Getting Ready for Turkey Day

I am seeing a flurry of stories that base metals miners are rushing to shut down. Just look at some of the headlines from the past couple days:

Zambian copper workers face layoffs ... Indefinite shutdown for world top tantalum miner ... Mwana Africa shuts Zimbabwe nickel mines ... Denison Mines delays uranium project ... Norilsk Idles Two Mines ... I could go on, but you get the picture. This is happening because the global economy is tumbling into recession (See the China story linked below). But down the road, this is also setting up a supply squeeze and subsequent rebound.

And it's not just base metals: Australia's 2008 gold output may fall to lowest level since '89 .

In Other News ...

Gold equities expected to pay off for the patient

Scotia Capital analyst Trevor Turnbull remains bullish on gold, noting that dollar demand for the metal reached an all-time quarterly record of US$32-billion in the third quarter as investors flocked to safety. He also highlighted the identifiable investment demand gold offers, which includes ETFs, bars and coins.

XX Sean's note -- this guy's picks will look familiar to buyers of my gold report. By the way, did you get yesterday's update to "Your Golden Parachute for 2009"? It's an important one!

Gold is the answer. Now what was the question? While gold has hardly been seen to be performing well in recent months, and has failed to meet gold optimists' more extreme, or even more mild, expectations, it has still performed less badly than most other sectors of the market. As has been noted here on several occasions actual physical demand has remained extremely strong, both in eastern and western markets. Major gold suppliers have run out of inventory and seem to be having difficulty replacing it, while ETF demand remains very positive.

Synchronized Recession, Synchronized Stimulus?

If all the countries (or all the relevant countries) were to stimulate simultaneously, then the aggregate world economy would look a lot more like a closed economy, and the multiplier would be larger yet again.

Figure 1: From visualization of OECD Economic Outlook 84 [link]. Blue is negative growth, darkest blue is -9.335%; orange is positive growth, most orange is +9.335%. White is zero; gray is "no forecast".

A Global Downturn Puts the Brakes on China's Industry It is happening faster than most anyone predicted: China’s economy, long the world’s fastest-growing major economy, is slowing down. Economists are forecasting that after growing nearly 12 percent last year, China’s economy could slow to 5.5 percent in the fourth quarter of this year — a stunning retreat for a country accustomed to boom times.

The Western Financial System We Knew Has Collapsed

Getting banks to lend again is even more essential than getting primary and secondary markets for illiquid structured financial products going again. It may be even more important than getting the regular commercial paper market going again, important though that is. Small and medium enterprises rely overwhelmingly on banks for external finance. Without access to bank loans, credit lines and overdraft facilities, countless SMEs that would be perfectly viable with a functional financial and banking system are threatened with bankruptcy. Without working capital, businesses go out of business. Banks are essential. But they are not lending. Why? A number of possible explanations suggest themselves.

And now for some good news ...

U.S. Mortgage Rates Fall on $600 Billion Fed Plan U.S. mortgage rates fell more than three-quarters of a percentage point today ... The average U.S. rate for a 30-year fixed mortgage ended the day at about 5.5 percent after falling to as low as 5.25 percent, according to Bankrate Inc. It was 6.38 percent this morning.

XX Sean's note -- I'll be traveling for Thanksgiving, so my computer access over the long weekend will be very restricted. Have a great holiday, stuff yourself silly, and I'll talk to you on Monday.

Check out my new gold and energy blog at MoneyAndMarkets.com

Another Wild Week Begins

BANKING CRISIS

Last major investment banks change status

The Federal Reserve said Sunday it had granted a request by the country's last two major investment banks -- Goldman Sachs and Morgan Stanley -- to change their status to bank holding companies. The change in status will allow them to create commercial banks that will be able to take deposits, bolstering the resources of both institutions.

The change continued the biggest restructuring on Wall Street since the Great Depression.

Paulson: We can’t wait for regulatory reform

The federal government stepped in with an emergency bailout of collapsing financial institutions on Wall Street last week because it could not wait for regulatory agencies to sort through the “crisis situation,” Treasury Secretary Henry Paulson said Sunday.

“Financial institutions [were] clogged with illiquid loans,” Paulson said in an interview on NBC’s “Meet the Press,” effectively freezing credit markets and choking off money to keep Wall Street humming. “This is an urgent matter, and we need to move quickly,” Paulson said.

A $1.8 Trillion Bailout: Where the Money’s Going

Here’s a great list of how Washington is planning to spend your money trying to save Wall Street.

Three Times is Enemy Action

"Once is happenstance. Twice is coincidence. Three times is enemy action."
-- Auric Goldfinger

This blogger starts back in the early '80s with the deregulation of the Savings and Loan industry, and walks us all the way to today's crisis. Familiar characters like John McCain, Charles Keating, and Phil Gramm pop up along the way.

