Financials Falling, Inflation Rising, Asia Suffering, Dollar’s Dying, Bears Selling, and More!

  • Financial crisis accelerates… Californians stage full-on bank run 
  • Banks suffer worst stock levels in a decade… Wayne Burritt on whether any financials are worth buying
  • A sign of the bottom? Famous perma-bear cashes out 
  • Dollar hits new low, one inflation gauge reads highest levels since 1981
  • Is your life worth more today than in 2004? The government doesn’t think so
  • Plus, long-awaited details on I.O.U.S.A…. how you can see our feature-length film in the very near future

  Bunker down, friend; it’s ugly out there. If you thought the worst of this credit crisis was behind us…well… it ain’t so. 

  Yesterday was the worst day for financials since 1998, at least. The bailout of Fannie Mae, Freddie Mac and IndyMac — what was forecast to be a big relief for financials — was a wash. Instead of bolstering confidence in banks still above water, the scare caused a sectorwide panic… all financials were sold off, and shares of any bank or broker in serious trouble got taken out to the woodshed.

S&P’s index of financials fell 5%, to a score of 239… a nine-year low. The XLF, the most popular ETF of financial stocks, sunk to the worst score in the index’s history. This month’s sell-off in the XLF makes the Bear Stearns crisis seem like a walk in the park.

  IndyMac was at the eye of the storm yesterday . The bank reopened under federal control (sweet new name, IndyMac Federal Bank), but we’re getting the impression that most folks don’t feel any more comfortable now that the guv’ment is running the show:

A bank run… Pasadena-style

O.K…. no heads on stakes or structure fires, but a legit run-on nonetheless. IndyMac depositors lined up around retail branches across the country yesterday. John Bovenzi, the FDIC official now running the bank, assured the nervous mobs that IndyMac was “as safe and as sound as any bank in the country.” But that didn’t quell these restless queues… depositors yanked out cash all day long.

  Washington Mutual got slammed yesterday too . WM shares plunged 35% yesterday, to $3.23 a pop, a 17-year low. WaMu officials swore they were adequately capitalized, saying yesterday the bank had a $40 billion capital cushion. But like IndyMac, depositors and shareholders weren’t willing to take the chance. Pile on a Lehman Bros. report suggesting WaMu might be facing a $21 billion mortgage-related loss… it was a dark day for America’s biggest savings and loan.

(By the way… why are investors still listening to Lehman analysts? The firm’s been on the brink of bankruptcy all year, with surprise losses every quarter… feels like reading a report on modern democracy written by Hugo Chavez.)

  “Not all financial institutions got into the same mess,” our new options adviser Wayne Burritt reminds us. “Some kept their balance sheets neat and tidy and are managing the credit crisis like stars.

“Unfortunately, that’s not saving their share prices right now. Investors are looking at the entire financial sector as if it were a pariah. They’re selling good and bad companies without discrimination.
“But it won’t last forever. In fact, it feels as if we’re in the mid to late innings of the credit mess. So while we may have some more downside to come, I’m beginning to see light at the end of the tunnel.

“When investors start buying in the financial sector again, they won’t be giving the time of day to long shots. They’ll focus on the best of the breed — the big and powerful players that managed the credit crisis well. Then they’ll realize that they’ve scorned these financial titans without good reason. And to make up for it, they’ll buy in droves.”

Wayne recommended buying calls on his favorite “financial titan” this week… which are selling even cheaper after yesterday’s sell-off. Check out Wayne’s new options trading service, Easy Money Options, here … it’s a great introduction to the sport, and quite a value.

  U.S. stocks in general had a disappointing day yesterday. Major indexes shot up out of the gate, but by lunchtime, the buzz had worn off. Most of the early morning rally proved to be little more than a chance to leave the market at a higher price. In the end, the Dow closed down 0.4%, while the Nasdaq and S&P 500 fell closer to 1%. Not even the recently rescued Fannie and Freddie could muster a gain… shares of both companies fell over 5%.

  The bad juju spread across the Pacific and put a serious hurtin’ on Asian markets . Take a look at this bloodbath:

Taiwan and Japan really caught our attention this morning. Word has leaked that the three biggest Japanese banks hold a combined $44 billion in Fannie and Freddie paper. Similar reports are coming out of Taiwan. We’ve mentioned before that if Asian markets start revealing overexposure to the U.S. housing crisis, this whole global slowdown could take on a new dimension. We’ll keep an eye on this for you.

  Europe is faring just as poorly. As we write this morning, nearly every major index is down over 2%. We weren’t too surprised to see German investor confidence sink to a record low this morning. The latest ZEW Center report shows investor confidence in Europe’s biggest economy at the lowest levels since it began keeping track in 1991.

  But before today’s 5 drives you to jump out your office window… a glimmer of hope? Famous market bear David Tice has sold his Prudent Bear funds. Federated Investors Inc. snatched up the funds — which benefit entirely from falling stock prices and rising inflation — for around $1.7 billion. We wonder… like a tech-savvy bull cashing out in early 2000, could Tice be ringing the register at the market’s bottom?

Then again, Tice is joining Federated as their chief portfolio strategist.

And if Federated Investors does anything to worsen the tremendous news aggregator available at… well… this editor will be writing yet another strongly worded letter.

  With all this news — the credit and housing crisis back in full swing — is it really a surprise to see the dollar hit a new record low? The dollar fell to $1.60 per euro this morning, its lowest level versus the euro since its inception in 1999. Other currencies of the world also took the greenback to task… the Aussie, at 98 cents, is at a 25-year high. The pound has regained the $2 mark. The Canadian dollar is back through parity. And the yen is at 104, a one-month high.

