In an earlier article entitled 'Our Worst Nightmare: The Puncture of the Current U.S. Housing Bubble' we noted that "The key to holding up the entire speculative US financial system with its current excessive levels of debt - federal (current account and trade), state, municipal, corporate and household - is maintaining the U.S. housing bubble. Anything less would result in America`s worst nightmare and, in short order, the entire world. One too many additional increases in the Fed rate may well turn out to be the U.S. economy`s Achilles' heel. With at least two more increases expected in the first half of 2006 this could well be the year." Well, it would seem from all reports of late that the Fed has, indeed, gone beyond the tipping point with its latest interest rate increase and, as such, has set up America for a financial meltdown. Rather strong words, you say! Hardly. It is just what many of the world`s financial experts have predicted will happen in our recent article 'Ominous Warnings and Dire Predictions of World`s Financial Experts, Part 1.'

Be that as it may, the vast majority of Americans, as indicated in a recent Bloomberg Los Angeles Times poll, remain confident that housing values will continue to flourish and that the high-flying market will come in for a smooth, soft landing instead of a crash. In fact, on average, only 15% of those Americans surveyed expect home prices in their neighborhood to fall during the next 6 months while 26% see prices rising during that time while those investors making more than $100,000 a year were even more optimistic at 12% and 43% respectively. Indeed, almost 7 out of 10 expect the value of their homes to appreciate by 5% to 30% during the next three years and more than a third singled out real estate as the place they would put additional money if they had it to invest. Unfortunately, the facts below do not support their optimistic outlook which is doing nothing more than set them up for a harsh dose of reality and financial loss as events unfold.

Housing Starts Up 14.5%
The Census Bureau of the Department of Commerce reported that privately-owned housing starts jumped 14.5% in January (single-family housing starts were up 12.8%), the highest since March 1973 and 4.0% above the January 2005 rate. Taking out seasonal adjustments, the raw number of housing starts rose 11% in January making it the best January for housing starts on record since the Bureau started keeping records in 1959. Some of that record increase can be attributed to the unusually warm weather in January, which prompted many builders to start work unexpectedly early. Nevertheless, statistics from the South, which accounts for nearly half of new home construction in the country, and where weather and seasonal adjustments are less of an issue, showed an 8.7% gain in January for all privately-owned housing starts and 8.3% for single-family housing starts.

Building Permits Up 6.8%
Again, the Census Bureau reported that privately-owned housing units authorized by building permits were up 6.8% in January (single-family authorizations were up 2.4%) December and 3.8% above January 2005 (single-family were 3.1% above January 2005).

Applications for Purchase of New Homes Down 1.2%
The Mortgage Bankers Association`s Weekly Mortgage Application Survey for the week ending Feb.24th showed a decrease of 1.2% from the previous week on a seasonally adjusted basis (down 9.6% on an unadjusted basis) in applications for the purchase of new homes and an 18.9% decrease compared with the same week one year earlier.

Index of Pending Existing Home Re-sales Down 1.1%
The National Association of Realtors in their March 6th report said its index of pending home re-sales of existing single-family units, condominiums and co-ops fell 1.1% in January, following a 2.6% decline in December, and has steadily declined since hitting a record high in August and was 4.8% below a year ago. On a regional basis pending resales increased 6% in the Midwest and 0.4% in the Northeast but fell 1.9% in the West and 5.1% in the South. A pending sale is one in which a contract was signed, but not yet closed. It usually takes 4-6 weeks to close a contracted sale. This provides a gauge of the demand for housing and economic momentum.

New Home Sales Down 5%
The Department of Housing and Urban Development and the Census bureau (Department of Commerce) have jointly issued a report that sales of new homes fell 5% in January from a year earlier albeit 3.3% above a year ago even as the number of unsold homes on the market rose to a 9 year high.

