Housing & Commodities: Stronger than they appear

The View From The Peak
Home Multimedia Forum Books Articles^New! News/Updates^New!
How prepared are we for the permanent energy crisis ?
	HOUSING & COMMODITIES: STRONGER THAN THEY APPEAR by Stephen Leeb Inside this weeks update *** New highs arrive as expected * What bear market in commodities? * Housing too is stronger than it looks. * More on this autumns biggest investment opportunity ------------------------------------- We continue to believe that the U.S. economy, though slower, isn't down for the count. Key economic indicators, such as unemployment insurance claims, are very firm, suggesting the American and global economies remain resilient. The one weak spot, which has been much in the news recently, is housing. But with interest rates under 4 percent, the housing market is not as dangerously vulnerable as the bears insist. (In fact, we believe shares in homebuilders are starting to look attractive as a speculative investment.) As we pointed out in the September issue of TCI, as long as commodity prices stay in an uptrend, so will housing. I know what you re about to ask. Aren't commodity prices crashing? Well, the answer is no. It only looks that way. Heres what I mean we've heard a tremendous amount of talk in the media these days about a new bear market in commodities. The evidence most often quoted is the CRB Index, which has lost roughly 15 percent since July. By some measures, this is the sharpest plunge in a generation. But before you leap onto the bandwagon (or off the cliff) along with those proclaiming a bear market in commodities, lets take a closer look. The CRB Index may be the most widely quoted measure of commodity prices, but it isn't the most accurate, for the simple reason that it reflects a great deal of speculation by traders who make leveraged bets on commodities, using margin and derivatives. In the futures pits, buyers often pay as little as 10 percent down on any position. These people have no interest in commodities apart from making profits trading them. And they never actually take delivery of the commodities they buy and sell. Even if you are a seasoned pro, when you trade on margin, you run the risk of margin calls and steep losses if your position sours. Recently, Amaranth Hedge Fund Advisors had their natural gas positions sour to the extent of some $6 billion. And those are just the losses we've heard about. Naturally, when speculative disasters like this occur, the CRB Index can drop. But its a drop that has less to do with actual demand for commodities than many people assume. A more accurate measure of commodity prices, by contrast, is the CRB Raw Industrials Spot Index, which reflects the prices businesses are actually paying other businesses for tallow, rubber, scrap steel, resin, and many other materials industry needs to function. Theres no speculative component to this index, except where a company might take advantage of temporary low prices to fill its warehouse with a commodity it actually uses. Not surprisingly, while the CRB Index has been correcting, the Raw Industrials Index has remained stubbornly high. It made and all-time high today. In fact, the divergence between two indices is some 20 percent -- the largest we've ever seen. Our conclusion is that much of the apparent weakness in commodities has resulted from speculative mistakes rather than any lowering of industrial demand. Naturally, natural gas prices are one of the biggest casualties of this speculation. But so is our favorite commodity, oil. Oil prices declined at a very sharp rate over the past summer. But our sense is that once oil bottoms out, the following rally will be much sharper than most people expect. Were amazed at how few oil bulls there are today, and how many people expect oil to fall to $45 a barrel despite OPECs declaration that it will hold the line at $60. That alone is a bullish sign. In addition to the impact of speculators on oil, the black gold has been harmed by what we suspect is political manipulation including misleading reports of a major discovery (which should have been called Jack Squat), a softened stance towards Iran (which is determined to be the worlds next nuclear power, or die trying), and a mysterious rise in diesel fuel inventories (which suggests the U.S. military may be dipping into its inventories to affect prices). All this downward pressure on oil could come to a screeching halt within the next 4 to 6 weeks when, no matter which way you look at it, the world will be operating with a negative excess capacity in oil. In other words, well be burning more oil this winter than we can produce for what may be the first time in history. And that will surely mean higher prices. To top it off, things have been relatively quiet recently on the geopolitical front even though none of the potentially explosive situations has been defused. That could change tomorrow! Previously, Americas strategic petroleum reserve acted as insurance against any geopolitical event that disrupted oil supplies. But President Bush has not refilled the tank since the last time he tapped into it. And that means we have less ability to contain prices when the next shock hits. Bottom line for this week we still expect stocks to make further gains. But were preparing for a dramatic reversal in oil. Perhaps not this week, but within 4 to 6 weeks, oil will rebound. And when it does, heres how to profit THIS FALLS BIG OPPORTUNITY Oil service companies, as we've pointed out before, are trading at their lowest valuations in more than a generation. Even if oil were to fall to $55 a barrel, they would still be unbelievably cheap. Until next week, Stephen Leeb