1. Barron's: Second Home Glut

The Sunday edition of Barron's reports that second home prices are plunging in certain areas of the U.S., and says it may signal a multi-year correction for the housing market.

Take a look at some of this evidence from Barron's:

• In Litchfield, CT, home prices in the $300,000 to $600,000 range are down 12%-14%.
• In Naples, FL, sales of homes costing less than $1 million declined 45% in unit volume in the first four months of this year. More expensive homes fell 34%.
• In Scottsdale, AZ, unit sales now are down by 40%-42%, and the city's inventory of unsold homes has shot up more than five-fold, to 39,000
• In the Cape Cod area of Massachusetts, the number of homes for sale on the Multiple Listings Service in the Falmouth area is up about 65% from a year ago, says Lynette Helms of the local Real Estate Associates. Median home prices in the Cape Cod town of Barnstable are down 1% in the first quarter, to $385,000.

Barron's implicates speculative investors as the main reason for the pull back in prices. It points out that six out of 10 second-home owners own two or more homes in addition to their main residences, according to a survey by the National Association of Realtors.

Story Continues Below

"The danger," says Barron's, "is that if enough of those investors decide the market has peaked, they could trigger a selling frenzy throughout the second-homes market. That, in turn, could add to the pressures in the main housing market. After all, second homes now account for a full 40% of homes sold in America."

The Local Market Monitor, a Wellesley, MA-based consulting firm, tells Barron's that 58 percent of homes in Myrtle Beach, SC, were owned by investors as of 2004. In Wilmington, NC, 38 percent of homes were investor-owned. Florida had a large percentage of speculator-owned homes: Naples at 45 percent, Cape Coral/Ft. Myers at 40 percent, Miami/West Palm Beach at 21 percent. The average level of investor-owned homes is generally 14 percent.

Ingo Winzer, president of The Local Market Monitor, comments to Barron's, "This makes me very worried because it implies that the price increases have been driven more by speculators than by people who are going to hold onto these properties, and indicates to me that there's a speculative boom."

The price jumps of the past decade or so have brought homes to (un)affordability levels not seen in years. Cleveland-based National City, a top banking and mortgage concern, says that homes are overvalued in Florida, California, and several other vacation-home spots.

Homes in Naples, FL, says the company, are 96 percent overvalued based on income levels, population densities, and historical prices. Port St. Lucie/Ft. Pierce, FL, homes are 75 percent overvalued, and Ft. Lauderdale homes are 54 percent overvalued.

Cities in Arizona, New Jersey, Oregon, New York, Nevada, and others are also overvalued, according to National City.

Alan Skrainka, chief market strategist at broker Edward Jones tells Barron's, "People don't believe in the laws of supply and demand anymore. We're not saying it's a bubble, but we're saying prices are overstated and will likely correct 20 to 25 percent over four or five years."

As that correction happens, says Barron's, the primary people to suffer will be the so-called "mass affluent" - people with investable assets of $100,000 to $1 million. A Chicago-based consulting firm, Spectrem Group, says that this demographic has more than one-third of its assets in real estate.

But, Barron's does leave some room for hope. The magazine points out that the baby-boom generation continues to pile up inherited and earned wealth. And those baby boomers will likely buy a second home to retire to. In the long-run, points out Barron's, these may just be profitable investments.

The question is do you have enough time to wait out the storm?

Editor's Note:

• Sir John Templeton was right. A housing bust is imminent. Templeton first warned housing prices could crash 50%. Find out what he said and learn how to protect yourself and even profit from the coming storm. Go here now.

2. James Turk: $8,000 Gold

Barron's also interviews James Turk, the founder of Goldmoney.com, who tells the magazine that gold could go to $8,000 an ounce based on the dollar's fundamentals. According to Barron's, Turk pinpointed the current bull market in gold in September 2002.

Turk points to gold's fundamentals as a reason for it to go to $2,000 and eventually to $8,000. He cites strong demand for gold, especially after it hit $500 an ounce. He also said that the strong demand is causing problems for those short gold, forcing them to buy at higher prices. Turk calls $2,000 gold a "near-term spike" in the next six to 12 months.

Turk also says that the real reason for gold's ascent is the dollar's weakness.

"There are problems with the dollar, and that's being reflected in the higher gold price," says Turk. "So truth be told, it's not that gold is going higher - it's that the dollar is going lower. An ounce of gold still purchases as much crude oil, essentially as it did 50 years ago, but that can't be said about dollars."

Turk argues that there are a variety of pressure points on the dollar. Chinese National Offshore Oil Co.'s (CNOOC) failed takeover bid of Unocal and blocked Dubai Ports deal, says Turk, were clear signal to foreign holders of dollars that they can't exchange U.S. dollars for tangible goods. In other words, if foreigners can't buy companies with their dollars, why should they hold them?