Existing Home Sales Down 2.8%
The National Association of Realtors reported that, nationally, sales of existing homes - which make up 85% of the housing market - fell 2.8% in January and were 5.2% below a year ago. (Regionally, sales fell 14.9% in the Northeast, 10.8% in the Midwest, 10.3% in the South, and increased by 11.3% in the West). It is the fifth consecutive monthly decline in sales, which are down 10% from their pace in September. Sales of condominiums and co-op apartments declined 10.6% in January and were 4.8% lower than in January 2005.

Inventory of Unsold Existing Homes Up 2.4%
Again, the National Association of Realtors reported that the inventory of unsold existing homes on the market increased 2.4% from December representing the largest inventory of unsold existing homes since 1998. The total number of homes available for sale at the end of January was up 35.7% from a year earlier representing a 5.3-month supply, up from 5.1 months in December and the highest since August 1998.

Inventory of Unsold New Homes Up 1.2%
The Commerce Department has reported that the inventory of unsold new homes was up 1.2% in January from December and up more than 20% from a year ago representing a 5.2-month supply, the highest since late 1996.

Median Home Prices Down 2%
The National Association of Home Builders reports that the nation-wide January median home price, the price at which half the homes sold for more and half sold for less, is unchanged from the median price for all of 2005 and down 2% from the record high reached in October.

Affordability Down to 14 year Low
The Housing Affordability Index Affordability (HAI) continues to drop and is expected to reach a 16 year low in 2006. In March 2006 it was 136 (down from 149 in December and 155 in December 2004) meaning that the median family has 136% of the necessary income to qualify for the median priced home using a twenty percent down payment and a thirty year fixed rate mortgage. If the down payment were only 10% the HAI would be 116 and if the down payment were only 5% the HAI would only be 108.

Foreclosures Up 27%
According to Realty Trac`s Monthly U.S. Foreclosure Market Report for January 2006 foreclosures were up 27% nationwide in January from the previous month (up 13.5% in December) and up 45% from January 2005 with FHA loans (subsidized and sub-prime) falling at nearly twice the national level in some areas. Looking ahead, as interest rates rise to near 7%, and with many recent buyers having bought homes with adjustable-rate mortgages, one can expect an increase in the number of foreclosures across the nation.

As the above mentioned reports clearly indicate, housing demand is weakening rapidly even as housing inventories continue to grow nationwide. Economics 101 suggests that U.S. housing prices will continue their recent downtrend as motivated sellers and speculators are forced to reduce prices as they try to sell to a shrinking pool of buyers. In addition, mortgage rates are near two year highs and are unlikely to provide any support to the housing market as long-term interest rates continue to creep steadily higher.

Housing demand is weakening badly? OK, new home sales are down 5% and existing home sales are down 2.8%. Surely that does not suggest the housing bubble has burst. It may well appear to be more like a slow leak until one looks at specific hot spots across the nation.

California Home Sales Down 24.1%
According to the California Association of Realtors (C.A.R.), sales of existing, single-family detached homes were down 24.1% in January 2006 from a year earlier and 5.9% from December as compared to 5.2% and 2.8% respectively on a national basis. The drop of 24.1% is the highest year-on-year decline since December 1990 when sales dropped 25.2%.

C.A.R.`s Unsold Inventory Index for existing single-family detached homes in January 2006 was 6 months, compared to 3.2 months for the same period a year ago and the median number of days it took to sell a single family house was 48 days compared with 44 days for the same period a year ago.

The median price, according to DataQuick Information Systems, was down 2.1% in January from the previous month. The declines reflect a weakening in consumer confidence, and a rise in mortgage interest rates which have sidelined nervous home buyers, the association said.

C.A.R.`s Housing Affordability Index stood at 14% in December, compared with 19% for the same period a year ago (49% and 55% respectively on a national basis). The number represents the percentage of households in California with a minimum household income of $134,200 able to afford a medium-priced home currently valued at $548,430 based on an average effective mortgage interest rate of 6.33% and assuming a 20% down payment.

Massachusetts Home Sales Down 21% and Listings Up 41%
According to the Massachusetts Association of Realtors the number of single-family homes sold state-wide fell 21% in January, single-family home prices fell 0.1% in January, breaking a 114-month streak of rising prices, and 'active listings' - homes being offered for sale - for both single-family and condos rose 41% from January, 2005.

