Consumers ready to tap out? A compelling chart reveals an undeniable development
Government reports net job loss in February… how today’s report nearly guarantees recession
Which two U.S. financial powerhouses got hit hard this week… and what it means for the market
Another American housing milestone… homeowners in worst shape since World War II
Plus, more on the Bernanke subprime bailout… could the “PESO” be the answer?
Consumer confidence has dipped to a five-year low so far this March.
According to the RBC CASH Index — a measure of Consumer Attitudes and Spending by Household — confidence among consumers has sunk to 33 this month, steeply down from 48 in February and its lowest reading since inception in 2002.
Jobs took a hit this morning, too. U.S. nonfarm jobs fell by 63,000 last month, the Labor Department reports. January numbers got revised down, too… from minus 17,000 jobs to minus 22,000.
That’s an “official” two-month, back-to-back loss in jobs. Worth noting, because in the past 40 years, there have never been two consecutive months of job losses that didn’t coincide with a recession.
Still, as usual, the government stats are confusing. Somehow, despite the net loss of 85,000 jobs over the past two months, “unemployment” has improved to 4.8%, up from 4.9% in January and 5% in December. Hmmmn…
Ten minutes before this morning’s jobs report, the Federal Reserve announced it’d be injecting $100 billion into the U.S. banking system. The Fed will print an extra $20 billion for both of its term auction facilities held this month on the 10th and 24th. Each will now inject $50 billion in the embattled financial industry, for a monthly total of $100 billion.
Immediately following the Fed announcement and jobs report, traders in Chicago priced in 100% odds of future Fed cuts of 75 bps.
Naturally, within seconds, the dollar tanked. The dollar index pierced the 72 barrier for the first time in history, sinking to another record low of 72.6. The euro popped to a new all-time high of $1.54. The yen shot up to a fresh three-year high of 101. The pound is back to $2.01.
Gotta love the Fed, eh? Stalwarts of price stability. Mmn. Love ’em.
Stocks in the U.S. sold off steadily all day yesterday. While much of this week was marked with up-and-down volatile trading, the mood on the Street Thursday was oppressively bearish:
For the day, the Dow shed 1.7%. The Nasdaq and S&P 500 dropped 2.2% apiece.
For the year, the Dow is now down 9%… the S&P 500 is off 11%… and the Nasdaq is creeping toward 16%.
Carlyle Capital, a publicly traded affiliate of the Carlyle Group, said today it is experiencing the same default notices and margin call woes as we reported Thornburg Mortgage as having yesterday.
Lenders have begun liquidating securities from Carlyle Capital’s $21 billion portfolio. The group claims losses from its mortgage-backed portfolio have left it unable to repay its debts. Carlyle Capital’s shares, which trade in Europe, fell 60% yesterday.
We mention this for two reasons. One — another seemingly safe investment group is biting the dust. Two — the Carlyle Group is one of the most powerful, globally connected private equity joints on the planet. We can’t help but think that if it couldn’t dodge this bullet, no one can.
Standard & Poor’s cut the credit rating of Washington Mutual yesterday. WaMu, the U.S.’s largest savings and loan, now rests on the lowest rung of investment grade credit ratings, BBB.
“We now believe that the severity of losses on all residential mortgages will be higher,” said an S&P spokesperson, “and that the weak housing market will now be a longer cycle.”
WaMu stock fell 7% on the news and is now down over 60% in the past two quarters. This morning, The Wall Street Journal leaked news the bank is aggressively seeking injections from private equity firms and global sovereign wealth funds.
Chuck Prince, Stan O’Neal and Angelo Mozilo will all be appearing before the House Committee on Oversight and Government Reform today. The two former CEOs of Citigroup and Merrill Lynch and the current head of Countrywide have all been ordered to Capitol Hill today.
Lawmakers, they say, are interested in hearing how the three CEOs managed to pocket fortunes as their organizations collapsed and the stock market reeled. Specifically, why the three companies lost a collective $20 billion in 2007, yet their three CEOs took home over $321 million in compensation and stock.
There’s something wrong with this picture, isn’t there? Shouldn’t Congress be looking into its own financial habits first… before going after these yahoos?
Oil stayed steady yesterday and overnight right at its all-time high of $105. Likewise, gold has held steady at $980.
We’ve posted a couple of interviews Kevin Kerr and Byron King have done recently with Fox News and CNBC on the Agora Financial web site. If you’re interested in seeing these gentlemen in action, they’re discussing the state of the economy, historic oil prices, the dollar on the skids and record-high commodities prices. Check it out…
Curiously, despite the dollar’s historic bender… and record price levels for everything from oil and wheat to gas, tuition and health care… consumer spending appears to be holding steady. Wal-Mart and Target posted better earnings in February than anyone expected. You know what they say: When the going gets tough, the tough go shopping.
In turn, this next item should come as no surprise to you: For the first time since World War II, the average American homeowner’s debt exceeds the equitable value of their home.
According to a Federal Reserve study released yesterday, the percentage of equity in U.S. homes has fallen below 50% for the first time since 1945. Homeowners’ percentage of equity slipped to 47.6% in the fourth quarter. The Fed began tracking these equity numbers in 1945. Odds are this is the worst reading since the Great Depression.
