First major Wall Street bank flies its recession flag… with surprising candor
The White House’s latest mind-numbing plan… economic strategery at its finest
Another skittish day for markets… Dan Amoss on what to expect in 2008
Bear Stearns CEO gets the ax — plus, a final body count for the 2007 mortgage layoffs
Gunner on a silver play set to soar
Plus, readers set our Citi record straight… details below
A recession in the U.S. “has arrived,” reports Merrill Lynch this morning. “According to our analysis, this isn’t even a forecast any more, but is a present-day reality.”
“To say that the backdrop is ‘recession like,’” Merrill asserts, “is akin to an obstetrician telling a woman that she is ‘sort of pregnant.'” What a refreshingly mordant statement for a Wall Street bank. Makes our coffee taste that much better this morning.
And what’s this? President Bush appears to agree … umn, we think.
“Recent economic indicators,” he told a coalition of the mind-numbed yesterday in Chicago, “have become increasingly mixed.” It’s comforting to have such convincing leadership… this coffee is really good this morning.
“Core inflation is low — except when you’re going to the gas pump it doesn’t seem that low; or when you’re buying food it doesn’t seem that low. Core inflation is low, but energy and food prices are on the rise — have risen.”
And he knows this because he goes to the pump himself… and buys his own food. Oy.
At least there’s the cheery bright side to the president: “I had a New Year’s resolution,” he told the crowd, exhibiting his boyish charm, “and it was to make sure that Congress keeps the taxes low and to make sure that when we spend your money, we do it wisely or not at all.”
Yet… according to the Congressional Budget Office yesterday, the U.S. government posted a $107 billion budget deficit in the first fiscal quarter of 2008 — up $27 billion from the same time last year.
Oh, well, we pledged to stop drinking wine by the bottle this year, too. That hasn’t really panned out for us either.
“Over the next two years,” added Treasury Secretary Hank Paulson at the same time, “we face an unprecedented wave of 1.8 million subprime mortgage resets, raising the potential of a market failure.”
Secretary Paulson publicly pleaded with Congress to increase oversight of Fannie Mae and Freddie Mac, reform the Federal Housing Administration and provide rescue refis to those mystical 250,000 subprime borrowers who are not too poor, but not too rich, who can’t afford their homes, but aren’t yet late on payments.
Congress does such a great job with their own books… let’s put them in charge of cleaning up the worst financial crisis to face the country since Nixon yanked the dollar out of Bretton Woods. Good thinking, Hank.
U.S. markets traded skittishly all day yesterday. From the look of this chart, it doesn’t seem as though there’s much confidence on the trading floor:
By the closing bell, most benchmarks ended close to where they began.
“2008 is off to a rocky start,” Dan Amoss warned readers of Strategic Investment yesterday. “Gold stocks sprinted upward in the first two trading days of the year, but the market started punishing most other sectors right out of the gate. In the coming weeks, many professional money managers will readjust their portfolios for 2008. Most will cut exposure to industries facing significant head winds and add exposure to industries with sustainable earnings momentum.
“We should get more defensive by avoiding stocks and sectors with more downside. I expect it will be harder than last year to find stocks with huge upside…”
James Cayne, CEO of Bear Stearns, got the ax yesterday. According to The Wall Street Journal, Cayne will soon resign as CEO, but still retain a seat on Bear’s board.
Cayne oversaw all sorts of memorable issues at Bear last year… from the insolvency of two multibillion-dollar funds that basically triggered the financial meltdown to a 50% fall in BSC stock prices.
But at least he left on a high note… news of his retirement shot BSC stock up 2.3% in afterhours trading.
Nearly 90,000 mortgage jobs were lost in 2007, reports MortgageDaily.com yesterday. According to its survey, at least 86,000 jobs were lost in the 205 mortgage companies surveyed.
