by Addison Wiggin & Ian Mathias
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Two rarely reported employment trends point to imminent recession
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Heads roll on the Street… how the latest firings are pushing the globe to tech bust-level pain
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Citigroup’s latest mega write-down…. Dan Amoss’ short-term financials outlook
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Chuck Butler on the staying power of the latest dollar rebound
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Grains continue their record rise… Kevin Kerr on why they still have room to run
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European, Asian travelers weigh in as readers rage over universal health care
Nearly 5 million people are currently working part time for economic reasons. Either they can’t find full-time work or their 9-5 doesn’t pay the bills. The number has risen 10% since November.
You’ll notice sudden rises just like these have been a hallmark of the last two U.S. recessions:
The number of hours Americans are working is dropping, too.
At only 33.8 a week and declining, the typical American workweek also harkens back to prior recessions… and is startlingly similar to a Frenchman’s workweek.
Overtime hours in the U.S. have fallen by an even greater margin. By these charts, we’re not in a recession yet, but we’re on the edge… and headed there quickly.
Wall Street isn’t helping matters much. Following dismal earnings and a new hefty write-down (below), Citi announced 9,000 heads will roll this morning — that’s in addition to the 4,000 Citi employees already given the boot this year.
Merrill Lynch followed their own bad news yesterday with the announcement they’ll be letting 10% of their work force go, another 4,000 souls.
After the tech bust, Merrill put the kibosh on 30% of its employees. So as trends go, we’re just scratching the surface…
J.P. Morgan predicted yesterday that as many as 40,000 folks in the City in London will lose their jobs. That’s double their December forecast — and 5% of the entire London financial work force. For comparison, 7% of the London financial work force was laid off following the tech bust.
Citi came clean with another $12.1 billion in write-downs. They announced a $5 billion first-quarter loss this morning, too.
The loss is larger than expected, but a higher-than-expected top-line earnings number has given traders reason to celebrate, apparently. Ticker C rocketed up over 8% in premarket trading. Our best guess: A known loss is better than the great abyss. And there are still plenty of folks willing to time the bottom in any one of these behemoth Wall Street banks.
Au contraire, counters Dan Amoss. “I expect financials to keep trending down. Banks and brokers still have plenty of losses to report in 2008 and 2009, even if they can go to the Fed window and temporarily swap their illiquid, impaired mortgage-backed securities for Treasuries.”
Readers of Strategic Investment who’ve followed Dan through this tangled mess have done well owning the ProShares UltraShort Financials ETF:
Since October, the UltraShort ETF has gone as high as 100%. It sits just below 60% today.
“Many banks will still have to cut dividends and raise capital with new share issuances. Look at the incredible dilution that MBIA and Washington Mutual shareholders have suffered. Widening yields will benefit a few banks that were prudent. But for most banks, credit losses will far outweigh their profits from an improving yield curve.”
The stock market was sluggish yesterday. Market makers weighed great earnings from IBM against “bad but not horrible” news from Merrill and eBay’s lousy quarterly results… and came out even. The Dow and S&P finished unchanged.
Today, on the other hand, looks like it’ll be another big winner for the major exchanges. “Investors” are ignoring Citi’s write-down… and hooting it up with Google, instead. GOOG is up almost 20% today. The Dow opened up over 1%.
In the U.S. bond trading pits, we notice a curious event. The10-year note yield has scooted up to its biggest weekly gain in over four years.
Bond yields, we remind you, rise when bonds are sold. Traders are signaling they see a more attractive stock market around the bend. They’re also a tad less confident the Fed will cut rates this month.
Perhaps in tandem with the bond move, the dollar eked out a small rebound overnight.
The “not so horrendous” earnings reports this week have given some traders the notion that the U.S. economy might not be all that bad.
The euro shed 2 cents versus the dollar this morning, to $1.57. The broader dollar index took back almost a whole point, to a still quite horrible score of 72.
But be warned. “The fundamentals haven’t changed,” says Chuck Butler, proud “survivor” of this morning’s Midwest earthquake. “The U.S. deficit is soaring higher and higher, requiring us to attract more and more foreign investment… the economy is in a recession… jobs are hard to find… house prices are still falling… and we’re still fighting a war! Two wars! Does this sound like the stuff that a stronger currency is made of?”
