday posting.

More June Quick Hits

COMMODITY MARKETS

---After crude oil set an all-time high of $139 per barrel one week ago, gasoline prices immediately jumped to a national average of $4 a gallon and have continued to rise throughout the rest of this week.

---Gazprom, the Russian national oil company, predicted that crude oil prices will reach $250 per barrel next year. The Gazprom CEO said that "There is a certain influence from speculators, but this is not a determining influence.....The competition for resources is growing and the tendency is very noticeable."

Noticeable by everyone except American politicians.

---Politicians are getting very creative in their futile attempt to respond to the higher energy prices. The Minneapolis City Council is considering a law which would limit idling in a car to three minutes. My first response was that they may want to help us by cutting back on the length of time spent waiting at traffic lights.......or even better, how about synchronizing traffic lights.

---In a CNN poll, 83% of Americans consider $4 gasoline "a major problem or crisis." I can hardly imagine what they will think when they have to pay $10 per gallon prices like our friends in Europe. As they say, we haven't seen nothing yet.

---Corn prices surged past the psychologically important $7 per bushel level this week and traded at an all-time record of $7.255 on Thursday. As the WSJ reported, "Keeping the heat under food prices, the Agriculture Department trimmed its one-month-old forecast of the U.S. corn harvest by 3.2% because of a rain-delayed planting season in parts of the Midwest." No doubt this week's flooding problems will make the situation worse.

---Other agriculture products setting new record CBOT contact prices this week include Soybean Meal, Cocoa and Sugar.


ECONOMIC INDICATORS

---The Labor Department reported that the Consumer Price Index (CPI) rose by 0.6% in May, and 4.2% for the past twelve months. Among the slew of numbers reported, one interesting piece of data showed that the price of imports, excluding oil, rose by a 20-year high of 6.6%. Thanks again to the weak dollar.

---The Federal Reserve's "Beige Book" collection of regional reports indicated that the economy was "generally weak."

---RealtyTrac reported that the number of foreclosures rose by 48% in May vs one year ago, and up 7% from the prior month.

---On a more positive note, the stimulus checks are being given credit for the surprising 1% increase in retail sales in May.


AMERICA ON SALE


---Reminiscent of the purchase of Pebble Beach by the Japanese in 1980, foreigners are once again buying up American trophy properties. The Chrysler Building in NYC is being purchased by Abu Dhabi Investment Council. The Flatiron Building, also in NYC, is being purchased by an Italian investment fund.

---As forecasted two weeks ago, InBev SA of Belgium formally made a $46 billion buyout offer for Anheuser-Busch.









---Despite this hard evidence of the declining dollar, however, there is no need to worry. President Bush said this week that "A strong dollar is in our nation's interests."

Your weekly art news

The subject of contemporary art has made a few appearances on Financial Clues and, big surprise, here it is once again. Art Basel, the world's largest art fair, was held in Switzerland last week and did very well despite a 20-50% drop in US attendees.

Art Basel, Buoyed by Global Buyers, Escapes U.S. Economic Woes

U2 to sell $12m Basquiat

-RL

Abandoned Property

I have come across a few interesting sites on the Internet that document abandoned properties. Many of these urban explorers adhere to a strict code and do not vandalize the properties and do not disturb or steal anything inside.



The photograph above is of an abandoned resort outside of Taipei in the city of San Zhi. There are many theories as to why the property was never used and abandoned but nothing too certain. Some believe it was a construction accident that left the resort haunted while others believe it was the victim of a real estate bubble.

More photos: http://www.flickr.com/photos/yusheng/sets/72157594518737058/
















This is a stunning image of the 105 story Ryugyong Hotel in North Korea. The building was started in 1987 but construction stopped in 1992 when the government ran out of money to fund the project. It was reportedly a response to a South Korean hotel built in Singapore. The government got into a game of one-upsmanship and is now left with a concrete building that sometimes gets airbrushed out of skyline photographs.
















This is a server room in Sun Microsystems' abandoned Palo Alto, CA building. What started with the .com bust ultimately ended with this massive campus being left behind.

More photos: http://www.abandonedbutnotforgotten.com/ABNF/sun_microsystems.htm


What projects are being abandoned now that will be explored in the future?

-RL, guest blogger

Exporting on Ebay

My firsthand experience with the weakening US dollar...

I have been buying and selling on ebay for many years; event tickets, import-only records and books, and music equipment. This includes guitars, drums, amplifiers, and recording equipment. It has been easy to buy used gear, use it for a project, and then re-sell it for basically the same price.

