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Greenspan ups his recession odds, says there’s nothing Bernanke can do
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Blackstone throws billions at what might prove to be the contrarian play of the year
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Oil backs off yesterday’s spike… Byron King on what to expect for the next wave of inventory reports
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Our penny stock team eyes a possible 2008 small-cap turnaround
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What’s in Ron Paul’s portfolio? Plus wealth rundowns of the other 2009 candidates
The odds of a recession are “clearly rising,” Alan Greenspan told NPR this morning.
Last we checked, he was giving “more than one-third, less than fifty-fifty” odds on a coming recession. Since he didn’t give us another reading on his recession-o-meter, we can only surmise today he’s ready to flip a coin at this point.
“We’re getting close to stall speed” in economic growth, said Greenspan. “And we are far more vulnerable at levels where growth is so slow than we would be otherwise. Indeed… somebody who has an immune system that is not working very well is subject to all sorts of diseases, and the economy at this level of growth is subject to all sorts of potential shocks.”
In a truly confidence inspiring moment, Greenspan concluded that this housing disaster and subsequent market crisis were “inevitable.”
“I’m pretty much convinced that we will never be able,” said the former chairman of the Federal Reserve, “by monetary or fiscal policy or government actions, short of disabling the economy, [to undermine] those bubbles. Eventually, this has to defuse itself.”
Umn. So… why… uh… do we have a Federal Reserve?
The vultures have begun to circle… Private equity giant Blackstone announced yesterday that it has accrued some $1.3 billion to invest in subprime mortgage debt. No, it’s not another bailout… just good old-fashioned speculation.
“We’re confident we can benefit our new fund’s investors by capitalizing on current conditions in the credit markets,” said Blackstone president Hamilton James. In other words, Blackstone is banking on some subprime debt-related securities being oversold, and plans to pick them up at a discount. CDOs, junk bonds, bank debt… bring it on, says Blackstone.
Should Blackstone succeed, this might just be the contrarian move of the year. Otherwise, this will prove to be a galactically stupid investment… we can almost promise there won’t be much of a middle ground here. Blackstone is the second major Wall Street player brave enough to buy up the toxic debt that has sunk the market this year. Bank of America is down a few hundred million bucks after acquiring a $2 billion stake in Countrywide. We’ll let you know if Blackstone fares any better.
We interviewed Blackstone exec Pete Peterson for I.O.U.S.A.
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He said he’s been trying to warn the nation for years — through his work as secretary of commerce under Reagan, and his books Gray Dawn and Running on Empty — about the impending disaster created by so much debt, federal, state, local and personal. But in a truly candid moment, he called himself a “fat cat” and said it was no skin off his back whether the debt issue in the U.S. is ever resolved. But it will mean disaster for a lot of people who haven’t prepared for it…
Pete Peterson was one of the founding members of the Concord Coalition, which we also feature fairly prominently in the movie.
Yesterday, the markets managed to stay above water in trading, albeit barely. The Dow eked out a 0.3% gain after an entire day of losses, while the S&P 500 and Nasdaq ended even.
Consumer prices rose by 0.8% in November, the fastest monthly inflationary pace in over two years. The Labor Department cited rising gasoline, apparel, drugs and airline fees as the primary drivers behind this new inflationary wave.
Core inflation rose 0.3%, the biggest gain since January of this year. Like yesterday’s PPI, both measures of the CPI exceeded analyst expectations. Core CPI is now rising at an annual rate of 2.3%. Normal CPI, the government’s measure of typical consumer inflation, is growing at an annual rate of 4.3%.
Retail sales grew 1.2% in November, the best gain since July and double the growth predicted by economists. The Commerce Department’s report flies in the face of just about every other consumer spending indicator we’ve stumbled across this month… could it be true?
“Helped by the Census Bureau’s inability to adjust adequately for seasonal variations due to an early Thanksgiving,” reports John Williams, “some retail sales were drawn from December into November and were not adjusted. Also helping the monthly retail sales gain was surging inflation (including some upward revision to past history), the toll from which is seen more fully in today’s CPI report.”
