Celebrating the Fourth...

Celebrating the Fourth... The conviction of the mob... Europe's currency devaluation continues... Bank of England buying more bonds... Record rents around the nation... Sjug's housing call... Rick Rule on natural gas...

 There's a seven-acre park in front of my (Dan Ferris') house, beyond which lies perhaps half a dozen newly paved streets lined with finished housing lots... but no houses. They're remnants of the housing bubble, which have yet to see their intended use.

Yet despite all that open ground – much of which lies 100 yards or more from anyone's house – my un-neighborly neighbors chose to plant themselves (and a couple hundred Facebook friends) in front of my house, illegally cordon off the street, and set off literally hundreds of the loudest, most obnoxious fireworks you've ever heard in your life. They came whizzing past our windows. Though they were doped up on Trazodone, our two little dogs still didn't like it much... nor did my wife... nor did I, for that matter. It was rude. They could have done it anywhere else, but they picked my house.

I shook my head as I looked out the window and thought of words like, "When in the course of human events it becomes necessary for one people to dissolve the political bands that connect them to another"... "life, liberty, and the pursuit of happiness"... and "we pledge to each other our lives, our fortunes, and our sacred honor."

I quickly realized that, to most Americans, the Fourth of July holiday is about overeating, getting drunk, and disturbing the peace. I imagine many don't even know the holiday commemorates the signing of the Declaration of Independence by 56 delegates of the 13 original colonies on July 4, 1776 in Philadelphia. (Though some like to point out that some delegates may not have signed until August 2, 1776, and that one delegate may not have signed until as late as November 4, 1776.)

I'm willing to bet I could have polled the crowd of perhaps 200 gathered out front of my house last night and found that not one of them had any idea what the Declaration of Independence is or what it says... that they wouldn't know its preamble... that they wouldn't know the redress of grievances, several of which deal with the rule of law and others with the "standing armies" and "swarms" sent to harass the population and "eat out its substance" (as if the Founders were addressing Komrade Obama across the centuries and not George III). I doubt they know who wrote the first draft (Thomas Jefferson) or who did the first edit (the committee of five that had been chosen to draft it, which included Jefferson, Franklin, and Adams).

 Whether in the celebration of one of the great founding moments of our country – or knowing the difference between Wal-Mart and some fly-by-night penny stock – the great mob acts with the greatest conviction... even when it doesn't seem to have the slightest clue of what it's doing or why.

The mob bought stocks to beat the band in late 1999/early 2000... the perfect moment to sell. It sold stocks as though they were toxic waste in late 2002/early 2003, the perfect buying opportunity.

Consider yourself warned.

 Today, the mob is buying bonds, and it can't get enough. Bond King Bill Gross' $270 billion Total Return Fund – the largest mutual fund in the world – is living proof. Last year, investors were scared and withdrew $4.9 billion from the fund, the first year since 1987 that the PIMCO Total Return refunded more money to clients than it brought in. So far this year, investors have put back that and more. Through June 30, Total Return has seen nearly $6 billion of net inflows. More than half the fund (52%) is in mortgage-backed securities. About 35% is in U.S. Treasurys. Gross is no fool. He knows Treasurys are "the cleanest of the dirty shirts," meaning sovereign debt obligations.

People buying Treasurys and other bonds today must feel like folks buying stocks in 1999. They've been right for some time, and they're convinced they'll be right forever.

 European sovereign debt obligations are among the dirtiest shirts in the world these days (and getting dirtier), as the global race to devalue currencies continued this morning...

The European Central Bank (ECB) cut interest rates by 25 basis points (a basis point is 1/100th of a percent) to a record-low 75 basis points. The ECB also lowered the deposit rate to zero... A deposit rate of zero should encourage banks to lend money instead of depositing excess cash in the ECB's overnight deposit facility – approximately $1 trillion is parked at the ECB every day.

Both of these moves lower borrowing costs for the European monetary union's financial institutions and should spur lending.

The Bank of England also increased its bond-purchase program by 50 billion pounds ($78 billion) to 375 billion pounds.

 Not to be left out, China cut interest rates for the second time in two months today... The People's Bank of China announced a 31-basis-point cut in the benchmark lending rate to 6%. And it cut deposit rates by 25 basis points to 3%.

 Normally, so much easing would goose markets, at least temporarily. But these rate cuts came paired with negative comments from ECB President Mario Draghi at a conference in Frankfurt. Some "downside risks to the euro-area economic outlook have materialized," Draghi said. "Economic growth in the euro area continues to remain weak with heightened uncertainty weighing on both confidence and sentiment."

