A friendly disclaimer… Friday the 13th is living up to its reputation
The sea change amid global economies… worldwide survey highlights some brutal truths
Disturbing data day: Foreclosures more than double, consumer inflation spikes, sentiment at 28-year lows
Energy costs stifling U.S. businesses… Exxon quits the gas biz, airlines bump up costs again
Kevin Kerr on the skyrocketing corn trade
Plus, one way of getting more bang for your stimulus buck… literally
We don’t aim to be oppressively bearish in our daily 5 Min. Admittedly, we have a taste for the dramatic… the darker side of financial news has a way of piquing our interest. We know that can be tiresome, and on Fridays especially, we try to keep it light. That being said, after scanning the news today — gathering all the bits we feel will sharpen your investment strategies — it’s just looking ugly out there. You’ve been warned.
So pour a drink, grab a seat, smoke ’em if you got ’em… here we go:
The majority of the world believes the global economy is “bad,” reported the Pew Research Center yesterday. Of the 24,717 people from 24 nations surveyed, 61% say their homeland economy is in bad shape. 50% felt the same this time last year.
Of the minority who feel their economy is good, here’s the breakdown from the Pew:
In terms of global attitudes, the picture for the U.S. economy was bleak. The majority of respondents said that the U.S. slowdown was largely responsible for their lowered outlook. “With only a few exceptions,” reads the report, “the American economy is now seen as having a negative impact on national economies, both large and small, in all parts of the world.”
The ascendancy of China also permeated the study. For example, 30% of Americans told Pew that China will eventually replace the U.S. as the world’s superpower.
73,000 American homes were repossessed in May, a 158% spike from May 2007. According to latest from RealtyTrac today, foreclosure filings were up big as well, 48% year over year. Nevada fared worst during the month. One in every 118 homes there is in some form of the foreclosure process.
For all of the U.S., May is the 29th month in a row in which the yearly foreclosure rate has increased.
U.S. consumer inflation leapt 0.6% last month, the biggest increase in six months. According to the Labor Department’s report this morning, consumer prices have inflated 4.2% over the last year. That’s notably higher than economists expected.
Predictably, energy-related costs led the way. Today’s report said energy expenses inflated 4.4% in May alone, 17% in the past year.
And by “energy expenses,” the Labor Department mostly means gas prices. Their specific measure of gasoline costs rose 5.7% in May. According to AAA and gasbuddy.com, the average retail price rose from $3.60 to $3.97 during the month, or 10%. But who’s counting?
Today, the national average for a gallon of the cheap stuff is at another record high — $4.06.
Fuel costs are getting so high, so fast that Exxon Mobil announced today it is leaving the retail gasoline business. The oil giant said it will allow current stations to keep the Exxon name, but over the next few years, all Exxon-branded stations will be sold off to distributors and individual owners. According to Exxon officials, the retail gas biz has become simply too volatile and margins are too low. Not even the 14 billion gallons of gas sold at Exxon stations annually could keep ’em interested… that’s saying something.
Soaring fuel costs are still suffocating the U.S. aviation industry, too. Here’s the news from commercial airliners, just in the last 24 hours:
Nearly every U.S. airliner bumped up fuel surcharges by $20 per round trip, the 19th such increase this year.
U.S. Airways is cutting 1,700 more jobs.
U.S. Air will cut capacity by up to 8% and retire at least 10 planes.
United Airlines and U.S. Airways both announced a $15 fee for one checked bag, $25 for the second. That matches American Air’s baggage policy unveiled three weeks ago.
U.S. Airways won’t even give you water for free anymore… nonalcoholic drinks now cost $2. Anything with booze in it costs $7.
“Almost every flight in the skies these days loses money,” notes Byron King. “It does not matter how few peanuts they put in the little bags. The cost of jet fuel is soaring… it’s up 92% in the last 12 months.”
“At the very least, 20% of airline seats are going to go away within the next six months.
The airplanes of the world are starting to get grounded. The skies of the future will not be so crowded. Eventually, the burden of fuel costs will have to shift to the ultimate consumer, the passenger. You want to fly? You have to pay.”
Add all of that up: Consumer sentiment sank to a 28-year low today. Just a few hours after the CPI report this morning, the University of Michigan announced its preliminary consumer sentiment reading for June. It’s down to a score of 56.7, the worst since 1980. All facets of the survey — inflation expectations, current conditions and future expectations — fell more than economists expected.
For comparison’s sake, U of M’s sentiment index scored an average of 85 in 2007.
Traders reacted to today’s data by… bidding the dollar index higher? The greenback held onto its gains this week, and then some. Following the CPI report, the dollar index popped up to 74.2, its best reading since February. We assume that traders bought the dollar with the impression that the lousy CPI will have the Fed more likely to raise rates soon.
Until then, the Fed’s been running the printing presses 24/7. Wall Street banks, on average, borrowed $13.1 billion from the Fed’s discount window this week… each day. Investment firms averaged $8.4 billion in daily borrowing.
