Silver Surging to New Highs! Gold Following!

Martin Weiss here with an alert on precious metals and whats driving them higher.

Silver has just busted through to new highs, driven by surging worldwide demand, diminished supplies and a rush of investors fearful of the spreading chaos in the Middle East. Gold is likely to follow very soon.

And these are not trivial events. They reflect the powerful forces I told you about when we opened the year together forces that will determine the fate of your investments in 2006. As I explained on January 3rd,

The first force, already in full view, is rising inflation. You can see it in the price of oil, gas, and coal … copper, aluminum, and steel … silver and gold. Its abundantly evident in retail prices and wholesale prices. And its driving our favorite investments to higher and higher peaks.

The second, just now coming into sight, is a housing bust. New home sales in the U.S. have just suffered their sharpest decline in fourteen years. Existing home sales are also falling. And they could continue to spiral downward.

Now, thats precisely what were seeing: Surging natural resources and a bursting housing bubble.

The Big Wild Card: A Major
Disruption to the Supply
Of Oil in the Persian Gulf

Even in a stable world, the supply of oil is already tight. But now I see a new storm on the horizon that could disrupt supplies even further: Irans President Ahmadinejad is marching ahead rapidly with a master plan to take over Iraq, with major consequences for investors.

This threatens to upend most of the Arab and Muslim world … destroy any semblance of balance in energy markets … send global inflation soaring … drive interest rates skyward … and catapult precious metals through the roof.

Right now, Washington still thinks al Qaeda is the biggest threat to Americas interests. But in the days ahead, youre going to hear more about an organization that most Americans never knew existed: Al Quds.

Unlike al Qaeda, al Quds is not a nationless, renegade band. Its a highly organized strike force now operating in Iraq under the control of Irans Revolutionary Guard.

And unlike al Qaeda, al Quds doesnt have to beg for refuge or financing. It gets all the protection it needs on Iranian soil … and all its funding from the Iranian treasury, which, in turn, is liberally lubricated with oil money.

Moreover, al Quds (meaning Jerusalem) is not an upstart band.

For about two decades, al Quds has been operating in Lebanon, providing military guidance and support for terrorist attacks against Israel, especially those carried out by Hezbollah and other Islamic terrorist organizations.

Most disturbing of all, al Quds is joined at the hip with the most powerful militia currently operating in Iraq the Badr Brigade. Consider the facts:

Fact #1. Both Irans al Quds Force and Iraqs Badr Brigade were founded in Iran in the 1980s, with the same goal: To establish Shiite Islamic Republics throughout the Middle East.

Fact #2. Today, al Quds operatives are embedded in the Badr Brigade nearly everywhere in Iraq.

Fact #3. The Badr Brigade, in turn, has deeply infiltrated Iraqs national police force. Many say it is Iraqs police force.

Fact #4. The Badr Brigade is also the military branch of the largest and strongest political party, the Supreme Council for Islamic Revolution in Iraq (SCIRI).

Fact #5. A person who has played a prominent leadership role in the founding and training of both al Quds and the Badr Brigade is none other than Mahmoud Ahmadinejad, now the president of Iran.

In short, Irans forces are already in the advanced stages of their master plan to take control of Iraq.

Iran and Iraq Will Form a
New Shiite Islamic Alliance
And Cause Turmoil in
The Worlds Oil Markets.

The Shiites of Iraq have a very simple plan for us: They will cooperate as long as we are helping them squash their Sunni enemies in Iraq. But they will turn against us when they feel were no longer on their side.

The result will be the second Shiite Islamic Republic in the world and a powerful economic, military and strategic alliance between Iran and Iraq that is extremely hostile to the United States.

Based on official estimates, an Iran-Iraq alliance would control 248 billion barrels of oil nearly as much as the oil reserves of Saudi Arabia, officially estimated at 263 billion barrels.

This adds a whole new dimension to the outlook for oil, gold and other major resources.

It directly threatens the entire Persian Gulf, where most of the worlds oil reserves are located, implying a far greater risk premium than is currently built into oil prices.

It also sets the stage for another major flight by international investors to safer havens. Among the first to run will be wealthy individuals with substantial financial assets in the Middle East. International conglomerates, large financial institutions, and central banks will be close behind. All will do everything in their power to hedge against the rising risk. Many will buy precious metals.

Thats one force driving silver, gold, and other natural resources higher. Heres another …

No End in Sight to the
Booming Asian Demand
For Natural Resources
by Larry Edelson

Remember the economic miracle of postwar Japan? Suddenly, from a nation in ruins, and with less than one-tenth the land area as the continental U.S., Japan emerged as the worlds second largest economy, and has held that ranking ever since.

That economic miracle is similar to the marvels seen all over Asia today. Indeed, when I look at Asia, I see the largest bundle of untapped profit opportunities on the planet.

