Orange Juice: Weather Windfall
Orange Juice: Weather Windfall
by Kevin Kerr
The Daily Reckoning
Tuesday, August 29, 2006 --------------------- - The worst supply/demand equation of residential real estate in 34 years…the mainstream dream of a soft landing for the housing market…
- We're not predicting the future - we're just putting two and two together…
- Air conditioning - the newest menace…taking a holiday from vacation…and more!
--- Advertisement ---
Stomp the S&P 500 By 1,142% The key to financial freedom certainly isn't found in blue chips or mutual funds - but one market guru's favorite investment vehicle gained 44.6% for his readers…and it barely involved any "trading." Keep reading to find out about this investment tool that has allowed savvy investors a single source of steady, low-stress buy-and-hold stock market gains that has blown away all other types of securities investment for the last 75 years and counting… |
------------------- "What's that Hissing Sound?" headlines a piece in the Economist: "The boom has lifted the (U.S.) economy in three ways: it has boosted residential construction: it has made people feel wealthier and so encouraged them to spend more; and it has allowed homeowners to use their property as a gigantic cash machine, taking out money by borrowing against their capital gains. Merrill Lynch estimates that the three together accounted for more than half of America's total GDP growth since last year. "Counting construction, finance, and estate agency, the housing boom has been responsible for one-third of all the jobs created since 2001. If house-price rises level off, GDP growth could dip below 2% in 2007. If prices fall, expect a steeper slowdown." Since it is now in the Economist, it's official - housing is in trouble. But will prices actually go down? We have a report directly from one of the hottest markets in the country, south Florida: "We just missed it. The time to sell was a year ago. A guy came along and offered us $500,000 for that place we bought. We paid $450,000 for it two years ago. Our timing couldn't have been worse. We expected to tear down the house and build a new one…and we were sure we'd make a couple hundred thousand in profit. Minimum. But you warned us. And we didn't listen. And then, we got that offer for $500,000 and turned it down. We thought we could get much more. But that was then and this is now…I'd be happy to get back what we have in it. But we can't even get anyone to look at it." Paul Kasriel says it's the worst supply/demand equation of residential real estate in 34 years. Sales in July were down more than a fifth. Inventories were up more than a fifth. And a lot of real estate investors are now going to the liquor store to get another fifth. They wish they could turn the clock back a few months and unload properties at last year's prices. But maybe the situation is not as bad as it looks. The New York Times reported the news last week that real estate downturns in England and Australia have been surprisingly mild. And now, Business Week has a big story entitled "Housing: The Roof Won't Collapse On The U.S. Economy." According to Business Week, housing can go a little soft without damaging the economy too severely. That view has become the mainstream dream. What do we know; maybe it will turn out to be true. As our friend John Mauldin points out, we usually muddle through. Usually, tomorrow is like today. Usually, nothing too bad or too good…happens. Usually, things are average, ordinary, common, and regular. But wait, there is nothing ordinary about this housing bubble. In the space of less than 10 years, according to Robert Shiller's index, the real value of residential property doubled. And householders doubled up their debt, too. Neither are things that happen every day; in fact, they've never happened before! We are not looking into a crystal ball here. We are just putting two and two together. If things are usually usual, then when they are unusually unusual, they are probably more likely to become usual again, rather than become more unusually unusual. That seems so obvious to us, we won't bother to explain it. And when housing prices become usual, then the poor sap who has bet his house on something extraordinary is likely to be in a tight spot. And since the entire U.S. economy, and by extension the entire world economy, depends on him being able to continue to spend, then they're all in a tight spot. Yes, the whole world economy now depends on a man who spends money he doesn't have - money of no sure value - on what he surely can't afford, and which he probably doesn't need anyway. He can only do so as long as his house rises in price. And now, that the rise in housing prices has come to an end. What next? Everyone has come to expect slowing real estate gains. The boom is over; everyone seems to think so. So, where is the surprise? Where's the money to be made…or lost? Again, we don't know. But in August 1982, Business Week famously predicted that the equity market was finished. Now, in August 2006, BW tells us not to worry: the roof will not collapse. BW might not be right, but it might be consistent; the roof might blow up. More news: -------------- Ian Mathias, reporting from Charm City… "Commodity spikes have inspired many Americans to invest in Hurricane Ernesto. Speculators around the nation have been betting on Ernesto to have a similar effect on gas and oil prices, but many experienced investors are steering clear of last-minute energy buys." For the rest of this story, see the Desidooru Saloon: Ernesto Spooks Investors -------------- And more views: *** Justice Litle fills us in on a new menace: air conditioning… "U.S. electricity use has hit record levels as the nation