real estate doomed, gold silver, energy to rocket?

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    Dear Subscriber,

    Early Friday morning, as a bitterly cold wind blew into lower Manhattan from the Northwest, bond traders commuting to Wall Street were expecting to see an equally cold report on the nation�fs producer price inflation.

    They figured that, excluding energy and food, last month�fs rise in core producer prices would be contained to a meager 0.2%. They assumed that investors in U.S. bonds would rejoice, as usual. And they counted on many more months of low, soothing interest rates.

    Instead, soon after they arrived at their bond trading desks, they were greeted by a short burst of pandemonium.

    Reason: The U.S. Bureau of Labor Statistics announced a shocking 0.8% surge in core producer prices.

    It was FOUR times what they expected, the worst since December 1998 ...

    It was running at an annual rate of 9.6% ...

    And it was raising the ugly specter of double-digit inflation!

    The news hit the markets like a ton of bricks ... injecting a megadose of fear into the hearts and minds of investors ... sending bond prices into a tailspin ... driving interest rates skyward ... and raising a series of urgent questions for all investors, including you:

    If price indexes are beginning to rise at nearly double-digit rates, will long-term interest rates start heading toward double-digit levels as well?
    If so, how soon will home mortgage rates start surging? And if mortgage rates surge, what will they do to the value of your real estate properties?
    Crude oil is already creeping back up toward $50 per barrel. If it goes to $60 or $70 per barrel, like many experts expect, what will THAT do to U.S. inflation, bonds, mortgage rates ... and your real estate? And what will it do for your energy stocks?
    Three weeks ago, Martin on Monday warned that the ethnic and political conflicts in Iraq would spread to neighboring countries. Since then, we�fve seen outbreaks of new troubles in Lebanon, Syria and Iran. If this pattern continues, THEN what?
    I can�ft answer all these questions in full this morning. But I WILL give you a thumbnail response to each, plus some pointers on where to go for more information and decision-making tools.

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    Long-Term Interest Rates Finally About To Turn Up

    Strangely, for the past few months, even though short-term rates have been going up, long-term rates had been going down.

    Why? One reason was because so many people were duped by assurances that inflation was tame and under control. But now, that�fs changing -- and fast. Bond investors, bankers, and even members of the Federal Reserve Board are finally beginning to admit that U.S. inflation, which had been incubating for many months, is now threatening to blast off.

    They can�ft ignore the fact that cigarette prices jumped 3.4% in January and auto costs surged 1.2%. Nor can they pooh-pooh the fact that, even WITHOUT these two items, core producer prices STILL jumped by 0.7%.

    Bottom line: We�fre now seeing across-the-board producer price surges in almost every single sector.

    Result: The Fed cannot and probably WILL not maintain its so-called �gmeasured pace�h of interest-rate hikes.

    Instead, the Fed must begin to jack up interest rates at a faster clip ... raising its Fed Funds rate by a half point at a shot ... sending a new round of shock waves into the financial markets ... and, this time, truly driving long-term interest rates higher.

    Real Estate Boom ... and BUST!

    The specter of double-digit inflation and rising interest rates couldn�ft have emerged at a worse time for America�fs real estate.

    I�fm not predicting that America�fs real estate bubble is going to pop tomorrow. But it�fs clearly time to add a strong element of caution to any real estate decisions you may be making. Indeed, warning signs are beginning to surface from various sources:

    Warning #1. Mortgage demand, including refinancings, has plunged dramatically -- down 24% in a year, 65% from its peak. And even excluding refinancings, it�fs off sharply. This is critical: Without mortgages, consumers rarely buy homes. And without the critical demand from American households, the primary demand for housing could break down.

    Warning #2. There are more new homes for sale now than at any time in history. This abundant supply is not yet being dumped on the market. But an avalanche of unwanted, difficult-to-sell supplies could be in the making.

    Warning #3. Although home values have been unusually strong, home rental rates have been unusually weak. As a result, the price-to-rent ratio for existing homes is at a record high. If rental rates don�ft begin to rise soon, real estate investors will lose their incentive to buy rental properties.

    What will be the outcome? What should you do about it?

    For investments that are designed to PROTECT your real estate and your investment portfolio, check out my Safe Money Report. This month�fs issue is a 12-page gala report with four protective steps you can take right now.

    And for high-powered, leveraged vehicles to PROFIT from rising interest rates, see our Interest Rate and Currency Trader.

    Oil Prices Surging -- AGAIN!

    Crude oil prices rebounded past $48 per barrel on Friday.

    And as you can see from this chart, since the beginning of this year, they�fve been building up for a new blast-off -- first to challenge the $50 level ... and then to challenge the all-time high of $55 per barrel reached last November.

    But even if oil prices fail to surge at this juncture, the very fact that they have been HOLDING above $40 per barrel since last summer has been a boon for virtually every company in the energy sector, even those that use little or no leverage and aim mostly for income.

    Last October, for example, in my Safe Money Report, I recommended an energy trust, primarily for its near-double-digit dividend. Plus, I figured that, with some luck, we could pick up another 20% or so in price appreciation in about 12 months.

    But last week, I got an urgent communication from Safe Money analysts Marc Lichtenfeld and Marie Albin. They reminded me that, instead of rising 20% in twelve months, the stock is up about 50% in four months! And they urged me to send out a flash to subscribers to take profits. I agreed.

    If you�fre a Safe Money subscriber, I assume you received the email last Thursday. But if you missed it, check your inbox again. If you�fre searching by sender name, look for �gMartin D. Weiss, Ph.D.,�h and if you want to search by subject, check for �gUrgent Safe Money Flash Alert: Grab profits NOW!�h

    Or you can read the Safe Money flash alert on the web. Also make sure you continue to hold the other energy recos, which are -- or should soon be -- doing even better!