Moody’s recently estimated, too, that 10.3% of all homeowners will have zero or negative equity by the end of the month.
And here’s a curious development: Remittances to Mexico — money sent back to Central America from immigrants working in the U.S. — dropped 6% in January, the biggest fall in 13 years.
The Bank of Mexico reports this morning that remittances fell to $1.65 billion in January — down about $10 million from the month before. The bank attributed the massive drop to recent changes in migration policies and a sizeable decline in U.S. construction activity, which accounts for 20% of jobs for Mexicans living in the U.S.
For what it’s worth, such remittances comprise 3% of Mexican GDP and are the second largest source of foreign currency flowing into Mexico.
Meanwhile, across the planet, the number of billionaires in India and China doubled. Billionaires with a “B.” In India, there were a “mere” 36 billionaires in 2006. Today, there are 53. Same story in China… up from 20 in 2006 to 42 today.
Yesterday, we mentioned Mr. Buffett had regained his title as the world’s richest man. Today, we note another, perhaps far more important facet of Forbes’ annual study: Four Indians have made it to Forbes’ list of the top 10 richest people on the planet, the most of any nation. Indians occupied Nos. 4,5,6 and 8 this year. Especially noteworthy was K.P. Singh… the mega-rich Indian’s riches tripled in 2007, to $30 billion, enough to garner him the No. 8 spot.
If you haven’t checked out Chris Mayer’s recent report on investing in India… it’s a must-read. Click here for three ways to play the market that’s making Indians richer every day.
“I couldn’t agree more with you guys,” says a reader in response to our cordial discussion of the Bernanke mortgage crisis bailout plan. “As a real estate broker, it made me sick to see all of the cheap money out there and the ease with which people qualified for loans.
“The Fed needs to stop bailing the private sector out. I agree with Mr. Bonner, people get what they deserve. It’ll be tough, but it is time for people in this country to start taking responsibility for their actions, and it is time for the Fed to stop trying to be like Underdog (‘Here I come to save the day’).”
“I have been a mortgage banker for 34 years,” says another reader, “and say let the mortgage mess unravel without any government intervention. Real estate does not always go up in value, requires significant annual monies to maintain and must be held long term to realize a gain. Your home is shelter, not an investment. We all have to live somewhere.
“If we do nothing, the people who caused this problem will be forced out of business (both the bad realtors and lenders). Homes will become affordable, rents will decline and counties will have to learn to live within their budgets. More people will be able to afford their shelter and have money left over in disposable income and for savings.
“The people asking for solutions are the realtors, lenders and counties that are trying to protect their incomes by having the homeowner pay more than they should for housing. They sponsor the counseling agencies for the consumer where foreclosure or bankruptcies are not offered. Foreclosure and bankruptcy are solutions to this dilemma, both locally and federally, and are actual consumer rights. They do not prevent one person who takes this route from continuing to rent or own their next home at a lower cost.
“The FDIC did not do its job in following its regulations or conducting on-site audits of major banks. This is identical to FSLIC in the 1980s. All taxpayers will pay a terrible price for their repeated stupidity on trusting their government. They have also been given a lesson that Wall Street is never to be trusted. What is sad is that this will all be forgotten in 10 years… and it will happen again.
“We recovered very nicely from the foreclosures of the 1980s and will do so again.”
“The banks had willing partners in the real estate Ponzi,” notes another reader, “so where are the suggestions that realtors bail their clients out by giving back the massive commissions they booked as the bubble inflated?
“Some people saved money all this time. Some people shorted housing/financials last year and are still short and strong. These people will use some of those massive gains to buy homes once the prices are reasonable (another 20% lower or so, minimum). Then the wannabe no-money-down real estate tycoons that were booted out of their homes (sorry, I mean the banks’ homes) can surely find places to rent at reasonable prices from the new owners. That, too, is the natural order of things.
“I’m only in my 30s, but even I already know that history repeats. This market and real estate cycle is nothing new. To those who don’t like it, I ask that if you’re not going to profit from it or pick up good deals, at least stop whining. Seems to me, with these bailout ideas floating around the government, we’re going to lose the war against inflation and communism all in one move.”
“Here’s an idea,” our last reader suggests. “The banks forgive part of the principal and in return they receive a like percentage share of the equity. Forgive 10% of the principal and own 10% of the house. This wouldn’t help them raise any cash, and the house sale could be years off. So maybe they could aggregate all their equity shares and then sell them to investors. They could call these, say, “Phantom Equity Securitization Obligations,” or PESOs” for short.
“Now, what could these investors do with their new PESOs? Maybe they could sort of dice them up into differing quality levels and sell some sort of pieces of them. They could have say, three different levels and sell their “Pieces of Three,” or POT, shares.
“And on and on we could go.”
The 5: Heh. Now we’re talking.
The 5 Min. Forecast
P.S. Kevin Kerr and Byron King are more than just television personalities. They also steward a significant portion of the trading gains being enjoyed by your fellow 5 readers:
In recognition of their efforts and your commitment to successful trading and investing in what we expect to be a multiyear bull market in natural resources, we’ve assembled a stellar offer for you this month. If you plan to make money investing over the next decade, you can’t do any better than to follow the advice given by these two gentlemen: