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Quick jump to below stories:
Train Wreck of the Week: The end of the housing bubble
Goldman's Murti Says ‘Peak Oil’ Risks Sending Prices Above $105
Don't underestimate peak oil
Sustainable City
Congress Extends Patriot Act for One Month

Train Wreck of the Week: The end of the housing bubble

By Bob Chapman
December 11 2005

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

The housing bubble is in the early stages of implosion. We do not know for sure how long the adjustment will take or are we sure how deep it will be, but we do know it has to happen and that the risks to our economy and the world economy are enormous.

The only thing the Fed can do is keep interest rates relatively low and keep increasing M3, money and credit at a 12% plus rate. The downside is hyperinflation. If they move interest rates higher and cut back on monetary aggregates, they’ll have a depression. If they keep doing exactly what they are doing now, the economy will slide downward and inflation will relentlessly increase.

The housing boom has reached almost every area of the country, money fled a collapsing stock market and was lured by low interest rates into housing. Low rates were assisted by lax lending standards engineered by the Fed. Sub-prime loans now make up over 50% of mortgages and with those come all sorts of exotic mortgages that borrowers do not understand and eventually won’t be able to service. That means many millions of Americans will go broke and bankrupt over the next several years. $11 trillion in real estate values in just a few years time could become $6 trillion in value. Sixty-five million Americans own homes and many put zero to 5% down, plus they have ARMS and zero savings to bail themselves out. Their other personal debt has doubled over the past three years as well.

In addition, never has our financial system been more vulnerable. Thirty-six percent of recently purchased homes were second homes or speculative purchases. That is accompanied by record fiscal and current account deficits, derivatives and a stock market that cannot stay up while real estate is falling. The consumer is 76% of the economy and real estate and stock dislocation means less consumption and a falling economy. Low interest rates, endless credit and monetary printing presses won’t stop the onslaught. Just look at Japan when their real estate and stock bubbles began to implode in 1989. They lost $12 trillion in real estate values and a 42,000 Nikki Dow became 7,600. Why would our collapse be any less vicious?

As the real estate bubble breaks and the bear market in stocks resume, Americans are faced every day with the loss of good paying jobs via offshoring and outsourcing. Thus, we can only conclude that our elitist Fed planned it that way. How can any nation consciously allow free trade and globalization in an advanced high- income economy? It’s simply suicide. We have been set up to deliberately fail along with Canada and Europe. By bringing these economies to their knees, citizens will be forced to accept universal, fascist, one-world government. Today’s debt and leverage makes the 1920s look like child’s play. You cannot have an economy that is 60% dependent on real estate. Industries such as construction, commodities, lending, brokerage, mortgages and insurance are holding America economically together. The parallels between now and the 1970s are huge, only this time we have enormous debt and leverage. We have another guns and butter economy.

Look at our weekly statistics from the Fed, which they are going to cancel in March. Tremendous amounts of moving is being absorbed by the real estate market. Once that demand declines we would expect those funds to find new homes, perhaps Treasuries, gold and silver would be options. If the stock market is falling not many would want to risk funds there. The options for placing funds will be limited. The real question is how much money will come out of real estate? How much can as the losses pile up? All that equity will be disappearing and the piggy bank will be empty. Consumption could easily fall back to 62-64% of GDP. How can a market be solid and safe when you have to have new buyers whose average down payment is 3%? They’ll walk away from negative equity in a nanosecond. How many had to have mom and dad dig into their own home equity to buy that house? Worse yet, 45% of first-time buyers put down nothing on their new digs. Vertically rising markets are inevitably followed by vertically falling markets. And, remember, houses are not liquid. You cannot sell them on the spot and get payment in three days. You can be financially entrapped in your home. What happens when home equity falls and the market falls and you have your house as collateral in your brokerage account? It’s called a disaster – wipeout. We are seeing all the classic assumptions of an asset bubble. This frenzy underway over the past two years has given us 1.1 million real estate brokers, up 36% in five years. What idiot really expects house prices to rise 20% annually for the next 10 years? They’d have to be on drugs, which unfortunately, many of them are on. Just to show you how docile homeowners have become, 77% believe real estate is much safer than the stock market. What fools, all investing is gambling.

More signs of mania in real estate as ads in newspapers rose 45% in the second quarter. That is 25% of all ads. That is $4.15 billion of $16.6 billion in classified ad revenue nationwide. In addition, online real estate ads now make up 15.9% of the total real estate ad market.

Are you one of the people interviewed by the University of Michigan Consumer Confidence Index who believes now is a good time to buy a house, because its risk-free and virtually guaranteed to keep rising? If you are, we are sure we have a bridge that we are sure you would be interested in. Building is still booming. This year 38.1% put 5% down on their new homes and 45% put down nothing. If that doesn’t concern you it should. Forty percent of Californians are paying about 40% of their take home pay on their mortgages. They call this affording the unaffordable. We believe real estate market prices are unsustainable.