Florida Existing Home Sales Down 19%
The numbers are clear: it has become a buyer`s market in Florida. State-wide, sales of single-family existing homes were down 19% in January 2006 vis-à-vis January 2005 and down 18% for condos during the same period.

In Sarasota/Bradenton January 2006 sales were down 48% compared to January 2005 (up from a 42% variance from a month earlier comparative period) resulting in a 20-month supply on hand. In West Palm Beach/Boca Raton, Gainesville, Fort Lauderdale, Naples, Miami, Pensacola and Daytona Beach existing home sales were down in January compared with January 2005 by 39%, 37%, 36%, 31%, 28%, 24% and 20% respectively. In Orlando, while sales of existing homes were up 8%, inventory was up 262.22% as compared to January 2005 representing the highest inventory of homes for sale since the local realtor association began tracking the category in 1995.

Alabama Existing Home Sales Down 21.5% and Listings Up 17%
According to the Alabama Real Estate Research and Education Center at the University of Alabama the sale of existing homes was down 21.5% in January from the previous month albeit up marginally from the same period a year ago. The inventory of existing homes was up 17% in January compared to January 2005 which represented a 7.4-month supply, a considerable increase over December`s 5.7-month supply. This contributed to the drop in average selling price in January of 5.2% which was the fifth straight month of declining prices.

Pennsylvania Existing Home Sales Down 17%
The Pennsylvania Association of Realtors reported that the sale of existing homes was down 17% in January 2006 from the same period a year ago.

Minnesota Home Sales Down 7% and Inventory Up 35%
According to the Regional Multiple Listing Service of Minnesota February 2006 pending home sales were almost 7% below the same time last year while total inventory of single-family homes was up 35%.

What Does All This Portend for 2006 and Beyond?
The Alabama Real Estate Research and Education Centre says, "A slow but steady increase in the number of unsold homes, coupled with slowing sales, is beginning to exert downward pressure on prices." Jim O`sullivan, a senior economist at UBS Securities says "It is unambiguous that home sales are declining and that over the course of the next few months we will see more evidence that growth is cooling as a result of the slowdown in housing." The National Association of Realtors said February 7th that "Sales of existing homes will probably fall 4.7% in 2006 on average across the country, and sales of new dwellings will decline 8.5%." That translates, according to the Office of Federal Housing Enterprise Oversight in a March 1st statement into "increases in the median prices of existing and new homes of no more than 5.0% and 5.7%, respectively, in 2006.

Dudley Baker
info@preciousmetalswarrants.com
PreciousMetalsWarrants
March 14, 2006

Reprinted with permission from the folks at
http://www.preciousmetalswarrants.com

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• Sixty years ago there was roughly five times as much silver as gold above the ground.
• Today there is five times more gold than silver.
• You should sell gold and buy silver.
• We have consumed over 95% of world silver inventories.
• World silver inventories are at the lowest levels in hundreds of years.
• We have the smallest amount of above-ground silver than at any time since 1300 A.D.
• Never before have government silver coffers been so bare.
• Silver is used in more applications than any other commodity aside from petroleum.
• Comex silver has a futures and options short position larger than world production and world-known inventories.
• Above-ground silver is rarer than gold.

Those are the words of Theodore Butler, the world`s leading silver analyst. Even though he is an independent analyst, he has been engaged as a consultant to Investment Rarities, and his words have been put into a booklet which Jim Cook at Investment Rarities has sent me, and which I am sure he will send you if you request it at contact@investmentrarities.com

Butler has convinced me that silver will not be just twice as profitable as gold in the next few years, but many times more profitable — maybe ten times more profitable.

Silver is in huge short supply; the inventories are gone! Unlike gold, government can’t dump the silver in the market to artificially suppress the price because they have none. Silver is still the poor-man`s gold, and the time is not far away when it will be difficult to find any silver at any price short of $100 an ounce.

If you could find a commodity which was considered a precious metal and was far more rare than gold, wouldn’t the price discrepancy we are looking at today ($10 silver and $560 gold) seem utterly ridiculous?

