U.S Not Yet In Recession, Why Gasoline is Still Cheap, Two Crisis Proof Financials, and More!

by Addison Wiggin & Ian Mathias

  • U.S. not in recession, says gov.… one common-sense indicator to the contrary
  • Kevin Kerr’s startling figures: Why $3.61 gas is still cheap
  • Credit crisis continues… two financials that have totally dodged the subprime bullet
  • What Jim Rogers is buying “for the first time in a long time”
  • Sovereign wealth funds on track to be biggest economy in the world… in less than 10 years

 

Well, President Bush was right: We’re not in a recession. Not yet, anyway. How does he know these things?

Genius. Sheer genius.

Gross domestic product (GDP) in the world’s largest economy rose 0.6% for the first quarter ’08, says the Commerce Department this morning. That’s an annual pace of roughly 2.4%… all things being equal.


Adding to the rosy mood this morning, 10,000 jobs were added to the private sector, says ADP. The company’s monthly report, while hardly depicting a strong economy, blew expectations out of the water. Economists had predicted a loss of 60,000 jobs… thus, the small April gain has traders all the more lathered this morning.

Still, we don’t expect too much action on Wall Street until the Fed’s FOMC press release this afternoon.

The ADP report is typically seen as a preview to the government’s jobs report, which comes out Friday. Both readings are notoriously unpredictable, thanks to huge margins of error and suspect data gathering. But still… we’ve seen the government push one major economic data point to the brighter side this week. You might expect the same on Friday.

Still, how’s this for a common-sense recession indicator? The projected number of U.S. consumers planning a summer vacation has reached a 30-year low.

This little nugget was slipped into yesterday’s Conference Board report. According to the group, high gas prices, inflation and an increase in unemployment will have more families “vacationing” at the town swimming pool than at any time since 1978.

We suspect a few more summer vacations will be canceled this morning. The national average gas price has hit yet another record high. Now at $3.61, gasoline has set a new record 16 days in a row. Think it’s getting a little expensive? Consider this:

“The U.S. is filled with gas hogs,” notes our resource man Kevin Kerr, “but the developing world is catching up. Last year, Chinese drivers bought 5.5 million cars, minivans and SUVs and 3 million commercial vehicles, up from just 1.6 million vehicles sold in 1997. Sales are expected to grow 15-20% this year. Looking down the road, China’s auto sales are expected to grow by 1 million vehicles annually through 2015.

“Meanwhile, India is poised to rocket past China as the world’s fastest-growing car market. Sales of passenger cars in India increased 12.17%, to 1.5 million, in this past year.

“As a result, China’s oil imports are expected to nearly double by 2020, and India’s oil imports are projected to more than triple over the same time period. So while $120 oil and $4 gas may seem expensive, it’s likely that in three years, we will have $250 crude and around $8 gas. I wonder if the ‘experts’ will still be debating whether oil prices are high by then.”

For ideas on trading the commodities market, don’t miss Resource Trader Alert.

The dollar stayed the course today. As speculators bet the Fed will be more inflation sensitive than usual in its rate announcement, the dollar index stayed put right below 73. The euro, pound and yen are all hanging tight at $1.55, $1.97 and 104, respectively, this morning.

Oil prices steadied a bit yesterday, after plunging to $115 on Monday. The gooey stuff sells for $116 as we write.

Credit card companies are officially making a killing during this “credit crisis.” Amid the wave of earnings announcements this week, we took particular notice to yesterday’s reports from Visa and MasterCard.

MasterCard told investors yesterday that first-quarter income had doubled since last year. The company raked in about $450 million in the first three months of the year, blew expectations out of the water and gave its shares a 9% shot in the arm.

Visa, in its first public earnings announcement, said its income is up 28% in the first three months of the year. Ticker V earned $1.4 billion in the quarter. Since its IPO, Visa shareholders have been doing just fine:

Aside from credit card companies, we’ve seen another wave of lousy financial earnings this week. Deutsche Bank got the party started, writing down $4.2 billion, for a $220 million first-quarter net loss. That’s the German bank’s first quarterly loss since 2003.

“In the first quarter of this year, financial market conditions were the most difficult in recent memory,” said CEO Josef Ackermann. “In the month of March, pressure on the banking sector was more intense than at any time since the current credit downturn began.”

Countrywide, the nation’s biggest mortgage lender, announced a 72% crash in year-over-year revenue and a $893 million quarterly loss. When Countrywide sold itself to Bank of America late last year, embattled CEO Angelo Mozilo predicted the mortgage lender would turn a profit in 2008. Safe to say he’soff to a bad start.

Citigroup announced it will give itself a $4.5 billion emergency cash injection by selling common stock. Just a few weeks ago, Citi moved to “optimize capital structure” by selling $6 billion in preferred shares. Guess that wasn’t the “optimal” amount. Current investors sold Citi down 3% yesterday on the news.

The Singapore sovereign wealth fund is hinting it might be interested in saving Citi’s bacon yet again. The $100 billion Government of Singapore Investment Corp. announced today that it plans to buy more bank assets similar to Citigroup.

We can’t say for sure how much the Singapore SWF has lost this year by gambling on the world’s mega-banks… but we’re guessing its $18 billion investments into UBS and Citigroup are currently on the wrong side of the ledger.

Over the last six months, the SWFs of the world have injected over $80 billion into U.S. and European banks.

“If there are other banks of the quality of the two that we bought into, with the promise and the capabilities and inherent capabilities to recover, we have got the liquidity to meet it, to make such an investment,” said Lee Kuan Yew, longtime leader of Singapore and now the man behind the SWF.