Angelo GodMozilo took the prize for 2007’s biggest ax wielder. The Countrywide CEO was “forced” to cut 11,665 jobs, or about 14% of his entire work force. He took home about $142 million in total compensation during the same period… that sounds about right.
Elsewhere, California had the most mortgage-related firings (16,000), led by the complete folding of New Century Financial Corp.
The real head-scratcher proved to be JP Morgan Chase, which added 4,465 mortgage-related jobs. Huh?
“Don’t look now,” reports our friend Chuck Butler straight from his EverBank World Markets trading desk, “but eurozone inflation is rising — up 3.1% in November. Whoa, Nellie!
“Given oil prices, and that the European Central Bank (ECB) would have to drag its feet to cut interest rates.”
Chuck suspects the ECB will be forced to raise rates soon. “What else can they do?” he asks, throwing his hands wildly into the air. “They have a mandate from the Maastricht Treaty to maintain price stability… not promote growth, like some willy-nilly central bank might want to do. This really puts ECB President Trichet in the hot seat…
“Should the ECB decide to raise rates and the Fed decide to keep cutting rates, the euro would enjoy a positive rate differential. You think the euro was popular as an offset currency to the dollar before? Wait till that happens!”
The euro is trading at $1.47 this morning. The pound, still under $2, is at $1.97. And the yen is a fetching 109.
According to U.S. officials, Iranian speedboats got too close to American battleships in the Strait of Hormuz yesterday. Apparently, there was some gesturing and threats. The media tried their best to make it sound like World War III was imminent. Secretary Rice did her part by labeling the incident “provocative and dangerous” and warned that the U.S. “will continue to defend its interests in the Gulf.”
But at the end of the day, oil traders stuck to the real news and blew this off… Oil lost $1, to $96.
Gold shot through the roof in European trading this morning. Gold has been trading tightly around $860 this month, but within minutes of opening on the London exchange this morning, prices jumped to a new record high of $876.
“One of North America’s oldest silver miners is about to become the world’s largest,” reports our small-cap adviser Greg Guenthner. “By 2009, Coeur d’Alene Mines will join the ranks of Silver Wheaton Corp. and Pan American Silver Corp. as one of the top silver miners on the planet. Thanks to a merger Coeur completed last month, this junior mining company expects to produce 29 million ounces of silver in 2009. That’s more than anyone else in the world.
“But despite Coeur’s exciting growth profile, its share price languishes… at the current quote of $4.58 per share, the stock seems very, very cheap.”
For a more detailed analysis of Coeur d’Alene, check out Gunner’s piece in this morning’s Rude Awakening.
“I work at Citi,” a reader writes, correcting our coverage of Citi’s withdrawal restrictions yesterday, “although not in the retail banking area…
“The facts are that a few ATMs were rigged by scam artists to enable them to get the account numbers and passwords of people using those machines.
“While this was a big inconvenience to customers, especially at Christmas time, when people are taking out cash to pay their year-end tips to the doorman, etc., it enabled the bank to avoid large losses.
“Limiting the withdrawal amount would have VERY little impact on the bank’s capital position.”
“As a Citibank customer,” adds another reader, in reference to a wire transfer limit issued by Citi, “I can tell you that those were my thoughts exactly the moment we got the notice. And by the way, they weren’t all that vocal about giving that notice themselves. It was barely a whisper of an announcement.
“We noticed it, though, because we regularly make large wire transfers from Citibank in the U.S. to our bank account — about $11,000 at a clip, every three months. I called the bank a bit panicked, thinking we’d need to make a heck of a lot of wire transfers to make up the difference.
“But it turns out the restriction is on a different kind of fund transfer. Wire transfers — with a fee — you’re still permitted, up to a daily limit of something like $50,000. Nonetheless, it spooked us enough that we finally went ahead and started doing what we’ve said we should do for a long time… move everything to another bank.
“We’re in the process of moving the rest of our money out of Citibank to another bank (with, supposedly, less subprime exposure).”
The 5 Min. Forecast
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