Editor, The Complete Investor http://www.completeinvestor.com/mf/ *********************************** Emerging Investments Weekly Market Update * THE LATEST U.S. ECONOMIC STATISTICS * LAST WEEKS PRICE ACTION FOR EQUITIES THE U.S., CHINA, AND INDIA * OIL PRICES TO RALLY AND INFLATIONARY PRESSURES TO REMAIN THE LATEST ECONOMIC STATISTICS The latest economic statistics clearly indicate that the U.S. economy is continuing to slow. The U.S. Department of Commerce reported that the economy grew at an annualized rate of 2.6% during the second quarter, versus earlier estimates of 2.9%. However, on a year-over-year basis, the economy grew at a rate of 3.5%. Meanwhile, the Housing market continued to deteriorate during August, with sales of new homes declining 17.4%, as compared to the same period a year ago, and existing homes sales falling 12.6%. Median sales prices of existing homes fell for the first time in more than 11 years and just the sixth time in the past 30 years. However, on a sequential monthly basis, new home sales rose 4.1% during August, as compared to July. In regards to future economic growth, some key leading economic indicators fell during August. The Conference Boards index of leading economic indicators continued to trend lower, after reaching a current business cycle high during April of this year, and the Philadelphia Feds index of manufacturing activity fell to 0.4 during September, from 18.5 in August. This index is based on a survey of manufacturing firms, whereby companies are asked about the current pace of business in the participants' plants and their future expectations of business. On a positive note, consumer confidence improved during September, with the Conference Boards consumer confidence index rising to 104.5 during September, from 100.2 in August and the University of Michigan's consumer expectations index rising to 77.1, from 68.0. LAST WEEKS PRICE ACTION FOR EQUITIES The financial markets responded favorably to these statistics, with the Dow Jones Industrial Average near an all-time high, and the S&P 500 Index rising at its highest level in more than five years. Equity markets in China and India also rallied significantly over the last week, with both the Hang Seng (China Hong Kong) index and the BSE Sensex (India) index rising to within striking distance of all-time highs. OIL PRICES AND INFLATIONARY PRESSURES Although market momentum is currently in favor of the bulls, we warn our subscribers to not get too aggressive at this stage of the bull market. While most inflation statistics declined during August as a result of significant declines in oil and gas prices, our research suggest that energy prices will rise to near their prior highs by the end of 2006 and that other inflationary pressures will trend higher over the coming months. Crude oil prices still do not reflect indications that OPEC might soon initiate a cut in production. For these reasons, we urge our subscribers who are in need of protecting the purchasing power of the dollar investors who rely on a fixed monthly income or who desire to invest in stocks that are likely to provide a hedge against inflation, to continue holding the securities recommended in our Beat Inflation portfolio. Until next time Your Emerging Investments Team http://www.emerginginvestments.net/mf/ TCI Enterprises LLC 500 5th Ave., 57th Floor New York, NY 10110 ©2006 TCI Enterprises. All rights reserved. Dr. Stephen Leeb. Dr. Leeb is the editor of The Complete Investor www.complete investor.com. Before starting The Complete Investor, Dr. Leeb was the editor of Personal Finance, a publication that was read by more than 120,000 subscribers. The Complete Investor newsletter has earned awards for Editorial Excellence for 2004 and 2005 by the Newsletter & Electronic Publishers Association. Dr. Leeb is the author of six books on investments and financial trends. His newest book The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel (Warner Books, 2006), co-written with Glen Strathy, was released in February 2006. It outlines the biggest challenges facing the American economy, and the steps individuals and government can take to forestall them. newsletter	Peak Oil Glance at World's oil Simmons Presentations Hirsch Report (pdf) US Army report (pdf) 4 Biggest Fields Declining Kuwait's Burgan Peaks Cantarell is Dying North Sea in Decline Trouble in Ghawar Ghawar is dying Daqing Peaked Russian Peak I Russian Peak II Iran is The next Target Dick Cheney (pdf) Shell cuts reserves 5th time Rainwater Prophecy Abiotic Oil I Abiotic Oil II Petrodollar Warfare (pdf) This Week in Petroleum Petroleum Monthly Mega Projects 2004 (pdf) Price Quotes/Charts Oil Chart Crude Real Time Quotes CNN Commodities Energy Price Quote Live Gold/Silver Quotes Alternatives or Fantasy? Ethanol (pdf) Ethanol II Oil Shale Oil Shale II Hydrogen Fantasy The Breaking Point EROEI for alternatives Alternative Fuel Data Center Alternative For Farms Uranium Links Uranium Spot Price Uranium Info Center Uranium Fundamentals (pdf) World Nuclear Association North of the Border USA today - Tar sands CIBC World Markets Report Oil Sands Discovery Center Oil sands report Raymond James Report Suncor Energy Canadian Natural Resource Canadian Oil Sands Trust Syncrude Canada Ltd. Western Oil Sands UTS Energy Opti Canada Petrobank Canadian Royalty trusts Central Fund of Canada Cameco Corporation Other Opps Independent Oil & Gas Drilling & Exploration Equipment & Services Oil & Gas Majors Refining & Marketing Streetracks Gold Prudent Bear Fund Clean Energy ETF Investing for Apocalypse Dollar/Precious Metals Dollar at Risk Secret of Gold Yield Curve & Recession Straight Talk on Mining Crude Thoughts About Us