ENERGY

South Copes With Severe Gas Shortages

Drivers throughout the South have faced gasoline shortages, closed stations, high prices and long lines at the pump for the last several days. Hurricanes Gustav and Ike slowed production at oil refineries on the Gulf Coast and knocked out power along many pipelines to the South.

Saudis trim oil supply

DUBAI – Top oil exporter Saudi Arabia has trimmed oil supplies to international majors and U.S. refiners since the start of September, industry sources said on Monday.

COMMODITIES

Commodities Bottom as Speculators Vanish After Slump

The worst may be over for commodities after the steepest rout since at least 1956 drove out speculators and the U.S. government unveiled a plan to end the worst credit-market seizure since the Great Depression.

Gold Rises, Extending Gains, on Demand for a Haven Asset; Silver Advances Gold rose above $900 an ounce, extending a rally after its biggest weekly gain in almost nine years, as investors shifted assets into precious metals as a haven from market turmoil. Silver gained more than 7 percent.

XX Sean’s note – I really hope this next guy is joking. Still, it’s good financial humor.

Check out my new gold and energy blog at MoneyAndMarkets.com

Commodities -- Up, Down and All Around

Here's an excerpt from my second Red-Hot Commodity ETFs issue for today ...

Central Banks around the world have apparently decided it’s “free money day.” I’m thinking of driving by the Federal Reserve, just to see if they throw a billion dollars at me when I make a sad face. Hey, the First Bank of Sean could really use that kind of cash infusion. Anyway, needless to say, this is supportive for gold.

And you want to know what is REALLY supportive for gold? British regulators just banned short-selling of financial stocks. Why don’t they write “PANIC!” on their foreheads with magic markers and run around screaming on the trading floor? It would have the same effect.

If paper gold keeps going higher -- and it certainly could -- we may suddenly see gold eagles available on the market again. The disconnect between paper and physical gold was something I touched on in my Wednesday column, which you can read here: http://tinyurl.com/5x9ooj.

In other news ...

Russian President Threatens Arctic Annexation
Russia's long-term development and its competitiveness in global markets depends on developing Arctic resources, President Dmitry Medvedev said Wednesday, demanding that Russia mark its Arctic territory so it can claim a large share of the region's mineral resources.

XX Sean's note -- if they go ahead, what are we going to do? All our troops are tied up imposing freedom on the ungrateful in Iraq.

Russia in Georgia separatist pact
Russia has signed friendship treaties with Abkhazia and South Ossetia, sealing diplomatic ties with the breakaway Georgian regions. The accords include a pledge of military assistance from Russia.

XX Sean's note -- gosh, somebody needs to blink in this US/Russia New Cold War. There is a gold miner I really want to recommend but can't, because it has a big honking mine in frakkin' Russia! The potential geopolitical fallout is brutal.

Russia to help Cuba build space center
Moscow is ready to help Cuba develop its own space center, Russia's space agency chief said on Wednesday after talks in Caracas with Venezuelan and Cuban officials, Itar-Tass news agency reported. Russia has stepped up efforts to develop closer links with both countries, which are ideological enemies of Washington, including sending Russian strategic bombers on a mission to Venezuela this month.

XX Sean's note -- they're driving cars from the 1950s in Cuba and they're going to build a space center? Why not build something a little more practical, like a GM plant?! Will their spaceships look like classic Plymouth cruisers? Holy mother of God, this world is out of whack! By the way, did you hear that Fidel Castro bedded 35,000 women? Apparently he had them delivered to his office twice a day -- "one for lunch and one for supper". And yet he was so obviously an angry person. How is that possible?

Corn, Soybeans Slump as Report Shows Slowing Export Demand for U.S. Crops Corn fell the exchange limit in Chicago and soybeans dropped to a nine-month low after a government report showed a slowdown in overseas sales from the U.S., the biggest producer and exporter of both crops.

Mining Stocks Price in 50% Drop in Commodities, Sanford C. Bernstein Says Mining stocks are discounting as much as a 50 percent decline in commodity prices as the market factors in ``a significant cyclical downturn,'' Sanford C. Bernstein & Co. said.

Gold rush drives into second day
After a $70 rally on Wednesday, the biggest one-day gain in dollar terms, gold futures rose $50.20 to $900.70 an ounce after jumping as high as $926 on the Comex division of the New York Mercantile Exchange. Gold bugs have been proven correct in the contention that "an overwhelmingly vast and complex pool of nested financial derivatives would ultimately result in cascading defaults and ruin for major portions of the banking system," wrote Citigroup analyst John Hill.
"Frankly, we're surprised that gold is not already at $2,000 per ounce," he added.