Soon the world will wake up to the supply-and-demand fundamentals, and then silver will be the star for investors. It is physical silver held in your possession that you may not be able to buy in a few months, but that will be where the money is made.

There are many forms of paper silver, but billions in paper has been issued where there is no silver to back it. Paper silver will boom for a while, but in the long run, safety will be with physical silver, especially when there isn’t any more left to buy.

Where Did The Silver Go?

Butler points out that most of the world`s silver has been deposited very shallow, and the deeper you go, the less there is. So it has been easily mined over the years, even by primitive methods. For example, the Romans acquired huge silver mines in Spain to manufacture silver coins and quickly exhausted them.

Jim Cook lists some of silver`s modern uses, many of which are infinitesimal in amounts per unit, but multiplied by many millions of units, it`s a lot of silver. This has largely accounted for the draw-down of inventories.

Both rechargeable and disposable batteries are manufactured with silver alloys. Billions of silver oxide-zinc batteries are supplied to the world`s market yearly, including miniature-sized batteries for watches, cameras and small electronic devices, and larger batteries for tools and TV cameras.

Steel bearings are electroplated with high-purity silver because silver-coated bearings provide superior performance and safety for jet engines. Silver solder facilitates the joining of materials. Silver-brazing alloys are used in air conditioning, refrigeration, power distribution, automobiles and airplanes.

Silver is of first importance to plumbers, appliance manufacturers, and electronics.

Chemical reactions use silver as a catalyst; approximately 700 tons of silver are in continuous use for the production of plastics.

Silver is essential for producing a class of plastics which includes adhesives, plastics, laminated resins for construction, plywood, particle board finishes, paper and electronic equipment, textiles, surface coating, dinner ware, buttons, casings for appliances, handles and knobs, packaging materials, automotive parts, terminal and electrical insulation materials.

Silver is necessary for producing soft plastics used in polyester textiles. It is used for molded items for insulating-handles for stoves, and for computers, electrical control knobs and Mylar tape (which makes up 100% of audio, VCR and other types of recording tapes). It is also used to produce antifreeze.

Silver is used in commemorative and proof coins around the world. There is wide silver use in silverware, jewelry and the decorative arts.

Silver is the best electrical conductor of all metals and is used in contacts and fuses and ordinary household wall switches.

The use of silver for motor controls is universal in the home. All of the electrical appliances, timers, thermostats, and some pumps, use silver contacts. A typical washing machine requires 16 silver contacts. A fully-equipped automobile may have over 40 silver-tipped switches.

Silver relays are used in washing machines, dryers, automobile accessories, vacuum cleaners, electric drills, elevators, escalators, machine tools, locomotives, marine diesel engines and oil drilling motors. It is also used for circuit breakers. It is widely used in electronics, membrane switches, electrically heated automobile windows and conductive adhesives.

Every time you turn on a microwave oven, a dishwasher, clothes washer or TV set, you have activated a switch with silver contacts. The majority of computers use silver-membrane switches. They are used for cable television, telephones, microwave ovens, learning toys and keyboards of typewriters and computers.

The silver contact membranes which are marketed in the U.S. are a billion-dollar industry. Silver is used in prepaid-toll gizmos. Radio-frequency identification devices will soon make an appearance imbedded in credit cards and passports.

Silver is used in circuit boards and is essential to electronics to control the operation of aircraft, car engines, electrical appliances, security systems, tele-communication networks, mobile telephones and TV receivers.

They use silver in windshields in General Motors all-purpose vehicles because it reflects some 70% of the solar energy. Every automobile produced in America has a silver ceramic line in the rear window to clear the frost and ice.

Silver plating is used in Christmas tree ornaments, cutlery and hollow ware. Because it is virtually 100%-reflective after polishing, it is used in mirrors and coating for glass, cellophane and metals.

A silver transparent coating of silver is used on double-paned thermal windows.

Silver has a variety of uses in pharmaceuticals. Silver sulfadiazine is the most powerful compound for burn treatment worldwide. Catheters impregnated with silver diazine eliminate bacteria. It`s increasingly being tapped for its bactericidal properties from severe burns to Legionnaire`s Disease.

