The U.S. property crash

"You can't believe how bad it's going to get..."

By Elif Kaban

Commodities investment guru Jim Rogers stepped into the U.S. subprime fray on Wednesday, predicting a real estate crash that would trigger defaults and spread contagion to emerging markets.

"You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York.

"It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops.

"It is going to be a huge mess," said Rogers, who has put his $15 million belle epoque mansion on Manhattan's Upper West Side on the market and is planning to move to Asia.

Worries about losses in the U.S. mortgage market have sent stock prices falling in Asia and Europe, with shares in financial services companies falling the most.

Some investors fear the problems of lenders who make subprime loans to people with weak credit histories are spreading to mainstream financial firms and will worsen the U.S. housing slowdown.

"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said.

"When markets turn from bubble to reality, a lot of people get burned."

The fund manager, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s and has focused on commodities since 1998, said the crisis would spread to emerging markets which he said now faced a prolonged bear run.

"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess," he said.

"Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets.

"I've sold out of emerging markets except for China," said Rogers, long a prominent China bull.

Even in China, the world's fastest expanding economy, Rogers said stocks were overvalued and could go down 30-40 percent.

But he added: "China is one of the few countries in the world where I'm willing to sit out a 30-40 percent decline."

The last stock market bubble to burst was the dot-com craze which sparked a crash from March 2000 to October 2002.

When the last bubble burst in Japan, said Rogers, stock prices went down 85 percent despite the country's high savings rate and huge balance of payment surplus.

"This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."

Venezuelan Fighter Shoots Down US F-16 over Cuba

Venezuelan Fighter Shoots Down US F-16 over Cuba

By: Sorcha Faal, and as reported to her Western Subscribers

Conflicting reports are emerging from Cuba today that allege the shooting down of an American F-16 Fighter Jet by a Venezuelan Sukhoi-30MK2 Russian Fighter Jet participating in large scale Cuban Revolutionary Armed Forces wargames in Pinar del Rio province.

The United States has denied these reports and state that their F-16 Fighter Jet crashed off the coast of Cuba due to an ‘unknown’ mechanical malfunction with its pilot safely rescued after ejecting.

More curiously, however, and almost immediately after Russian Military Analysts reporting on this shoot down to the Kremlin, Cuban Defense Minister Raul Castro, the brother of the ailing Cuban Leader Fidel Castro and present leader of Cuba, issued this statement:

"If anyone attacks us, we're ready to pay any price necessary, but the price paid by the invaders of our country would be much higher."

Tensions in Latin America remain high after this latest incident, and the United States War Leaders admitting that their War on Terror has now expanded to South America with the introduction of American Military Forces into the conflict between Colombia and its rebel faction FARC.

Venezuelan President, Hugo Chavez, was also quick to denounce the United States by stating that it was the "most cynical, most murderous empire in all of history".

Chavez further stated that the American President, Bush, was plotting to assassinate him and vowed "100 years of war'' should the United States attack either Venezuela or Bolivia.

Concerns within the American intelligence communities are centered upon the growing power of Latin American Nations to throw off the yokes of oppression set upon them by their North American neighbors, and who have reaped incalculable wealth from their southern cousins while leaving mass poverty and environmental degradation as their most lasting legacy.

The growing power of Chavez’s Venezuela, throughout the entire Latin American World, shows no signs of abating as it spreads its vast oil wealth throughout the region in a direct threat to American and European banking and corporate interests.

Coupled with the closeness of Hugo Chavez with the Cuban regime, including Fidel Castro, an emerging, and to the United States dangerous, South American unity block is forming which will see the expulsion of American corporations from the vast wealth of Latin America.

What remains unknown to Russian Military Analysts is the United States militaries ability to counter their growing Latin American threat as their current military forces are said stretched to the ‘breaking point’.

Inflation Wants to Eat Your Children

This week's entry into the Most Pithy Investing Advice Contained In A Headline Or Title contest is "Profiting From Companies That Sell What China Wants" by Michael Dawson of TheTimeAndMoneyGroup.com. The title says it all!

There used to be a song that went "Whatever Lola wants, Lola gets", which implied that this Lola chick was so enchanting that men gave her presents, which she greedily took, and kept demanding more, which I gave her, too, always more and more, until all my money was gone and I was forced to loot the employee retirement fund, steal money out of my wife's purse and invent reasons why the kids wouldn't be getting an allowance this week ("Sunspots made the money radioactive!") so that I could give it all to her. Only her name wasn't Lola, and in fact as I remember it, they went by various names, none of them Lola, but the point is that 1.) This title says it all, and 2.) The case is made when I point out that both Lola and China have two syllables.

