Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Friday, February 23, 2007

Happy Friday!

Gold, silver and uranium are rocking and rolling. Even commodities like copper look ready to sling-shot higher in the second half of the year (it wouldn't be surprising to see more pain for copper in the second quarter). Our stocks are rising. Are there any dark clouds on the horizon?

Well, yes. If you've heard me speak at The Money Show or other venues, you know that I'm probably the most bullish person at Weiss Research. I disagree with Martin Weiss and Mike Larson all the time. That is not a bad thing. As I told listeners at the Money Show recently, "if you listen only to people who agree with you, you can end up lost in a Middle Eastern country, unable to come to grips with how you got there, and unable to find a way out."

So, Mike, Martin and I hash things over. Often, we come to a consensus one way or another. Other times we keep coming back to the same arguments (inflation versus deflation is one of our favorites, and I think we're never going to resolve that one because we enjoy the discussion too much).

We disagree about the economy. I am bullish, Mike and Martin are not. They believe the bursting of the housing bubble will derail things; I believe that other global engines (China and India, to name two) will take over for the misfiring US economic engine. China and India can't replace the US economy, but they can keep the global economy humming along until the US gets back in gear.

But then there is also the debt question. I don't really worry about the national debt too much. As my friend Jack Crooks (the best currency trader you'll ever meet) says, the national debt will matter when it matters, and not a minute sooner. I'm more concerned with personal debt.

You see, despite the imploding housing bubble, the US consumer has kept right on spending. What exactly are they spending? Debt. Here are some charts I picked up from BondDad's diary ...
According to the Federal Reserve’s Flow of Funds statement, total household debt outstanding is $12.5 trillion dollars. This is over 90% of the total US GDP and over 120% of disposable income.

So, not surprisingly, debt payments as a percentage of total income are at record levels ...

I know many people are using their homes as piggy banks. I also know that home values are steadily going down in places like Palm Beach County, Florida (where I live). I have never been a big believer in theories that home prices could collapse overnight. Instead, I believe in a slow, gradual squeeze, as homesellers reduce their prices in a competitive spirit of quiet desperation.

And then things get worse. One of the homes in my neighborhood, a similar model to mine that was purchased less than a year ago, is going into foreclosure. I know this because I'm planning on selling MY home. A foreclosed home down the street will likely weigh on home prices, don't you think?

So, I think that consumer debt, not national debt, could be the Achilles heel of the American economy. I expect it could be a slow-motion train wreck in the making. Can China and India ramp up their economies fast enough that a consumer squeeze in the US won't matter? I can't predict that.

One short-term relief would be for the Fed to lower rates. I think they have tarried too long on this, as they are bedazzled by the great bugaboo of inflation. People are less concerned by devaluing money than having no money. Will the Fed act in time? Again, I don't know.

But that would only be a short-term solution. A longer-term solution would be opening up our doors to legal immigrants again. Since 9/11, it has become very hard to move to this country ... unless you hotfoot it across the Rio Grande, in which case it becomes pathetically easy. Do we really want to discourage legal immigration while turning a blind eye to illegal immigration? Legal immigrants bring money and job skills. I would LOVE to sell my house to a legal immigrant who wants his own piece of the Florida/American Dream.

And we're also going to have to let the US dollar devalue. I hate to say this -- I'm as much a greenback investor as anybody. I can think of many other, better ways to make America more competitive in the world (becoming the leader in alternative fuel technology, for example, and exporting the heck out of it) but Wall Street can't seem to come to grips with other solutions.

And that brings us back to silver and gold. If the US dollar devalues, those are two metals you will want to own ... in fact own as much as possible.

Keep in mind, I'm only voicing my fears here. Alternately, the economy could do absolutely fine this year. Personal debt may level off, home prices may do the same, and the commodity boom could keep the fires burning under the US economy as well.

And Now For Something Completely Different

I didn't mean for this to be a depressing Friday post. Here, let me cheer you up: You can watch Keith Olbermann's top five rants by CLICKING HERE.

And here is a montage of David Caruso's one-liners from what may be the the most poorly written show on television, "CSI Miami," in Miami's so bright, Caruso's gotta wear shades

If you're not watching The Venture Bros., you're missing out on what I believe is the most inventive, funny show on TV. Yet strangely, most women don't seem to like it (LOL -- I don't get Oprah!) Personally, I just buy the DVDs. Season Two comes out on April 14. Here is a taste on CLICK HERE.

And in the "It Couldn't Happen to a Nicer Bunch of People," category, we learn that trouble is bearing down on Iran's mullahs like a whirlwind in:
Iran: Unstable, troubled oil giant

And Australian stocks surged on Friday. Don't Red-Hot Asian Tigers subscribers know it! Your portfolio is doing GREAT!

Have a great Friday.

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