    In any case, rest assured there is no change in my view about these energy trusts. I still like them -- which is why I am recommending subscribers hold the balance of their positions.

    Remember: These stocks are relatively CONSERVATIVE -- primarily for income, and still, they are surging like high-flyers. So you can imagine what can be accomplished with investments that are DESIGNED to aim for high-flying returns. (See, for example, the recommendations in Larry Edelson�fs Real Wealth Report or his Energy Windfall Trader.)

    Naturally, the more aggressive you get, the more risk you incur. But the energy sector is not just for investment and speculation. It�fs also something you may want to consider as a hedge -- a protection against the damage rising oil prices can do to the economy, to the stock market, and to your personal assets.

    Here�fs how it works: If we don�ft see a sharp rise in energy prices and inflation, your other investments should do well. If we do see the sharp rise, your energy investments should do well. In either scenario, you�fre likely to be covered.

    My advice: If you don�ft own the energy trusts we�fve been recommending, allocate some of your liquid assets to them right now, buying half at the market and the balance on the next correction. In addition to powerful supply and demand forces, one key reason is this �c

    The Ethnic Conflicts I Warned You About
    Three Weeks Ago Are Already Spreading

    As you may recall, three Mondays ago, on the morning after the Iraqi elections, I wrote:

    In most of the West, governments are welcoming Sunday�fs landmark election in Iraq as a victory for direct democracy, a form of government born in Athenian Greece circa 508 BC.

    In the Middle East, however, many are viewing the Iraqi election primarily as a new, potentially more violent chapter in the war between Shiite and Sunni Muslims -- an ethnic/religious conflict born with the death of Muhammad�fs grandson during the battle of Karbala in 680 AD, over thirteen centuries ago.

    Both of these interpretations are largely correct, and both are being hotly debated throughout the region. But only one will determine the course of history.

    If democracy prevails, it�fs assumed that, in the best-case scenario, the region�fs oil supplies will flow freely, the world economy will continue to grow, inflation will not be inflamed, and investors will prosper.

    If the Shiite-Sunni conflict prevails, however, the picture changes drastically. In this worst-case scenario, the Sunni population rises up in a broader rebellion, Iraq bursts into civil war, the conflict spreads to neighboring countries in the Persian Gulf, and the world�fs most critical oil supplies are severely disrupted.

    I hoped it would be the more peaceful scenario and, God willing, it still can be. But right now, the conflict has already begun to spread in ways that no one, myself included, could have predicted three weeks ago. Instead of spreading into the Persian Gulf, new troubles have first struck the neighboring countries of Syria and Lebanon:

    One week ago, on Monday, February 15, a car bomb in Beirut killed former Prime Minister Rafik Hariri of Lebanon. This is a country that had finally recovered nicely from a long civil war among Sunnis, Shiites, and other ethnic groups. Now, according to the New York Times, the assassination was �gthe most serious blow to the stability of Lebanon in more than a decade.�h And according to the Bush administration, it was a �gterrible reminder�h of the need for Lebanon to break loose from Syria.
    U.S. tensions with Syria, already near the boiling point, literally went off the charts -- with the U.S. withdrawing its ambassador, with Defense Secretary Rice launching a verbal attack, and with Iran and Syria threatening an unholy alliance to defend themselves against any future U.S. aggression.
    In Iran, meanwhile, unexplained explosions in the same province as Iran�fs major nuclear facilities rocked not only the region but the world�fs financial markets.
    And ironically, all this happened soon after elections in Palestine, Iraq, and even in autocratic Saudi Arabia.

    So again, recent events beg the question: Which will prevail -- democracy or chaos?

    I hope and pray it will be the former. But at the same time, there�fs little doubt about this fact of life: Democracy alone -- whether legitimate or feigned -- does not preclude chaos in the short term.

    Nor can any reasonable observer question the fact that the spreading chaos is a growing threat to oil in the region. Take a look, for example, at this chart of Iraqi oil production in the last four years.

    After a natural bounce-back following the Iraqi war last year, little additional progress has been made in boosting output. And in the most recent month for which we have data, oil production fell again, matching the lowest level in over a year -- largely due to insurgent attacks.

    What�fs most distressing to all of us who are closely watching the Iraqi situation is that the insurgency is not dwindling, let alone ending. Despite the capture of Saddam Hussein ... despite the hand-over of power to the Iraqi interim government ... despite the elections last month, the threat to oil production in the region is not receding.

    Forbes puts it this way:

    The oil export facilities face problems from attacks (which may get worse) and from technical problems (which are clearly getting worse). Rumors of serious technical problems with the Northern Fields have been rife for many months. Production fell from 2.4 million barrels per day in October to 1.5 million b/d in December. At the end of January, problems with water injection meant that exports of Basrah Light for February would be cut from 1.6 b/d to 1.45 million b/d. ...

    Although some oil majors are showing interest in providing technical assistance, no serious investment will take place until there is a credible and recognized government with serious legislation in place to govern upstream oil agreements. This is a long way off given that the constitution will almost certainly not be ready by the mid-October deadline. Similarly, violence against oil installations will continue, perpetrated by a combination of Sunni dissidents and foreign jihadists, who understand that these attacks are a way to damage a U.S.-backed administration.

    Prognosis: A continuing trend toward double-digit inflation and, in its wake, double-digit interest rates. Don�ft get caught off guard. Be ready!

    Good luck and God bless!

    Martin D. Weiss, Ph.D.
    Editor, Safe Money Report
    Chairman, Weiss Ratings, Inc.
    [email protected]

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