The dollar index, however, has managed to dodge an all-time low of its own. It’s down a full point from yesterday’s high, to 71.4… about a point above its record low.

  Even worse for the dollar, wholesale inflation rose way more than expected in June. The Labor Department’s producer price index (PPI) shot up 1.8% in the month, led by those pesky, volatile food and energy costs. Heh… for all the government’s talk of food and energy being volatile outliers of measured inflation, they’ve sure been rising quite reliably, no?

Over the past year, wholesale prices inflated at an incredible 9.2%, the worst PPI reading since 1981. Ouch.

  Conversely, your gold holdings are going gangbusters this week. Spot prices are up around four-month highs of $985 this morning. Gold hasn’t been this “valuable” since the Bear Stearns crisis.

  President Bush has lifted a ban on drilling for oil in the Outer Continental Shelf (OCS). Bush ended a nearly 20-year ban on shoreline drilling yesterday… a long-overdue method of reducing the current energy crisis.

But Bush’s lifting of the executive memorandum will have no impact without the approval of Congress. That’s looking like it’s not going to happen:

"The Bush plan is a hoax," responded Nancy Pelosi. "It will neither reduce gas prices nor increase energy independence."
Funny… we would think finding new supplies of oil on U.S. territory would both lower prices and decrease our dependence on foreign crude. Must be missing something…

  Despite the unlikely approval of the president’s plan, oil retreated $6 today. OPEC lowered its 2008 global oil demand forecast again today. According to the cartel, demand will now grow by only 1.2%, just a shade below its previous forecast of 1.28%. Light sweet crude sells for $137 as a consequence.

  Last, have you felt your life become worth less this year? The U.S. government has…

The “value of a statistical [American] life” is $6.9 million, announced the Environmental Protection Agency back in May. According to a study released by the AP this week, the new number is down nearly a million bucks from 2004. The EPA uses this measure to guide regulations… if the estimated dollar costs of a certain project, say limiting emissions, is greater than the “value” of human lives that may be damaged or lost… the government has reason to not move forward.

So why are we all worth so much less? Heh… either the government perceives us less valuable than we were in 2004 or the current administration is fudging the number in hopes of limiting coming regulation. Interesting stuff, either way…

  “Wasn’t it just last week,” writes a reader, “that Bernanke testified before Congress that Fannie Mae and Freddie Mac were ‘adequately capitalized’? If so, why the ‘bailout’? Apparently, Bernanke thinks Congress and the public are all fools — partly right, I suppose. In any case, Bernanke must be either a liar or a fool. Seems unlikely one with his credentials could have believed what he said he believed and done a 180 just a few days later.”

  “Among your erudite readers,” writes another, “I’m sure there’s at least one attorney who could make the case that Big Ben, Paulson, et al. are guilty of misfeasance in office. What could be more harmful to the economy… to the nation… than destroying the value of our money? Would the good guys prevail with such a suit? Not bloody likely. But with the right PR push, it might get the public’s attention.”

The 5: Yeah, it’s safe to say we’ve attempted our own PR push for greater fiscal responsibility. It’s called I.O.U.S.A., and it’s debuting in theaters Aug. 22. More on that below.

  “What the hell is so ‘unsightly’ about windmills?” asks a reader, responding to yesterday’s reader mail . “Compared with other constructions littering the American landscape (neon signs, billboards, telecommunications dishes, cell phone relay towers, power lines, telephone poles, obese shoppers), windmills are somewhat elegant. We’re in an energy crisis and America is looking for designer windmills? ‘Oh, if only they didn’t have those declasse blades! If only automobiles didn’t have those gauche tires!’”

 “Don’t get me started!” cries a reader in response to our preference of Stella Artois over Budweiser or Michelob, which are all now owned by the same international organization.

“Stella IS the Michelob of Belgium (Jupiler being the Budweiser). Stella is the cheap beer (one euro a can) that is available at every low-rent Belgian bar… or at least it was until Interbrew decided to start a marketing campaign to make it appear to be something other than swill. By the way, the Belgians are sick of InBev being called a Belgian brewery; they call it a Brazilian brewery. As did Interbrew, the company simplified the recipes for all of its beers — Hoegaarden and Leffe used to be much better — and they started acquiring good small breweries just to close them. After combining with the Brazilians, they became so non-Belgian that they didn’t even realize that Bev is a Flemish slang term for performing oral…”

The 5: Heh… the legal team would probably like us to stop it there. 

We suppose it’s just a matter of taste, but we’ll take a Stella over one of those ridiculous Mich-Ultra muscle-enhancing, reduced-carb beers any day of the week. But if you’d care to join us for a truly worthy pint here in Baltimore, we’d invite you up the street to Brewer’s Art . For our money, it’s the best beer selection in town and about as close to Belgium as “Charm City” can get.

Until then… “this Bud’s pour vous,”

Ian Mathias
The 5 Min. Forecast

P.S. The final cut of our feature-length documentary, I.O.U.S.A., will be debuting this month . Members of the House of Representatives will get the first look… Former Comptroller General David Walker will be hosting a special congressional screening this week. Pretty cool, eh?
If you’re coming to our Investment Symposium in Vancouver next week, you’ll have the privilege of attending the first public screening of the final cut. Walker will introduce the film there, as well, along with your 5 Min. editors and Agora Financial’s cast of characters… should be quite a show.
And if you can’t join us in Vancouver, Aug. 22 will be your first crack at the film. Addison and Short Fuse recently scored a nice distribution deal … the film will debut in theaters in 10 major cites across the country. If you want the when and where details… stick with The 5. We’ll let you know when the schedule is finalized.


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More