Gold redefined: the price correction is over, some analysts say
Jon Nadler, a senior analyst at Kitco Bullion Dealers, said it's "not clear whether or not the rally is broad-based retail buying or just another profit-oriented fund play." He said that at the moment, it "appears to be more of the latter than people lining up in front of their coin shop after having lined up to make a run on their respective banks."

Check out my new gold and energy blog at MoneyAndMarkets.com

Monday Morning Charts

It’s really make-or-break time for the CRB. That said, the 61% retracement is a good place to bounce, and pullback to this level is quite normal in a commodity bull market.

Oil should be bouncing a lot more than it is with a Category 3 hurricane headed toward Energy Alley. This is indicative of the extreme pessimism in the market right now. Let’s see how the week plays out.

Gold also isn’t getting much of a break despite news of a big ramp-up in buying in India. Hmm …

Here is some news you can use.

OIL

Oil Rebounds From Five-Month Low as Ike Nears; Gold, Wheat, Copper Gain Crude oil and copper led gains in commodities as Hurricane Ike threatened rigs in the Gulf of Mexico and the U.S. government's takeover of Fannie Mae and Freddie Mac bolstered investors' expectations for growth.

Mexico Government Will Probably Set Oil Price at $80 Per Barrel in Budget Mexico, the second-biggest oil producer in the Western Hemisphere, will probably assume its crude exports will sell for $80 a barrel next year in a budget proposal the government plans to submit to Congress today.

OPEC to Pump Near Record Amounts of Crude as $106 Oil Price Stunts Growth OPEC, the supplier of 40 percent of the world's oil, will probably keep producing at a near record pace as $107-a-barrel crude squeezes the global economy.

Saudi crude price hikes may offer OPEC production hints

Its latest term crude prices suggest state-owned Saudi Arabian Oil Co (Saudi Aramco), may be starting to price in a period of lower output, even if OPEC next week doesn’t formally sign off on a production cut.

NATURAL GAS

Origin Says $8 Billion Conoco Gas Agreement Justifies Rejection of BG Bid Origin Energy Ltd., Australia's biggest producer of natural gas from coal seams, said an $8 billion transaction with ConocoPhillips ``more than justifies'' its rejection of a hostile takeover offer from BG Group Plc.

XX Sean’s note: Red-Hot Global Small Caps subscribers have one of these Aussie coal-seam gas companies in their portfolio – and it shot up 30% today, the biggest move in 3 ½ years. Why? Because this Origin deal is upping the ante on Australian coal-seam gas.

URANIUM

Energy, Toro Shares Rise in Sydney on Optimism Uranium Mining Ban May End Energy & Minerals Australia Ltd. and Toro Energy Ltd. led gains by uranium explorers in Western Australia on optimism the Liberal Party may win government after the weekend's state election and allow mining of the nuclear fuel.

US ECONOMY

Weekend Bailouts and Subsequent Market Reactions

Three observations/questions/takeaways from the past of weekend rescues history:

1. A strong rally lasts for a while, but it eventually fades and makes a new lower low; Each rally has been shorter in duration and weaker in intensity than the previous one;

2. The pre-Asian open news pattern reveals the Asset price focus is a large part of these issues;

3. What form of free markets have we evolved into? Its not Capitalism, its not Socialism, its not intelligent regulation. WTF is this??

Bank Insiders Step Up Purchases of Their Own Stock to Most in Two Decades Bank and savings and loan insiders spent more money buying shares of their companies in May, June and July this year than in any previous three months in at least two decades, betting that financial institutions are bouncing back from the credit-market crunch.

Paulson Bets He Can Do What Eluded Fed: Get Banks to Lend in Down Economy Henry Paulson is making a colossal bet that the U.S. Treasury can do what Ben S. Bernanke's Federal Reserve failed to do: Get banks to lend more freely when the deteriorating economy is still telling them to hold back.

GOLD

India’s gold imports jump 45%

India’s gold imports in August jumped 45 percent from a year ago, the first annual rise this year, as lower prices and upcoming festivals drove demand in the world’s leading consumer, a trade body chief said.

Check out my new gold and energy blog at MoneyAndMarkets.com

Monday Charts on Gold, Oil & The Dollar -- and Plenty of News You Can Use

Analysts said this week -- with some U.S. markets closing early on Friday for the Labor Day holiday -- would likely be characterized by volatile prices and low trading volumes.
http://biz.yahoo.com/ap/080825/oil_prices.html

News of Interest

ECONOMY

U.S. and Global Economies Slipping in Unison

Only a few months ago, some economists still offered hope that robust expansion could continue in much of the world even as the United States slowed. Foreign investment was expected to keep replenishing American banks still bleeding from their disastrous bets on real estate and to provide money for companies looking to expand. Overseas demand for American goods and services was supposed to continue compensating for waning demand in the States. Now, high energy prices, financial systems crippled by fear, and the decline of trading partners have combined to choke growth in many major economies. The International Monetary Fund expects global growth to slow significantly through the end of this year, dipping to 4.1 percent from 5 percent in 2007.