As the dollar rallied this morning, gold and oil sold off.
The spot price for gold got shellacked overnight… opening down $25, to $920, this morning in New York. We’d like to congratulate Kevin Kerr for taking profits on his RTA gold calls yesterday. He didn’t like Wednesday’s sideways lull in trading… so took profits of 102%… in just 4 months.
Light sweet crude backed off a dollar, to $114, this morning.
Gasoline bucked the trend and hopped up another 3 cents overnight, to $3.44. Diesel followed suit and made $4.16, a record, today.
Grain traders could not have given a hoot about the dollar rebound. Rough rice in Chicago shot up 4% — a full $1 — to over $24 this morning. Save a drastic sell-off today, this will mark the fourth straight week of record high prices for rice.
This latest spike came after the Philippines was unable to fill its 1 million ton order on Wednesday.
Corn, soybeans and wheat all remains at record highs this morning, as well. Still…
“I think these prices could all go much higher,” writes the Maniac Trader from the first stop on his Midwest Farm Tour. “All of these nations experiencing food riots and social unrest… there is plenty of food on the shelves, but the price has gone up so much that no one can afford it. There is serious pent-up demand for grains, and any kind of major output disruption this year could drive prices higher.
“All the farmers I have spoken to so far say that come hell or high water, they will plant corn. Unfortunately, we seem to have both. Almost like betting all your chips on red and hoping that the roulette wheel is favorable. Problem is we are gambling with the world’s food supply.”
Kevin made similar comments on Kudlow & Company… check him out here.
“The medical situation in this country is dire,” responds our Byron King to yesterday’s 5. “We are seeing rising demand for medical services in an environment of rising costs. This is not sustainable over the long haul. That is all true.
“But we also have immediately looming energy and resource problems to add to the medical situation. Medical care in the U.S. is highly hydrocarbon and energy intensive. Think about the electricity requirements of hospitals — a large one uses as much electric power as a steel mill. Or consider the vast array of plastic goods that get stuck into your veins and taped to your skin — many of these items come from overseas plants, courtesy of ‘globalization.’
“If the U.S. does not get its energy act together, the medical problem will compound greatly. Instead of 47 million uninsured, we may see 147 million uninsured as employers drop health coverage in an environment of rising energy costs. And the care structure that remains will be trapped between local brownouts and widespread shortages of critical materials, available only at extreme price levels.
“Come to think of it, we had better collectively lose more weight and get our butts down to the gym to sweat the cholesterol out.”
“In 2001, my family and I were living in Kobe, Japan,” writes another reader. “My 2-year-old son fell, took a blow to the head and had some slight bleeding from one ear. We rushed him the emergency room. The Japanese doctors gave him three X-rays, an MRI, a CAT scan and a sedative to calm him down because he wouldn’t sit still for the MRI. Total bill before insurance was $235. My son was and is OK, although his older brother insists that there is something wrong with him.”
The 5 responds: The total bill presented to you was $235? Who paid for that MRI machine? Who paid the researchers and engineers all those years the machine was being developed?
“Prior to practicing in the civilian sector,” writes a third, “I was in the military and traveled quite a bit abroad. Prior to getting into medical school, I did some work overseas in Europe, as well, causing me to rely on the health care system there.
“If the reader who was seen in Scotland got a good outcome and liked the services there, I am glad things worked out in that situation. That has not been the case for many others, and I am speaking not just of the Americans treated abroad, but of the citizens of those countries I have been in.
“Overall, the U.K. has very well-trained doctors and nurses, yet the system is not what most of us would find acceptable. I would venture to make a very safe guess that most Americans would be shocked to be the recipient of care in many European countries. France, Germany and the Swiss seem to offer pretty optimal care. As for the rest, well, I wouldn’t choose care like that for my family.”
“I had lunch with a doctor the other day,” writes another. “While we were discussing what a disaster nationalized health care would be in the U.S., he suggested we should ignore comparisons to other countries with nationalized health care. If you want to know what health care will look like if run by the U.S. government, said he, just look at the V.A. system…”
The 5 responds: Amen.
Enjoy your weekend,
Addison Wiggin
The 5 Min. Forecast