And, I expect, they will both end up with all my, and our, money, and then it's, "So long, sucker!" just like always.

If you are tired of my constant, irritating harangue to buy oil stocks, in one way or another, based solely on my Stupid Mogambo Say So (SMSS), then I proudly present John Loeffler, appearing with James J. Puplava on the Financial Sense Newshour, who buttresses the "Peak Oil" case by saying that, when looking at oil production, "If we look at the number of countries that have peaked versus remaining, so far 64 countries have peaked in oil production; 36 remain."

I know what you are thinking: You are scratching your chin and thinking "Down by two-thirds? Hmmm! Maybe that Stupid Mogambo Idiot (SMI) is onto something significant here with his recommendation to buy oil!" And you would be right!

But if you went on to think to yourself, "Maybe that SMI is not as dumb as I thought!" then you would be, I am sorry to say, wrong.

I'm sure you've already heard that the Bureau of Labor Standards reported that the Consumer Price Index for all urban consumers, also known as the CPI-U, increased by 0.3% in January. Or perhaps you heard my loud scream of anguish and subsequent Hysterical Mogambo Violent Outburst (HMVO) at the report; in a lot of places it made the front page!

Either way, the latest report shows that, on an annual level, the January reading of that index, 202.4, was 2.1% higher than in January 2006.

Actually, nobody believes that inflation is really that low, and the government has already repeatedly admitted that they hedonically-adjust inflation statistics in a lot of different, although equally slimy, ways. This means that inflation is well over 3%, which is a number I choose because it is, historically, the point where smart people are panicking in the street; where shameful government and banking officials are being sacked, and there is turmoil everywhere - most of it being instigated by The Mogambo, who incessantly screams, "I am your king! Bring them to me and I shall deal with them harshly!"

But, oddly enough, everything is still calm, even though overall consumer prices rose 0.2% for the month. This mainly reflects that the prices of food, air travel and medical care went up a lot. And even core inflation (which excludes food and energy prices, so it is supposed to have a calming effect on our nerves) was up 0.3% for the month, which was NOT calming in the least.

And stepping away from sterile statistics, we get the same thing from Sprott Asset Management when they say, "In the real world, by all indications, the Malthusian shortages that began a few years ago with the most recent synchronized global economic expansion are continuing in earnest as we head into 2007. Nowhere is this more evident than in the rampant cost increases (a.k.a. inflation) that the companies we analyze are experiencing."

George Ure, of the famous UrbanSurvival.com site, hears us talking about shortages, especially of the Malthusian kind, and reports that his web bots (which are looking for Internet references to "shortage" and "scarcity") have, "for the first time since I started tracking, passed the 20-thousand hits level." So, two guys have noticed shortages appearing! Shortages are up!

If you are wearing your Expensive Junior Mogambo Ranger Watch (EJMRW), the on-board Supply/Demand Ratio Alert is beeping right now. If it is not, it is probably broken, and there is nothing you can do, because while the certificate of authenticity is certainly valid, the lifetime guarantee (like the guarantees on all Mogambo Inter-Stellar Enterprises (MISE) products and services) is not worth the paper it is printed on.

Hopefully, you will be consoled to learn that the value you received is not in the watch itself (for which you obviously overpaid) but in the lesson you just learned.

But as an astute Junior Mogambo Ranger (JMR), "you don't need no stinking watch." This, of course, may explain why sales are down (and why repeat sales are zero), and has already conjured up a mental image of the graph of the supply/demand dynamic, which has been adjusted to reflect the change in the supply curve to reflect these reported shortages, and says, "Eek! Higher prices are coming!"

Mr. Sprott sends a nervous glance over at me to see how I am taking this news about inflation. My breath is shallow and rapid, but I am not actually screaming in fear or even twitching visibly. Thus emboldened, he goes on to say, "The largest companies in the world in the mining and energy industries are all stating, with nary an exception, that the cost estimates they made a few years back for some of their biggest projects are now grossly understated."

Reader George P read these same remarks from Sprott, and he thought that this line was most remarkable; "We've heard estimates by knowledgeable sources that global money supply grew 18% last year - so shocking as to be almost unbelievable."

And if you are the least bit conversant with the bountiful plethora of examples in the historical record of what happens from such cancerous growth in a money supply, then your heart is undoubtedly beating like a trip-hammer, although you are unsure exactly why.

If you are more educated than most, and are completely familiar with what happens, then you are naturally thinking that although you have an Uzi in each hand, a Bowie knife between your teeth, are sitting on your weight in gold and silver, wearing a tinfoil hat and some cool shades, you still feel exposed and defenseless! And you need more of each!

The Mogambo reassuringly says, "That's right! It's that damned terrifying!"

Until next week,

The Mogambo Guru