Greenspan likens Panic of 2007 to bubbles of 1987, 1998… 1837 and 1907… laments the Fed’s inability to control them…
Central banks of the world holding their breath, waiting for the U.S. shoe to drop… et voila!
Jobs report 104,000 jobs worse than expected… why subprime malaise is f*ing with the real economy
Yay, gold! Yellow metal soars through $700… why there’s more to come… and two ways you can still play the trend…
The 5’s accused of being “doom and gloom” again… again, why we don’t see it that way…
Plus, the top 5 stocks in the U.S. market; you’ll be surprised where they come from…
“The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998,” Alan Greenspan told a room of Washington economic wonks yesterday. “What we saw in the stock-market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly the bank panic of 1907.”
As such, Greenspan labeled the current crisis a bubble in the beginning stages of popping.
“The expansion phase of the economy is quite different” than the contraction phase, he said in a speech at the Brookings Institution. “Fear as a driver, which is going on today, is far more potent than euphoria.”
Mr. Bubble, born 1926
Greenspan expressed his frustration at the Federal Reserve’s inability to control these crises with interest rates. Heh. He lamented the drastic hikes his Fed undertook in the mid-’90s to cool the tech sector, only to watch it blow up even bigger near the turn of the century. Greenspan said he believes the same tactic wouldn’t have helped today’s crisis.
“The human race has never found a way to confront bubbles,” said Greenspan, “and these bubbles cannot be defused until the fever breaks.”
We’ve been noodling over Greenspan, his speeches and his actions as chairman of the Fed, for years… we couldn’t have outlined our central critique any better ourselves. Why did he wait until he was retired from the post to come clean?
Central banks around the world are holding interest rates at current levels, presumably waiting for the other shoe to drop in the U.S. economy. Perhaps this next item was it…
The August jobs report was released this morning… and it was a shocker. August nonfarm payroll jobs fell 4,000, said the Labor Department this morning — the first negative reading in four years.
The bureau also revised July jobs down, from 92,000 to 68,000. Jobs in most sectors were down… manufacturing, construction and government jobs took the biggest hits.
If you had the pleasure of watching CNBC this morning while these statistics were released, you would have seen faces of genuine shock and panic. Traders reporting from the floor were all smiles until 8:30… a consensus of economists and Wall Street types predicted a rise of 100,000 jobs before this morning’s report. Ouch… that’s a big miss. We’ve heard the word “recession” at least 100 times since then.
Where did they think all the carcasses from the housing slowdown were getting piled up?
The first shoe is still doing plenty of damage itself. The rate of foreclosures jumped to record highs in the second quarter of 2007, said the Mortgage Bankers Association yesterday.
This marks the third straight quarter in which this benchmark rose to record levels. You should recall the various ARM resetting charts we’ve displayed in these pages… the worst is yet to come.
Second-quarter mortgage delinquencies also rose dramatically… at 5.1% delinquency. American homeowners haven’t struggled to pay their mortgages this much since June 2002.
In light of the job report, the likelihood of a September rate cut from the Fed just rose to match the probability of Lindsay Lohan going back into rehab. Some talking heads on the boob tube predict as much as a 1% cut… yikes. We don’t think so… for the time being, Bernanke and his bespectacled brothers still have one collective eye on inflation.
This week, English, European, Canadian and Australian central banks all chose to leave rates alone. Eurozone traders had been anticipating a rate hike for months, but the ECB appears to be waiting to see what the Fed will do on Sept. 18.
China, of course, is the exception. Its central bank raised rates on Aug. 22, and last night it raised the amount of reserves banks are required to hold — literally mopping up the excess liquidity flooding the Chinese markets. This marks the fifth time this year China has raised reserve rates.
Chinese markets barely reacted. The Shanghai Composite Index fell over 2% overnight. But when viewed through a wider lens, consecutive lending rate, trading tax and reserve requirement hikes all year long have done absolutely nothing to the Shanghai Composite. Even a global fallout in late July and August couldn’t faze this market:
Foreign central banks have sold $48 billion in U.S. Treasuries since late July… $32 billion in the last two weeks alone.
Coincidentally, the Chinese are in the early stages of launching a $300 billion sovereign wealth fund. What better way to raise money than selling the debt of a nation in a period of economic instability. Hmmn. Before this wave of sell-offs, China held about $900 billion in U.S. Treasuries.
The public won’t know which country has been selling its U.S. government debt until the Treasury Department releases TIC data in November.
Gold blew through 16-month highs this morning when it traded at $704 for immediate delivery. Gold futures in New York launched even higher, officially putting Resource Trader Alert’s gold trade in the black.
“This is not a flight from the U.S. dollar, but from currencies generally,” says our friend Dennis Gartman in today’s Gartman Letter. “Gold has broken out.”