How to stop the next bubble

"The financial crisis has shown that markets are bubble-prone and that laissez-faire regulation doesn’t work. The authorities need to get a grip if we are to avoid a mega-bubble. But we may need an even deeper crisis for that to happen."

BANKS

Columbian Bank and Trust Company, of Topeka, Kansas, is the latest bank to fail. Can things get worse? Heck, yeah! Check out the following chart from Calculated Risk …

From Calculated Risk: even with the failure of almost 3,000 banks and thrifts during the S&L crisis, the overall economy stayed fairly healthy with only a mild-to-moderate recession starting in July 1990.

Libor Signals Credit Seizing Up as Banks Balk at Lending in Money Markets Most of the bond strategists and salesmen that Resolution Investment Management Ltd.'s Stuart Thomson talked to last August expected the credit crunch to be long over by now. Instead, money markets show there's no end in sight, and it may even worsen.

CURRENCIES

Organized Crime Groups Dump Weak US Dollar For Euro

The weakened US dollar has fallen out of favor with organized crime groups to pay for drug shipments or to settle scores, a Canadian government report said Friday.

PAKISTAN -- THE NEXT CRISIS?

Pakistani Government On Brink Of Collapse

Pakistan's ruling coalition was at risk of collapsing Monday if its junior partner carries out a threat to quit unless judges ousted by ex-President Pervez Musharraf are restored immediately.

Taleban winning war (in Pakistan), says Zardari

The Pakistani Taleban have "the upper hand" and should be put on the list of banned organisations in Pakistan, Benazir Bhutto's widower has said.

CHINA

Olympics disappoint China business owners

Many owners of small restaurants, hotels and shops in Beijing are wearing long faces this summer, especially those who poured their life savings into buying businesses or sprucing up their shops ahead of the Games. About half a million foreign visitors were expected in Beijing this month. But many businesspeople think that because of stricter visa rules and other hassles, there are no more here now than there were last August, when 420,000 visitors from abroad came to the capital. In July, Air China, the nation's flagship carrier, saw its international passenger traffic fall by 19% from a year earlier.

China's Economic Gains Give Way to Hazy Future

In the next few years, China will cross the threshold to a majority-urban society. China's urbanization rate is about 40% to 45% now, well below levels of about 75% in most of Western Europe and Latin America, but statistics show that growth in China's urban population is already slowing.

China's 1.3 billion people each consumed the equivalent of 1.4 tons of oil in energy last year, a relatively low figure. If each Chinese was to consume the same amount of energy as each person in the U.S. does -- the equivalent of 7.82 tons of oil -- then China alone would consume nearly as much energy as the entire world does now.

So far, China's government is falling behind in its drive to cut the amount of energy required to produce each yuan of economic output. It managed a reduction of just 2.9% in the first half, less than last year's 3.7%

MINING & RESOURCES

Mining Industry Shifts on Bad News

Weaker commodity prices and higher costs are starting to take a toll on the global mining industry as the billions of dollars being spent on new projects could take years to recoup.

…

Demand for resources by China and other emerging markets still is expected to soar in the years ahead.

Some analysts view the recent mine closures as bullish for commodity prices in the long run, because the moves suggest companies are imposing more financial discipline than in past booms. As miners curb output, it could help prop up prices.

Still, the economics of mining have shifted drastically in recent years. The cost of energy to run mining trucks and other equipment has skyrocketed, while steel and other building materials also are more expensive.

Commodities Hint of Bottom as Mines Close, Crop Supplies at Five-Year Lows Corn and soybeans have rebounded as reduced crop yields push U.S. stockpiles to near five-year lows. Oil has reversed on U.S.-Russian tensions. Nickel has turned after Xstrata Plc closed a Dominican Republic plant.

Corn, Soybeans Jump as Midwest Crop Tour Forecasts Smaller U.S. Harvests Corn and soybeans gained after Professional Farmers of America said harvests in the U.S. will be smaller than forecast by the government as dry weather in August hurt Midwest crops already stunted by flooding in June.

Check out my new gold and energy blog at MoneyAndMarkets.com

Commodities Glass Half Empty or Half Full?

The Wall Street Journal has a story today about the commodities pullback. They see it as a reason to stop worrying about inflation (not in so many words, but that's the gist of the story). I think it shows a set-up for the next move higher. History will show who's right. In the meantime, here's a great chart of the pullback in some leading commodities ...In other news from the Journal this morning ...

