Comin' this summer... $5 gas

The forecast for the summer driving season: Hit the road early. Not to beat the traffic, but to beat the higher gas prices expected in mid-July.

Goldman Sachs' crystal ball is proclaiming that oil will soon soar to $135 a barrel, and likely have service stations jacking up fuel prices to $5 a gallon in New York just like the summer of 2008 that preceded the recession.

Indeed, analysts say Goldman and the other oil trading giant that also has the might to move prices, JPMorgan Chase, have already placed their energy bets for the summer. JPMorgan predicts oil hitting $130 a barrel in the coming weeks.

Despite all the turmoil in the Middle East associated with the Arab Spring rioting, oil has fallen to the $100 level, closing out May with a stunning 12 percent drop.

But before the storm, the calm. There appears to be a backlash by some oil-pit analysts.

"Whoever would buy into these rising prices is just paying homage (to Wall Street firms) and helping the speculative positions," said one oil trading source familiar with energy bets of Wall Street trading desks.

Gas prices, meanwhile, should benefit from the brief respite in oil prices.

"We should be seeing some big declines at the gas pumps after Memorial Day," said energy analyst Peter Beutel of Cameron Hanover.

"Wholesale prices have been dropping, and that could cause some serious revisions downward at the pumps," he said.

"The competition is fierce among the retailers, and whoever lowers his price first gets a big jump on everyone else and a lot of new business."

Pump prices have dropped about 10 cents a gallon this week, while wholesale prices at the Nymex have steadily skidded 50 cents a gallon in the past two weeks.

Those declines came despite upward pressure on wholesale prices here in the past two days due to speculation that Mississippi River flooding could disrupt Gulf Coast refineries.

At the start of the Memorial Day holiday, the national average for gas was $3.80 a gallon.

Tom Kloza, an analyst at Oil Price Information Services, expects gas to fall to between $3.50 and $3.60 between now and the July 4 holiday.

Consumers could use the help.

Economists say households spent an average of $369 on gas during April, or about $168 more than the $201 they spent during April 2009, when gas was averaging around $2.76 a gallon.

Every 50-cent jump in the cost of gasoline takes $70 billion out of the US economy over the course of a year, economists say.

The tourism industry expects a drop in travel because consumers intend to stay closer to home and take more day trips. AAA predicts the typical family will spend $692 on its vacation, down 14 percent from $809 last year.

Meanwhile, demand for gasoline has fallen for eight straight weeks as drivers try to cut back with mixed results.

"Drivers try to do what they can, but they have to go almost all the places they go," says energy researcher David Greene of the Department of Energy Web site fueleconomy.gov. "There's no magic gizmo that will drastically change someone's gasoline use."

And for that reason, as well as global uncertainty, Goldman and JP analysts see a return to high oil and gas prices in the coming months. Without a significant decrease in American demand -- or a sudden desire not to commute or drive to the shore -- $5 a gallon is likely on the horizon.

Mobius Says Fresh Financial Crisis Around Corner Amid Volatile Derivatives

Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club ofJapan in Tokyo today in response to a question about price swings. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.

The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. home loans that ceased performing, triggering hundreds of billions of dollars in writedowns and leading to the collapse of Lehman Brothers Holdings Inc. in September 2008. The MSCI AC World Index of developed and emerging market stocks tumbled 46 percent between Lehman’s downfall and the market bottom on March 9, 2009.

“With every crisis comes great opportunity,” said Mobius. When markets are crashing, “that’s when we’re going to be able to invest and do a good job,” he said.

The freezing of global credit markets caused governments from Washington to Beijing toLondon to pump more than $3 trillion into the financial system to shore up the global economy. The MSCI AC World gauge surged 99 percent from its March 2009 low through May 27.

‘Too Big to Fail’

The largest U.S. banks have grown larger since the financial crisis, and the number of “too-big-to-fail” banks will increase by 40 percent over the next 15 years, according to data compiled by Bloomberg.

Separately, higher capital requirements and greater supervision should be imposed on institutions deemed “too important to fail” to reduce the chances of large-scale failures, staff at the International Monetary Fund warned in a report on May 27.

“Are the banks bigger than they were before? They’re bigger,” Mobius said. “Too big to fail.”

The money manager had earlier said at the same event that Africa has an “incredible” investment potential and that he has stakes in Nigerian banks.

“These banks are doing very well and are much better regulated than they were in the past,” Mobius said, without disclosing which lenders he holds.

Banks account for five of the eight stocks in the MSCI Nigeria (MXNI) Index. Guaranty Trust Bank Plc, the country’s No. 2 lender by market value, surged 31 percent in the six months through May 27, according to data compiled by Bloomberg. Shares of Access Bank Nigeria Plc recorded the second-biggest decline on the gauge in the period, the data show.