China with its 1.3 billion people is leading the giant leap forward.

* Domestic savings in China has soared from 32% of the nations GDP in 1979 to 42% today.

* Consumer spending has jumped from virtually zero to nearly
$1 trillion in 2005 and is now growing at 13% – 14% per year.

* Hundreds of millions rural citizens have flocked to eastern cities to establish new lives and pursue their dreams. Urbanization in China is occurring on a scale never before seen in the history of civilization.

Result: Over 1 billion new and eager consumers have emerged.

Already, China is the worlds second largest consumer of oil products. It consumes a whopping 6.7 million barrels per day. Only one country guzzles more: the United States. Thats why Chinese oil and gas companies are now scouring the world for energy supplies.

China consumes more steel than any other country in the world.

Its a similar story with cement, copper, rubber, iron ore, lead, and zinc. Chinas demand for these commodities is already driving up prices worldwide … and yet China has barely begun to catch up with developed countries in terms of its consumption per capita.

And, despite its huge import needs, China is also blessed with untapped natural resources. No, Chinas is no Saudi Arabia, Kuwait, or Venezuela. But buried below most of its 9.6 million square miles lies

Over 18 billion barrels of oil
2.5 trillion cubic meters of natural gas
12% of the worlds coal reserves (600 billion tons)
Some of the largest reserves in the world of tungsten, antimony, tin, mercury, salt, fluorspar … as well as bauxite, limestone, and copper

The country will soon be spending like mad to gain access to all that underground booty.

My view: Chinas growth will continue to double its economy every decade … and will potentially triple the money of savvy investors in far shorter periods of time.

The situation in the U.S., though, is very different, especially given the outlook for housing, as Mike explains below.

U.S. Housing Bust
Is Beginning
Right Here and Now!
by Michael Larson

If youre like most of my friends and family, your home is your biggest and best investment. Its worth more than any single stock or mutual fund in your portfolio perhaps more than all your other investments combined.

But right now, home prices are falling!

In Bethesda, Maryland, prices have tumbled 16% from December to January.

In a key area of Fresno, California, the median sale price for homes was $439,000. But in just the last 60 days, those homes have plummeted $51,000, to $388,000.

In San Diego, new home prices have just suffered the sharpest month-to-month dive ever recorded.

In Palm Beach Country, Florida, where we live, we see the same thing. Every day, when we drive to work, we see house for sale signs sprouting like unwanted weeds along the road. And every night, as we drive home, our eyes turn to a skyline sculpted by dozens of new high-rise condominiums, nearly all in darkness, nearly all unoccupied.

All across the USA, brand new, single-family homes and condos are begging for buyers.

Heres why …

1. Home sales are moving in the wrong direction. The sales of existing homes are at their lowest level in nearly two years … and sinking fast.

The same is happening in the new-home market, where sales just plunged to a one-year low. But builders are committed to past contracts. So theyre still building.

As a result …

2. The supply of homes on the market is ballooning out of control! The number of new homes for sale just hit 528,000 in January. That was the worst at any time in U.S. history.

3. Condos are getting hit the hardest of all. Nationwide, condo and co-op sales have plunged 7.8% over the last 12 months. And supplies surged by 49.5%! If you own a condo, good luck selling!

Why My Wife Is
Scared Silly of
The Housing Bust
by Sean Brodrick

Mike Larson is sending out so many gloomy e-mails about the coming housing bust, hes scaring the living daylights out of my wife.

We own a middle-class home here in Palm Beach County. Its a big chunk of our nest egg. So if Mike is right, were going to take a painful hit.

Plus, Cynthia is such a real-estate nut! She even tried to get me involved in real estate speculation about six months ago. Fortunately, thanks to Mikes never-ending stream of e-mail warnings, we decided not to.

I must admit, though, the lure was powerful. Everyone around us was buying properties … flipping them … and making not-so-small fortunes.

Most recently, one friend bought a prime property in Port St. Lucie, about 60 miles up the coast from here. He said it was a short-term, investment. Easy to flip.

Thats When I Knew Mike Had
To Be Right. Too Many People
Were Going Gaga Over Housing.

Thats also when I started passing along Mikes e-mails to Cynthia. I figured it was the best way to cool her real estate mojo.

You see, Mike didnt start the e-mail barrage yesterday. Hes been at it since last spring. Thats when he started building his case for a bursting housing bubble. And thats also when he says the whole shebang was peaking.

He sent us e-mails about the wacky financing schemes that made the stock market boom of the 1920s look conservative by comparison. In those days, thousands of investors bought high-flying stocks with only 10% down. Now, millions of households were buying high-flying real estate with zero down or even less.

He wrote about the wild speculation by banks, mortgage lenders, builders, and contractors … and how it could all blow up in a puff.

Those were just forecasts. But then he started writing about how his forecasts were coming true falling homes sales … mushrooming home inventories … and finally, this year, actual declines in home values.