Interest-only mortgages nationwide average 31%. In California, they make up 61%, and in Santa Rose and Vallejo, where they are 77% and 78% respectively. Would you have ever believed that bankers and the Fed would let this distortion go that far? Next year, 2006, about $300 billion in mortgage debt will enter its adjustable period. Borrowers will have to begin repaying interest and principal at new higher interest rates. Then there are buyers who take out two mortgages at once to buy a home. Standards – there are no standards. It’s whatever the lender wants to do. There are no qualifications for a loan. You can be blind, crippled, crazy, bankrupt, unemployed, have no credit or income or be an illegal alien. Mortgage related assets now make up 50% of total bank assets and in just last year alone 24% of loans were sub-prime.

While all this officially sanctioned madness goes on, foreigners are clamoring to buy mortgage-backed securities. If we are right they are going to have a terrible financial hangover. They are prolonging the boom by chasing a very dangerous yield. That yield is guaranteed by Fannie Mae and Freddie Mac, both of which we believe will be bankrupt in three years. Do you really believe the government will make these securities good in a depression? We don’t think they will. It is not only foreigners who’ll get bagged, it will also be hedge funds, insurance companies, and pension funds. These purchasers of these mortgages are buying desirable and undesirable loans. Last year they bought over $400 billion in sub-prime loans. Last year 70% of these loans had less than full documentation of the borrower’s income and assets. You know if house prices fall these loans will be a bag of worms.

In the last four years homeowners have removed $550 billion in equity from their homes. Cash out financings are over 18% this year of all refinancings. Home equity is now 56.3% of real estate value. Forty-seven percent of all residential mortgages by dollar volume are now non-traditional. Equity from refinancings is being used to put food on the table.

The Fed says homeowner loans added $600 billion to consumer spending last year and who are we to contradict the Fed. That is 7% of disposable income versus 3% in 2000 and 1% in 1994. If it weren’t for this infusion we’d already be in recession. If you’ve been attentive you now know real estate is in for changes.

Sir Alan Greenspan is telling us the truth on his way out. “In the US there is a pernicious drift towards fiscal instability and the adjustment process will be painful.” Sir Alan, along with our elected dolts in Washington and the neocon White House have buried the US economy. This is not fiscal and monetary instability; it’s been insanity. Sir Alan said Congress has to make significant adjustments, in reducing benefits for future retirees because the US has promised benefits it cannot afford. He said government demands for investment would squeeze private capital formation and cast an even larger shadow over growth of living standards. In the end, he warned, the consequences for the US economy of doing nothing could be severe.

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Goldman's Murti Says ‘Peak Oil’ Risks Sending Prices Above $105

December 19, 2005

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

Dec. 19 (Bloomberg) -- Goldman Sachs Group Inc. analyst Arjun Murti, who roiled oil markets in March by saying crude may reach $105 a barrel, now says that may be conservative if the “peak oil” theory is right and world supplies are running out.

The belief that the world's oil supply is close to an irreversible drop is no longer “on the fringes” of the market, said a research report by New York-based Murti, who forecasts oil of $50 to $105 a barrel until 2009. UBS AG analyst James Hubbard, a former oil engineer at Schlumberger Ltd., said an inevitable decline in supply will start sooner and be worse than expected unless investment increases for many years.

A jump above $105 a barrel “is possible if we don't invest the right amount of money,” Hubbard said in an interview in London. “There will be a peak in production earlier than expected, and that post-peak decline will be more dramatic than currently assumed unless there is a sustained increase in investment in oil and gas production, greater consumer efficiency and alternative energy sources.”

While Saudi Arabian Oil Minister Ali al-Naimi and Exxon Mobil Corp. President Rex Tillerson say oil supplies will last for decades, energy traders are increasingly debating the amount of available crude. Oil's two-year jump to about $60 a barrel came as rising demand from China surprised suppliers, who had failed to spend on new pipelines, rigs and refineries.

Investors who back the peak oil theory, such as Boone Pickens, a Dallas hedge fund manager and former oil executive, have fueled the price rally of the past two years, during which oil almost doubled, to reach a record $70.85 in August. Prices ended last week at $58.06 in New York.

‘Easy Oil’
The peak oil theory is based partly on the work of M. King Hubbert, a former Royal Dutch Shell Plc geophysicist who accurately predicted in 1949 that U.S. domestic onshore oil production would plateau by about 1970.

Chevron Corp., the second-largest U.S.-based oil company, in its advertising declares, “One thing is clear: The era of easy oil is over.” Estimates vary on how much oil remains to be produced and when supplies will peak.

Tillerson in September told the World Petroleum Congress in Johannesburg that a U.S. Geological Survey estimate of 2 trillion barrels of conventional oil reserves still to be recovered is conservative, with the range of possibility as high as 7 trillion barrels [sic]. Less than 1 trillion have been pumped already.

