May 1, 2007 by Ian Mathias

• The government admits gold is money and starts issuing indictments
• Corn, cotton, soybeans, wheat -- you name it… it ain’t in the ground yet
• Housing bust: “Like death takes a holiday”
• A record month in the Dow… “overbought, overvalued, overbullish”
• P-A-T-H-O-G-E-N… a reader sets us straight on the birds and the bees

The Fed… ugh, what can you say? Back in 1933, after having run on a platform of “sound money” backed by gold, FDR made it illegal for U.S. citizens to own the yellow metal. It took 44 years for “citizens” to regain their right to own it again. Now the feds are at it again -- just as many readers have feared.

Yesterday, the Department of Justice issued a bench warrant for the largest online transaction service backed by gold. According to a press release, "A federal grand jury in Washington, D.C., has indicted two companies operating a digital currency business and their owners on charges of money laundering, conspiracy, and operating an unlicensed money transmitting business.”

“e-gold” is the more popular of these two companies… and it’s a good idea. Peter owes Paul for services/goods rendered, so Peter sends Paul an amount of gold as his payment. A gold-backed transaction… easy as pie. Like PayPal, except it’s happily anonymous and the government can’t stick its nose into your business. Of course, that’s why the feds want to shut it down.

Apparently (and unfortunately) the Dept. of Justice alleges drug traffickers, child pornography rings, and money launderers have taken advantage of the e-gold model and are using the system to conduct business.

Will it hold up? “The indictment is reaching…” says Kevin Kerr. “In my opinion, the underlying motive here is to create another hurdle for investors trying to move out of the ailing U.S. dollar and into other means of transacting business.” More to come on this story, for sure.

Here at The 5, we hate to say, “I told you so.” OK, maybe we don’t. Just after the closing bell yesterday, the U.S. Dept. of Agriculture issued this report on planting progress report. Shield your eyes… it’s a bombshell:

• 23% of the corn crop was planted, down from 48% a year ago
• 3% of the soybean crop was planted, down from 9% a year ago
• 34% of the spring wheat crop was planted, down from 39% a year ago
• 19% of the cotton crop was planted, down from 30% a year ago
• 56% of the winter wheat crop was rated good to excellent, up from 54% the previous week.

Like we said yesterday, these numbers are extremely bullish, and are likely to drive commodities prices wild.

Investors itching to buy housing stocks (God forbid) just got another reason to steer clear. “Boston is still in the pits… in Florida, it’s like death takes a holiday… Las Vegas is now terrible… Michigan may be a situation where is doesn’t come back.” These are the comments of Robert Toll, chief executive at Toll Brothers, one of the nation’s largest home builders.

Home sales of existing homes fell 8.5% in March -- the fastest drop in 18 years. Supply is up to eight months and climbing. Housing prices, as a result, keep falling.

Chris Mayer, watching closely, told readers of Capital and Crisis, “Don’t rush in on housing yet. The bursting of this bubble clearly has a ways to go.”

We’ve heard reports, too, that the governor of Massachusetts just bowed to demands from protesters. He’s going to bail out mortgage holders who’ve gotten in over their heads. Who could have predicted that? Uhhh… we did.

April was the most bullish month for the Dow since August 2003. Time to party? “Not quite,” says Strategic Investment’s Dan Amoss. We spoke to Dan about the market’s withering heights after Thursday’s editorial meeting.

“Bulls point to ‘cautiousness’ in sentiment polls as the reason to buy stocks,” says Dan. “But one fact remains: A stock is a claim on cash flow. It’s not a claim on next month's sentiment indicator.”

"This will end badly,” writes the legendary John Hussman. “In recent weeks, we've started to observe what people used to call 'shooters' back in the '60s and '70s -- stocks that rise by 30-40% or more in a single day. That sort of action is characteristic of a speculative blowoff. The difficulty is that such blowoffs can continue over the short term, but also tend to end abruptly. I have no strong view about the very short term, except that we're observing an instance of fairly extreme overvalued, overbought, overbullish conditions, which have typically been followed by deep and abrupt losses."

Fidelity, the megafund overseer of $1.5 trillion in assets, quietly announced yesterday it will set up back office support in Dalian, China. According to the Financial Times, the new outsourcing service center will rival Fidelity’s 9,000-employee Indian operation.

C’mon guys… “The cellphone thing is simply silly,” a reader writes in response to our story yesterday covering the disappearance of bees in North America.“Bees navigate by polarized light, in an entirely different section of the electromagnetic spectrum. Colony collapse more or less began last autumn, with no monumental increase in cell phone activity.

“The form of progression (from the coasts inward, and thence to Europe) and its tendency to strike only certain hives in a given bee yard is much more typical of a pathogen. If I had to guess, I'd say viral. Florida hives run through a 60-Cobalt facility can reestablish normally.

“That spells P-A-T-H-O-G-E-N.

“Add to this that perhaps half of all pollination is accomplished by dozens of different species of wild bee-like pollinators and I'm not especially worried. Oh, yeah. There's not a single documented case of an Africanized (‘killer’ bee) colony collapsing. The gene pool of honeybees got too narrow, and they're getting sick. Think: corn, 1970.”

Wow… what W-E-R-E we thinking?

Regrads,
Addison Wiggin,
The 5 Min. Forecast

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