At First, Cynthia Pooh-Poohed It All.
But with Time, the Evidence Was Just
Too Overwhelming for Her to Ignore.

You can keep sending me these things, she said. But you should know that usually I just stop reading them and start panicking.

Indeed, Mikes stats were getting more and more persuasive. But nothing was more convincing to us than seeing our own friends slide down a slippery slope …

In a matter of a few short months, that short-term, quick-flip investment our friend had made in Port St. Lucie has turned into a long-term, buy-and-hold investment. Maybe even a retirement property.
Tracey, a lawyer friend, was already heavily burdened by student-loan debt when she bought a condo as an investment. She used an adjustable-rate, interest-only mortgage. Low payments. But no pay-down of equity.
Now, suddenly, there are plenty of condos for sale in her development, but no one is buying. Her mortgage payment is rising with higher interest rates. And sure enough, shes stuck with an investment thats a millstone around her neck.
Claudia, another friend, is in a similar situation. Buried in debt. Condo on the market for six months. Not so much as a nibble.
Leo and Anna, our former neighbors, sold their house for a good profit. But then they rolled every penny into a giant, new McMansion at the top of the market. They expected home prices to continue soaring so they could take out a home equity loan. Instead, new homes in the same development are now selling for less than what they paid for theirs.

Our friends arent dumb. Nor are they any less prudent than most people nowadays. But theyre being smacked in the face by a cold reality they never thought could come to pass.

Heck, just a short while ago, speculators around here were going door to door, asking people if they wanted to sell their homes.

Today, middle-class Florida homeowners are dropping their asking prices by $30,000 … even $60,000. And in some of the priciest neighborhoods, like in Sarasota, desperate sellers are slashing $200,000 … $300,000 … even $500,000 off their price tags.

The Horror Story a Lot of Smart
People are Worried About Now

Some of our friends are so overleveraged they could wind up digging into every penny of their savings just to get out.

But whats the alternative? If they dont make their payments, theyll go into default … be evicted … maybe even wind up on the street.

Yes, they could file for personal bankruptcy. But the bankruptcy laws have changed, making it much harder than it used to be. Anyway, most of our friends are too proud to file.

You know what that means? If theyve got …

a $600,000 mortgage …

a home that sells for $500,000 and …

a $100,000 nest-egg in the bank …

it means theyre going to wind up losing every last dime of that nest-egg. Theyll be flat broke.

Now Mikes Really Done It!

Last week, Mike asked me to review the final draft of his new report, The Great Real Estate Bust of 2006-2008.

I immediately read it cover to cover. Its that good. But theres no way in hell Im showing it to my wife! Shed freak out.

In his report, Mike paints a scenario that makes other kinds of busts look tame by comparison.

But he also gives us solid recommendations on exactly what to do, and that will make Cynthia happy. Maybe, Ill just cut and paste the tips and send them along to Cynthia (without the dark scenario) …

Tip 1. Consider selling investment real estate IMMEDIATELY. Dont wait for prices to turn around. Just move quickly to protect capital. (There are more details on why, how, and where in the report).

Tip 2. Maybe renting is the way to go right now. If the home means more than just an investment, stick with it. If not, run the numbers on owning vs. renting. Youll probably find that renting is cheaper even after they factor in the tax advantages of owning. By selling, you not only protect your nest-egg … you also cut monthly expenses.

Tip 3. If youre holding mortgage bonds from Fannie Mae, Freddie Mac, or based on the high-risk subprime mortgages sell now. The market value of these bonds is likely to fall as home prices decline and mortgage delinquencies rise.

Tip 4. Sometimes youve got to buy, even in the worst market. If thats your case, first read the section in Mikes report 10 Ways to Be a Smarter Home Buyer.

Tip 5. Dump vulnerable stocks from your portfolio: construction companies, subprime lenders and mortgage REITs. In Mikes report, he discusses seven vulnerable sectors, and names up to six stocks in each.

Tip 6. You probably have insurance to protect your home against storm damage. So why dont you buy some protection against a housing bust? Mike explains how in the report.

Tip 7. Be proactive go for profits. There are investments you can buy right now that are designed to double and triple in value as the real estate market crumbles.

(If you download Mikes report now, youll be entitled to four updates. The entire package The Great Real Estate Bust of 2006-2008 and the four follow-ups is normally priced at $495. But right now, the complete package is $129.)

Bottom line: If youre like Cynthia, and the prospect of a housing bust scares you too much, dont read Mikes report.

But if you want to be proactive, Mikes report is not just doom and gloom. It tells you how to protect yourself, your familys home, and your portfolio, and even profit on the coming nosedive.

All the best,

Sean Brodrick

For more information and archived issues, visit http://legacy.weissinc.com.

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 Jennifer Moran, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.

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