April 27, 2007 by Ian Mathias

• Chinese meltdown imminent? Revealing charts below…
• Ethanol dream world: Indiana corn farmers and Manhattan socialites
• Gas prices above $3? Wait ‘til they hit $5!
• Buffet on winning the ovarian lottery
• The dollar bellies out, finds its lowest low in 26 years
• A reader responds with, umn… a haiku?

Every month, editors of The 5 and a few key members of our team gather for a knockout, drag-down editorial meeting.

We hold it in the library of our building on Mt. Vernon Square in Baltimore.  Leading up to WWI the building was home to then ambassador to Belgium, Theodore Marburg. The Maryland Historical Society tells us that president Wilson visited Marburg often. They were reputed to have penned the first draft of the League of Nations in the same room we hold our meetings.

Here are just a few forecasts from yesterday’s gathering:

  “Insiders say the Shanghai market is ready to plummet,” said Christopher Hancock, kicking off the meeting.  Look at these charts:

The first is the Shanghai index today. The second is the NASDAQ moments before it crashed.  History doesn’t always repeat, but it often rhymes.

 “I was on the phone this morning with my Chinese hedge fund buddy,” Chris told us, “they are liquidating almost every asset they’ve got in the Chinese market.”

But wasn’t The 5 bullish on Chinese coal consumption just yesterday? 

Sure… and we still are. Think of China as the low-cost manufacturer of the world, like the US was the 19th Century.  We’re likely to see lots of fits and starts in the stock market. At 11% growth per year… the Chinese economy is ripe for a bust.

But coal remains a “huge buy.” Chris’ contacts on the ground are seeing one new coal plant being built in China every two weeks. And that’s a trend likely to continue. Feed the beast.

“Corn farmers are languishing in an ethanol dream world,” commodities pro Kevin Kerr reported. Kevin just got back from a whirlwind tour of the Midwest. He wanted to get up close and personal with the so-called ethanol boom.

“Long-term, I’m bearish on corn. But in the short-term… look out!” The Maniac Trader was crossed-eyed and astounded as he saw Indiana farmers importing their seed corn from Brazil… and unable to get it into the ground because of wet weather. “The farmers have an adage: knee-high by July,” Kevin said. “This year, they’ll be lucky to be knee-high by October.”

Farmers as far south as Mississippi and Georgia are planting corn “post to post”. Every square inch of land dedicated to one crop? Haven’t we known about rotating crops and letting land lay fallow since Methuselah roamed the earth? We’re reminded of another fantasy in 1998-99 when every business scrambled to attach a “.com” to their name. 

“Poor conditions and fantasy farming,” says Kevin “will send corn prices through the roof in the near future.” If you’re familiar with the Maniac’s track record, you might want to heed his call.

Exposed! The soft underbelly of U.S. refinery infrastructure. “Gas prices are poised to skyrocket,” this from Dan Amoss.  This morning, he sent The 5 an exclusive email to back up yesterday’s claim. The futures market is “concerned” says Dan.  Refiners are not producing enough gas to fuel the summer driving season.  Our sources also say several refinery outages have hampered any effort to catch up. Most refineries are too old to make up for unforeseen outages. And they’re not equipped to refine the growing share of heavy, sour crude oil.

You can get the full story in Dan’s Whiskey & Gunpowder article.

Mr. Amoss is by far the most soft-spoken, courteous and conservative among our noisy brood.  But he’s a dynamo when it comes to predicting trends in the markets.  He “expects the rally in gas to continue.”  He made similar claims about sour crude refineries in 2005, and now his Strategic Investment readers are sitting on 120% gains.
 
 
“I won the ovarian lottery,” the world’s most famous investor told The 5 in a private interview. 

When we asked Warren Buffett what was the first moment in his life that guided him towards being the business giant that he is today, this is not what we expected to hear: 

“The olds were almost 50 to 1 against me being born in the United States… And then I was born to a couple of parents…that cared a lot about me…and they believed in education, they took good care of me, and I was wired to do well in a certain part of a market system that pays off enormously in a rich capitalist country.  And if I'd been born a few hundred years ago, it wouldn't have paid off the same way.”

“And I didn't have anything to do with that wiring.  I could have been wired to play chess, you know… but there's no money in chess…I happen to be in something called capital allocation or asset allocation and in a very rich capitalist system, you know, that asset allocation pays off in a disproportionate way uh…to any real contribution to the society.”

We couldn’t have said it much better.  Sometimes, all you have to be is the right person in the right place at the right time. We’ve got more exclusive Buffett wisdom… stay tuned.


Readers of The 5 respond:

"The Dow punched through 13,000... yeah, and the price of bread in Zimbabwe has punched thru the stratosphere. Print enough money and the DOW will punch through 13,000,000,000. So what? The ‘metrics’ have been stolen and diverted to other uses.  We need to abandon them and find ones which actually represent something.”

We note with more than a little irony: The day that the Dow reached it’s all-time high  The Fed's Trade-Weighted Dollar Index fell to its lowest level since its inception in 1971.

Our buddy Chuck Butler at the Everbank World Trading Desk commented: “If you are old enough, you know that the dollar was bounced from the Bretton Woods Agreement in 1971. So, since the beginning of ‘float time’ the dollar has never been this low.”

Another reader wrote us a haiku:

Gentlemen,
I really liked the 5-minute forecast.  I took some of the words you DIDN’T use and made a haiku for you.

I often cannot
Find the ad’s “order” button
Done.  Succinct is good.

A future Poet Laureate, if you ask us.  Thanks!

5 seconds left.  Take a deep breath and enjoy yourself for few. It’s Friday, for crying out loud.

Have a good weekend,
Addison Wiggin,
The 5 Min. Forecast

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