Invest In Rare Earth Metals: AVL, CHGS, LIT, MCP, REMX, TC, XING

TUTORIAL: How To Analyze Earnings

Building Blocks of High TechnologyWhile Scandium, Gadolinium and Yttrium don't exactly roll off the tongue, these minerals form the building blocks of high technology. From slick flat panel TV's and cell phones to wind turbines and MRI machines, these strategic metals are finding their ways into our daily lives more and more. Terbium is one of the key ingredients in low-energy CFL light bulbs and it takes roughly one ton of neodymium for every megawatt of generating capacity a wind turbine has. Hybrid cars use up to 25 pounds of these precious metals in their advanced electric motors in order to increase efficiency. Currently, worldwide demand outside of China for rare earths totals about 60,000 tons per year.

Chinese Domination
Demand for these materials is only increasing as populations continue to grow. The market value for strategic metals is expected to reach 200,000 tons by 2014, or roughly valued at $2 to $3 billion. Chinese requirements of rare earths are forecasted to exceed supply by 2012. These supply and demand imbalances are a real cause for concern. Mostly due to its incredibly lax environmental policies, China currently produces more than 95% of global supply of rare earths. During the second half of 2010, China slashed export quotas by 72% and for 2011, the first round of export permits saw cuts of 35%. These cuts have caused prices to skyrocket. One ton of neodymium is quickly approaching the $180,000 mark.

International Reactions
Governments around the world are taking China's dominance seriously. Recently, Congress initiated the ReSTART initiative aimed at getting a foothold in the rare earth minerals market again and the US Trade Representative plans to file a complaint with the World Trade Organization against China's export reduction policies of rare earths. Malaysia has partnered with Lynas Corp (OTCBB:LYSCF) to construct the first rare earth processing plant outside China in over three decades.

A Portfolio Proposition Demand for strategic minerals like lithium and europium will continue to increase as they are critical components of a variety of new technologies. Energy efficiency measures, consumer electronics, new infrastructure and green renewable energy will be new major sources of demand. Given the recent pullbacks in many of the stocks and funds that track the sector, it might be a good time to add it to a long term portfolio.

ETF Options
The easiest way to the sector is through the Market Vectors Rare Earth/Strategic Metals ETF (Nasdaq:REMX). The fund tracks 26 different global miners in the rare earth and strategic metals sectors including Lynas as well as molybdenum miner Thompson Creek Metals (NYSE:TC). The fund has nearly 60% of its $400 million in assets located in Canada, Australia and the United States, but does offer exposure to some of the Chinese companies in the sector. Similarly, the Global X Lithium ETF (NYSE:LIT) offers exposure for investors interested in that sector.

Stocks
For investors looking for pure-play exposure, both Avalon Rare Metals (NYSE:AVL) and Molycorp (NYSE:MCP) are ideal candidates in the space. Avalon hopes to bring online the first separation facility outside China by 2016, and Molycorp recently announced that it plans to double its production in its California mine by the end of 2013.

Despite all the rare earth promise, there are plenty of minefields. Three Chinese miners, China Shen Zhou Mining & Resources (NYSE:SHZ), China GengSheng Minerals (Nasdaq:CHGS) and Qiao Xing Universal Resources (Nasdaq:XING) have all been cited as rare earth, in spite of the fact that none of them have rare earth operations. Investors looking towards the sector should stick to the more established players.

Bottom Line The tragedy in Japan has created some interesting opportunities. One such prospect exists in the rare earth and strategic minerals sector. Used in everything from Apple's (Nasdaq:AAPL) iPods to lasers, the demand for these minerals are exponentially increasing. Investors with long term timelines can use the recent pullback to add either the Market Vector fund or any of the established companies to their portfolios. 

Given the turmoil in the Middle East and crisis in Japan, investors have once again run to the safe haven assets of precious metals and oil. In this flight to quality, many higher risk assets are quickly returning to bargain basement levels. One such opportunity is directly correlated with Japan's high tech economy. Despite the fact that long term rare earth metals prices are soaring, stocks in the sector have plummeted on fears that the tsunami would eradicate demand in Japan. However, these fears have provided a long term opportunity for investors before the rare earth crisis intensifies.

Four Catalysts Needed For The Industrial Commodities Rally To Resume

The recent sluggishness in equity markets has certainly affected industrial commodities over the past few months, if not gold, which as pointed out earlier is just 2% below its nominal highs and rising despite the 4th margin hike on the Shanghai Gold Exchange overnight - once again gold is seen at the apex of the fiat currency replacement pyramid. So what could cause a rally in industrial commodities in the near term? Sean Corrigan lists the four key catalysts, whose occurrence listed in order of probability, could rekindle the recently faltering rally.

