Government affirms robust growth in third quarter… say what?!
How the Fed’s cash auction revealed a banking sector far from fiscal stability
Dollar extends rally… has the world found a more hated currency?
The Maniac Trader on the White House’s latest spell of “pure insanity”
Could Russia be out of gas? Byron King on Russia’s last known gas reserve
Plus, a new wave of nasty names for your loyal editors… you kiss your mother with that mouth?
U.S. GDP grew at the fastest rate in four years during the third quarter, the Commerce Department confirmed today. The gov’mint said the economy grew at a robust 4.9% during the quarter, the same GDP it had estimated last month. Exports drove results, rising over 19% in the third quarter.
From a market perspective, the third quarter looked far from robust
“Experts” have predicted wildly lower (read: rational) GDP in the forth quarter: about 1.5% or less. We’ll let you know the details when they arrive.
“Money Pros Still Optimistic About Stocks,” read a WSJ headline yesterday. Whoever “money pros” really are, they seem to be a hardheaded group. More than 75% still cling to the optimistic scenario — that the stock market will post a gain in 2008. Thirty percent of those surveyed think it’ll rise by more than 10%.
“I’m even more bullish than at the beginning of this year, because the dark clouds hanging over our heads are starting to clear,” one money manager surveyed said.
“I am not sure what window he looks out of,” responds Chris Mayer. “But from where I sit, we are hardly out of the woods yet. If nothing else, such a survey is a contrarian indicator. Which is to say, don’t expect much from the stock market next year. (For the record, last year, 86% said the market would rise. They look to be right, but barely.)”
If you’re like us, and just a little bit nervous about following the mainstream in 2008, we’ve got a rare opportunity for you to receive ALL our market pundits’ advice and recommendations for one discounted price. Learn more about this offer here… subscribe today and we’ll add our soon-to-be published options service for free.
The Fed injected $20 billion in 28-day loans into our “robust” economy in their much anticipated fund auction on Monday. According to the data the Fed released yesterday, 93 anonymous banks lined up for the auction, requesting more than $61 billion in loans. Those who were given a loan did so at a 4.65% interest rate, only one-tenth of a percent lower than the Fed’s current discount rate.
In other words, banks are still desperate for cash, and they don’t want us to know how badly. We’re not out of this credit mess yet.
The Fed’s next auction takes place today, with two more planned for early next year.
The dollar furthered recent gains overnight. Since we called a dollar rally on Dec. 3, the greenback has been knocking its rivals to the canvas. This week’s trading has been no exception. The euro is at $1.43 and still trending down. The pound has fallen below $2, to $1.98.
“I would suggest owners of pound sterling to look to move their holdings into other European currencies, such as the euro, Norwegian krone or Swiss franc,” says Chris Gaffney in the Daily Pfennig. “While the European Central Bank looks to be maintaining its hawkish tilt, the Bank of England is clearly on the side of supporting growth at the risk of higher inflation. With the BOE looking to continue to cut rates, we will likely see the pound continue to fall.”
Bear Stearns revealed the worst quarter in the company’s 84-year history this morning. The country’s fifth largest investment bank lost $859 million in the fourth quarter, its biggest loss ever.
Bear has already fired 10% of its work force since it singlehandedly kicked off the CDO scare this summer. After this morning’s earnings report, we expect more heads to roll… namely, this one:
Bear CEO James Cayne has already forfeited his eight-figure Christmas bonus, and, among other things, has been accused by the WSJ of being, well… a slacker pothead. Don’t be surprised when this guy gets the ax.
As if that weren’t enough bad news for Bear…Barclays announced this morning it is suing Bear Stearns. Barclays claims that Bear Stearns knew for months that its High-Grade Structured Credit Strategies Enhanced Leverage Fund was worth “far less” than the bank had claimed.
No way… no one could have known that highly leveraged securities made up of subprime loans aren’t worth the paper they’re printed on. Impossible…
“Financial innovation is great,” says Sheila Bair, the recently crowned chairman of the Federal Deposit Insurance Corp., “but you have to have some basic rules. One of the most basic rules is that a borrower should have the ability to repay.” Seems fairly obvious.
“What a joke,” explains Kevin Kerr after reviewing the energy bill passed by President Bush yesterday. The wide-sweeping bill has its fair share of bright spots, such as increasing the required vehicle fuel-efficiency to an average of 35 miles per gallon by 2020. But it was this facet, as summarized by CNNMoney, that drove us to an extra drink last night:
“[The bill] requires refineries to increase the use of ethanol from about 6 billion gallons a year this year to 36 billion gallons by 2022 and mandates that by then at least 21 billion gallons are to come from feedstocks other than corn.