I recently decided to mix digitally in my recording studio so I had some gear to sell. The pieces for sale were all high end and relatively easy to ship so I made the auctions available to international bidders. Over the course of a week I received close to 100 questions from international bidders and 0 from domestic bidders (This is about 20x the normal number of queries). The page views were off the charts. I have never had this type of excitement or such a high number of bids on an auction.

I ended up selling used gear for 10-15% higher and new gear for 95% of the original purchase price. All items went to European buyers.

In a related story, I have been casually looking for a vintage Vox AC-30 for a few years and thought this might be a good time to buy. Guitar amps are big and heavy and US sellers typically do not want to ship them overseas. I immediately found a seller in North Carolina that needed to unload his AC-30 in a hurry and bought it for roughly 55% of the value of a mint condition amp (this one had a few cosmetic flaws that could be fixed for under $100).

-RL, guest writer

Weekly Chart: Mortgage Resets Just Getting Going

Source
Data is from Credit Suisse; chart was published by a variety of websites, including Agora Financial's 5 Min. Forecast on 05/21/08.

Summary
Many people in Washington and on Wall Street would like to believe that the worst of the housing / financial crisis is behind us. This chart suggests that this thought is nothing but a dream.

Sub-Prime Mortgage Resets
Sub-prime mortgages have received most of the criticism thus far. Numerous postings over the past year have addressed the problem and the proposed solutions. What is surprising, however, is that the volume of such loans which are resetting is just NOW peaking. As foreclosures typically lag mortgage resets, we can expect foreclosures to continue rising.

Option Adjustable Rate Mortgage Resets
The Agora article reports that "One of the more brilliant innovations in the mortgage industry in the last four years — the option ARM — allowed homeowners to pick their payment each month for a few years. As the borrower, you decide how much to pay each month… bare minimum, interest only or — gasp — interest plus part of the principal. Great while you get to choose. But when the option expires, the bank resets your ass with a hefty fixed rate."

This wave of mortgage reset will not even start until next year and really doesn't get going until 2010, and peaking in 2011. We are still in the early innings of a long baseball game.


FYI: A Federal Reserve consumer handbook defines
payment-option ARMs as follows:

"A payment-option ARM is an adjustable-rate mortgage that allows you to choose among several payment options each month. The options typically include the following:

---a traditional payment of principal and interest, which reduces the amount you owe on your mortgage. These payments are based on a set loan term, such as a 15-, 30-, or 40-year payment schedule.

---an interest-only payment, which pays the interest but does not reduce the amount you owe on your mortgage as you make your payments.

---a minimum (or limited) payment that may be less than the amount of interest due that month and may not reduce the amount you owe on your mortgage. If you choose this option, the amount of any interest you do not pay will be added to the principal of the loan, increasing the amount you owe and your future monthly payments, and increasing the amount of interest you will pay over the life of the loan. In addition, if you pay only the minimum payment in the last few years of the loan, you may owe a larger payment at the end of the loan term, called a balloon payment."

Weekend Trivia: Friday Was The 30 Year Anniversary Of What?

Answer
Friday marked the 30-year anniversary of Proposition 13 in California. This landmark proposition limited property taxes and required a two-thirds vote for state tax increases.


Background
Prior to 1978, property was accessed every year by county accessors and property taxes calculated based upon these estimates of property value. With the booming housing market and the high inflation levels of the 70s, property values skyrocketed. In some parts of the state, housing prices doubled within five years. This resulted in similar increases in property taxes. Frustration had been increasing since the 1960s and when it was not addressed by politicians, the voters took the matter into their own hands.

As The Sacramento Bee reported, "Proposition 13 rolled back home assessments to 1975-76 levels and limited property taxes to 1 percent of a property's assessed value. It placed a 2 percent ceiling on future increases."


Implications
Many people believe that this measure started a 30-year tax revolt across the country, that continues to this day. Within five years, almost half of the states in the country passed similar measures. The Reagan tax cuts followed in 1983.

Proposition 13 has always been a very polarizing topic. Few issues get more attention than taxes and this measure has always been identified with this issue. With the 30-year anniversary this week, The Sacramento Bee had no less than five editorial columns addressing the pros and cons of this measure.

To this day, California has had trouble balancing its books. The annual budgeting process is a nightmare. Proposition ends up being the scapegoat. As one editorial headline exclaims: "Proposition 13 at 30: What a mess it has made."