From the most recent edition of Sean Corrigan's Material Evidence

So, the burning question now is whether commodity prices can shake off the disquiet caused by May’s sharp liquidation and validate the soundbite suppositions of the past few days.

With so much hot money still swilling around the world, readily available at low nominal and largely negative real rates of interest, we can never say never, but so many other beneficiaries of the Bernanke Bubble are either losing momentum and/or breaking trend, that it may be that the whole shell game has been busted pro tem.

Certainly, the fundamental backdrop is beginning to look less rosy, with Japan suffering a 13% decline in exports, Taiwan’s industrial expansion slowing, Thailand’s turning negative, US macro numbers registering a series of disappointments, UK businesses still cutting back on investment and broad swathes of China’s corporate landscape experiencing a severe margin squeeze.

Our feeling is that for a significant rally to take place from here (that is, without enduring any further, intervening weakness), one of four things has to happen soon, listed here in a loose order of their assumed probability:?

1. The Japanese government will forego the chance to introduce the meaningful, permanent fiscal rebalancing to which it might accustom the electorate under the guise of a supposedly temporary, disaster?relief measure and inveigle the BOJ into monetizing (albeit at one remove) the vast reconstruction effort needed in the country instead.
2. The Chinese will prematurely relinquish their fight against the inflation which was unleashed by their huge, unfocused stimulus’ efforts of the past two years, in the estimation that the threat to the regime’s predominance posed by slow growth and falling employment is now greater than that posed by rapidly rising prices.
3. The Fed will find an excuse to revisit a programme of ’quantitative easing’ (i.e., money printing) without first being forced to sit by and watch a prolonged retrenchment in economic activity
4. The US dollar will undergo a renewed, sharp decline, allowing existing carry?trades and ‘Risk On’ mixes to be reinstituted with the least demand for original thought. Here we should note that while, ceteris paribus, a flight from the dollar should not automatically boost commodity prices in other currencies, a combination of having a greater marginal impact in a much smaller market and the active contracting of paired trades does in practice tend to bring about such a broad appreciation.

If none of these US Cavalry troopers appear over the horizon in a timely enough fashion, or until there is unequivocal evidence that speculative appetite has otherwise fully returned, our worry is that the industrial commodities in particular remain at risk of another 10?15% correction and a more thoroughgoing purge of leveraged long positions before we can find some sort of meaningful base from which to re?enter a fuller exposure.

One of America's most important crops is in critical condition

U.S. corn farmers are running out of time to plant this year’s crop after wet weather swamped fields from North Dakota to Ohio, signaling higher costs for livestock and ethanol producers as growers switch to soybeans. 

About one-fifth of the corn crop had yet to be sown as of May 22 in the U.S., the world’s top producer and exporter, government data show. In Ohio, where some areas got 10 inches (25 centimeters) of rain in the past month, the pace of seeding was the slowest in 15 years. Fields planted after mid-May yield less, while soybeans can be sown until late June. 

“I have not planted the first kernel,” said Fred Yoder, a farmer in Plain City, Ohio, who may switch to soybeans if fields don’t dry out by next week. Soggy fields are the norm in central Ohio, Yoder said. “A few guys have tried to mud in some corn, but the stuff that has been planted looks horrible.” 

Corn futures doubled in 12 months, boosting feed costs for meat producers including Tyson Foods Inc. and ethanol makers such as Archer Daniels Midland Co. Prices may reach a record $8 a bushel, said Jeff Sherman, a commodities portfolio manager at DoubleLine Capital LP. Goldman Sachs Group Inc. said farmers are unlikely to meet the USDA’s March planting forecast of 92.2 million acres, which would be second-largest since World War II. 

World grain output is being threatened by adverse weather, from droughts in China and Europe to excess moisture in the U.S. and Canada. 

Tightening supply and rising demand helped boost global food prices in nine of the past 10 months, including a record in February, United Nations data show. Companies including Nestle SA, McDonald’s Corp. and Wal-Mart Stores Inc. are passing along more of their costs to customers. 

Lagging Behind 

While U.S. planting has advanced near the normal pace in Iowa and Illinois, the biggest corn- and soybean-growing states, smaller producers including Ohio, Indiana and North Dakota are lagging behind because fields were muddied by record rains in the Ohio Valley, flooding along the Mississippi River and a wet spring in northern states. 