The View From The Peak

Home Multimedia Forum Books Articles^New! News/Updates^New!

How prepared are we for the permanent energy crisis ?

HOUSING & COMMODITIES: STRONGER THAN THEY APPEAR

by Stephen Leeb

Inside this weeks update

***** New highs arrive as expected

***** What bear market in commodities?

***** Housing too is stronger than it looks.

***** More on this autumns biggest investment opportunity

-------------------------------------

We continue to believe that the U.S. economy, though slower, isn't down for the count. Key economic indicators, such as unemployment insurance claims, are very firm, suggesting the American and global economies remain resilient. The one weak spot, which has been much in the news recently, is housing.

But with interest rates under 4 percent, the housing market is not as dangerously vulnerable as the bears insist. (In fact, we believe shares in homebuilders are starting to look attractive as a speculative investment.) As we pointed out in the September issue of TCI, as long as commodity prices stay in an uptrend, so will housing.

I know what you re about to ask. Aren't commodity prices crashing? Well, the answer is no. It only looks that way. Heres what I mean we've heard a tremendous amount of talk in the media these days about a new bear market in commodities. The evidence most often quoted is the CRB Index, which has lost roughly 15 percent since July.

By some measures, this is the sharpest plunge in a generation. But before you leap onto the bandwagon (or off the cliff) along with those proclaiming a bear market in commodities, lets take a closer look. The CRB Index may be the most widely quoted measure of commodity prices, but it isn't the most accurate, for the simple reason that it reflects a great deal of speculation by traders who make leveraged bets on commodities, using margin and derivatives.

In the futures pits, buyers often pay as little as 10 percent down on any position. These people have no interest in commodities apart from making profits trading them. And they never actually take delivery of the commodities they buy and sell. Even if you are a seasoned pro, when you trade on margin, you run the risk of margin calls and steep losses if your position sours.

Recently, Amaranth Hedge Fund Advisors had their natural gas positions sour to the extent of some $6 billion. And those are just the losses we've heard about. Naturally, when speculative disasters like this occur, the CRB Index can drop. But its a drop that has less to do with actual demand for commodities than many people assume.