Global demand for grains is rising rapidly enough to sustain high prices. That kinda puts a crimp in their other argument about falling commodity prices, don't ya think?

Remember "Mr. Fusion" from the "Back to the Future" movies? Well, amateur "fusioneers" are working on building working nuclear fusion reactors in their garages and basements. Cue the Earth-shattering KA-BOOM! Just kidding on that last part.

Check out my new gold and energy blog at MoneyAndMarkets.com

Crude Oil -- Supplies Will Fall Short of Demand

This story in the New York Times is getting some talk on the trading floor today. Here's a quote ...

In 1994, the top five oil companies spent 3 percent of their free cash on share buybacks and 15 percent on exploration. By 2007, they were spending 34 percent of their free cash on buybacks — in effect, propping up their share prices — and a mere 6 percent on exploration, according to figures compiled by a team led by Ms. Jaffe and Ronald Soligo of Rice University. As a result, some experts warn that supplies will fall short of the demand over the next decade, perhaps sending prices well above today’s levels.

Also of interest ...
Export Boom Helps Farms, but Not American Factories
All exports of goods and services in the first half of the year rose at a $52 billion annual rate, adjusted for inflation, up 7.1 percent. Commodities accounted for 41 percent of the increase and manufactured products contributed just 12 percent, the bureau reported.

And then there's the inflation number that everyone is talking about ...

Wholesale Prices Surge at Fastest Pace Since 1981
The Labor Department reported that wholesale prices shot up 1.2 percent in July, pushed higher by rising costs for energy, motor vehicles and other products. The increase was more than twice the 0.5 percent gain that economists expected.

Check out my new gold and energy blog at MoneyAndMarkets.com

Commodities Feel The Heat

CRB Index Drops Most in 28 Years as Nickel, Natural Gas Tumble on Dollar Tumbling prices for natural gas, nickel and corn are turning July into the worst month in 28 years for the Reuters/Jefferies CRB Commodity Index.

U.S. Recession May Have Begun in Last Quarter of 2007.

The U.S. economy shrank at the end of 2007 and grew less than forecast in this year's second quarter, signaling that the country is in worse shape than investors had anticipated.

``We're in a recession,'' Allen Sinai, chief economist at Decision Economics Inc. in New York, said in a Bloomberg Television interview. ``It's going to widen, it's going to deepen.''

Crude Oil Declines More Than $2 as Fuel Demand Drops to a Three-Year Low Crude oil fell more than $2 a barrel, capping the biggest one-month decline since December 2004, as a slowing U.S. economy caused fuel consumption to weaken to the lowest in three years.

Gold Jumps as Dollar Drop Boosts Investor Demand for an Alternative Asset Gold gained the most in three weeks after a report showed weaker-than-expected U.S. growth during the second quarter, sending the dollar tumbling and boosting the appeal of the metal as an alternative investment. Silver rose.

XX Sean's note -- silver did more than rise. It's leading the way ...

And the rally in gold and silver is taking place despite bullish action in the US dollar ...

Electricity Storage Discovery May Be Boon for Solar Power, MIT Study Says A new, cheaper way to store electricity to run air conditioners or vehicles promises to make solar power competitive with traditional generation, Massachusetts Institute of Technology researchers said.

Money for crop research just a drop in the bucket

WASHINGTON — A deadly wheat fungus known as stem rust is shriveling crops from Africa to the Middle East, threatening the breadbasket of Pakistan and India, and could eventually reach the United States.

The potential threat to food supplies and the economy is enormous, yet Congress and the White House during the past several years did not react to urgent pleas from U.S. scientists for millions of dollars to develop wheat varieties resistant to stem rust. Instead, the main federal lab working on the disease fought budget cuts.

Arctic ice bigger than 2007, but thawing long-term

OSLO (Reuters) - Arctic sea ice is unlikely to shrink below a 2007 record low this year in a reprieve from the worst predictions of climate change even though new evidence confirms a long-term thaw is under way, experts said.

Check out my new gold and energy blog at MoneyAndMarkets.com

Charts and News for Monday

Sorry this is late today, but it's a crazy day.

To expand on my comments from Friday a bit, the pullback in commodities continued last week. While we could see a rally this week, we have now seen both oil and the CCI Index break important support. I expect oil will pull back to test 121, maybe 110 and if we’re really lucky, 100 – that would be an incredible buying opportunity. Why? Because the long-term supply demand picture is tightening, and this pullback will give us a base for a potential explosive move higher.

Gold is holding up better than most commodities – I think that’s fear working into the market place, as fears of a global banking crisis mount and investors look for alternatives to paper currency.