Ohio, the eighth-biggest corn grower last year, is the furthest behind, with only 11 percent of fields sown as of May 22, compared with an average pace of 80 percent, USDA data show. The department will update the nation’s crop progress on May 31 in Washington. 

Yoder, who last year at this time completed sowing his corn crop, said he’s never seen delays this long in 38 years of farming. 

Crop at Risk 

As much as 2 million acres of corn are “at risk” of not being planted because of wet weather, Goldman said in a May 24 report. Lost output from that land would cut U.S. stockpiles by as much as 317 million bushels before the 2012 harvest, leaving the smallest ending stockpiles since 1996 for the second straight year, the New York-based bank said. 

“There have been long-term global dynamics in play that are causing crops to fall short, and the flood situation in the U.S. is going to be a part of that,” said Sherman, who helps manage more than $11 billion at Los Angeles-based DoubleLine Capital. “It’s really hard to see the crop meeting the USDA projections. You’d have to hit nirvana for that to be the case, and we’ve had this massive crop destruction.” 

The USDA on May 11 forecast that global output in the 2011/2012 crop year would jump 6.4 percent, more than enough to meet rising demand after harvests the previous year fell short of consumption. Corn, used mostly in livestock feed, is increasingly processed to make fuel, with a record 5.05 billion bushels going to make ethanol next year, or about 37 percent of projected U.S. production, according to the USDA. 

Key Producers 

States including Ohio and North Dakota are more important than usual this year because the USDA had been counting on fringe areas to pick up much of the expansion in U.S. production, said Frayne Olson, a crop economist at North Dakota State University in Fargo. In March, the USDA estimated that planting in North Dakota would jump by 22 percent from 2010. Instead, the 2011 crop may be little changed at 2.05 million acres, Olson said. 

“In a normal year, a slight increase in yields in Iowa would offset what we lost in North Dakota,” Olson said. “But today, everyone is counting every bushel, even on the margins. A bushel up here is counting more heavily than it used to.” 

Many acres originally slated for corn or spring wheat, which is also delayed in North Dakota, may be used for soybeans, he said. Other farmers may opt to make insurance claims. In most areas of the state, growers were eligible for prevented-planting insurance on corn as of May 25, he said. 

Crop Forecasts 

U.S. corn planting may total 89 million acres, down 3.4 percent from the government forecast, Olson said. The shift by farmers means soybeans may jump to 78 million acres this year rather than the decline predicted by the USDA, and spring-wheat planting may drop as low as 13 million acres, compared with the government forecast of 14.427 million, he said. 

“Will soybean prices be pulled up because corn prices are going up, probably yes,” Olson said, without providing forecasts. “But they’re not going to go up nearly as rapidly as corn prices would. They will lag behind.” 

Corn production also may decline along the Mississippi River and its tributaries. Floods swamped almost 3.6 million acres of cropland along the river this month, according to estimates from the Washington-based American Farm Bureau Federation. 

In Arkansas, as much as 300,000 acres of rice and 100,000 acres of corn may be used instead for soybeans, said Jeremy Ross, an agronomist at the University of Arkansas in Little Rock. 

‘Only Option’ 

“Every day, fewer and fewer guys are planting corn and rice,” Ross said. “We’re getting to a point where beans are just about the only option to plant.” 

Rising crop prices are expected to send U.S. farm income to a record $94.7 billion this year, according to the USDA. Those profits won’t come if farmers can’t plant fields. 

“We’re out doing flower beds for our wives and trimming shrubs, doing goofy stuff to stay busy, because we’re chomping at the bit to get in the fields,” said Yoder, the Ohio farmer. “It’s very frustrating.” 

4 ETFs For Income Investors: EMLC, LVL, PCEF, PFF

The S&P 500 has produced a return of 22% over the last 12 months, an above-average annualized gain. Most investors realize that the norm going forward could be single-digit annual gains and therefore are always on the lookout for high-income-producing investments. With the 10-year yield on the verge of hitting a new five-month low, it is not easy to find investments with annual yields above 5%. We've come up with four ETFs that offer high dividend payouts from a variety of asset classes. Keep in mind that investors can still lose money on the ETFs because a drop in the price of the ETF could erase the yearly dividend payments. Therefore, do your homework and make sure the ETF fits into the investment strategy of your portfolio. (For more on ETF, check out 5 Ways To Find A Winning ETF.)

1. iShares S&P US Preferred Stock Index ETF (NYSE:PFF) offers exposure to an asset class that is often overlooked by investors. The ETF is composed of 245preferred stock holdings from companies around the globe. The index is heavily weighted to the preferred stocks of financial firms such as HSBC Holdings ADR(NYSE:HBC) and Metlife (NYSE: MET). The current 12-month yield is 7.3% and the annual expense ratio is 0.48%.