The dollar furthered its recent recovery yesterday and this morning. The dollar index reclaimed the 77 mark for the first time since October. Inflation readings in Europe sent the euro down a notch, to $1.44, as Germany and Ireland both reported multiyear inflation highs.
The pound and yen also fell versus the greenback, down to $2.02 and 113, respectively.
Gold prices retreated yesterday as the dollar rallied. Prices sunk as low as $790 in London trading this morning.
“Once again, gold soared over $800 on one day, only to fall back below it the next,” laments one of gold’s most boisterous supporters, Doug Casey. “The pattern has now repeated so often that we may as well accept it as a given, at least until the end-of-year portfolio adjusting is over with.”
But for gold, “Demand remains at record heights. streetTRACKS Gold Trust, the biggest exchange-traded fund backed by bullion, announced that its vaulted metal reached a total of 616 metric tons yesterday, the highest level ever.”
Profit taking pulled oil back from Wednesday’s $4 spike. Now at $92 per barrel, the market vibe seems to be waiting for the next inventory reports to drive prices higher… not vice versa.
“Cheap oil is so… yesterday, so… 1990s,” opines our petro-fashion gauge Byron King. “Now oil inventories mean a lot. Last week, for instance, there was fog in the Houston ship channel. So tankers were delayed in docking, and reported inventories fell — even though the oil was in the tankers, just offshore. OK, inventories fell and prices rose. This week, the fog lifted. Tankers docked. Oil was offloaded. But again, for other reasons, inventories fell. Again, prices rose.
“‘Supply does not know demand,’ as our friend Houston investment banker Matthew Simmons likes to say. What this means is that no matter how much demand there is out there for oil, there really is only a finite supply on a daily basis, and it is not increasing. Overall, oil output from the ground is deceasing worldwide.
“World oil supply is riding an output plateau… for how long, nobody really knows. There is no slack in the system. There is no room for delay in output, let alone lost production. When it comes to oil any more, there is no room for error. When the numbers fall, the prices spike. Learn to love it. Welcome to the future.”
Byron has just begun bracing his Energy & Scarcity Investor readers for “the future.” His first picks? Five geothermal companies with assets so powerful they’re guarded by the U.S. Navy. You can learn more about these companies, and ESI, here.
“Watch for TiVo to be one of the penny stock turnaround stories of 2008,” writes Penny Sleuth’s Jim Nelson with what he feels is a juicy opportunity for today.
TiVo has fallen on hard times at the hands of competitors like Comcast and Direct TV, but according to Jim, a new deal with NBC could “revolutionize the television advertising market.” As a special “feature” to TiVo subscriptions, many NBC advertisements will be interactive. In other words, when interested in a product, a TiVo viewer can select the ad and access more information… much like a pop-up add on the Internet.
“Networks have been long awaiting interactive advertising, but the technology hasn’t yet caught up. Now with 20% of American households owning at least one digital video recorder (DVR) system, the marketing revolution can start. TiVo is trying to gain a monopoly on this, just like it did originally with TV recording.” Coupled with a pending patent lawsuit regarding a proprietary TiVo technology, Jim thinks TiVo could be a standout for 2008.
“But whether or not TiVo is a good investment depends solely on these deals. If any one of them falls apart, you can expect TiVo’s revenue levels to crash. But as it stands now, it seems the DVR business is about to revolutionize the television industry yet again. Look for this one to be a solid play for years to come.”
How rich should a president be? asks a truly mundane Money magazine this week.
The magazine highlighted the individual salaries, investments and sources of income for several of the 2008 presidential candidates. We include it here, if only to revel in the hypocrisy:
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John Edwards — the most “populist” of all the candidates is worth about $55 million. Edwards made some nice coin suing doctors and hospitals before he entered politics, and then he launched a creepy alliance with Fortress Investment Group. It pays him about half a million a year to serve as a part-time consultant and manage about $20 million of his money.
