Home Sales Falling! Oil Shock! Gold Rush!

The housing bust we’ve been warning you about is now unfolding, and with each day that passes, more evidence is piling in.

Just this week, we got the news that the sales of existing homes plunged 5.7% in December. And if you think this is simply because of the holidays, think again. It’s already adjusted to reflect any holiday lull.

Wall Street was shocked.

They were expecting an annual sales rate of about 6.9 million. Instead, it fell to 6.6 million, the lowest since March 2004.

That’s roughly another 300,000 units per year that are not getting sold, leaving sellers high and dry, and setting the stage for price declines.

Already, the median price of a home has dropped from $215,000 in November to $211,000 in December, the lowest since May of last year.

And already, homeowners have so many properties on the market for sale that, even if no one else lists their home from this point forward, it’s going to take 5.1 months to get them all sold.

So if you want to sell now, you’re likely to confront some very tough choices: Either cut your price or wait a long time. And if you’re trying to sell a condo, it’s going to be even tougher …

Just in the Past 12 Months, the
Supply of Existing Condos on
The Market Has Surged by 66%!

If you want to see what a real disaster in housing could look like, check out the condo market.

Just thirteen months ago, in December 2004, there were 274,000 existing condos and co-ops up for sale. Investors and speculators were snapping them up almost as soon as they came on the market. You could get your asking price and more. It was a wild and wooly bull market.

Now, suddenly, this picture has changed from day to night.

There are 456,000 units on the market, a whopping 66% increase from the year earlier – 6.2 months of condos at the current sales pace.

This is a glut of disastrous dimensions. It means that the only way most condos are going to get sold is with drastic price discounting.

Sure enough, right here in South Florida, we’re seeing a barrage of ads touting deals:

“Price reduced!”
“Motivated seller!”
“Seller will pay all closing costs!”

Meanwhile, bankers around the country see the handwriting on the wall.

Many have turned so sour on the entire South Florida condo market they won’t touch it with a ten-foot-pole. Ditto for many bankers lending in other once-hot condo markets around the country.

Rising Interest Rates Virtually Ensure
A Disastrous Spring Selling Season

Nearly everyone in the industry is now counting on a strong spring selling season to bail them out of last quarter’s slump. Sure, sales usually do rise from winter lows. But the explosion I’m expecting to see in supply could easily overwhelm any pick-up in sales.

Investors are dumping condos and homes bought in last year’s frenzy. Homeowners are also rushing to sell. Nearly every month, the number of new and existing unsold homes is growing to new all-time highs.

A key factor: Rising interest rates.

Already, on Wednesday, bond yields suffered their largest surge since last July. Yesterday, they rose sharply again. And in the weeks ahead, we have every reason to believe that these rates are going to climb.

The U.S. Treasury just sold $22 billion of two-year notes plus $10 billion of 20-year Treasury Inflation Protected Securities, or TIPS. All told, Uncle Sam is trying to stuff a record $171 billion in debt down buyers’ throats this quarter – including the first 30-year bonds in more than four years.

That’s a lot of debt, and it looks like the bond market can’t absorb it all. So bond prices are falling, and interest rates are rising.

This immediately translates into higher mortgage rates and another big blow to home sales shaping up this spring.

Another major factor: The great oil shock, which Martin details below.

The Great
Oil Shock
by Martin D. Weiss

The oil shock we see ahead is likely to be very different from anything seen before.

Rather than just one hot spot threatening the world’s oil supplies, I count nearly a dozen.

Rather than just one direct confrontation that can be resolved with smart diplomacy, we face a multiplex of crisscrossing conflicts that defy resolution.

And consequently, rather than a quick spike in oil prices followed by an equally rapid decline, oil is likely to continue rising, with a series of repercussions that could turn the financial world upside down. Indeed, even before the next energy price explosion …

Oil and gas prices are already in a sweeping, long-term uptrend – the same uptrend we’ve been showing you here for many months.

General Motors and Ford are already sinking in quicksand, pulled under by gas price increases that took place last year. Yesterday, GM announced it lost $4.8 billion in the fourth quarter and $8.6 billion in all of 2005. A few days earlier, Ford shocked the nation with massive job cuts and plant closings. This dire saga is not over. It’s just beginning.

America’s largest airlines have lost an astounding $40 billion since 2000 as fuel prices ratcheted higher. And now, just in the past six days, jet fuel is up by a whopping 7.5%.

Precious metals have already blasted off to new multi-decade highs.
Remember what Sean Brodrick told you about the likely explosion in small-cap mining shares? Well, now it’s happening!

This week, Sean attended the Vancouver Resource Investment Conference, where the smartest and earliest investors are beginning to pile in … and the Mineral Exploration Round-Up, one of the biggest pow-wows of mining companies and investors in the world.

The companies he’s chosen are likely to be among the biggest winners in the burgeoning boom. But if you want to join the small group of investors who have already jumped on this opportunity, it’s now or never: Last I checked there were only 22 slots remaining. (For more details call 800-400-6916.)

And remember what Larry told you about the likely explosion in gold bullion on December 15 of last year?