Draghi's comments sent the euro down 1.25% to less than $1.24. U.S. markets were down around half a percent. The rate on 10-year Treasurys dipped to 1.6%. And 30-year mortgage rates fell to a record-low 3.62%.

 But record-low mortgage rates still aren't hurting the U.S. rental market... Landlords raised rents to record-high levels in the second quarter. Average rents in all 82 markets tracked by Reis, a real estate data firm, increased. And average rents are at record levels in 74 of those markets, topping $1,000 a month. The biggest rent increase was in New York City... The average rent rose 1.7% from the first quarter to $2,935.

The U.S. vacancy rate fell from 4.9% in the first quarter to 4.7% in the second quarter – the lowest level since 2001. According to Reis, this is only the third quarter in more than three decades that the vacancy rate has been below 5%. And when vacancies are so low, landlords raise rents even more.

 I (Sean Goldsmith) am writing you from the U.S.' hottest rental market, New York City. I rented an apartment here about six months ago. I can't see how rents can move much higher... It cost me a small down payment to secure a one-bedroom apartment. And my monthly rent is nearly double the mortgage on the house I own in Baltimore, which is twice the size. I read a Wall Street Journal article this week that said developers are turning planned condominiums into extra rental apartments in new buildings.

That's quite a change from 2007 when everyone was converting apartments to condos... and building hotels with condos. It was just condos everywhere.

 When apartment rentals are high, you can expect lots of apartments to come online... Real estate research firm Zelman & Associates expects 235,000 units to be started this year in Washington D.C. and Seattle (two hot rental markets), followed by 285,000 in 2013 and 320,000 in 2014. Of course, at some point, all that extra supply will cool rental prices.

And homes are becoming more and more affordable. Steve Sjuggerud  has been urging readers to buy real estate (one way or another) all year. In a recent DailyWealth essay, Steve wrote...

Steve also recommended the Dow Jones U.S. Home Construction Fund (ITB) – which holds a portfolio of homebuilder stocks and shares of housing-related companies (like Home Depot) – to profit from a rebound in homebuilders in February 2011... It's trading at 52-week highs now.

 Homebuilder PulteGroup created a line of "Independence" homes in Chicago, St. Louis, and San Antonio to attract renters away from landlords... The one- and two-story homes, which range from 1,100 to 2,300 square feet, start at $105,000. You can own these homes for as little as $775 a month, less than many rentals.

 Our friend, resource expert Rick Rule, appeared on CNBC this morning to discuss his views on energy prices. Rick is one of the smartest resource investors we know. You can watch his interview here.

Rick, chairman of Sprott U.S. Holdings, says we'll see lower natural gas prices for at least one to two years in the U.S. and Canada. Rick says if we don't have a hot summer, we could see natural gas prices fall to $1 per thousand cubic feet (mcf)... (It currently trades for $2.94 per mcf.) We're running out of storage space. Without the extra electricity demand, prices will drop.

 New 52-week highs (as of 7/4/12): None. Markets were closed on July 4.

 "I don't figure how your investments show 300+% increase in less [sic] you use fuzzy math like the government does. I have not seen the triple digit gains your newletter [sic] advertises. If I make a 6% gain in one week, is that considered 312% increase in your mind?" – Paid-up subscriber Mike Gross

Ferris comment: Hmmm... I don't know what you're referring to exactly, but a 6% gain in one week is a 312% annualized return.

 "I think your work is ingenious, commendable and valuable to little folks like me, so I am not complaining, but I am confused about what I have actually gotten for my money. Do you have a website that I could access by user name and password that would detail for me and others just what products they have paid for and would like to receive the information for which they paid.

"I am not grumbling, but Porter Stansberry related email fill up my daily email inbox. I have purchased two possibly three of you products, but I don't know how to access them. It seems everything I get has a price tag!

"Can you tell me which products I have purchased? Plus how to access the information that I have purchased? For example, I thought I had purchased the publication describing the 801K's, but when I went there all I got was the letter I had already seen and the opportunity to purchase it again.

"I would like to start making some money!" – Paid-up subscriber Lewis F. Jones Jr.

Goldsmith comment: When you log onto our website, you will see a column titled "Your Subscriptions" on the left side of the page. You can access all your subscriptions there. We also e-mail all of our newsletters on a regular publishing schedule.

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Regards,

Dan Ferris and Sean Goldsmith

Medford, Oregon and New York, New York

July 5, 2012