Turk also points to the commodities boom as an indication that people are exiting dollars. Because they can purchase commodities in exchange for dollars, it's a way to convert their currency into tangible assets.

And, he says that the world is questioning the dollar's role as the world's reserve currency, citing that the Russian finance minister raised the issue at a G7 meeting. In addition, central banks are reportedly diversifying their reserves away from the dollar.

Editor's Note:

• Warren Buffett, the world's second-richest man, is so convinced the dollar will decline in 2006 that he's placed a $16.5 billion bet on it. Find out how you can get in on it. Go here now.

3. Betting on the Weather?

In only two years, the weather derivatives market has ballooned tenfold, hitting the $40 billion mark.

It is an obvious indicator that businesses are searching for ways to avoid the devastating losses incurred by natural disasters like last year's hurricanes Katrina and Rita, tsunamis and global warming, among other factors. Experts agree that some 30% of the economy is affected by weather.

"We're all hearing about climate change, and, whether that's occurring or not, the weather is becoming increasingly volatile," said Brian O'Hearne, managing director of environmental and commodity markets at Zurich-based reinsurance company Swiss Re, according to The New York Post.

The Post cites O'Hearne, who says that weather derivatives are a prime method of offsetting the effects of volatile weather that can devour corporate profits whole.

"Unlike insurance, which protects a company in the event of a Hurricane Katrina-type catastrophe, weather derivatives are used as a hedge against high-probability, low-risk events such as an unseasonably cool summer or a dry spell," says The Post.

According to the paper, energy companies (and businesses associated with them) have the biggest interest in the weather derivatives market. But almost any business takes on some amount of weather risk, according to one expert.

"And as companies wake up to this risk, they are turning to weather derivatives to protect against weather fluctuations that could impact their bottom lines."

The Chicago Mercantile Exchange saw 328,000 contracts traded between January and April - up from just 4,200 the year previous.

Editor's Note:

• You could have turned $2,100 into $25,500 by the time hurricane season ended with Wilkinson's Hedge Fund Investing. Get your first trade now.

4. UK Report: Web Overtakes Print Advertising

Experts estimate that in Britain this year, the Internet will garner some 13.3% of the overall media advertising market, surpassing national newspapers, which are set to take only 13.2%.

The Financial Times reports that WPP, one of the world's largest communications services groups, collected data from a variety of its media buyers, and all of it reinforces the idea that in the UK, online advertising is set to surpass newspapers at the national level this year and at more local levels in 2007.

The information reportedly shows that "by the end of 2007, Internet advertising will close the gap on regional newspapers, the number two medium," but despite the massive gain, online advertising in Britain will remain a very distant third behind the leader of the pack - television, which is still the largest outlet in the nation.

The FT cites Adam Smith - futures director at GroupM, a WPP holding company - who says that analysts have underestimated Internet growth. "Every year people think the Internet must slow down because the growth rate looks high, but it keeps going. Overtaking national newspapers is another milestone."

Says the FT: "Newspapers have responded by investing in their own Web sites and buying, at valuations well above mainstream publishers, online businesses, particularly those which have captured highly lucrative classified advertising.

"Advocates of print point to its engagement with readers and ability to reinforce branding campaigns. But the medium's declining ability to reach the prized younger audiences is a concern."

Editor's Note:

• Have you visited MoneyNews.com yet? Check it out. It's free. Go here now.

Editor's Notes:

• Sir John Templeton was right. A housing bust is imminent. Templeton first warned housing prices could crash 50%. Find out what he said and learn how to protect yourself and even profit from the coming storm. Go here now.
• Warren Buffett, the world's second-richest man, is so convinced the dollar will decline in 2006 that he's placed a $16.5 billion bet on it. Find out how you can get in on it. Go here now.
• You could have turned $2,100 into $25,500 by the time hurricane season ended with Wilkinson's Hedge Fund Investing. Get your first trade now.
• Have you visited MoneyNews.com yet? Check it out. It's free. Go here now.
• Silent infections and "sleeper germs" may be the hidden culprit behind the chronic diseases that eventually kill most of us - and our loved ones. Go here now.

U.S. Border Patrol Cap

FREE OFFER – Get this "U.S. Border Patrol Cap" FREE, Go Here

Now you can stand on the frontlines of America's battle with illegal immigrants by wearing the US Border Patrol cap.

America's US Border Patrol is the thin green line of men and women who protect America's borders. They struggle to do their job with fewer resources than any similar service in the world. They guard the 6,000 miles of our border with one tenth as many people as are in the New York City police department.

They stand alone. More than 1,000 have been killed or wounded protecting America.

Now you can stand with them by wearing the US Border Patrol cap . . . and send a message to your friends and neighbors that you too believe America should have safe and secure borders.

Wear the cap everywhere . . . and if illegals start running when they see you . . . you'll have the last laugh.

FREE OFFER – Get this "U.S. Border Patrol Cap" FREE, Go Here