The Ax Falls, Merrill Lynch, U.S. Markets Flat, and More!

by Addison Wiggin & Ian Mathias

  • The ax falls… September financial sector layoffs grow 17-fold from a year ago
  • Merrill Lynch: The biggest loser — as much as $4 billion down the subprime sinkhole
  • U.S. markets flat… but does the world care? Even U.S. firms are finding more of their profits overseas than ever before
  • An unlikely class of consumers suffering from a falling dollar: pot smokers
  • New numbers point to still-higher oil prices
  • The futures market that hangs on every politician’s word… And the candidate generating huge volume

The mortgage industry has canned nearly 130,000 people so far in 2007 — light years ahead of the nearly 43,000 laid off by the second-place auto industry.

In September, mortgage lenders, construction companies and real estate firms fired a total of 27,169 people, according to the headhunter Challenger Gray & Christmas. In August, the number totaled 35,752.

By comparison, the entire financial industry nixed 1,557 jobs in September 2006. “Even if the worst of the crisis is over,” John Challenger, the firm’s CEO told the AP, “we could continue to see heavy job cuts in the financial sector through the end of the year.”

Three notable firees gained some limelight this morning. Merrill Lynch showed its global head of fixed income, Osman Semerci, Dale Lattanzio, and their former boss, Dow Kim, the door this morning.

Semerci and Lattanzio headed up the global “fixed income” unit at Merrill. Together they presided over as much as $4 billion in losses on bad subprime bets… enough to swallow all of the bank’s quarterly profits.

What on Earth were these guys thinking? Their “fixed income” assets aren’t so fixed anymore, are they? The Wall Street Journal
says Semerci’s skill was expanding the business, not so much risk management. That’s obvious. And these are the same guys that Cramer was crying about in the tantrum he threw back in August.

Osman Semerci, by the way, is just 39 years old. We’re sure a $4 billion loss will look good on his resume.

The U.S. markets are trading flat, as we write this afternoon. The Dow is up less than a tenth of a percent to 13,968. The market has given back much of Monday’s record high after slow days on Tuesday and Wednesday. The S&P, showing a glimmer more of hope, is up almost 2% right now.

But one wonders, what do these indexes really tell us? “It’s increasingly clear,” opines the WSJ
this morning, “the U.S. isn’t any longer the sole engine of economic growth — that other economies have, in effect, decoupled from it. The U.S. economy is getting buffeted by the housing downturn, but so far, the world economy seems to be in fine fettle.”

“What’s interesting here,” says Chris Mayer, “is that the U.S. is becoming less and less important even to U.S. firms. For example, international profits now make up about 25% of all profits for U.S. firms. That’s up from only 5% in 1960.

“And the international earnings are what’s growing the fastest. International profits grew 16% in the latest quarter, for example, versus only 2% for U.S. firms. These trends will be around for a while, which means investors should bet more on companies with sizable international operations and ones with less dependency on U.S. consumers.” See: Capital & Crisis

And lest you’re looking for something to help ease the pain, beware: “With the U.S. dollar falling,” we heard this morning on NPR’s Morning Edition,
“Canadian pot exporters are seeing their profits surge. And pot smokers in this country are paying the price: 50% more for Canadian bud.”

Canadian Harvest – getting more dear

“But fear not, potheads,” the jokesters at Morning Edition point out. “Thanks to the weak Mexican peso, the Mexican-grown stuff is pretty cheap.”

The dollar ended a three-day rally this morning, falling slightly. It’s now trading at $1.41 against the euro. Gold, for its part, rose. All seems right with the world when these two seesaw against one another. Gold, for December delivery, climbed to $737 in overnight trading.

Through yesterday, gold was up 15% for the year. The dollar was down 6.8% against the euro.

Oil jumped a buck and a half — close to 2% — to $81.48 per barrel overnight.

“The latest figures released by the International Energy Agency,” comments Kevin Capp in this morning’s Rude Awakening,
“show the global production of liquids dropped by 854,000 barrels per day from August 2006-August 2007.

“In addition, we’re pumping out 1.53 million barrels per day less than the all-time high of 86.13 million extracted in July 2006. Translation: The sun may have already set on our ability to meet world demand.

“This is not good.

“Running that close to the bone means any systemic shock — a hurricane that damages drilling platforms in the Gulf, a terrorist attack on oil pipelines in Nigeria, an unexpected cold snap in the Northeast — could cause prices to skyrocket, impacting everything from costs at the pump to costs at the grocery store. What’s worse, the less oil we have, the less it takes to zap the price upward.”

For more, see “The End of Las Vegas.”

“The Iraq war tab is churning along at a rather brisk $10 billion per month pace,” writes our Free Market Investor

Christopher Hancock this morning “or, if you prefer, over $200,000 per minute. Afghanistan adds another $18,000 every 60 seconds.”

“Meanwhile, American infrastructure keeps crumbling. The American Society of Civil Engineers gives the U.S. infrastructure report card a ‘D’ average. Poor road conditions now cost the American taxpayer $67 billion a year, $5.6 billion a month, $186 million a day, $7.8 million an hour, or $130,000 every minute.

“And that’s just to patch roads and bridges. The EPA estimates that U.S. sewer system maintenance over the next 20 years will run somewhere in the ballpark of $390 billion. That’s another annual $20 billion annually, or $1.2 billion per month. Meaning potholes and solid waste are costing roughly as much as a full-fledged war.

“It seems that in both Iraq and the U.S., we find ourselves up to our necks in you know what.”

Are you at all interested in who will be running for president next year?

Me neither.

But maybe you should be. There could be some money in it for you.

Here, Robert Murphy, writing for, shows how you can trade futures on the nominations for president from the different parties. In the case of Ron Paul, whom we’ve written about from time to time in these pages…

“I am here to inform Ron Paul fans,” writes Murphy “that ‘the market’ — the gambling Web site — says his chances of winning the GOP nomination are now 6.1%. In contrast, McCain’s chances are 5.4%, and Huckabee’s a meager 3.2%.

“Beyond the fact that Ron Paul is now in fourth place — and being ahead of McCain, is now surely a ‘real’ candidate — is his meteoric rise since late May.

“To make sense of all this, let me briefly explain how Intrade works. It is fashioned after a futures market (such as in oil or pork bellies), where participants can buy or sell contracts contingent on future events.

“Now in the case of the ‘2008.GOP.NOM.PAUL’ contract, the buyer pays $6.10 for a contract entitling him to a $100 payoff if Ron Paul gets the Republican nomination.

“In contrast, the seller of this contract receives $6.10, but might have to pay out the $100 if Paul gets the nomination. Obviously, if Ron Paul doesn’t get nominated, then the buyer of the contract gets nothing — he’s out his $6.10 — and the seller gets to pocket the $6.10.”

These are real trades. With real money… or at least, real paper money. Murphy: “There’s a lot of actual money on the table saying that Ron Paul is indeed a contender for the GOP nomination.”

Best regards,

Addison Wiggin,
The 5 Min. Forecast

My trusty sidekick, “Extreme” Ian Mathias,
was laid low last night by food poisoning. He ate some nasty fish. For this reason, and probably the glass of wine I had at lunch, we’re forecasting a bit late today. I apologize for the tardiness, personally.

But if you detect any major errors or otherwise shoddy work in today’s issue — blame the fish. Thanks for reading.


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