“Whatever the rationale,” adds Doug Casey in his daily letter, “traders could see the moves for what they were, the propping up of fiat currencies, and they fled to gold. Of course, we’ve been to the brink of a real breakout before, and it seems certain that we’ll see more central bank selling if gold keeps rising.”
Agora Financial readers have a variety of gold plays at their disposal. Our favorites include a gold options spread in Kevin Kerr’s Resource Trader Alert with huge profit potential, and the low-risk “government guaranteed gold” in Outstanding Investments’ portfolio.
Oil prices have risen to within striking distance of all-time highs. As high as $77, it will only take another buck and change to bring oil up into record territory.
“We are at a key technical level,” commented our commodities man Kevin Kerr on CNBC this morning. “Several factors are pointing toward that $80 mark.” Those factors include a very active hurricane season, bearish production and supply reports and OPEC’s heavily hinting at keeping production levels the same.
“OPEC probably wouldn’t be able to increase production even if it wanted to,” remarked Kevin.
In case you’ve been following along at home, Kevin took 147% on the wheat trades we’ve been writing about … in just seven days. Click here to learn more.
Domestic markets were boring yesterday… most major indexes were up about 0.4% by the closing bell.
“I enjoy your 5 Minute summaries as a rule,” writes a reader, “but today’s is so full of doom and gloom that I wonder if you are really looking at the whole picture. I have several stocks that have recently increased dividends and report improved earnings. If your views are accurate, are you suggesting (in a backhanded way) that your readers all go in and sell their stocks, go liquid and wait (for a long time) for things to improve? That would really bring the markets down!”
The 5 responds: As a rule, we call ’em as we see ’em. Holding “cash” or going liquid is a dubious position right now itself, because the dollar has so many fundamental challenges. If you’re going to liquidate, you’d have to do that carefully and outside the dollar. Our products and editors provide many ways to do just that…
These past few months have been remarkable for a few reasons. We have consistently quoted authorities and luminaries from within the government and financial media talking down the effects of the mortgage bubble and subsequent effects on the broader economy. Then dredging up factoids from the daily news that belie the truth… what’s really going on. If it weren’t out there, we wouldn’t be uncovering it.
Sure, there are opportunities in the U.S. markets… you’ll find a few below, in fact… but there are also many pitfalls. We may lean on the pitfalls a little too heavily… but for good reason. No one else does. And it’s these crises and miscalculations, the market disruptions and human folly, that make following the markets and crafting an investment strategy so interesting.
Gloomy? Not really. We’re just watching history unfold and enjoying the ride. The opportunities are often behind the scenes.
“Information espionage is routine operation in all countries’ intelligence arsenal,” comments a reader. “Whether you consider such operations ‘sinister’ depends on the country to which you pledged your loyalty.
“Being a cynical person, I can’t help but wonder whether the ‘victim countries’ — the U.S., the U.K. and Germany — fabricated the recent computer hacks. Could it be that they want to whip up public sentiments prior to some anti-Chinese policies or announcements?
“At the least they all leverage the incidences as publicity attacks on the Chinese. They all reported the incidents within hours of the hacks. Such alacrity suggests that the hacked computers have no significant information. I am quite sure there would not be a word should these computers contain top secrets.”
The 5 responds: Perhaps. The Financial Times didn’t break the U.S.-China hacking story until three months after it went down. And no one in Robert Gates’ office is will say it was the Chinese who committed the June hack… but you may be right.
The 5 Minute Forecast
P.S. “The book Unrestricted Warfare was an assessment of American military after the first Gulf War,” our reader goes on to say. “It explores various strategies and tactics for developing countries, in particular China, to defeat the USA by circumnavigating its mighty military forces and technologies. Master Sun said in The Art of War: “The element of surprise will bring victory.” Then why did the Chinese government publish this book?”
You’ll find his cynical answer and be given a chance to comment yourself here.
P.P.S. If you scan the entire U.S. market for the top five stock gainers, year to date, you’ll find Towersteam Corp — which fits the Bulletin Board Elite “jumper” profile — with 8,000%-plus gains…then a random stock… then the Nos. 3, 4, and 5 positions are all stocks that trade over the counter with gains of 1,468%, 547% and 498%, respectively. All poised for “mover and shaker”-type growth.
So… out of the top 5 biggest winners of 2007, one has “jumped” to a major exchange and three are over-the-counter stocks. In The 5 Min. Forecast, we cover the economy and the global stock market “big picture” stuff fairly accurately, but the big gains are often under the radar… that’s why we also rely on guys like Greg Guenthner to uncover quick-hit opportunities for the active speculator. Don’t miss that part of the equation too: Click here for more.