May 23, 2007 by Addison Wiggin & Ian Mathias

• Gas prices set another record… how rising fuel prices are now like death and taxes
• Bank of England revelation… why the stage is set for the $2 pound
• Mortgage lenders and home builders, long on shorts…
• The dark side of the Blackstone deal
• The Chinese need cement, a lot of cement: How to make money from the demand
• Indian prime minister predicts impressive growth… want to check it out firsthand?
• Coins and CDs selling out… what to do now

Gas jumped another 2 cents overnight, to $3.22 a gallon. Another record. Oy…"The price of gas is rising," says our Byron King, "because there are more people buying it than there are selling it. And there will be, for the rest of your life."

"U.S. refinery output is at its highest level in history," says Byron. "There has never been a time, since John D. Rockefeller first started buying up refineries in Cleveland back in the 1860s, when the U.S. refining industry made more product than in the past couple of months."

"The U.S. is also importing unprecedented levels of refined product into the country… over 10% of total demand," added Byron. "Three dollar gasoline is still pretty cheap, compared with its true value. It's less than 19 cents per cup… that's a lot less than we're all willing to pay for a cup of coffee."

You can read more of Byron's take on recent gas prices in this Whiskey & Gunpowder article.

"I fully expect the pound sterling to get back to the lofty $2 level and beyond," commented Chuck Butler this morning from the EverBank trading desk.

Yesterday, the Bank of England quietly released minutes from its meeting. It revealed a unanimous decision to up interest rates, leaving most speculators to believe that another hike is imminent.

The bank convenes again in June… be ready for the $2 pound... and more.

Bearish sentiment in the markets is high. More investors are betting on a market fall than ever. For the monthly reporting period ending May 15, short selling -- which profits from declines in stock prices -- hit a record high.

Thusly, here at The 5, we are somewhat torn. We believe the market is overvalued, for sure. But we get a bit queasy when the masses start agreeing on anything.

"Mr. Market seems to delight in the suffering of shorts," Chris Mayer told The 5 this morning. April was the strongest month the market has had in quite some time. Short selling was high then, too.

"Short sellers, you could say, took it in the shorts."

"However," our master of crises reported, "short sellers tend to do their homework… high levels of short interest in a stock tends to be a red flag that something is amiss."

These sectors are heavy on the short side right now: home builders and mortgage companies.

And if you're long one of these stocks -- Orleans Homebuilders, Hovnanian Enterprises, Beazer Homes, Brookfield Homes, Fremont General, Downey Financial and IndyMac Bancorp -- please be careful.

"Has anyone done the math on this China/Blackstone deal?" our international investing guide, Christopher Hancock, asked after reading yesterday's 5.

In classic form… on the phone w/ Hong Kong, typing an e-mail, chugging his coffee, and punching the ol' calculator all at once… Christopher managed to pass this along: "China has $1.2 trillion in forex reserves… and those reserves are growing at about $20 billion a month."

"China's $3 billion investment in Blackstone is a minor ripple. They'll make that up in half a week!" Christopher shouted. "It's all for PR ahead of trade talks… a symbolic gesture at most.

Compared to the average Joe making 50k a year, this would be less than a $500 investment. Is that what you would call "putting skin in the game"? "It's a pretty cheap bribe if you ask me," Christopher said.

"In the new Asian Era," Christopher continued on a different subject, "the world will need a whole lot of concrete."

The Asian Development Bank (ADB) recently projected Asia will spend $3.7-4.7 trillion… that's trillion with a 't'… on infrastructure in the next decade alone. Chris' February edition of Free Market Investor highlighted one aspect of this coming infrastructure growth: skyscrapers.

"Assuming America represents a mature economy and the ratio of skyscrapers to people here in the United States represents a logical target rate for further expansion (1:28,580), when you factor in China's 1 billion-plus people, you find that China thus far has built only one skyscraper for every 362,562 people. If the Chinese aim to reach our hypothetical ratio of 1:28,580, they would need to construct another 42,102 tall buildings.

"Few people ever stop to think about the massive amounts of steel and cement that go into these structures. These buildings require miles and miles of steel beams…hundreds of thousands of tons of cement," he told The 5. The Twin Towers alone consumed roughly 425,000 cubic yards of concrete… enough to lay a sidewalk 5 feet wide from New York City to Washington, D.C.

"Concrete may not be sexy, but it's certainly profitable."

For more on the Free Market Investor and the Asian skyscraper boom, click here.

Growth begets growth in India, too. Yesterday, Prime Minister Manmohan Singh said the Indian economy would grow by over 8.5% by March 2008. For comparison, the government claims the U.S. will grow nearly 3% in that time frame (heh).

What's going on over there? We aim to find out.

Karim Rahemtulla, of Mount Vernon publishing fame, and yours truly will be hosting an investment tour there from Oct. 9-25 this year. We've kept this very hush-hush and only invited a small group of travelers. Only 20 out of 41 spots remain.

But if you're interested, you can reserve one of those spots. Seriously, you should do it now. This tour is selling out by word of mouth alone:

Click here to learn more about this amazing trip.

Can't wait. It's going to be very exciting. The trip of a lifetime… come along, if you can swing it.

"Your comment about Iran and gas rationing is quite interesting," writes a reader.

"Iran may have a lot of oil in the ground, but how they will exploit that is anyone's guess. They've spent no money worth mentioning on their oil industry since the shah left office. Much of their oil infrastructure is reported to be in very poor condition. Even worse is that their refinery capacity is rather limited, and also said to be in poor condition.

"In short, they have to import gasoline. Now they are acting as adviser to that screwball Chavez. Without Iran's help, he has managed to lose about 20% of Venezuela's pumping capacity already. One can only imagine what he can accomplish with 'technical assistance' from Iran.

"There is just no substitute for incompetence.

"The catch is that these lulus are going to constrict the remaining supply of oil on the world market. I plan to buy a bicycle."

Yesterday was a good day for AF readers. Steve Sarnoff's TLT interest rate play traded at 66% gains in less than three months. And his Verizon calls triggered for 12% gains in one day! Also, congrats to Chris Mayer's Special Situations readers. Their little water chemical treatment company was bought out… and his subscribers banked about 20% gains in less than five months.

Enjoy your profits,
Addison Wiggin

P.S. If you are interested in EverBank's Energy CD but couldn't get through, don't fret. We kind of swamped their system. Chuck assures me they'll be ready for your call today.

P.P.S. Also, if you are still looking to get your hands on those S.S. Republic coins, but couldn't fill your order, don't sweat it. Nick tells me they have more in stock. And even a different version, with a different die error. Keep trying. Otherwise, let us know and we'll help your order go through.