Markets manage another day of gains: Chart shows a Nasdaq on the canvas… but not out for the count
George Soros on the unavoidable recession and a “radical realignment”
If bond insurers lose their AAA ratings, what will be the cost? Barclays wagers its guess, below…
Gold hits an all-time high… how China is more in control of the precious metal than ever before
Zimbabwe unveils $10 million bill… street value: $3.90
Despite Nancy Pelosi’s best efforts, the markets suffered more choppy trading yesterday. The Dow managed to plum the negative no less than six times before finally settling in at +1%. The S&P 500 finished up about the same amount.
The Nasdaq managed to bank a 2% gain.
The Nasdaq is now down 17% from its late-October high. But, lest we fail to appease your inner chartist, we recognize the Nasdaq has managed to maintain its four-year uptrend:
The last two times the Nasdaq tested 2,300, it rebounded some 2,000 points within six months. Then again, this four-year up trend was preceded by a four-year downer courtesy of the tech bust.
Should the Nasdaq break through 2,300 this time… look for your favorite chartists to flee quickly.
“I am not convinced that the global market is done with the widespread selling,” our resource man Kevin Kerr chimes in. “Many of the commodities will probably lose more value. It’s very hard to say what will happen, because the volatility is so extreme that it’s tough to keep up. It is a very difficult time to trade, and I usually stay on the sidelines until the selling seems to be exhausted.
“When the Fed meets next week, it will likely make yet another dramatic rate cut — maybe another three-quarters of a point, maybe more. However, soon, the interest rate goody bag will be empty, so Mr. Bernanke had better hope it works.
“We are seeing much of the premium disappear from the equity and commodities markets, because hedge funds and investors need to cover margin calls. It becomes a domino effect, and prices can tumble.”
“The current crisis is the culmination of a super-boom that has lasted for more than 60 years,” adds the legendary investor George Soros in the Financial Times.
“The current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises [preceding the current crisis] were part of a larger boom-bust process…
“Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the U.S. Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realize that the Fed may no longer be in a position to do so.”
Mr. Soros is famous for having made a billion dollars in one day betting against the monetary foolishness of Britain’s elite back in 1992.
“Although a recession in the developed world is now more or less inevitable,” Soros continues on a different tack, “China, India and some of the oil-producing countries are in a very strong countertrend. So the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the U.S. and the rise of China and other countries in the developing world.
“The danger is that the resulting political tensions, including U.S. protectionism, may disrupt the global economy and plunge the world into recession or worse.” That danger was all too obvious for anyone monitoring the panicky air around the “stimulus” package press conference yesterday in Washington.
Elsewhere in the world of mega-billionaires, Wilbur Ross is reportedly in “serious” takeover talks with ruined bond insurer Ambac.
Should the credit ratings of insurers like Ambac and MBIA be knocked from their AAA thrones, banks worldwide would need to raise over $143 billion, analysts at Barclays estimated today. If the ratings community were to cut the debt ratings of Ambac and MBIA by one level, it would cost the banking community about $22 billion, Barclay’s estimated. Four levels, from AAA to A, would multiply that expense sixfold.
Thus far, only Fitch has cut the ratings of a bond insurer, Ambac, down to AA.
The total U.S. private equity war chest now exceeds $2 trillion. Private equity funds raised more than $500 billion last year alone, according to a report by Private Equity Intelligence. The total “enterprise value” of the private equity industry has grown to $2.4 trillion.
In other words, U.S. private equity firms control more money than the entire gross domestic product of France.
Gold rallied to an all-time high last night.
Gold had been steadily trending upward, through the $900 range. Then, a massive South African power shortage forced the likes of AngloGold Ashanti and Gold Fields to temporarily shut down their facilities. Just like that, gold hit $923 — a new high in every currency, save the Canadian dollar and yen.
And get this surprising little nugget: Despite South Africa’s huge gold mining and refining community, new research shows that a similar outage in China could have done more damage.