A more accurate measure of commodity prices, by contrast, is the CRB Raw Industrials Spot Index, which reflects the prices businesses are actually paying other businesses for tallow, rubber, scrap steel, resin, and many other materials industry needs to function. Theres no speculative component to this index, except where a company might take advantage of temporary low prices to fill its warehouse with a commodity it actually uses.

Not surprisingly, while the CRB Index has been correcting, the Raw Industrials Index has remained stubbornly high. It made and all-time high today. In fact, the divergence between two indices is some 20 percent -- the largest we've ever seen. Our conclusion is that much of the apparent weakness in commodities has resulted from speculative mistakes rather than any lowering of industrial demand.

Naturally, natural gas prices are one of the biggest casualties of this speculation. But so is our favorite commodity, oil. Oil prices declined at a very sharp rate over the past summer. But our sense is that once oil bottoms out, the following rally will be much sharper than most people expect. Were amazed at how few oil bulls there are today, and how many people expect oil to fall to $45 a barrel despite OPECs declaration that it will hold the line at $60. That alone is a bullish sign.

In addition to the impact of speculators on oil, the black gold has been harmed by what we suspect is political manipulation including misleading reports of a major discovery (which should have been called Jack Squat), a softened stance towards Iran (which is determined to be the worlds next nuclear power, or die trying), and a mysterious rise in diesel fuel inventories (which suggests the U.S. military may be dipping into its inventories to affect prices).

All this downward pressure on oil could come to a screeching halt within the next 4 to 6 weeks when, no matter which way you look at it, the world will be operating with a negative excess capacity in oil. In other words, well be burning more oil this winter than we can produce for what may be the first time in history. And that will surely mean higher prices.

To top it off, things have been relatively quiet recently on the geopolitical front even though none of the potentially explosive situations has been defused. That could change tomorrow! Previously, Americas strategic petroleum reserve acted as insurance against any geopolitical event that disrupted oil supplies.

But President Bush has not refilled the tank since the last time he tapped into it. And that means we have less ability to contain prices when the next shock hits. Bottom line for this week we still expect stocks to make further gains. But were preparing for a dramatic reversal in oil. Perhaps not this week, but within 4 to 6 weeks, oil will rebound. And when it does, heres how to profit THIS FALLS BIG OPPORTUNITY Oil service companies, as we've pointed out before, are trading at their lowest valuations in more than a generation.

Even if oil were to fall to $55 a barrel, they would still be unbelievably cheap.

Until next week,

Stephen Leeb

Editor,

The Complete Investor

http://www.completeinvestor.com/mf/

***************************************

Emerging Investments Weekly Market Update
*** THE LATEST U.S. ECONOMIC STATISTICS

*** LAST WEEKS PRICE ACTION FOR EQUITIES THE U.S., CHINA, AND INDIA

*** OIL PRICES TO RALLY AND INFLATIONARY PRESSURES TO REMAIN THE LATEST ECONOMIC STATISTICS

The latest economic statistics clearly indicate that the U.S. economy is continuing to slow. The U.S. Department of Commerce reported that the economy grew at an annualized rate of 2.6% during the second quarter, versus earlier estimates of 2.9%. However, on a year-over-year basis, the economy grew at a rate of 3.5%.

Meanwhile, the Housing market continued to deteriorate during August, with sales of new homes declining 17.4%, as compared to the same period a year ago, and existing homes sales falling 12.6%. Median sales prices of existing homes fell for the first time in more than 11 years and just the sixth time in the past 30 years.

However, on a sequential monthly basis, new home sales rose 4.1% during August, as compared to July. In regards to future economic growth, some key leading economic indicators fell during August. The Conference Boards index of leading economic indicators continued to trend lower, after reaching a current business cycle high during April of this year, and the Philadelphia Feds index of manufacturing activity fell to 0.4 during September, from 18.5 in August.