“Bush praised that provision, which would spur the development of ethanol from cellulose feedstocks such as prairie grass and wood chips.”
In other words, Bush mandated a sixfold increase in ethanol production, including up to a 150% increase in corn-based ethanol production. Oh yeah… and you’ve got to find a way to make energy out of dead hunks of wood and grass, and make it nearly twice as big as the whole ethanol market.
Fuel of the future?
“Wood chips?” asks Kevin, “Forget ’em. Switch grass is also no solution. It is not a crop you can rotate, and basically, it takes three years to get any yield. Since it can’t be rotated, those fields are toast once you plant it there… farmers will love that.
“When you read this mandate, you also have to wonder where all the water is going to come from, and the fertilizer, land, etc… Pure insanity.”
Russian oil monolith Gazprom has just begun extraction from its last known gas field — the Yuzhno-Russkoye field. Huh? Last time we checked, Russia had more gas fields than it knew what to do with.
“This one field is equivalent to a year’s worth of production in Russia,” our oil adviser Byron King tells us, “but this is the last of a long series of Soviet-era discoveries, developed over the past half-century. There are no others like it, by Siberian standards — meaning relatively shallow and relatively near.
“The Russians like to brag about their immense natural gas resources, and there is a lot of truth to the claims. But the only way that those resources will ever get to market is if Russia keeps up an aggressive level of investment in distant and harsh terrains and climates. Russian industry has to go further and drill deeper to recover that nation’s remaining gas resources. But the question for the world is whether or not Russia can maintain the necessary pace.
“In the future, the gas will come from deeper wells, even further afield,” Byron tells us. At the Offshore Technology Conference in Houston earlier this year, Byron checked out one Russian project that will be moving oil and gas from 360 miles offshore, deep under the Arctic Ocean, to land. (That is the distance from Cleveland to New York.) “Yes, the technology is there to accomplish such feats,” he says, “but the prices at the burner tip will have to reflect this level of sophistication and investment.”
If you’re looking to invest in this sophisticated (and complicated) future of energy extraction, look no further than Byron’s Outstanding Investments.
Milk prices have risen over 23% this year, to a national average of $3.80 per gallon, the Department of Agriculture reported this morning.
“Great job, guys,” writes a reader in response to yesterday’s mailbag. “You know you are doing a good job when zealots come out of hiding to challenge you. Too bad he doesn’t understand that your comments are meant to challenge the status quo and encourage an environment of openness and honesty.
“Critical self analysis, especially of one’s political and financial systems, is paramount to engaging in the spirit of democracy!
“I only wish that my fellow Canadians would do the same here. Perhaps when that occurs, we could then dispense with our maternalistic crib-to-death type of government and political system that exists in this country. Hmmm, I guess that means politicians would have to develop a characteristic called integrity? Not!!!”
“Well,” writes another reader, with half the intelligence of our Canadian friend above, “maybe you have spent absurd amounts of time telling everyone about fiscal responsibility, the demise of the dollar, Chicken Little stories, etc., all the while keeping your readers informed.
“But you didn’t do it for any altruist endeavor, as you assert. BULLSH*T! You have been making money on every publication, movie or whatever you engage in, and without hesitation reminding us peons what foreign country your home is in or where you are jet-setting off to. Give me a break. If, indeed, you are that magnanimous, let us receive free subscriptions for a year. Otherwise, shut up about your toils, you capitalist pig.”
The 5 responds: Uh… it may be foreign to some, but we live in Baltimore.
And what makes you think being fiscally responsible and making money are mutually exclusive? If you have positive things to say… you should automatically give them away? We disagree. You, of course, are free to choose whether to purchase our advice or not.
The 5 Min. Forecast
P.S. We may live in Baltimore, but we’re writing to you today from a hotel room in Nashville, Tenn. We were granted an interview with Arthur Laffer for the movie this morning. He’s been a fossil collector for some thirty years. In his office he has fossils of prehistoric fish and birds… Terracotta soldiers from China… and a couple of species of live carnivorous turtles who we had the pleasure of watching devour gold fish for lunch.
Tonight, we’re on our way to NYC so we can catch Paul Volcker. The list of economic superstars in the film is ramping up. Part of the fun of this whole project is that not one of them agrees with another on all the issues. It’s going to make pulling this whole story together by Jan. 19, 2008, a huge challenge. We’ll keep you posted…