China became the world’s No. 1 gold producer in 2007, reports the English metals consultancy GFMS. China increased its gold output by 12% in 2007, to 276 metric tons of gold, taking South Africa’s place as the largest global gold producer.
The dollar finally succumbed to the pressures of the Fed’s recent rate cut yesterday.
The dollar index reversed its rally, falling nearly a point, to 75. The euro recaptured its stance at $1.47. The pound climbed back to $1.98. The yen pared back its recent rally and now trades for 107. The loonie, at 99 cents and change, is a breath away from achieving parity for the first time in 2008.
“The Indian rupee has been steady at the wheel during all this dollar strength in the past 10 days,” reports Chuck Butler from the EverBank trading desk. During the dollar’s surprise rally this month, the rupee has held its ground at $0.0255. What’s more, the rupee’s been handing the dollar its hat for most of the last 12 months.
“I like the Indian rupee over the Chinese renminbi,” says Chuck. “I know, the renminbi is already up 1% in the first three weeks of this year. But at least the rupee floats. And the interest is better. And U.S. lawmakers aren’t beating on it all the time.”
If you didn’t catch it yesterday, our friends at EverBank just opened a new global investing portal on their site. You can learn more about diversifying your wealth outside of the dollar with Chuck and company by visiting EverBank’s Global Market Resources.
Monetary officials in Zimbabwe unveiled the $10 million bill this morning. Inflation is out of hand over there:
60 million Zimbabwe bucks… about $23 U.S.
According to the BBC, Zimbabwe’s incredible monetary decline over the last eight years has brought on an estimated 50,000% inflation rate. The new $10 million bill will be little more than a tiny bandage on a gaping, festering wound. Halting the Zimbabwean dollar’s nose dive to worthlessness is all but impossible.
The new bill is mostly “designed” to elevate pressure on banks, which are unable to keep up with monetary demand. Queues form around the corner of banks every morning, and most are out of cash by lunch. At a black market exchange rate of around US$1 per 2.5 million Zimbabwe bucks…. there’s not enough paper bills to fill the demand.
Light sweet crude rebounded yesterday up to $90. Traders must be expecting at least 10% of those $600 “stimulus” checks will be squandered at the pump.
After Wednesday’s turnaround, comes the inevitable:
“Can anyone say ‘intervention’?” asks a reader “Or how about ‘manipulation’? Of course, we all know what’s afoot. It’s a little group called the Plunge Protection Team. Manipulation or intervention, or whatever one wants to call it, it only makes the situation worse in the long run and makes the inevitable ‘correction’ that much worse when it does finally happen.”
“Haven’t heard anything about the Plunge Protection Team concept for a while,” recalls another. “The rumor used to be that the secretary of the Treasury had $50 billion of discretionary funds to sop up shares when the Dow got too frisky.”
The 5 responds: It’s easy on a day like Wednesday to believe there’s a Plunge Protection Team in place ready, willing and capable of saving the day. There are those who are convinced the gold price has been suppressed for years by a similar cabal, too.
“Even now,” writes a third, on the subject of another substantial fraud, “there might be a way to capitalize on Societe Generale’s colossal trading losses, albeit indirectly. Perhaps you could hire Mr. Kerviel as one of your editors.
“Seriously, with his apparently remarkable consistency — he would be a perfect companion to Mr. Amoss’ Strategic Short Report. After all, somebody had to pocket a few extra shekels on the other side of his trades. Why not your readers?
“Let him write a column and we’ll just do the opposite of whatever he recommends. Chances are very good that he is available for employment. He may be wearing a jumpsuit and have to call his pieces in. Details. Just keep him away from the company books.”
The 5 responds: Now you’re talking,
The 5 Min. Forecast
P.S. Even if we don’t land a contract with Mr. Kerviel, the Strategic Short Report is a hot ticket during these turbulent market periods… open positions are still up an average of 74%. Don’t miss your chance to join.