NEWS YOU CAN USE

Solar Panel Windows Coming Within 3 Years

By clustering solar cells around the edges of the specially prepared sheets of glass, the new method provides a unique alternative to expensive rooftop solar cells. They are also much more efficient than their rooftop brethren. The special glass panels concentrate light 40 times standard sunlight before delivery directly to the cell. Further different designs to absorb different wavelengths are available, so by using windows with several stacked glass panes, absorption can be optimized across the entire visible wavelength.

Oil Rebounds From a Seven-Week Low as Nigerian Militants Attack Pipeline Crude oil rose, rebounding from a seven-week low in New York, after a Royal Dutch Shell Plc pipeline in Nigeria was attacked by militants.

U.A.E. Will Cut Oil Production From October for Field Work, Officials Say The United Arab Emirates, the third- largest oil producer in the Middle East, plans to reduce its oil production by at least 100,000 barrels a day for up to 40 days from Oct. 23, officials at the Abu Dhabi National Oil Co. said.

German Consumer Confidence Drops to Five-Year Low as Spending Power Wanes Consumer confidence in Germany, Europe's biggest economy, dropped to the lowest in more than five years as soaring energy prices sapped purchasing power and the economic outlook deteriorated.

Funds for Highways Plummet As Drivers Cut Gasoline Use
A report to be released Monday by the Transportation Department shows that over the past seven months, Americans have reduced their driving by more than 40 billion miles. Because of high gasoline prices, they drove 3.7% fewer miles in May than they did a year earlier, the report says, more than double the 1.8% drop-off seen in April.

Check out my new gold and energy blog at MoneyAndMarkets.com

How Low Can Commodities Go?

Commodities are in retreat (short-term anyway). The longer-term trends are still way up, but the next month or two could see a sizeable pullback if the charts today are any guide.

The problem is charts lie all the time. All it takes is one hot missile in the Middle East to change the whole ballgame. And longer-term, the global commodity supercycle is intact. Heck, the price of iron ore recently went up 97% year over year.

But I thought I'd share three charts with you to show you what I'm looking at. First, weekly oil ...

Now the CCI, a broad index of commodities ...

Bottom line: A pullback is a normal and necessary part of a bull market. And it could hand us the buying opportunity of the next 10 years. A year from now, I expect prices to be higher than they are now, and potentially much higher.

OTHER NEWS YOU CAN USE ...

Here's an interesting take on the energy crisis ...

Americans must diet to save their economy

Want to save the US economy? Go on a diet.

That's the message ecologists are trying to get across this week. They say the apparently looming energy crisis could be averted if US residents cut their calorie intake.

The average American consumes about 3747 kilocalories (kcal) per day compared to the 2000 to 2500 kcal per day recommended by the US Food and Drug Administration.

The 3747 kcal per day figure does not include any junk food consumed.

Producing those daily calories uses the equivalent to 2000 litres of oil per person each year. That accounts for about 19% of US total energy use.

US ECONOMY

Foreclosures Double in Second Quarter as U.S. Home Prices Fall

U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth. One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement.

National Australia Bank Writes Off 90% of Its Investments in U.S. residential mortgages

National Australia Bank Ltd. (NAB) said it has made an additional provision of A$830 million ($802 million) to its portfolio of collateralised debt obligations (CDO) of asset-backed securities. NAB said it now has provisions for nearly 90 percent of its total CDO portfolio.National Australia Bank makes A$830 mln provision to CDO portfolio.

XX Sean’s note – 90% of its CDO portfolio – which is the bad mortgage debt sold by American banks – is worthless? If NAB is right, we have a way to go in the U.S. mortgage crisis.

Middle class: 'On the edge'

Adjusted for inflation, median household income dropped by $1,175 between 2000 and 2007, said Elizabeth Warren, professor at Harvard Law School, in written testimony before the Joint Economic Committee.

At the same time, the average family is spending $4,655 more on basic expenses, such as gas, housing, food and health insurance. Gas alone costs $2,195 more for a family making the same commute in May 2008 as it did eight years earlier.

Durable-Goods Orders Rise

Orders for durable goods unexpectedly rose in June, while a barometer of capital spending by businesses increased, a sign of strength for the struggling manufacturing sector.

Billions needed to shore up nation's bridges

It would cost $9.4 billion a year for 20 years to eliminate all bridge deficiencies in the USA, according to the latest estimate, made in 2005, by the American Society of Civil Engineers.

Xx Sean’s note – click through on the link for an incredible map showing unsafe bridges around the country.

ENERGY

As oil price rose, exporters cut shipments

The world's top oil producers are currently proving unable to generate more barrels on demanding world markets, despite surging prices — a shift that defies traditional market logic and looks set to continue.

Fresh data from the U.S. Department of Energy show the amount of petroleum products shipped by the world's top oil exporters fell 2.5 percent in 2007, despite a 57 percent increase in prices, a trend that appears to hold true this year as well.