If you don’t, look at the chart he sent you on that day. That’s when he pointed out how gold was just beginning to break out of its channel, signaling the next phase in the gold bull market.

Then he drew another line, far above, writing that “gold will be attracted like a magnet to this rising line.” That’s exactly what has been happening: Gold’s rise since December 15 has traversed roughly half the distance to the target line.

Interest rates have already been rising steadily – for the last 20 months. The Fed began hiking its short-term rates in June 2004. Now they’re more than FOUR times higher. And as Mike Larson just told you, starting this week, long-term rates have begun to move sharply higher as well.

The U.S. dollar has already been falling. Last year, it enjoyed a bit of a rally. But the most it gained was about one-third of its previous decline.

Meanwhile, windfall profits for investors in energy companies – and others linked to the natural resource boom – have also been with us for many months, with the likelihood of more to come.

Everything we’ve shown you … and everything you can see in the markets with your own eyes … are repercussions of the forces that have already been firmly in place, before the Great Oil Shock.

During the Great Oil Shock, expect much, much more.

Red-Hot Small-Caps
On My Radar Screen
Right Now …
by Sean Brodrick

Sometimes, you can feel the tides of history washing around you, and the gold rush I experienced this week was precisely that kind of time for me.

No, I don’t mean something like the Klondike Gold Rush of 1897. I mean a modern gold rush, going on at this very moment, right under the noses of Wall Street.

About 7,000 people joined me in attending two gold and mining conferences this week. That’s a 1,650% increase compared to four years ago.

Reason: Metals are hot. Hotter than hot! And it wasn’t just gold. Silver, uranium, copper and more all had their day in the sun. There are many flunkies to avoid. But there are also many solid companies that caught my eye. For example …

Environmentally Friendly Driller in Latin America: I finally got to meet face-to-face with the CEO of a drilling company that’s also in the Red-Hot portfolio.
You couldn’t wipe the grin off this guy’s face with flaming wood!

Business is better than good. About 15 of his customers were there at the conference. He’d have more, but he has to keep turning ’em away!

He was sitting in his booth, chortling over his good fortune. Sales . zoom! Profit margins . zoom! Earnings . zoom, zoom, zoom!

And I met a manager for one of the gold mines that’s also in the Red-Hot portfolio. This guy didn’t even have to say anything to the people swarming his booth. The chart of his company’s stock behind him – headed skyward like a 747 – was a picture worth a thousand words.

A Small Gold Miner That Is Finding Rich Hoards in the Brazilian Jungle: This one, also in Latin America, has a working gold mine that recently started production with a cash cost of under $300 an ounce. It bought some of its assets for pennies on the dollar. It is working hard to increase its reserves rapidly and is bringing new mines into production quickly. It also has plenty of cash and little debt.

Even better, it recently boosted the amount of its proven and probable gold reserves.

A Tiny Little Silver Miner That Was Hammered Flat
When Times Were Tough: There are quite a few silver mines in that category, some worthy of your money, some not so worthy. The key is that now the tables have turned. This one happens to be close – very close – to bringing a mine online, a mine it owns lock, stock and ingot.

And what a mine! Some of the test results from this are wildly rich, showing over 20 ounces of silver per tonne of rock. It has new test results in this week, and the company should have a new estimate of reserves soon. And by the way, did you see how silver exploded in price yesterday?

You Should ALREADY Be Prepared!
If Not, Here’s What to Do Now …

If you want to protect yourself and to profit, we trust you have already taken the necessary steps. If not, better late than never.

One. Get your keep-safe money to safety, where it belongs. Regardless of the low yield, that’s still U.S. Treasury bills or money market funds specialized in short-term Treasuries.

Two. Maintain a solid allocation to precious metals investments. They’re going through the roof and should continue to do so, despite sharp corrections.

For example, consider

US Global Investors Global Resources (PSPFX). It rotates to the natural resource sector it thinks is hot. For example, in the most recent quarter, it was loaded up with energy, and that helped it achieve a nearly 50% return. It has a total expense ratio of 1.3% – cheap – is a no-load fund, and carries a four-star Morningstar rating.
US Global Investors World Precious Minerals (UNWPX) is strictly a precious metals fund. It did very well last year, returning over 30%. If you think gold is about to lift off the launch pad, this can be one of the vehicles you use. The stocks in its portfolio are highly leveraged to the price of gold. And it has a total expense ratio of 1.48% – still good – no load, and a three-star Morningstar rating.

Three. Stick with the energy investments we’ve been tracking here for you. They’re in a blast-off stage that shows no sign of letting up.

Four. For maximum potential rewards with minimum capital exposure, join me with my small-cap natural resource selections.

But you’d better hurry: As of yesterday, I had only 22 slots left. Today, we’ll probably be down to just a dozen or so. And I’m pretty sure that, by Sunday, they’ll be all gone. So be sure to call us now. (The number is 800-400-6916.)

Best wishes,

Sean

P.S. Sorry, no more on line orders for my new service. We have to be very strict about not letting more than the 500 join because some of these stocks can be illiquid. But with online orders overnight, we could wind up going over the limit. So from this point forward, we’re taking orders via phone only (800-400-6916).

About MONEY AND MARKETS

MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.

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