by Addison Wiggin & Ian Mathias
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So much for the January effect: S&P reaches a record high…set in 2000
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Yet foreign bank says invest in U.S. for the first time in a decade
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Gold punches through $900… James Turk on how to identify your next buying opportunity
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Kevin Kerr’s first 2008 grain outlook. Plus, forget banks… record-high prices have robbers knocking off grain silos
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City of Cleveland sues Bank of America, Citigroup, Merrill Lynch, etc., for being a “public nuisance”
U.S. markets took yet another beating on Friday…the Dow and Nasdaq lost just short of 2%. The S&P 500 fell 1.3%.
Year to date, the Dow and S&P are down 5%. The Nasdaq has fallen 8% in the first two weeks of 2008. This is the worst opening sell-off in the S&P by percentage since 1982. In points, it’s the worst ever.
Thus, the S&P 500 is lower today than it was eight years ago. Had you invested in the S&P during the peak of the tech boom in early 2000, you’d have… well, just about 0% returns today.
We suppose dividends might be keeping you in the black, but still… ouch. Who could have seen this coming? Oh yeah, we did.
Yet Credit Suisse has recommended an overweight position in U.S. stocks for the first time in 10 years.
“By virtue of the weakening dollar and the Fed’s easing cycle,” said a report from the Swiss bank, “monetary conditions are now far looser in the U.S. than in Europe.” The authors of the report believe the Fed will be “more balanced in its assessment of inflation risks” moving forward. The same report suggested investors take on underweight positions in European markets.
Analysts at HSBC recently made a similar call.
The dollar got shellacked yet again over the weekend. The dollar index slipped down to the mid-75 range.
The euro almost touched the psychological $1.50 barrier before coming to a rest a penny shy at $1.49 — 6/10ths of a cent off its all-time high. The yen leapt two full points, to 107. Even the pound groveled back a few shillings, up to about $1.96.
Whispers abound. The Chinese are rumored to be quietly allowing the yuan to revalue too. More details on this tomorrow…
A weaker dollar is to “thank” for record-high New York City tourism spending, city officials announced over the weekend. NYC visitors spent a record $28 billion in 2007, propelled by a 17% jump in foreign travel. 8.5 million overseas travelers visited NYC last year, about 20% of all tourists visiting the U.S. in 2007.
A weaker dollar also helped fuel gold’s price to another record high. Gold jumped almost 20 bucks in European trading this morning, rising as high as $913 per ounce.
Get used to $900 gold, say analysts at Goldman Sachs. The bank raised its six-month outlook up to $900.
“Supply and demand offsets to the weaker economic backdrop will largely keep supportive fundamentals intact,” the bank’s report says. Price declines on economic growth worries are a “buying opportunity.”
That’s quite a reversal for Goldman analysts. In November, they claimed that 2008 would be the year to sell your gold.
“Gold has risen 57 of the past 82 weeks,” writes James Turk, hoping to pinpoint those exact buying opportunities, “which is 69.5% of the time. Gold’s appreciation on up weeks was $13.82 on average.
“The average drop on down weeks was $18.79, which is important to note for two reasons. First, what goes up also comes down. No market moves in a straight line, and gold is an example of that truth. Second, those big down weeks have proven to be good buying opportunities, which is something to keep in mind for down weeks in the future.”
As of last week, too, traders in China can trade gold futures on the Shanghai Exchange. The volume of speculation in the yellow metal should rise dramatically… as has been the impact on all markets the Chinese have set their sights on.
Moody’s threatened to cut Bank of America’s debt rating Friday. After taking on Countrywide, Bank of America’s ability to pay back loans may have worsened, warns the rating agency. “The transaction gives Bank of America a leading position in mortgage banking, but presents challenges,” says Moody’s, “including integration, volatile mortgage asset valuations and potential litigation.”
What’s more, Bank of America, already the world’s largest bank, might soon be so big it’s breaking U.S. law.
BoA already controls at least 9.7% of the U.S.’ total bank deposits, just short of the 10% federal cap. The bank’s acquisition of Countrywide, which already has $55 billion in deposits, almost guarantees that it will soon be violating the federal law that “protects” us from banks becoming too big.
The city of Cleveland is suing 21 banks, Bank of America included, for their role in exacerbating the city’s subprime fallout. In fact, the lawsuit filed last week essentially holds the banks responsible for the foreclosure crisis that has left the city with, as they claim, hundreds of millions of dollars in related expenses.
“Cities can rebound — however, it is extremely costly to do so, given that declining tax revenues are part of the fallout of foreclosures,” said Cleveland Mayor Frank Jackson. Jackson is evoking Cleveland’s “public nuisance” law as the city’s vehicle for seeking damages. Thus, the likes of Bank of America, Citigroup and Morgan Stanley are fighting alongside serial prank callers and public urinators. How fitting…
Cleveland’s action follows Baltimore’s recent lawsuit almost to a T. Both cities seek millions in reparations from these “predatory” lenders. We’ve also heard the term “reverse redlining” — the practice of targeting impoverished minority neighborhoods with volatile loans — thrown around in both cases. Nothing like high-dollar lawsuits and racial tension to bring an issue to the front pages. We’re surprised Al Sharpton hasn’t sunk his teeth into this one yet.
