As the editor of the Silver Bear Cafe, I spend most of my time researching current events. I explore the markets, the war, precious metals, the Federal Reserve and energy. In this weekly column I will attempt to condense the week's events and examine how the news might affect your pocketbook. JSB

On the war front

We are losing. The administration is not even trying to win the war in Iraq any longer. It's a war that Bush started and a war that he seems incapable of stopping. It is, and always has been, a lose / lose proposition. This war is costing 5-10 billions dollars per month and the lives of about two American soldiers per day. There have also been over 16,000 iraqi civilians killed as a result of the U.S. military intervention.

Financial Markets

U.S. stock market has now produced a negative return for more than five years.

The chart below is of the index of applications for mortgage loans to purchase housing, and this weekly data comes from the Mortgage Bankers Association. A little over a year is covered by the line connected circles which represents the weekly plot. Also included in the chart is a line which represents the 25-week moving average of the data.

Applications have faltered thus far in 2005. The current plots are well below the moving average suggesting some weakness in the demand for loans to buy housing. Much of the demand for housing has been satisfied. Despite what the housing bulls say, if people do not borrow money to buy houses the price of houses will not rise. In fact, given that the average price for a house has been radically inflated by the Fed's reckless interest manipulation, the likelihood that housing prices will fall is a real concern.

New home sales for the month of January fell 4%, seasonally-adjusted, from last year's total, while dropping 9% compared to December's pace. The sales slowdown caused the inventory of new homes to swell 17% from last year, and
2% above last month's total. On a months-supply basis, therefore, this month's reading stood at 5.2 months, compared to 3.5 months last year, and to the five-year average of 4.1 months. This is the highest level of inventory on a months-supply basis since June 1996. The absolute new home inventory number surpassed its all-time historical high last month. 

As a result, prices are slipping. The median price of a home fell 13.2% to $199,400, the lowest level since December 2003. This was the first time since 1991 that the median price declined by more than 3%.

I look for this trend to accelerate in the coming months. Armed with this knowledge, home owners will be empowered to take preparatory action. Speculators may have waited to long to make their exits. Better late than never.

Precious Metals

Copper futures, which have risen 4.5 percent in the last month as investors flocked to sizzling commodity markets, traded in a narrow range below 16-year highs on Tuesday, a day after rocketing to within a whisker of their all-time best. Copper prices have surged 41 percent since the start of last year.

Northgate Exploration Ltd. (NXG) is a gold and copper mining company focused on operations and opportunities in the Americas. The Corporation's principal assets are the 300,000-ounce per year Kemess mine in north-central British Columbia and the adjacent Kemess North deposit, which contains a Proven and Probable Reserve of 4.1 million ounces of gold.

PhelpsDodge (PD) is the world’s second-largest producer of copper and the world's largest publicly traded copper producer.  The company is a world leader in the production of molybdenum, the largest producer of molybdenum-based chemicals and continuous-cast copper rod, and among the leading producers of magnet wire and carbon black. The company’s two divisions, Phelps Dodge Mining Co. and Phelps Dodge Industries, employ more than 14,000 people worldwide.

Energy

Check out this commodity-based mutual fund. PCRAX doesn't offer the leverage and outsized returns of genuine commodity funds, but they don’t tend to suffer the gut-busting drawdowns either.

The Fed

The Fed has now raised short-term interest rates six times, and says that the rate still must move higher to be consistent with their policy of neutrality. The three-steps-and-stumble rule, promulgated by the late Edson Gould, states that whenever the rate is raised three consecutive times, the market goes down.  This rule has been highly accurate for the last 75 years, and with good reason—and it has proved to just as be valid when interest rates were low as when they were high. The key is direction rather than absolute levels. These tightening periods usually lead to economic recessions as well since the Fed doesn't stop tightening until something negative happens. The Bear is about to start eating...

Financial Survival

First of all, take a deep breath. Nothings going to happen right away. There is plenty of time to secure your future if you are willing to get started now.
Start thinking in terms of how society is going to react when they finally wake up. There will be opportunities abounding for the clever, forward thinking patriot.

First get your financial house in order. Get out of debt. Figure out ways to conserve. Take up gardening. Sell everything you don't need, and invest the money in commodity and natural resource stocks.

Health-care costs are rising 300% faster than wages. Explaining away the impact upon the “Real Economy’s” participants is quickly becoming far less palatable to America’s Working Class. I use that term very loosely to include all Americans not feeding at the top tier of first abuser privilege granted to those with immediate access to Chairman Greenspan’s “Liquidity Trough.”

Politicians and diapers have one thing in common. They should both be changed regularly, and for the same reason.

We are entering a period of civilization where the keyword is sustainability, not growth.

 

In a world of $100/barrel oil, the weak die and the strong survive.

Very soon, as early as next year, a lot of people here will be glad they held gold and silver

Its not what you don't know that will screw you up, it's what you know that is wrong. The spin you hear from the mainstream media is intended to mislead you. Open your eyes and face the future. If you leave your head in the sand and ignore it, you are only leaving your butt exposed for the world to kick. This all may sound like gloom and doom, but when you get a handle on what is going to happen, you will have a future filled with opportunity. Fortune favors the Informed.