Goldman's Murti in March skirted the peak oil debate. In a report last week, the analyst said it's something to monitor.

“It is possible that the peak oil theorists are correct,'' he wrote. “If so, we think that the duration and magnitude of energy commodity price increases would be likely to far exceed what we are contemplating.” He couldn't be reached for comment.

More Oil Coming
Without a peak in production, Murti expects the price of New York oil to fall to about $35 a barrel in New York between 2010 and 2014. That matches forecasts from Schroders Plc for $35.50 by 2010 and is lower than Merrill Lynch & Co. predictions for $40 to $45 by the end of the decade.

The debate and high prices are contributing to an increase in investment in new technologies that will help keep oil flowing, said UBS's Hubbard, who wrote in October that some 3 trillion barrels probably remain to be pumped.

Murti ranked third last year among researchers who cover oil and gas companies, according to Institutional Investor magazine.

Goldman, the second-biggest U.S. securities firm, estimates about $50 billion is invested in its commodity index, where crude oil has largest weighting. The bank’s view is that oil will average $68 a barrel in New York next year. Prices may stay close to $60 for “three to five years” before falling to “$45 at the most” by 2010, Jeffrey Currie, the bank’s head for commodities research in London, said in August.

Longer Plateau
The International Energy Agency, an adviser to 26 industrialized nations, said in a 150-page book in September that technological improvements will help increase world oil supplies, dismissing the peak oil theory. The IEA expects $3 trillion of investment for each the oil and gas industries through 2030.

“Most commentators, putting aside the depletion argument, do take the view that at least over that period through 2010 supplies will be made available,” said John Waterlow, an analyst at Wood Mackenzie Consultants Ltd. in Edinburgh.

Oil-producing nations are seeking to extend the life of their reserves. Norway, which ranks behind Saudi Arabia and Russia in world oil exports, forecasts its production will peak in 2008. Oil and Energy Minister Odd Roger Enoksen in a Dec. 8 interview said he thinks it will come later.
“We had thought we would very quickly see a strong drop in oil production, but now we expect to keep it at a plateau for longer,” he said.

The biggest questions center around Saudi Arabia, the world's largest oil exporter. The most vocal skeptic of Saudi Arabia is Matthew Simmons, chairman of energy investment bank Simmons & Co. He’s author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, in which he argues that fields are about to decline because water injection has damaged reservoirs.

The nation doesn’t open its industry to scrutiny. Of known oil reserves, Saudi Arabia holds about a fourth. Minister Al-Naimi in Johannesburg said its holdings may be 200 billion barrels more than a current estimate of 264 billion.

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Don't underestimate peak oil

The Register-Guard
Letter To The Editor
By Mark Robinowitz
December 14, 2005

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

The profile of the new Oregon Transportation Plan, "Road map: How to get there from here," (Register-Guard, Dec. 5) mentions the concept of "peak oil" as a transportation planning issue, but then downplays its significance, claiming that the peak of production might happen in the next two decades.

In April, Oregon Secretary of State Bill Bradbury told an audience in Eugene that we are at peak oil. Most petroleum geologists agree that the peak is either here or will be here soon, and that the megafields discovered more than four decades ago are showing signs of depletion. A good scientific introduction to these issues can be found on the Web site of the Association for the Study of Peak Oil,  

Peak oil will require us to conserve energy and to live more locally. The promise of hydrogen-powered cars is a distraction from practical solutions to reduce consumption, since hydrogen is a means to store energy, not an energy source (you still need energy to make it). The Oregon Transportation Plan should recommend improved train service in the Willamette Valley and coordinate with economic planners to relocalize production of goods to reduce demand for delivery trucks.

At 7 p.m. on Jan. 10, the Eugene Permaculture Guild is sponsoring a lecture by Richard Heinberg at the Eugene Hilton. Heinberg is author of "The Party's Over" and "Powerdown: Options and Actions for a Post Carbon World," which describe how communities can cooperate to mitigate the impacts of energy decline.


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Letter to the Editor,
Eugene Weekly
By Mark Robinowitz

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

Michael Cockram's commentary about urban design (12/1) recommended increased density as a partial solution to environmental ills. But this analysis only focused on part of the problem. Calculating the environmental "footprint" of a community is not merely an issue of how much personal transportation is used by individual citizens — the impacts of delivery trucks transporting food grown in distant bio-regions, electrical generation, water consumption, sewage systems, garbage production and many other things need to be examined.

Having everyone live in downtown apartments might reduce the per capita usage of personal automobiles, but it could increase the dependence on transportation systems for food and other necessities if these citizens eat food grown in California, Mexico or Chile, instead of converting their lawn into a garden. A "sustainable" city would be one where a substantial percentage of food is grown in or near the town, something rarely included in surface level descriptions of sustainability.

