Which economic guru just pushed his recession odds past 50/50
Two charts, one ugly unemployment picture… And why it’s even worse than advertised
Markets kick off 2008 with sharp selling… Chris Mayer on what to expect during the first quarter
2007’s “word of the year” hits close to home… plus, our pick for 2008
Get used to $100 oil, hints OPEC… Byron King on the likelihood of a crude pullback
Plus, reader spots Dow “reckoning point.” Are markets on the verge of a breakout move?
A recession is now “more likely than not,” says Martin Feldstein, head of the National Bureau of Economic Research — the only organization allowed to declare a recession.
“Consumers, with essentially no growth in jobs in December, are going to be more nervous about the future,” said Feldstein. “They are going to be a little more reluctant to spend, and that is going to put a further drag on growth in 2008.”
If you’re the charting type, Friday’s hike in unemployment confirms a likely bottom at the end of 2006. The trend suggests higher unemployment rates to come:
The unemployment rate has now risen 0.6% in less then 12 months. Historically speaking, any rise of more than 0.5% in less than 12 months also indicates a recession:
We report these data under the assumption that the Labor Department is releasing accurate numbers… during an election year.
“The jobs report was heavily manipulated to keep the payroll number positive,” says government stats watchdog John Williams at shadowstats.com.
“Politically, it is extremely important for the Bush administration to keep the monthly jobs changes on the plus side, because a down month or two could provide the timing base needed for the National Bureau of Economic Research to call a recession, and such is not wanted in an election year. As with the month before, the reported monthly payroll gain was statistically indistinguishable from a monthly contraction.
“Keep in mind that beyond the standard gimmicks, the Bureau of Labor Statistics simply can report any jobs number it desires. The current message from the reporting seems to be that the administration does not want to show a recession, but it would like Mr. Bernanke to ease further.”
And if last week was any indication, the stock market won’t be faring very well in 2008, either:
The new year sell-off accelerated on Friday after an exceptionally dismal job report… the S&P 500 shed 2.5%; the Nasdaq fell 3.7%.
Grab the Zoloft. It could be a tough year.
“I think we can expect further nastiness as we get fourth-quarter earnings results over the next several weeks,” forecasts Chris Mayer. “If you’ll recall the unhappy third quarter, earnings shrank 8.3%. The market consensus is that earnings will shrink further. If true — and I think it’s as good a bet as backing the New England Patriots — it will be the first time the market has had back-to-back negative earnings growth in nearly six years.
“I think we’ll break records in this department. My bet is earnings shrink in the first quarter, too.”
(If you seek to diversify your portfolio during these troubled times, we recommend Capital & Crisis. Chris has a slew of great value picks in nonmainsteam sectors, like water businesses, natural resources and wealth-amassing conglomerates. For the price, it can’t be beat. Learn more here.)
But don’t worry, faithful consumer… all is well. Sharp announced yesterday that it will soon begin selling the world’s first commercially available 108-inch LCD television:
What recession? Sharp has yet to reveal the cost of this, umn, large TV… but you might want to begin that refi application this afternoon.
“Subprime” has been voted “word of the year” by the American Dialect Society. The one-word solution for less-than-ideal lenders narrowly ousted buzzwords like “Facebook” and “waterboarding” for the top spot in 2007.
“Here’s a story that’s flown under the radar,” notes Dan Denning.
“Citibank told customers in December that outgoing wire transfers from the bank’s accounts would be limited to just $2,000 per day.
“But wait, there’s more,” Dan tells us. “Last week, under the guise of responding to a wave of fraud from automated cash machines, Citi also announced a limit on cash withdrawals from its ATMs in New York City.
“And you thought the money in your bank account was yours.
“There could be a perfectly reasonable explanation for all of this. But the simplest explanation is almost always the best. Citibank is in desperate need of its capital. The best way to keep your customers’ money is to prevent them from taking it out of the bank. It’s a kind of low-level, mild-mannered capital control.”
$100 oil is “not necessarily very high,”
said OPEC president Chakib Khelil on Sunday.
The new leader of the world’s largest oil cartel believes inflation-adjusted highs in the 1980s were “between $102-110.” Thus, $100 in 2008 is no big deal.
“The surge in price will probably go on until the end of the first quarter of 2008,” Khelil predicted, “before stabilizing during the second quarter.” How he comes by this view… he didn’t say.
“It would take a lot of economic slowing to arrest the squeeze between growing demand trends and depleting supplies,” notes our own oil adviser, Byron King. “Oil supplies are so tight… between sabotage in Nigeria, bad management in Venezuela, raw depletion in Mexico, Peak Oil in the Middle East…. the slightest amount of bad news — a hurricane in Gulf of Mexico, a pipeline leak in Alaska, a bomb blast in Iraq… would send prices up even further.”
If you’re not reading Energy & Scarcity Investor, the drawdown in the world’s oil supplies could really disrupt your investment strategy. Or… give it a boost… for example, you might want to consider:
Foreign investment flow into South Korea fell for the third straight year in 2007. An investment slowdown in South Korea — long regarded as a stable, but highly profitable emerging market — just might be kicking off the end of the recent emerging market boom. “A case of 1,000 .223 bullets for use in an AR-15 or an M-16,” responds a well-armed reader, taking note of rising ammo costs himself, “has risen from $187 to $365 during the last 18 months. I believe the rise is driven by increased war demand, law enforcement demand as cops increasingly militarize and raw material increase (copper, brass, lead, etc.). Other calibers are skyrocketing too!
“Shoot straight in 2008!”
“I no longer advertise [for the help I need],” responds another reader to last week’s Help-Wanted Ad Index plummeting to all-new record lows. “Prices [for the ads] went through the roof a couple months back. It now costs about $350 to run an ad for a week. That is a lot considering one often has a poor response. From an employer’s side of things, this is a bit easier than low unemployment. When it was lowest, we had only winos to pick from for employees for our furniture/cabinet shop.
“We had our best year in 2007… It was much easier to [find good help] than in a boom year, when we could hardly keep up.”
“There appears to be a 25-year logarithmic support trend line for the Dow Jones industrial average that goes back to September 1982,” writes a third reader, doing a little tea-leafing on their own.
“This past Friday (Jan. 4), the Dow’s sharp drop appears to have been stopped almost exactly by this 25-year log support trend line — please see my chart:
“The Dow is at a very major long-term technical ‘reckoning’ point and is testing the support line. It remains to be seen in the next week or so (especially on Monday) whether the Dow passes the test by bouncing back up off the support line or fails the test by continuing to drop through it.
“According to my calculations, the support line is rising at approximately 12.3% per year (on a compounded basis). IF — and this is a very important IF — the support line holds for the rest of 2008, the Dow will close the year at a worst-case value of approximately 14,340.
“However, given the deteriorating macroeconomic fundamentals, it is difficult to predict whether the support line will remain unbroken.”
The 5 Min. Forecast
P.S. To honor oil’s first trip to $100 a barrel, we’re offering three free months of Byron King’s Energy & Scarcity Investor. ESI is your best source for a blockbuster array small-cap oil and alt. energy picks, including a geothermal play so powerful it could soon be lighting the streets of San Francisco. Learn about it here.
P.P.S. We told you about our exclusive on the “godless” Jefferson dollar coins over the weekend. If you missed it, you can read more here.