On the other hand, California has managed to find numerous other ways to generate revenue. It has among the highest state income tax rates in the country. Its fiscal problems are more a reflection of politicians wanting everything rather than a lack of money. If nothing else, it has made the politicians more accountable. As a contrasting editorial exclaims: "Proposition 13: 30 years of protecting taxpayers."


Today's Support
A recent poll found that by a 57% to 23% margin, California voters still approve Proposition 13. Support jumps to 64% across all homeowners and leaps to 79% for those homeowners who still own their homes 30 years later.

Given the fiscal problems of the state, this support surprised many people. But as the president of the Howard Jarvis Taxpayers Association said, "Proposition 13 has a gold-plated name brand."

June Quick Hits

MARKETS
---So much for the recent correction in crude oil prices. As I write this posting, crude oil is at an all-time high at $138 after posting the single-day largest increase ever for the second consecutive day. A Morgan Stanley analyst predicted prices could reach $150 by the July 4th holiday.

---Volatility has picked up this week. The DJIA rose by 200 points yesterday and is down more than 300 points today. It is very comical to watch the TV pundits get jerked around. Their most recent explanation for a market movement is quickly discounted when the market suddenly reverses direction.

---Employment numbers are full of contradictions. Early in the week, an ADP Employer Services report said that private-sector employers added 40K jobs in May vs. a forecasted drop in employment. This was further supported by an unexpected drop in new unemployment claims. The market's euphoria was thrown out the window today when the Labor Department said that unemployment jumped from 5.0% in April to 5.5% in May. This is the largest increase in 22 years.

---It looks like Moody's will be lowering the ratings of the municipal bond insurers. This should set the stage for another round of losses in the ongoing financial crisis.

---The OECD (Organization for Economic Cooperation and Development) lowered its forecast for global growth to 1.8% in 2008 and an even lower 1.7% in 2009. These numbers are down from prior forecasts of 2.3% and 2.4%, respectively.


GLOBAL WARMING
---The Paris-based International Energy Agency reported that the world needs to spend $45 trillion to build 1400 nuclear power plants, vastly expand wind power, and invest in new clean energy technology in order to reduce greenhouse emissions by 50% by 2050. That comes out to $7500 for every man, woman and child on the planet today.

---After making statements about how this is the most important issue facing mankind, the global warming bill was tabled after only three days of debate. The issue will be saved for the new president and Congress to address next year. That should leave time for Congress to deal with more important issues today, such as the NE Patriot cheating scandal.

---The Seattle Post-Intelligencer is reporting that Seattle park officials are recommending that bonfires at city beaches be reduced this year and possibly banned altogether next year, all in an effort to fight global warming.


HEADLINE OF THE WEEK
---Financial Times, 06/06/08: "GM chief defends reliance on SUVs and pick-ups.....Is it the US manufacturers who are stupid? I don't think so."

But then again.....GM's stock price is at a 26-year low. The company announced this week that they would be closing 4 truck plants and possibly selling the Hummer brand. In my humble opinion, this comment alone makes him pretty stupid.


REAL ESTATE
---Michael Crews Development in San Diego is offering a "buy one home, get one home free" deal. By purchasing a $1.6 million home in San Pasqual Valley, the buyer will also get a 2000 square foot 2nd home worth $400K in Escondido.





---The Mortgage Bankers Association reported that Q1 new foreclosures and late payments were the highest on record, going back to 1979.

---Speaking of foreclosure, Ed McMahon is $644K behind in payments on his $4.8 million mortgage. His house has been on the market for two years, but being near Britney Spears' house appears to be working against him. I'm just hoping that my tax dollars are not used to help bail him out.


OTHER INTERESTING ITEMS
---USA Today is reporting that "Body-scanning machines that show images of people underneath their clothing are being installed in 10 of the nation's busiest airports in one of the biggest public uses of security devices that reveal intimate body parts."

Water Shortages Pose Larger Threat Than Energy And Food

Summary

Not a day goes by without some new report of water shortages somewhere in the world. My hometown of Roseville declared a Stage 1 drought alert last month. Yesterday, California declared that the state is in drought. States in the Southeast are suing each other over water rights. And that is just in the United States. It is generally perceived that the water situation in this country is much better than the situation in most other parts of the world.

Two new developments in the last 24 hours highlight the worsening crisis:


World Crisis

The melting of Himalayan glaciers threatens the water supply to the world's rivers

The Telegraph.co.uk published an article today which said that "A catastrophic water shortage could prove an even bigger threat to mankind this century than soaring food prices and the relentless exhaustion of energy reserves, according to a panel of global experts at the Goldman Sachs "Top Five Risks" conference."