There are several reasons behind the net-export decline.

Small Car Sales Surge

Ford to retool 3 truck plants for small cars starting in December

Starting in December of this year, three truck plants will be retooled so that they can build cars instead. In addition six new models will be coming over from the European lineup and Mercury will live on. Like other automakers Ford will be consolidating production of large trucks into fewer plants..... The Michigan plant will retool to build to build a vehicle based on the European Focus platform. As previously announced the Cuautitlan Assembly Plant in Mexico will shift from building F-series pickups to the new Fiesta at the end of next year. A second plant in Louisville that currently builds Explorers will switch over to building Focus based vehicles as well.

Check out my new gold and energy blog at MoneyAndMarkets.com

How the New Oil Crisis Affects You

My latest MoneyandMarkets.com column is up. It's on the oil crisis ...

How the New Oil Crisis Affects You
by Sean Brodrick
Wednesday, June 11, 2008 7:30 AM
In ancient times, when mapmakers came to uncharted territory, they would scrawl: "Here There Be Dragons." Flash-forward to the 21st Century; oil markets went into uncharted territory on the ... [More...]

Here is other news you can use ...

OIL AND GAS

IEA Says World Facing `Oil Crisis,' Ready to Release Emergency Stockpiles The world faces an ``oil crisis,'' and the International Energy Agency stands ready to release emergency stockpiles even as the biggest consumers discuss measures to contain spiraling demand, the agency's chief said.

Global Crude Oil Production Dropped for First Time in Five Years, BP Says Global oil production fell for the first time in five years in 2007 and reserves also declined as prices rose to records, BP Plc said in its annual Statistical Review of World Energy.

Gasoline Hits a New Record Oil prices rebounded as the dollar weakened against major currencies Wednesday, but investors braced for a volatile trading day ahead of a report on U.S. crude inventories. Gas prices, meanwhile, advanced further into record territory Wednesday, reaching a new record national average of $4.052, according to a survey of stations by AAA and the Oil Price Information Service.

West Australian Gas Supplies Disruption May Last Until October, UBS Says Western Australia's natural gas supplies may remain disrupted until October because of damage to Apache Corp.'s production plants on Varanus Island, off the state's northwest coast, UBS AG said.

Indian Oil to Reduce Discount on Diesel Sales to Industries to Cut Losses Indian Oil Corp., the nation's biggest refiner, is cutting discounts on diesel sales to corporate and bulk clients to narrow losses from selling fuels below cost to retail buyers.

Petrobras Aims to Become World's Third-Biggest Refiner With Two New Plants Petroleo Brasileiro SA, Brazil's state-owned oil company, said it may become the world's third- biggest oil refiner with a plan to build two new plants.

AGRICULTURE

Corn Climbs to Record in Chicago as Heavy Rains Threaten U.S. Production Corn rose for a sixth day to a record in Chicago, leading gains in soybeans, wheat and rice, after the U.S. cut its output estimate by 3.2 percent from a May forecast as cold, wet weather delayed planting and flooded fields.

NUCLEAR

Additional Nuclear Reactors, Increased Imports of Uranium Planned by China China, the world's second-biggest energy consumer, plans to add more nuclear-power capacity by 2020, step up uranium imports and explore for the fuel in nations as diverse as Kazakhstan and Niger.

US ECONOMY

Is The Dollar Doomed? Ever since Robert Rubin began the tradition in the mid-1990s, it has been a significant element of the U.S. Treasury Secretary’s job to continuously state that a strong dollar is in the national interest. It is widely regarded that such utterances, if repeated often enough, can constitute the sum total of what is still laughingly known as the nation’s “strong dollar policy.”

COMMODITIES

Make Way for the Economic Power of Generation A They may earn only about £2,000 a year but they are 400 million-strong, scattered across the globe and have just bought themselves a fridge. Meet Generation A, who soon could become the most important economic force on Earth.

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Monday Is Chart Day -- Oil, Gold, Corn and More

All CNBC can talk about this morning is Lehman Brothers. How many people does that effect? Meanwhile, oil is not pulling back much from its biggest one-day surge EVER on Friday. Don’t you think that deserves more headline time? The average price of a gallon of gasoline in the United States hit $4 for the first time ever Sunday. I think that affects a heck of a lot more people than Lehman Brothers.

More on gasoline prices HERE.

Gold Rises in London as Dollar, Near-Record Oil Heighten Inflation Concern Gold rose for a second consecutive trading session in London as the dollar declined and oil traded close to a record, bolstering demand for the metal as a hedge against a weaker U.S. currency and faster inflation.