If the city wants to move toward sustainability, it could change the building code to require passive solar design for new buildings, encourage or require solar panels in new construction, create more community gardens and help teach gardening skills, ban franchise stores and begin a process to attract renewable energy industries to the region. All of these (and many more) policies have been enacted in other communities and there is no technical or legal reason why they could not be implemented here.

Some additional solutions at the local, bio-regional and global levels are posted at

Mark Robinowitz
Eugene, OR

OilEmpire Chart

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Congress Extends Patriot Act for One Month

By Laurie Kellman, Associated Press Writer
Dec 23, 2005;_ylt=AobJvPf.yX35EGYP8gzGNdas0NUE;_ylu=

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

Congress on Thursday approved a one-month extension of the Patriot Act and sent it to President Bush in a pre-Christmas scramble to prevent many of its anti-terrorism provisions from expiring Dec. 31.

The Senate, with only Sen. John Warner (news, bio, voting record), R-Va., present, approved the Feb. 3 expiration date four hours after the House, with a nearly empty chamber, bowed to Rep. James Sensenbrenner's refusal to agree to a six-month extension.

Congress can pass legislation with only a few lawmakers present as long as no member of the House or Senate objects. The Senate session lasted four minutes.

Sensenbrenner, chairman of the House Judiciary Committee, said the shorter extension would force swifter Senate action and had the support of the White House and Speaker Dennis Hastert, R-Ill. The Senate reconvenes Jan. 18 and the House Jan. 26.

"A six-month extension, in my opinion, would have simply allowed the Senate to duck the issue until the last week in June," the Wisconson Republican told reporters.

Most Senate Democrats and a few libertarian-leaning Republicans united against a House-Senate compromise that would have renewed several expiring provisions permanently while extending some other for another four years.

Democrats were pleased with a short-term extension, whether for six months or just a few weeks.

"The amount of time is less important than the good-faith effort that will be needed in improving the Patriot Act to strike the right balance in respecting Americans liberty and privacy, while protecting their security," said Sen. Patrick Leahy (news, bio, voting record), D-Vt., the ranking Democrat on the Judiciary Committee.

"We're happy to agree to a shorter-term extension of the Patriot Act," said Rebecca Kirszner, an aide to Senate Minority Leader Harry Reid, D-Nev. "The important thing is to strike the right balance between liberty and security."

House passage marked the latest step in a stalemate that first pitted Republicans against Democrats in the Senate, then turned into an intramural GOP dispute.

Without action by Congress, several provisions enacted in the days following the 2001 terror attacks would have expired. Bush has repeatedly urged Congress not to let that happen.

The Senate voted Wednesday night to extend the provisions by six months, a turnabout for GOP leaders who had long insisted they would accept nothing less than a permanent renewal of the law. The House approved the measure earlier this month, but a Democratic-led filibuster blocked passage in the Senate, with critics arguing the bill would shortchange the civil liberties of innocent Americans.

"No one should make the mistake of thinking that a shorter extension will make it possible to jam the unacceptable conference report through the Congress," said Sen. Russell Feingold, D-Wis., who led the Senate filibuster. "That bill is dead and cannot be revived."

Bush carefully sidestepped the dispute that developed overnight between Republicans in the House and Senate.

"It appears to me that Congress understands we've got to keep the Patriot Act in place, that we're still under threat," Bush said before boarding a helicopter for a trip to the presidential retreat at Camp David, Md.

Most of the Patriot Act — which expanded the government's surveillance and prosecutorial powers against suspected terrorists, their associates and financiers — was made permanent when Congress overwhelmingly passed it after the Sept. 11 terrorist attacks on New York City and Washington.

Making permanent the rest of the Patriot Act powers, like the roving wiretaps that allow investigators to listen in on any telephone and tap any computer they think a target might use, has been a priority of the administration and Republican lawmakers.

Some civil liberties safeguards had been inserted into legislation for renewing that law, but Senate Democrats and a small group of GOP senators blocked it anyway, arguing that more safeguards were needed.

Senate Majority Leader Bill Frist, R-Tenn., said he had no choice but to accept a six-month extension in the face of a successful filibuster and the Patriot Act's Dec. 31 expiration date. "I'm not going to let the Patriot Act die," Frist said.

Bush indicated that he would sign the extension. "The work of Congress on the Patriot Act is not finished," Bush said. "The act will expire next summer, but the terrorist threat to America will not expire on that schedule. I look forward to continuing to work with Congress to reauthorize the Patriot Act."

Some Senate Republicans shared Sensenbrenner's dislike for the six-month extension.

"We'll be right back where we are right now," said a clearly frustrated Sen. Orrin Hatch (news, bio, voting record), R-Utah.

AP Special Correspondent David Espo contributed to this report.

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