This index is based on a survey of manufacturing firms, whereby companies are asked about the current pace of business in the participants' plants and their future expectations of business. On a positive note, consumer confidence improved during September, with the Conference Boards consumer confidence index rising to 104.5 during September, from 100.2 in August and the University of Michigan's consumer expectations index rising to 77.1, from 68.0.
LAST WEEKS PRICE ACTION FOR EQUITIES

The financial markets responded favorably to these statistics, with the Dow Jones Industrial Average near an all-time high, and the S&P 500 Index rising at its highest level in more than five years. Equity markets in China and India also rallied significantly over the last week, with both the Hang Seng (China Hong Kong) index and the BSE Sensex (India) index rising to within striking distance of all-time highs.

OIL PRICES AND INFLATIONARY PRESSURES

Although market momentum is currently in favor of the bulls, we warn our subscribers to not get too aggressive at this stage of the bull market. While most inflation statistics declined during August as a result of significant declines in oil and gas prices, our research suggest that energy prices will rise to near their prior highs by the end of 2006 and that other inflationary pressures will trend higher over the coming months.

Crude oil prices still do not reflect indications that OPEC might soon initiate a cut in production. For these reasons, we urge our subscribers who are in need of protecting the purchasing power of the dollar investors who rely on a fixed monthly income or who desire to invest in stocks that are likely to provide a hedge against inflation, to continue holding the securities recommended in our Beat Inflation portfolio.

Until next time

Your Emerging Investments Team

http://www.emerginginvestments.net/mf/

TCI Enterprises LLC
500 5th Ave., 57th Floor
New York, NY 10110

©2006 TCI Enterprises. All rights reserved.

Dr. Stephen Leeb. Dr. Leeb is the editor of The Complete Investor www.complete investor.com. Before starting The Complete Investor, Dr. Leeb was the editor of Personal Finance, a publication that was read by more than 120,000 subscribers. The Complete Investor newsletter has earned awards for Editorial Excellence for 2004 and 2005 by the Newsletter & Electronic Publishers Association.

Dr. Leeb is the author of six books on investments and financial trends. His newest book The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel (Warner Books, 2006), co-written with Glen Strathy, was released in February 2006. It outlines the biggest challenges facing the American economy, and the steps individuals and government can take to forestall them. newsletter

Peak Oil
Glance at World's oil
Simmons Presentations
Hirsch Report (pdf)
US Army report (pdf)
4 Biggest Fields Declining
Kuwait's Burgan Peaks
Cantarell is Dying
North Sea in Decline
Trouble in Ghawar
Ghawar is dying
Daqing Peaked
Russian Peak I
Russian Peak II
Iran is The next Target
Dick Cheney (pdf)
Shell cuts reserves 5th time
Rainwater Prophecy
Abiotic Oil I
Abiotic Oil II
Petrodollar Warfare (pdf)
This Week in Petroleum
Petroleum Monthly
Mega Projects 2004 (pdf)

Price Quotes/Charts
Oil Chart
Crude Real Time Quotes
CNN Commodities
Energy Price Quote
Live Gold/Silver Quotes

Alternatives or Fantasy?
Ethanol (pdf)
Ethanol II
Oil Shale
Oil Shale II
Hydrogen Fantasy
The Breaking Point
EROEI for alternatives
Alternative Fuel Data Center
Alternative For Farms

Uranium Links
Uranium Spot Price
Uranium Info Center
Uranium Fundamentals (pdf)
World Nuclear Association

North of the Border

USA today - Tar sands
CIBC World Markets Report
Oil Sands Discovery Center
Oil sands report
Raymond James Report
Suncor Energy
Canadian Natural Resource
Canadian Oil Sands Trust
Syncrude Canada Ltd.
Western Oil Sands
UTS Energy
Opti Canada
Petrobank
Canadian Royalty trusts
Central Fund of Canada
Cameco Corporation

Other Opps
Independent Oil & Gas
Drilling & Exploration
Equipment & Services
Oil & Gas Majors
Refining & Marketing
Streetracks Gold
Prudent Bear Fund
Clean Energy ETF
Investing for Apocalypse

Dollar/Precious Metals
Dollar at Risk
Secret of Gold
Yield Curve & Recession
Straight Talk on Mining

Crude Thoughts

About Us