As the price of commodities and precious metals keep rising tremendously, Congress is exploring the new idea of changing the type of metal used to make some of our coins. We all know that the price of copper is through the roof. People keep stealing copper wiring and plumbing from development sites these days so they may profit as well from the rise in copper.

In today's inflationary world, it now costs America more than 1 cent to make every penny these days. In addition, it may cost our government over 7 cents to produce a 5 cent nickel coin.

As a result, we may see future American coins made out of cheaper steel materials. This should be a boom to the U.S. steel industry, but will be a sad day for the old fashioned Lincoln copper coin. Don't you just love "hyperinflation"? Soon, our currencies may be almost as valuable as steel (or lead) if the U.S. Dollar keeps falling to record lows.

Fannie Mae, the largest investor of mortgage loans in the U.S. secondary market, now forecasts that average home prices may drop an additional 9% this year. Fannie Mae also increased their reserves to cover additional credit losses, and that they expect the credit losses in 2009 to be even worse than 2008. 

As a result of the increased cash reserves needed to cover current and future losses, Fannie Mae announced that they are slashing their dividend payments and that they will try to raise an additional $6 billion through new stock sales (foreign investors or the U.S. government to the rescue???).

Moody's, one of the top 3 Credit Ratings Agencies, today downgraded Fannie Mae to a "Negative" status. Are they on their way to a "Junk Bond" credit rating status? If so, then Fannie's future borrowing costs will increase due to their potential BB or BBB credit rating. If this happens, then the costs may be passed on to consumers in the form of higher interest rates on their mortgages if the U.S. government does not "nationalize" Fannie Mae or bail them out first!!!

Oil prices just surpassed $120 per barrel this morning for the first time ever. As energy costs are the root of all inflation, we should expect consumer prices to continue their upward trend. 

Many investment companies use oil as a hedge against a falling U.S. Dollar. Do many investors around the world believe that the budget deficit will continue to grow, and that the Federal Reserve will continue to have to cut interest rates for the rest of the year? 

Regardless of the latest news from the Fed's meeting last week about them potentially halting their rate cuts, I expect that the Fed will be forced to keep reducing short term interest rates in order to prop up the U.S. economy. The Fed is more concerned about deflation risks from the ongoing Credit Crisis than inflation risks so I expect more rate cuts, higher inflation, and more expensive oil prices.

The Federal Reserve just increased their maximum dollar limits today for their bi-weekly Term Auction Facility (their emergency loan auctions) to a maximum amount of up to $75 Billion. The recent maximum limit was $50 Billion. 

Banks are allowed to exchange securities, residential and commercial mortgage paper, and now they will accept some forms of AAA rated student loan paper to help alleviate the stress in the student lending marketplace. 

As of this month, the Fed will auction off up to $150 billion PER MONTH. Since the Term Auction Facility was created on December 17, 2007, the Fed has been forced to increase the amount of capital available to banks and investment banks almost every month or two.

In December, they offerred $20 Billion in loans every 2 weeks. In both January and February, the Fed offered $30 Billion every 2 weeks. In March and April, the Fed offered up to $50 Billion every 2 weeks. Every month or two, the Fed is forced to increase the amount of capital available as the Credit Crisis continues to cause havoc on the world's financial markets.

After the Federal Reserve's latest rate cut yesterday, they also "supposedly" signaled that they were going to "neutral" for future meetings. Analysts this mornings were also speculating that the Fed may actually begin to increase interest rates by December as much as several hundred basis points (2 to 3 points higher).

While I find it difficult to believe that the Fed will stop cutting rates anytime soon (although they may attempt to take a pause at their next scheduled meeting on June 24th and 25th), I believe that the Credit Crisis may actually worsen over the next two to three quarters. If the financial and housing markets have even more severe problems in the near term, then short term rates may move from today's 2% rate down to 1% by this Fall. 

Today's news about the potential that the Fed may be done cutting rates for a while has caused the U.S. Dollar to hit a 5 week high against the Euro. Also, the price of oil (which is traded in U.S. Dollars) has continued to drop as well. I hope my gasoline bills drop soon also.

The Federal Reserve just announced their 7th rate cut today since the official start of the Credit Crisis. The 1/4 (.25) rate cut today lowers the Fed Funds Rate down to 2%. 

The Fed Committee was quoted as saying "the committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability". Fed Chairman Ben Bernanke was quoted as saying "financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters".

Expect more rate cuts when the Fed meets again on June 24 - 25 as the Credit Crisis continues to worsen.

The S & P Case/Shiller Home Price Index showed home prices dropping 12.7% in the 12 months ending in February 2008. This same index tracks home prices in 20 of the largest housing markets. This is the largest price fall since the index began in 2000.

The biggest price drops were in areas as follows:

1.) Las Vegas:     - 22.8%
2.) Miami:             - 21.7%
3.) Phoenix:         - 20.8%
4.) Los Angeles:   - 19.4%
5.) San Diego:      - 19.2%
6.) San Francisco: - 17.2%

The scary thing about these numbers is that they were tracked between February 2007 and February 2008. The Credit Crisis slowly began in February or March 2007, but things really began to change in August 2007. The 12 month price drops between August 2007 and August 2008 should really show how negative of an impact the Credit Crisis has been to the U.S. housing market.

Data released this morning shows us that new home sales in the U.S. fell 8.5% in March '08. New home sales also plunged to their lowest sales numbers since 1991. 

The scary thing about these numbers released is that they don't really factor in the following points:

1.) March is typically one of the strongest home buying or selling months as it begins the peak Spring selling season.
2.) Interest rates are down near historical lows, but they are not having a positive impact.
3.) Home prices are falling in most parts of the U.S. yet it is not causing more buyers to purchase homes.
4.) Home Builders are throwing in new pools, upgrades, closing cost credits, and are even offering to pay the buyer's first few month's mortgage payments. These builder incentives actually should reduce their true selling price and profits even more.
5.) Escrow cancellations are near 30% or more as many buyers can not qualify for a loan so these "true" sales numbers should later be considered as much worse than the numbers released today.

Hang on for a long and severe housing downturn. In the down periods of time, there will be some incredible buying opportunities so keep your eyes and ears open for future deals.

General Electric's Chairman Jeff Immelt spoke to his shareholders yesterday about the depth of the housing problem. He said that this downturn may be as bad as The Great Depression (1929 - 1939). G.E. had a very negative 1st quarter with their earnings reports, and blamed much of their problems on the ongoing Credit Crisis.

It was only a few years ago that G.E. supposedly derived 50% of their profits from their G.E. Capital lending division (residential and commercial real estate, and business loans). Most people think of G.E. as the engineering conglomerate (lighbulbs, airplane parts, etc.), or as the owner of NBC and CNBC.

When will the CEOs start blaming the "shadow banking system" for some or most of the world's credit problems (CDS, SIVs, and other complex derivative investments). Real Estate continues to take most of the blame for the Credit Crisis, but Real Estate was just used as a tool to hedge other complicated, risky investments.

The Royal Bank of Scotland (RBS) just wrotedown almost $12 Billion (U.S.) of mortgage and credit related losses. Many of these losses were related to investments in U.S. mortgage pools. Also, their total market value has dropped in half just over the past year partly due to the worldwide Credit Crisis. 

As a result of the significant losses, RBS will need to raise another $24 Billion (U.S.) through new stock (or share) offerings. In addition, two of the major Credit Rating Agencies recently downgraded their ratings to BB (or near "Junk Status"). The lower credit ratings will mean that RBS will have to pay more for future debt.