endures a withering heat wave," he reports. "The Midwest in particular is broiling: Oklahoma City has broken the triple-digit barrier 17 times this year, and Bismarck, N.D., has gotten as hot as 112 degrees Fahrenheit. Nor have the coasts been spared. Naturally, this has us relying on air conditioning more than ever before - and environmentalists are sounding the alarm. "Almost 1 kilowatt hour out of 5 is used to air-condition buildings in the U.S., requiring massive amounts of electricity and contributing to the burning of fossil fuels. As AC units keep indoors cool, they pump hot air outside, contributing to the 'heat island' effect in densely populated areas. On the roads, air conditioning sucks up an estimated 7 billion gallons of gasoline per year. The concern is whether our attempts to 'beat the heat' are making the heat far worse." [Ed. Note: Many people have looked at their gas and electric bills in shock this year - energy costs just keep going up, up, up…and there seems to be no end in sight. And this money is coming out of your pocket, and going straight into a handful of energy companies. Why not make some of this hard-earned cash back? Find out how here: The Most Lucrative Investing Opportunity of the Decade *** Yesterday, we took an accidental holiday…from our vacation. It began when we rented a van to pick up furniture that had been left in London. The idea was to drive to London with Damien, our gardener-handyman here in France, pack up the van, and then let Damien drive it back to Ouzilly. But when we got to London and saw Damien driving on the wrong side of the street directly into the path of a shiny new Mini Cooper, our plans changed. It started when we decided we had to move furniture, which seemed simple enough. But not easy. Ouzilly is a 10-hour drive to London, and we had to pack up the contents of a three-bedroom house. So, we enlisted the help of our gardener and handyman to help. At 3:30 a.m., we rose from our bed, got into the van and set off. "We have to get around Paris before the morning rush," Damien explained. "But it's Sunday…there won't be a rush hour this morning," we protested. "No," Damien said, "It's not the usual rush hour. But you wait. People are returning from their vacations and the highways will be clogged with people pulling trailers and with bicycles mounted on the back of their cars. It will be horrible. Besides, I hate Paris traffic." Damien took the wheel and we drifted off to sleep in the passenger's seat. All went reasonably well: the crossing of the English Channel through the Eurotunnel, the drive into London. We drove some of the way, but Damien did most of the driving. In London, Damien, who was a professional truck driver for 14 years, had a hard time adjusting to the left side of the road. "Whoa, Damien! A gauche…A gauche!" we shouted. "Merde! Why can't these English people learn to drive on the right side of the road?" Damien yelled. The little Mini Cooper slipped by…barely. We began to wonder about letting Damien go back alone. After so many years on the French highways, Damien is rather set in his ways. Monday was a holiday in Britain. We had hoped to go to the office and send off a missive to you, dear reader, but the office was closed. We did what we could, but then we had to rush off to accompany Damien back to France. The ride back was a pleasure. Since it was a holiday, no questions were asked at the Eurotunnel…no passports were shown. There were no delays. But around Paris, the traffic was heavy…going in the opposite direction. "I hate Paris. I call it the 'trash can'," said Damien. "But since we're here, let's drive down to Orleans. There is a truckers' restaurant there…it's great. I haven't been there in five years…but it is one of the best." We left the highway to find the restaurant and we were soon in a humble eatery packed with truck drivers. Most of them were speaking Spanish, we noticed. "Yes…most of the truckers are now Portuguese or Spanish," noted Damien. "Tiens…let's have an aperitif." We do not associate aperitifs with truck drivers or truckers' restaurants, but this is France. So, we downed a Kir and then sat down to lunch. In London, we would have paid at least $60 for such a lunch - hors d'oeuvres, salad, steak, vegetables, cheese…dessert and coffee. The whole affair was served with such a big pitcher of red wine that it would have been enough for the whole Portuguese soccer team. The whole thing cost only 11 euros…or about 14 dollars. We wondered how truckers could drink so much without driving off the road. The answer came with the coffee, so strong it was probably used to strip paint. Finally, we got back to Ouzilly at about 8:00 p.m. We gathered all the children and unloaded the van. "Well done, " said Damien, "now let's have another aperitif." --- Advertisement ---
Where are the miracles that modern medicine promised you 20 years ago? They're here and saving lives right now. Skeptical? While millions continue to suffer and die, shocking proof has surfaced that dozens of long-sought cures have been found, but won't be approved for another 17 years. Outrage scientists from all over the world have banded together to break the science, staging what's being called a revolution in the halls of medicine… |
--------------------
Sign Up For The Daily Reckoning Written by the authors of the New York Times business #1 best seller Empire of Debt, The Daily Reckoning has the most innovative way of weaving valuable information about investing and living into a format that is not only educational but also entertaining. To sign up for this FREE service enter your e-mail address below To share or not to share? That is not the question. We don't.
-- Craig Collins-Young, assistant editor |
| 