We also learn today the Federal Reserve successfully conducted another TSLF. Investment banks brought $25 billion worth of untradeable asset-backed securities to the Fed yesterday. Per usual, the Fed took them on I.O.U.S.A.’s balance sheet in exchange for Treasury notes.
Gold reacted to the CPI report as well, but only by a small margin. The precious metal is up $10 this morning, to $865
Oil remains near record levels today, around $134. We haven’t heard much supply and demand news since Wednesday’s inventory report . Most of crude’s price fluctuations since then have been tied to the dollar.
Safe to say… the corn trade has entered a new paradigm:
After a steadily rising over the past year, corn has shot through the roof this week. Futures in Chicago reached as high as $7.40, setting a record high every day since Monday.
“I must admit,” says Kevin Kerr, “I did not imagine we would see $7 corn before we even got into the hot part of summer… Even I never expected that this year’s crop would endure so much havoc, but here we are. All of the flooding in the Midwest has been devastating, and I have gotten several pictures from our RTA farmers and road warriors out in the central states. What a tragedy for so many people. Our thoughts and prayers are with you.
Cedar Rapids, Iowa, yesterday… scary
“But as the saying goes, ‘Make popcorn when the circus is in town.’ Between ethanol, the flooding and rising diesel fuel costs, we have ourselves a genuine three-ring circus for corn. Yields for corn were already going to be lower, and now we have a crisis on our hands. Some crops are completely lost, while others will need to wait until fields dry out, which may take months. In other words, forget about it. There is no happy ending to this story, I am sorry to say.
“I believe the agriculture prices have more upside, as conditions could continue to worsen.” Kevin’s Resource Trader Alert readers are up an impressive 166% on their corn positions… in just 4 months. If you’re looking to bag quick profits in the booming commodity trade, its not too late… you’ve got to check out Resource Trader Alert.
Elsewhere in commodities, cocoa prices hit a 28-year high yesterday. Ironically, exceptionally dry conditions in West Africa this year have pushed cocoa to $2,993 a ton. Prices are up 30% over the last 12 months and haven’t seen current levels since 1980.
The stock market started off strong yesterday, but ended up by just a small margin. The Dow responded surprisingly well to the shake-up at Lehman Bros ., gapping up over 130 points right at the market’s open. But traders found a reason to sell for the rest of the day… Microsoft officially put the kibosh on a Yahoo deal, oil perked up a couple bucks, airline and housing stocks were looking glum. By the end of the day, the Dow, S&P 500 and Nasdaq managed small gains, all less than 0.5%.
Last today, we notice that even the oldest profession is doing its part to keep the U.S. economy afloat. The Moonlite BunnyRanch, perhaps the country’s most “famous” legal brothel, has unveiled the “more bang for your buck,” program. Stroll into the Carson City hooker house with your economic stimulus check in hand and the proprietors promise you twice the, well… you get it. We hear they’ll reimburse you $15 for the baggage fee if you have your American Airlines ticket in hand too — no kidding.
“I source product in China for large retailers in America,” writes a reader. “As you might imagine, the store buyers have of late been requiring (begging?) forward pricing to remain stable, i.e., unchanged, at least until the end of 2008. They’re dreaming. We are now getting producer (excluding factory) price increases from 7-12% from Chinese manufacturers, and that is just since April. We have about seven more months to go.”
The 5: We believe you. The Labor Department reported yesterday that import prices rose 2.3% in May alone. Year over year, import prices are up 17.8%, the biggest annual increase since the government started keeping track in 1982.
Granted, oil accounted for all but 0.5% of the May increase. But under the current conditions, we have trouble seeing how bringing almost anything into the U.S. is any cheaper today than it was last year.
“Regarding gold confiscation,” a reader responds to yesterday’s reader mail, “it may be instructive to note ‘Homeland Security’ has, under the authority of the PATRIOT Act (surprise), established a direct connection between itself and every precious metals dealer in the country, and it now has total access to all names, addresses and purchase orders for gold and silver bullion. This is unprecedented. They may not do it, but they are certainly preparing for the possibility…
“In my opinion, once investors and the public panic (perhaps when the bond market collapses, which it will), there won’t be enough leverage in the world to suppress the prices of gold and silver.
“Just as with every other hard asset and real wealth this crew can get its hands on, I do believe gold and silver bullion will, indeed, be confiscated ‘to back a new currency’ (the ‘amero,’ perhaps?), and also to eliminate the possibility gold and silver will be used as money, which would challenge or compete with the ‘new’ currency — that would simply never be allowed. Since this is a rich man’s game, it is probable numismatic coins will again be spared. If they can pull it off, virtually every hard asset in the land will be owned by or owed to the financial elites running this dog and pony show.”
Enjoy your weekend,
The 5 Min. Forecast
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