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Rudy Giuliani is worth over $52 million. Rudy collects several six-seven-figure salaries… one from a lobbying and security consulting company he launched in 2003, another from a Houston law firm, more from book deals and a healthy share from the 124 speeches he delivered in 2006, at $200,000 a pop.
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Hillary Clinton’s total net worth: $35 million, mostly from book deals, law firm days and her husband’s outlandish speaking fees.
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Mitt Romney has some to $250 million to play with! The humble Mormon candidate founded Bain Capital, a hedge fund.
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McCain has about $40 million in the bank.
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Obama, the “poorest” of the bunch, is still worth over a million bucks.
What, if anything, do these people know about the average American household… whose median income is about $48,000? Does it matter?
As usual, Ron Paul was left off the survey. A rag like Money would rather that he not exist at all. Our own efforts to find his net worth met with a dead end. But, we did find a government disclosure report that reveals his multi-million dollar portfolio. That man’s got gold fever.
“As I recall,” responds a reader to our skeptical quote about the life cycle of successful democracies yesterday, “the original quote regarding the tendency toward eventual failure of democracy was by Alexis de Tocqueville. He was writing about the USA in the early 1800s and said something to the effect that democracy can endure only so long as the electorate has not discovered their right to vote themselves ‘largesse from the public purse.’”
“Usually, I am impressed with and enjoy the candor, wit and information you impart in The 5 Min. Forecast,” writes a reader. “Today is a screaming exception. I can’t believe you wouldn’t know better than to say, ‘By some miracle, the Dow, S&P and Nasdaq managed to stay in positive territory yesterday.’
“Good grief, haven’t you heard of the Plunge Protection Team? If you had, and were familiar with how it manipulates markets, you certainly wouldn’t call yesterday’s market results a miracle! Haven’t you noticed how the markets either hold their ground or rapidly recover when dirt-pitiful economic news is announced, the U.S. dollar is imperiled or interest rate reductions are stoking inflation?
“You often point out things like how the CPI and unemployment numbers are phony, how banks are ripping us off, how the Fed is bailing out banks at the expense of taxpayers, etc. Don’t these deceptions at least raise doubts in your minds about our ‘free’ markets?”
The 5 responds:
Relax, chief. We were using a little rhetorical device we call “sarcasm”… have a glass of wine… try to enjoy the holidays.
“Nice that you should mention President Wilson,” writes another reader. “For all those who lambaste the current president for being ‘dumb’… review some history from when we had an honest-to-goodness intellectual as president. During his presidency, this Princetonian foisted upon this country the seeds of destruction: the federal income tax and the Federal Reserve Bank.
“Instead of silver certificates, we now have ‘IOU NOTHINGS.’ Instead of gold and silver coins (which always have intrinsic value), we have CLADS! My goodness, I know people who ‘collect’ these abominations. And the federal income tax (or whatever its official name is) has caused too much money to be sent to Washington, D.C., bringing about corruption and waste in almost any imaginable form…”
Have a good weekend,
Addison Wiggin
The 5 Min. Forecast
P.S. Our entire editorial team met here in Baltimore yesterday for a marathon of a meeting.
We discussed all our favorite ideas for 2008, and it’s safe to say we’re excited for the new year. From Byron’s way to buy an ounce of gold for $33, to Chris Hancock’s new booming global infrastructure company, to Brian and Mish’s unique Japanese Real Estate play, even a New Zealand telecom pick… we’ve got more great investment ideas than we can handle.
If you want to be the first to hear our favorite 2008 investment themes, you could subscribe to all 11 of our publications… and squirrel away some extra cash for the 3 we plan on launching next year.
Or you could pay a one time, heavily discounted fee and get all our pubs for life by joining the Agora Financial Reserve. There is simply no better way to get our best picks as soon as they are available. If you’re interested in joining our most exclusive membership, click here.
ADDITIONAL RESOURCES
Doug Casey on the Latest Resource Action
Blackstone puts up $1.3bn to buy fallout from the credit crisis
Ron Paul’s Portfolio