Corn Climbs to Record on U.S. Midwest Flooding; Soybeans, Wheat, Rice Gain Corn jumped to a record as rain in the U.S. Midwest flooded fields, delaying planting and threatening to reduce crops. Soybeans, wheat and rice also gained as soaring oil costs and the dollar's drop boosted demand for an inflation hedge.

Now to the charts …

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Sunday Reading List -- My Analysis of Current Events

G-8 to fight oil prices with efficiency, tech

XX Sean's note -- rolling back the speed limits and strict, enforced conservation measures never enter the conversation. We are so doomed if we are led by these babbling idiots for much longer.

Also adding to the problem ...

Some 86 billion barrels of oil and 420 trillion cubic feet of natural gas are beneath America's waters, DOI says. Of those amounts, 19.1 billion barrels of oil and 83.9 trillion cubic feet of gas lie in federally-controlled territorial waters that are completely off-limits to leasing and development.

But don't worry. OPEC says there's plenty of oil on the market.

In other news ...

West Australian Miners Brace for Productivity Drop
Western Australian miners, which supply the world with metals and iron ore, fear sharp falls in productivity and lay-offs after a gas-plant explosion robbed them of power, industry and local government officials said on Sunday.
Western Australia lost about a third of its energy supplies last week when an explosion crippled a gas-handling plant on the tiny island of Varanus, about 100 km (62 miles) off Australia's northwest coast. The Varanus plant, close to offshore gas fields, is operated by a unit of U.S.-based Apache Corp.
Tim Wall, managing director of Apache's Australian unit, said on Sunday he was sticking with an earlier estimate of "months, not weeks" before damage to the plant and associated gas pipelines was repaired and operations could restart.

XX Sean's note -- Western Australia supplies about a third of the world's iron ore, 20% of its gold and copper, zinc and nickel as well. This is very bullish news for the short-term price outlook in these commodities.

ESPN Wonders, Which Will End the World First: Global Warming or Peak Oil

XX Sean's note -- ESPN actually manages to inject some much-needed humor into a serious subject.

The Gods That Failed: How Blind Faith In Markets Has Cost Us Our Future
XX Sean's note -- More analysts are starting to say the financial class has "betrayed" the middle class. That makes me nervous. I don't want to see a replay of the French revolution, and my guess is, neither do you. That ended badly for all concerned (Robespierre, who led the Reign of Terror that beheaded so many Frenchmen, was himself later dragged to the guillotine. How's that for irony?).
Another example of an article targeting the financial class would be Countdown to $200 Oil Meets Anglo Disease. I agree that America's national interests are not currently well-served by the high finance crowd. But what remedies, exactly, do the agitators have in mind to achieve their goals?

Interestingly, from a historical perspective, the French Revolution is where we get the terms Left Wing and Right Wing, among other things.

Southern Indiana is Under Water
XX Sean's note -- That's big corn/soybean country. Heavy rains have flooded corn crops in Indiana, Ohio, Nebraska and other states, giving farmers their wettest spring since 1993. There are some farmers in Indiana who had already replanted fields a third time, and now we get ANOTHER flood? This is tragic on many levels. First off, for the people involved, and secondly for our national food supply. I'd say this is very bullish for corn and soybeans.

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Consumers Go Down While Commodities Go Up

The U.S. lost jobs in May for a fifth month and the unemployment rate rose by the most in more than two decades to 5.5%. Obviously, the US consumer is in trouble. And yet prices for hard assets and commodities keep soaring, as I showed you with a list of links in my post earlier today.

What the heck is going on? How can prices of things go down when US consumers can't buy.

Well, this is where we need a giant Dr. Phil to confront Uncle Sam and bellow, "It ain't about you."

Instead, it's about global demand. China has a huge natural disaster -- a massive earthquake -- and what do the Chinese do? Buy more cars, in a nation that is adding 8.5 million new cars to its roads this year alone. In the US, if we had a massive earthquake, we'd probably all stay home and watch endless loops of the video on CNN.

India is another nation that is buying a lot of cars. It's way behind China -- Indians bought just 1.6 million cars last year -- but Indians do buy 8 million motorcycles and scooters a year. And auto sales in India should nearly triple to 4.6 million by 2014.

Now, we are seeing countries like India, Indonesia, and other emerging market tigers cut their fuel subsidies. This may crimp spending going forward. Still, right now, experts expect that India's consumer spending should quadruple by 2025, overtaking Germany and making it the fifth-largest consumer market, behind the US, Japan, China, and Britain.

I think Peak Oil will have a lot to say about global consumerism, and may even derail it. But until then, we are probably going to see the standard of living rise in other parts of the world even as the standard of living goes down in the US.

As the great Bruce Springsteen wrote in My Hometown, "These jobs are going boys, and they ain't coming back."

Well, that's depressing. Try to have a happy Friday and good weekend. Here's a video to cheer you up ...

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