We got a closer look at the 84-year-old fund manager this morning… Singapore’s buying record is starting to make a little more “sense.” He may be one of the world’s greatest living investors… but is that drool on his lip? You’d think a publicist would have been all over that photo.

Saudi Arabia is ready to launch its first SWF, too. The Public Investment Fund will mark the House of Saud’s foray into the world of international investing. And will begin with a $5 billion war chest.

The Saudi government has hinted its SWF will invest directly in companies, not unlike the Government of Singapore Investment Corp.

Sovereign wealth funds are growing 24% every year, reported Global Insight yesterday. According to the research firm’s latest study, SWFs swelled to $3.5 trillion in assets in 2007.

For perspective, if all SWFs were to form one nation, that country would have the third largest GDP on Earth, just behind Japan and the U.S. At their current rate of growth, SWFs will surpass the U.S.’ $13 trillion annual economic output by 2015.

The three largest funds were little surprise… China, Russia and Kuwait top the list. But we took note of this little bit from the Global Insight report: SWFs of developing nations are growing at a breakneck pace. Over the last five years, Nigeria’s is up 291%, Oman’s 256%, Kazakhstan’s 162% and Angola’s 84%.

And here’s an indicator worth paying attention to: “I’ve been buying shares in China for the first time in a long time,” declared Jim Rogers recently.

Most of the China’s major indexes are still about 40-50% off all-time highs set late last year. But as the nervous rush to the exits, Rogers says it’s time to buy back in. “My new money goes to commodities and China. All the panic looks like a bottom.” At a seminar this week in Beijing, Rogers said his Chinese investments will focus on agriculture, tourism, airlines and education.

Jim, BTW, will be one of our marquee speakers at the Agora Financial Investment Symposium this summer. His insights alone could be worth the trip. You should really consider joining us this July in Vancouver… our speaker lineup coupled with the Vancouver summer is hard to beat. Get details here.

“So according to one reader,” asks another, “screw the farmers who are complaining about high fuel costs?

“As someone who has lived and still lives on a family farm, I can tell you that farmers are the biggest gamblers in existence. We’ve had times when we’ve lost the entire crop on our farm due to drought and flooding, losing all the seed, fertilizer and hard work and earning nothing for the entire year. If you averaged it out, farmers work harder and longer hours than just about anyone, and then, after paying all the costs, make just a small profit. And that’s on a good year.

“Even with the government’s help, it is damn hard to make a living on a family farm. That’s why so many of them are dying out or selling the land, turning them into mega-corporate ag farms. When the last American family farm has gone under and all that’s left is the mega corporations charging an arm and leg for your food, let’s see just how much criticism that you do.”

“Have you seen the price of nitrogen to produce that corn?” asks another farmer. “Do you even know what it costs to put out an acre of corn and the risks involved? If you did, you would not even waste your time. Consider yourself lucky that the farmer will.

“Food prices will continue to skyrocket, because we can only produce so much on each acre, and that acreage is becoming smaller each year. With the world population increasing, as well as the standard of living getting better, America’s breadbasket becomes increasingly more valuable.

“Do you really think that ethanol production is causing the problem with rising corn prices, or is there just a higher demand from the world? I mean, really, I didn’t see people complaining when corn prices were less than $2 and the farmer elected not to put out the crop that year because it cost more than $2 to grow. Or the farmer left it in the field to rot because it cost too much to harvest and dry, or the farmer elected to make ethanol out of the excess.

“When consumers purchase a corn product from the store, how much of that money is passed to the farmer? I also don’t see you complaining about the rising cost of other commodity prices, like steel, rare metals, etc. Is this the farmer’s fault, as well?”

The 5 responds: We have no beef with you, farmer. Government subsidies of ethanol? Yeah, we have a problem with them.

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. Here’s a sample of the invitation we sent out to employees here in Baltimore for I.O.U.S.A. this morning. If you’re in the area, come on by:

Please join Agora Entertainment this week for the Maryland premiere of I.O.U.S.A. This highly acclaimed documentary film, a 2008 Sundance Film Festival selection, will be featured during the Maryland Film Festival this Friday, May 2, and Saturday, May 3, at the Charles Theatre in Baltimore. Tickets are on sale now.

Inspired by the book Empire of Debt by Bill Bonner and Addison Wiggin, I.O.U.S.A. boldly examines the rapidly growing national debt and its dire consequences.

I.O.U.S.A. features interviews conducted with Warren Buffett, Robert Rubin, David Walker, Paul Volcker, Alice Rivlin, Pete Peterson, Paul O’Neill and Bill Bonner, among others.

“‘…most unexpectedly frightening movie in the festival.’
— Kenneth Turan, Los Angeles Times
“‘…an alternately amusing and alarming primer on America’s off-the-charts fiscal irresponsibility.’
— Justin Chang, Variety.com
“‘…may be to the U.S. economy what An Inconvenient Truth was to the environment.’
— Mary Milliken, Reuters.com

Tickets should be purchased in advance through the Maryland Film Festival Web site. Screenings will sell out. For more info, screening times, and tickets, click here, or here.

And… here’s an article in today’s Baltimore Sun
about the film, and Agora, warts and all.

P.P.S. As with many things in life, it’s “feast or famine” with our projects.
By pure coincidence, the second edition of The Demise of the Dollar
is No. 1 on the nonfiction list on Amazon.com this morning.

Ironically, Ron Paul’s Revolution
is No. 2… you should get them both.

rspertzel

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