2. PowerShares CEF Income Composite ETF (NYSE:PCEF) invests in a basket of 116 closed-end funds that in turn invest taxable fixed income securities and others that utilize equity option writing strategies. The current 12-month yield on the ETF is 8.5% and the total annual fund operating expenses are 1.62%. The yield and the low volatility of the ETF are very attractive. However, the high expenses are well above the average for an ETF. This makes PCEF a questionable buy for the cost-conscious investor. (To learn more on ETFs, check out 10 Ways ETFs Can Grow Your Portfolio.)

3. Market Vectors Emerging Markets Local Currency Bond ETF (NYSE:EMLC) follows an index that provides investors with direct exposure to local currency bonds issued by emerging-market governments. The current yield is about 6.1% and the net expense ratio is 0.49%. The ETF offers exposure to 15 different emerging market countries and 174 various holdings. The ETF began trading last July and has stayed within a 10% trading range during that time. A factor in the movement of EMLC will be the action of the U.S. Dollar Index as well as the strength of the emerging-market economies.

4. Guggenheim S&P Global Dividend Opportunities ETF (NYSE:LVL) is composed of stocks from around the globe that meet specific requirements such as market cap anddividend yield. There are a total of 100 stocks in the ETF and they have an average market cap of $7.6 billion and trade with a P/E ratio of 11.3. The current yield on the ETF is about 5.23%. Some of the top holdings in the ETF come from the U.S. (23%), Australia (11%) and the UK (9%). The expense ratio is 0.6%. (For learn more on ETFs, see An Introduction To Sector ETFs)

Bottom Line
Investors that buy into a stock or ETF based primarily on the dividend yield must heed caution. Even though an ETF may pay out a high dividend, it does not mean it is a sure thing. The price of the ETF could fall by a percentage higher than the dividend over a year and the net result could be a loss. I suggest looking at the dividend yield as a bonus when buying into an ETF that you feel will increase in value.

Housing Index Is Expected to Show a New Low in Prices

Even as the economy began to fitfully recover in the last year, the percentage of homeowners dropped sharply to 66.4 percent from a peak of 69.2 percent in 2004. The ownership rate is now back to the level of 1998, and some housing experts say it could decline to the level of the 1980s or even earlier.

Disenchantment with real estate is bound to swell further on Tuesday when the most widely watched housing index is all but guaranteed to show prices of existing homes sank in March below the lows reached two years ago — until now the bottom of the housing crash. In February, the Standard & Poor’s/Case-Shiller index of 20 large cities slumped for the seventh month in a row.

Housing is locked in a downward spiral, industry analysts say, not only because so many people are blocked from the market — being unemployed, in foreclosure or trapped in homes that are worth less than the mortgage — but because even those who are solvent are opting out.

“The emotional scars left by the collapse are changing the American psyche,” said Pete Flint, chief executive of the housing Web site Trulia. “There was a time when owning a home was a symbol you had made it. Now it’s O.K. not to own.”

Trulia, a real estate search engine for buyers and renters that is based here, is a hive of renters, including Mr. Flint. “I’m in no rush at all to buy,” he said. He expects homeownership to decline further to about 63 percent, a level the country first achieved in the mid-1960s.

Tim Hebb, a Los Angeles systems engineer, expertly called the real estate bubble. He sold his bungalow in August 2006, then leased it back for a year. Since then, the 61-year-old single father has rented a succession of apartments.

“I have flirted with buying again many times over the past few years,” said Mr. Hebb. “Let’s face it, people are not rational creatures.”

But he always resists, figuring housing is still overpriced and even when it stops declining it will stumble along the bottom for years and years. He says there is plenty of time to get back in if he should ever want to.

The market signaled further trouble on Friday when the April index of pending deals was released by the National Association of Realtors. Analysts had predicted the index, which anticipates sales that will be completed in the next two months, would be down 1 percent from March. Instead, it plunged 11.6 percent.

Many of those in the business of building and selling houses believe the current disaffection with real estate will pass. After every giddy boom comes the hangover, they acknowledge, but that deep-rooted desire for a castle of one’s own quickly reasserts itself.

“There’s no question that people are reticent to own,” said Douglas C. Yearley Jr., chief executive of Toll Brothers, the builder of high-end homes. “They’re renting and they’re happy renting because they’re scared.”

Yet those fears will fade, he predicted.

“Most people still want the big house with the big lot in the desirable school district in the suburbs. No one ever renovated the kitchen or redid a room for the kids in a rental,” Mr. Yearley said. “I think — I hope — we’ll be O.K.”