The Goldman Sachs report said "water was the petroleum for the next century.....Demand for water continues to escalate at unsustainable rates. At the risk of being alarmist, we see parallels with Malthusian economics. Globally, water consumption is doubling every 20 years. By 2025, it is estimated that about one third of the global population will not have access to adequate drinking water."


California Declares State In Drought

Governor Arnold Schwarzenegger signing an executive order stating that the state is officially in a drought. This proclamation will allow the Department of Water Resources to take immediate action to address the situation.

The state drought underscores the need for improved water infrastructure. Lawmakers are currently negotiating a $10 billion water infrastructure bond. Timing couldn't be worse as it coincides with the financial crisis the state faces.

It's OK In My Backyard

Historic Vote

"Hyperion Resources supporter Joyce Brotscheller, right, hugs Hyperion employee Javon Martin after hearing the election results that favored the refinery project Tuesday evening. The Brotscheller home was the scene of a victory party. (Sioux City Journal photo by Jerry Mennenga)"

Possible First New Refinery In 32 Years

The biggest news in yesterday's voting was Obama officially winning the Democrat nomination for president. The next biggest election result may have come from Union County, South Dakota.

By a convincing 58% to 42% margin, the county voted to build the nation's first new oil refinery in the country in 32 years.

The Sioux City Journal reports that "At stake was billions of dollars in capital investment and thousands of high-paying jobs. From the beginning, Hyperion executives said they would abandon its Union County site, just north of Elk Point, if a majority of voters failed to give their blessing to the rezoning.....

Hyperion touted the so-called "green" technology in its proposed energy center, which it claims would be the world's cleanest. The refinery would process 400,000 barrels of tar sands crude from Alberta into low-sulfur gasoline, diesel and jet fuel."


What Has Happened To Democracy In This Country?

"While conceding defeat, opponents vowed to keep fighting the controversial project on every imaginable front, pressing on with a lawsuit it filed against the county over the zoning procedures and opposing Hyperion as it applies for a bevy of state and federal permits.

'We have strategies in place to slow or delay all the permit processes,' Ed Cable, chairman of the anti-Hyperion group Save Union County, said after the vote."

Elections don't seem to matter any more. Results get overturned in court. This is a very disturbing trend in this country.


Hoping The Opposition Has To Pay $10 A Gallon For Gas

They deserve it. Unfortunately, they will probably try to blame the oil executives and drag them into court.

Mixed Messages And Contradictions

Summary
To an outside observer listening to US politicians, it has to be comical. To the oil exporting nations in the Middle East, it's got to be confusing.

The US is open for business.....Please invest your SWF dollars here.....But make sure that you drop your oil prices before we decide to sue you.

Yep, that's the kind of place I would like to invest my billions.


Suing OPEC
The US House of Representatives passed a bill that would create a new antitrust task force within the Department of Justice which among other things, would allow the DOJ to sue OPEC for violating antitrust laws. This bill, HR 6074, was passed by an overwhelming margin of 324 to 84.

Never mind the fact that these same politicians are the PRIMARY reason, in my humble opinion, for the high gasoline prices. They have no energy policy and their management of the dollar explains a majority of the price increase. Too bad Joe Six-pack has no clue about this.

It would really be comical if the US actually tried to bring an OPEC member to court. Would they show up? Would they even acknowledge the request? Or would they be off in China or India or some other emerging country selling their scarce crude oil? At that point, $4 gasoline would probably disappear forever.


Goodwill Tour
At the same time that we are bashing our oil exporting friends, US Treasury Secretary Henry Paulson is the Middle East on his "goodwill tour." YahooFinance is reporting that the four-day tour to Saudi Arabia, Qatar and the United Arab Emirates is designed "to discuss currency and economic issues with regional leaders and reassure them that the United States remains receptive to their investments."

Among the things that Paulson said:

The US is "open for business."

"As we seek to open new markets abroad, America will keep our markets open at home to investment from private firms and from sovereign wealth funds. We reject measures that would isolate us from the world economy."

"High oil prices are the result of supply and demand factors that are likely to persist for some time. Supplies have been affected by low capacity expansion and declining yields, while demand has surged largely due to growth in emerging markets. Speculation and the depreciation of the dollar are likely only small factors behind oil price increases."

"I am committed to promoting policies that enhance the underlying competitiveness of the U.S. economy and ensure that the dollar remains the world's reserve currency."

"The U.S. dollar has been the world's reserve currency since World War Two and there is a good reason for that. The United States has the largest, most open economy in the world, and our capital markets are the deepest and most liquid."