One out of every seven pairs of prescription sunglasses incorporates silver. Silver-based photography has superior definition and low cost; it is still the biggest user of silver. Silver in x-rays consumes millions of ounces more.

It is widely employed as a bacteria algaecide. Silver ions have been used to purify drinking water and swimming-pool water for generations. Silver ions in house frames help resist mold and mildew. Silver compounds are providing doctors with powerful clinical treatments against antibiotic-resistant bacteria.

I could go on and on, and I guess I already did, but that`s why our silver inventory is disappearing, and that`s why silver is turning into the investment of the century.

Silver as Money

Butler does not believe that silver has an important monetary role, but he doesn’t understand economic history. He really understands the supply-and-demand factors, but does not have any perspective on silver as money.

Silver has been consistently used as money along with gold whenever paper money fails and the world is littered with useless paper currencies. And that happens every 50 to 70 years. That`s why you need some silver for insurance purposes, because the dollar`s fate is now sealed with our present rate of internal monetary inflation. Whether it will take one year, ten years or 30 years, I don’t know, but eventually the world will be littered with worthless paper dollars, and silver and gold will both reign triumphant over the world`s monetary system. I don’t know exactly how it will work, and nobody else does either, but for that reason, you should buy at least one bag of junk silver for your family.

But when it comes to silver as an investment, Butler is a genius. The supply-and-demand fundamentals dwarf all other reasons why silver will soar in price. The total shortage (zero) of silver stored by government means that unlike gold, they can’t dump it on the market to try to manipulate the price. This is what Jimmy Carter did to gold back in the 70`s. He was only able to temporarily arrest the inexorable boom, so that strategy didn’t work, but it is a total non-starter over the next few years if government wants to try to manipulate the silver price. They don’t have the inventory to do so.

One other factor that really matters is that Comex (Commodity Exchange) has a monster silver short position. That`s exactly what they did back in the 70`s, and when the Hunt brothers tried to corner the silver market, these short positions meant that all the directors of the Comex were insolvent. Technically the Comex should have been shut down; we would have lost the world`s most important commodity exchange.

Eventually they won the battle with the Hunts by changing the rules. That`s when I decided to recommend the sale of the silver I had been recommending at $35 an ounce. Yes, it went to $50 for a few hours two weeks later, but close is good enough.

This is the same situation in which Comex finds itself today, except this time Comex is short enough silver to equal 150% of all silver production, after soaking up all the world`s above-ground silver supply. Sooner or later they will have to buy it back to cover their shorts, and the stability price of silver will soon be above $100 an ounce, if they have any hope of increasing production.

Butler has changed my mind; silver is the investment of the century. It will move with gold, but at a far greater pace, as has already been demonstrated. Gold is up about 50%, and silver is up about 150% over the last couple of years. We will eventually find out that silver at $10 is the bargain of the century.

I suggest you contact Investment Rarities by email at contact@investmentrarities.com or call (800-328-1860) and ask for a copy of Butler`s silver book.

Reprinted with permission from the folks at:
http://www.investmentrarities.com

On April 8^th, I will finally get a chance to do my advanced options seminar. The intro seminar on options has been very popular (find out more at this link) so it was a natural to do an advanced session. The program will cover combination trades such as spreads, collars, etc. It will be a 4-hour program complete with a CD on all the popular option combination strategies. These are powerful and usually inexpensive strategies that I employ regularly in my own account as well as with my clients and students with great results. Imagine learning strategies that cost nothing, have no risk and unlimited upside potential! To get more information, please email me at paul@mladjenovic.com or call me 201-585-0239.

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Thank you for reading this issue of the Prosperity Alert. Feel free to pass this along to others (unchanged, of course) or encourage them to get their own free subscription at www.SuperMoneyLinks.com. The next issue will be in your email inbox sooner than you think.

Regards,

Paul Mladjenovic
Email: paul@mladjenovic.com
Tel: 201-585-0239