The market’s persistent weakness, however, runs the risk of feeding on itself. Buyers are staying away despite the lowest interest rates and the highest affordability levels in many years, which in turn prompts others to hesitate.

Trulia and another real estate site, RealtyTrac, commissioned Harris Interactive to take a poll last November about when people thought the market would recover. A third of the respondents chose 2014 or later. But in a new poll, released this month, the percentage giving that answer rose to 54 percent.

The sharp decline in prices since 2006 has meant a lost decade for many owners. But what may prove even more discouraging to potential buyers is academic research showing the financial rewards of ownership were uncertain even before the crash.

In a recent paper, a senior economist at the Federal Reserve Bank of Kansas City found that the notion that homeownership builds more wealth than investing was true only about half the time.

“For many households in many years, renting and investing the saved cash flow has built more wealth than homeownership,” the economist, Jordan Rappaport, concluded.

Economics affects potential owners in other ways. A house is a long-term commitment that many are loath to make in uncertain times like these.

“What I’m hearing from people is that they don’t want to be tied to a particular geography, which inclines them to renting,” said Mr. Flint of Trulia.

San Francisco is one of the country’s most expensive cities, so renting has a natural appeal here. But Associated Estates Realty Corporation, which owns 13,000 apartments in Georgia, Indiana, Michigan and other Midwest and Southeast states, also is seeing more people deciding to rent.

“We have more of what we call ‘renters by choice’ than I’ve seen in the 40 years I’ve been in the apartment business,” said Jeffrey I. Friedman, chief executive of Associated Estates.

For decades, the company has asked former tenants why they were moving out. During the housing boom, as many as a quarter of those moving on said they were buying a house. In 2009, the percentage of new owners fell in the first quarter to 13.7 percent, the lowest ever.

Last year, as the economy improved, the number rebounded. This year, it fell back again, to 14 percent.

Builders clearly believe that the future includes many more renters. So far this year, construction of multiunit buildings is up 21 percent compared with 2010, while single family-homes are down 22 percent. Sales of new single-family homes are lower than any time since the data was first kept in 1963.

Susan Lindsey, a San Diego software programmer, was once eagerly waiting for the housing market to crash. She said she would have no guilt about swooping in on some foreclosed owner who had bought a place he could not afford.

With prices now down by a third, however, she is content to stay in her $2,500-a-month rented house. She prefers to invest in gold, which she has been buying since 2003.

“I could afford a median-priced house, no problem,” said Ms. Lindsey, 48, as she headed off for a holiday weekend in Las Vegas. “But I would be paying more to live in a place I like less.”

Currency Valuations: Charting Which is Under/Over Valued….

Check out the relative valuations. The U.S. dollar is well undervalued and the Yen overvalued. At least using this calculation…

The BOE states: An effective exchange rate is a measure of the value of a currency against a `basket’ of other currencies, relative to a base date. It is calculated as a weighted geometric average of the exchange rates, expressed in the form of an index. The effective exchange rate indices for sterling and other currenciespublished by the Bank are based on the method the IMF uses to calculate effective exchange rates for a number of industrialized countries.

The weights used are designed to measure, for an individual country, the relative importance of each of the other countries as a competitor to its manufacturing sector. The trade weights reflect aggregated trade flows in manufactured goods for the period 1989 to 1991 and cover 21 countries. The base date for the index is 1990, and is set at 100.

(Click on each chart to enlarge)

SEASONAL TRENDS: WHAT TO EXPECT FOR JUNE

Another month is just about in the books so the wise market player has to begin thinking a few steps ahead.  Next week will mark the beginning of June, a traditionally lackluster month for the S&P 500.  The always resourceful Stock Trader’s Almanac has the breakdown for the history of June:

• The “summer rally” in most years is the weakest rally of all four seasons

• Week after June Triple-Witching Day Dow down 17 of last 19

• RECENT RECORD: S&P up 10, down 5, average gain 0.1%, ranks seventh

• Much stronger for NASDAQ, average gain 1.2% last 15 years

• Watch out for end-of-quarter “portfolio pumping” on last day of June, Dow down 15 of last 21, NASDAQ down 5 straight

• Pre-presidential election year Junes: #5 S&P & NASDAQ, Dow weaker ranks #7

• June ends NASDAQ’s Best Eight Months.