And if one of these cities actually wins? Oy… look out.
“The U.S. needs 15 million more grain acres in the next 24 months!” shouts our Maniac Trader. Before Friday’s 2007 World Agricultural Supply and Demand Estimates (WASDE) report, more than one market pundit was calling a top to the latest agriculture boom. Wheat, corn and soy prices are all at or near record highs, and ag companies like Monsanto, Mosaic and John Deere were the darlings of Wall Street in 2007.
But according to Kevin, the results of the latest WASDE report reveals an agricultural sector with little or no slowing demand:
“We need 9 million more corn and bean acres (7.6 million corn/beans) this spring and another 5.6 million in 2009 (5.7 million corn/beans).
“This is largely out-of-control demand and will require an unprecedented acreage acquisition and reallocation endeavor. Even with massive possible acreage manipulation through market price, we still need over 3 million acres of pasture this year and another 3 million next year to move to grain production to have any hope of balancing the situation.
“Washington policy has created a man-made food shortage. The grain markets may eventually cool off, but not anytime soon!”
The grain boom is so pervasive, thieves in Kansas are knocking off grain elevators, instead of banks.
In recent weeks, as many as a dozen incidents have occurred, a report on NPR over the weekend declared. Bobby Lee Roys everywhere are backing their big rigs into grain elevators and making off with hundreds of bushels of raw wheat.
So far, some $50,000 — about 5,000 bushels — in wheat has been stolen. A year ago, the same booty would fetch only $15,000.
Meet the new leader of the U.S. anti-tax movement:
Wesley Snipes, the star of such “acclaimed” movies as Blade and White Men Can’t Jump, goes on trial today for tax evasion. From 1999-2004, the actor earned about $40 million, and paid exactly $0 in taxes.
Snipes stopped paying taxes in 1999 because of the 861 provision in the federal tax code. The provision, according to anti-tax adherents, does not require you to pay taxes on wages.
“Snipes is already drawing whole new demographics to the movement,” The New York Times quotes a Maryland woman who follows the anti-tax movement saying. “Tax protesters used to be white, 50 or older, blue-collar, rural and often connected to racist movements, but Snipes is young, urban and famous.”
Heh… good luck, Wesley. We’re sure they’ll find a nice chic cell for you.
“Nice Tata” writes a reader. “‘The people’s car’! Seems like there was another little car that came out back in the ’30s, with great fanfare, and produced by the regime in power at the time — the Volkswagen — ‘the people’s car’! Keep up the good work!”
“Regarding the Moody warning that the USA’s credit rating may be less than AAA by 2017,” responds another reader, “2017 is really not that far away. It takes decades to turn around the gigantic ship ‘USS Enterprise.’ So it is increasingly probable that one day, the USA will be ‘officially’ not the safest haven for investing. In fact, it already does not provide the best return for your money.
“I’ll say we are pretty much there. And the hope for a turnaround is dim. There is not a shred of fiscal conservativeness among the current batch of presidential candidates. So we are fired for the next four years as far as presidential leadership goes. Even if, by miracle, we have an exceptional president in 2012, it might be too late.
“With hundreds of congresspersons on the Hill, it is a large enough sample to ensure mediocrity. Don’t look for leadership there. Besides, Congress, by design, is a place of a lot of gives and takes; any really good idea will be watered down before it reaches the floor, if at all.
“Diversify, even overweight, foreign investments either directly or via U.S. companies with large global exposure. Buy gold and foreign currencies… open an RMB or yen account… or trade currencies options.
“The bright side may be that foreigners will begin to like us because we are no longer the arrogant Americans who carry a big stick. That is a sad bright side.”
Regards,
Addison Wiggin
The 5 Min. Forecast
P.S. You’ve got just a few more hours to sign up for three free months of Energy & Scarcity Investor. At midnight tonight, it’s back to full price for Byron King’s elite new service. If you’re looking for small-cap solutions to the booming energy and resource markets, look no further. Byron’s already assembled a portfolio full of unique energy plays, including an array of enticing geothermal picks. Learn more about them here.
P.P.S. Tickets for the world premiere of our movie this Saturday at Sundance are completely sold out. All the screenings, for that matter, are sold out. Some readers have even gotten in touch with one of the producers, saying they’re “in the know”… and can we score them some tickets? Unfortunately, we’re told that tickets are so tough to come by that we — the crew that wrote, directed and produced the film — may not be able to get into some of the shows.
But it doesn’t really surprise us. Among the people we interviewed for the movie is a gentleman by the name of David Yepsen. He’s a political reporter for The Des Moines Register, which means he gains national stature every four years when the caucus gets under way. “The war in Iraq is the biggest issue of the campaign,” Yepsen explains in the movie, “but the [economy] is the biggest issue facing the country.”
Right on cue, the mainstream press is echoing the sentiment. Polls suggest now that the economy is of greater concern to voters than any other issue. With foreclosures continuing to mount and a slew of class action lawsuits and increased racial tensions, the year 2008 could be a tough one in which to hold an election. Who knows what wildness lies in wait?
ADDITIONAL RESOURCES
Stocks off to worst start since 1982
Cleveland Sues 21 Banks Over Mortgage Foreclosures
Gold passes $900 on dollar weakness