Arizona Land Sells for 8% of 2006 Purchase Price

By John Gittelsohn
Bloomberg
May 30, 2011
A 10,200-acre (4,100-hectare) desert site in Arizona sold for $32.5 million this week, five years after a group with investors including the California Public Employees’ Retirement System paid $400 million for the land.
Arcus Property Solutions LLC, a private-equity fund with about $100 million under management, paid cash for the property in Goodyear, about 60 miles (97 kilometers) southwest of Phoenix, said Kent Kleinman, a spokesman for the Gilbert, Arizona-based company. The site, now called Amaranth Land LLC, had been planned for a 42,000-home community by the Calpers- financed group when it was purchased in 2006.
The deal shows how property investors are taking advantage of a plunge in values after the real estate bubble burst in Arizona. A group of lenders, led by Goldman Sachs Group Inc., seized control of the Amaranth site in 2009 after the bust halted development, said Jeff Garrett, owner of Garrett Development Corp., the land’s manager after the foreclosure.
“Five, six years ago, people were spending $200 million or $300 million or $400 million,” Garrett said in a telephone interview. “This just sold for about eight cents on the dollar.”
The 2006 buyers were a joint venture of MW Housing Partners III LP, a real estate fund with money from Calpers and Weyerhaeuser Co.; and Scottsdale, Arizona-based Montage Land LLC, according to Arizona Corporation Commission records. The deal was funded by a $250.1 million loan and $150 million in cash, according to Terry McDonnell, publisher of Business Real Estate Weekly of Arizona in Scottsdale.
Speculative Deals
“Of all the speculative deals I’ve seen here, this was right at the top,” McDonnell said in a telephone interview. “It’s hard for me to think of a more speculative deal of this magnitude in Maricopa County.”
Calpers, the nation’s largest pension fund, had investments valued at $209.7 million in MW Housing Partners III in the fiscal year ended June 30, 2007, according to its annual report. The next year, the investment had a negative market value of $102.9 million, the fund said. MW Housing wasn’t listed as a Calpers investment in fiscal 2010, its most recent report.
Calpers doesn’t discuss individual real estate deals, said Wayne Davis, a spokesman for the Sacramento-based pension fund, which had $234.5 billion of assets as of May 24. Bruce Amundson, a spokesman for Federal Way, Washington-based Weyerhaeuser, said MW Housing invested the $150 million cash in the Amaranth purchase.
Newhall Ranch
In October 2009, Calpers severed ties with Macfarlane Partners LP, the San Francisco investment firm led by Victor Macfarlane that managed MW Housing Partners. MW Housing also led Calpers’ $970 million investment in Newhall Ranch, a master- planned community north of Los Angeles that filed for bankruptcy in 2008, wiping out Calpers’ stake.
Garth Wieger, a founding partner at Montage, the managing partner of the development, said he couldn’t comment because of a confidentiality agreement. Michael Duvally, a spokesman for Goldman Sachs in New York, declined to comment.
The listing agent for the Arizona property was Nathan & Associates Inc. in Scottsdale. The land is now used for cattle grazing with future revenue possible from selling its water rights or letting Goodyear expand a nearby landfill, said Kleinman of Arcus Property.
“This won’t be developed in my lifetime,” Kleinman, who gave his age as “mid-50s,” said in a telephone interview. “Our plan is basically buy and hold and resell after the market appreciates.”

Jeffrey Gundlach: Here's The Currency That's Better Than Gold In An Extreme Crisis

If things get really bad, forget gold.

In our interview with Jeffrey Gundlach, the legendary bond manager said it's good old paper cash that you want to have on hand. And not cash in the bank. More like cash under your bed, that you can pick up and carry (which you can't do with gold... do you really think that you're going to shave of flints from your goldbrick to pay for food at the store?).

And if you really can't stomach cash, even precious stones are better, since it's much easier to carry a few million in gems around then a few million in gold, which is way too heavy.

The discussion came after a broader talk about derivatives, which he sees as still posing potentially huge systemic risk to markets.

click here for video

James Turk : $8,000 GOLD and $400 SILVER between 2013 and 2015

James Turk : ...well let's step back and look at the long term point of view I am sticking to my long term forecast that sometime between 2013 and 2015 Gold will be about $8000 and ounce and Silver will be about $400 an ounce , the ratio between the two metals will be 20 ounces of silver to buy one ounce of gold , I made this forecast back in October 2003 , obviously when the price of gold and silver was much much lower , the point I am making is that we are in a financial bust and during a financial bust like the one we have been in for several years and still few more years to go people move out of financial assets and move into tangible assets because they are looking for a safe heaven , they want to avoid counter party risk and the safest of all heavens are the precious metals because they are tangible assets with no counter party risk , so for the longer point of view we are still heading into a much much higher , you mentioned the way I approach the market which is to continue accumulating , do not view gold as an investment it really is not an investment because it does not generate cash flow it's really money and when you accumulate gold you are actually saving money and saving money is a good thing , at some point in time in the future we are gonna take these savings and either invest them or we gonna spend them or just continue to hold them , at some point in time in the future gold will be at the maximum and you want to take advantage of everything that you are saving now through the these difficult economic and financial times , in regard to the short term , I am looking for a a pop up in gold price this summer and it relates back to what happen in the summer of 1982 when the Mexican government defaulted on its debt and it sent gold up 50 percent in three months and a double in six months , the circumstance today is very similar , the government ready to default though is not Mexico , it's Greece Portugal Ireland may be even Italy who knows , any number of countries that will be defaulting on their debt and when that happens I think that could really light a fire out of the Gold price so ...be prepared for an upside jump in the gold price this summer ....

TOP 5 GRAPHS OF THE WEEK

This week we look at some of the latest economic data coming out of Japan; noting a rare occurrence of positive inflation, and observing a further trade deficit in April. Then we look at some US data, first checking in on the US consumer sentiment index, and then a proxy for investor sentiment – long term mutual fund flows. Finally the latest monetary policy interest rate decisions are covered-off.

1. Japan Inflation
As noted Japan recorded a rare positive inflation figure in April as consumer prices rose 0.3% on an annual basis, having sat at 0% for most of this year, while April 2010 saw deflation of -1.2%. A certain degree of the positive inflation figure can be attributed to temporary shortages brought about by the earthquake, but inflation had been in a mild upward trajectory anyway. Like the rest of the world, Japan had seen some impact from rising commodity prices (as can be seen in the upward trend in imports on the next chart). Meanwhile aggregate demand has probably only had a marginal impact on inflation as the Japanese economy has been in its second recession after a brief period of growth.

2. Japan International Trade
Japan reported exports of JPY 5.2 trillion in the month of April, down -13% year on year and -12% month on month. Imports were JPY 5.6 trillion, up 9% from April last year and down -1% compared to March. The April figures add another month of trade deficit as rising import costs meet relatively stable exports. The April figures did see some impact from the earthquake as supply chain disruptions weighed on exports. Overall Japan is yet to see either its exports or imports reach pre-crisis levels, which shows the weakness of the Japanese economy, but also the slow rate of growth and economic recovery in its trading partners (not to mention a rising share of global exports for China and other emerging markets).

3. US Consumer Sentiment
The Reuters/University of Michigan US consumer sentiment survey showed some improvement in the final reading for May, with the index at 74.3 vs consensus 72.4, and the April reading of 69.8. Future expectations performed well, at 69.5 vs 61.6 in April, meanwhile current conditions was basically flat at 81.9 vs 82.5 in the previous month. So while the current conditions result was not inspiring, the trajectory of the future expectations part was promising, indeed if the trajectory continues it will be positive for the medium term outlook, which is consistent with other indicators and conditions.

4. US Mutual Fund Flows
US mutual fund flows remained in positive territory in total during April, with the majority of net inflows going to bond mutual funds, showing a possible pick up in momentum after flows into bond funds dried up at the start of the year. Domestic equity flows continued to languish, while foreign equity fund flows remained positive as investors looked elsewhere for better macro-economic fundamentals. It will pay to watch this chart through the year, especially as key events unfold such as the ending of quantitative easing, and a potential short-term correction in US equities. A final thought on the chart below is the large amount of funds that have flown into bond mutual funds, this aspect will be interesting for equities when/if bond returns begin to suffer as the monetary policy stance turns later this year.

5. Monetary Policy Review
The past week in monetary policy saw six emerging market central banks announce interest rate decisions. Those that altered interest rate levels included: Israel +25bps to 3.25%, and Nigeria +50bps to 8.00%, while those that held interest rates unchanged were: Pakistan 14.00%, Turkey 6.25%, Georgia 8.00%, and Mexico 4.50%. So it was very much a continuation of the theme were emerging markets begin to take more caution in balancing the growth vs inflation risks, but also as the inflation impulse begins to taper off as policy measures and stable commodity prices begin to take effect. But the rate hikes in Israel and Nigeria show that inflation pressures are not completely gone in emerging markets, indeed Vietnam is still a hotspot of inflation.

Summary

So we saw the emergence of inflation in Japan, after a long period of deflation, however short term factors were likely the main cause of this. Meanwhile Japan’s international trade results showed stagnant growth and short term impact from the earthquake. In the US consumer sentiment improved again, heading in a promising trajectory. Also in the US long term mutual fund flows pointed to some interesting trends, and some key areas to watch in the stock and bond markets through the rest of the year. Finally, the week in monetary policy saw two emerging market economies tighten, while other emerging markets opted for caution in the growth risk vs inflation risk balancing act.