by Addison Wiggin & Ian Mathias
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U.S. data deliver upside surprise… what measures are moving markets today
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Chinese stock market plunging into abyss… time to buy?
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Study shows since 2000, you’ve been working more, getting paid less
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One very “vocal” victim of rising jet fuel costs
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Byron King with one industry set to soar no matter who is elected president
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Chris Mayer on why wind power cannot work in the U.S… yet
Welcome to the land of the “free”… free money, that is.
Government stimulus checks helped boost second-quarter GDP up 3.3%. That’s nearly double the Commerce Department’s initial projection. A weak dollar also helped U.S. exports rise. They’re up 13%… 4 points higher than the expected 9%.
Yesterday, orders for durable goods jumped, too, up 1.3% in July. Curiously, orders for commercial aircraft show the largest rebound.
Coupled with the GDP announcement, the Dow opened 130 points higher this morning.
But for every bit of “good” news hitting the tape, there’s a litany of scary data close behind. Bankruptcy filings, for example, were up 29% in June, year over year. Total filings for the 12-month period rang in just under 1 million.
And here’s a curious bit of data for both Buffett and Greenspan, champions of the “American productivity” school of euphorinomics: Between 2000-2007, U.S. worker productivity increased 18%, but salaries declined, on average, $2,000.
Despite producing an average of 2.5% more geegaws each year, the median inflation-adjusted family has fallen over the past seven years, from $58,000 to $56,000. “It’s a compelling example of a large disconnect," says Jared Bernstein of the Economic Policy Institute. "Americans aren’t being rewarded for their productivity."
Really.
Maybe it’s time to buy China, then.
When the Shanghai Composite stopped soaring into the heavens back in 2007, we thought, Oy, about time. When it fell 10% soon after, that made sense. So did the 20% bear market that came in lock step with the U.S. credit crunch.
Today, you’re looking at an SSE that’s 62% off its record high.
The Shanghai Composite has gotten punished as heartily as Wall Street’s most complicit banks in this past year. This morning, the mainland Chinese stock market is back where it sat at the beginning of 2006. Investors didn’t even bother acknowledging a disaster-free Olympics.
“I wouldn’t be surprised to see a rally into year-end for the Shanghai Composite,” guesstimates Dan Amoss. “In the short term, the Chinese government is reversing many of the credit-tightening measures it’s been taking in recent years (bank reserve requirements, forex policies, etc.).
“Chinese income and consumption growth seem to be on a sustainable uptrend, provided that the rest of the world doesn’t fall into an unmanageable, spiraling credit implosion (not likely, considering recently inflationary bailouts).
“Also, $1.3 trillion in forex reserves buys China plenty of stability. We won’t see a repeat of the 1997 crash, that’s for sure.”
Still, “I don’t think I would buy the Shanghai Composite,” opines Chris Mayer, “but I am still interested in picking up exposure to the long-term China story. The problem with the composite is that it’s like a sausage. There are all kinds of mystery meat in there. Who knows what it is really worth or if it is any good.
“But you can pick up quality companies — listed in the U.S. — with good assets and nice growing businesses in China. That would be the way I’d play it.”
If only investing in China were as easy as trading in Pakistan. The Pakistani government decided today they were sick of watching the Karachi Stock Exchange plummet every day. So they froze the price of Pakistan’s most popular index. Until officials say otherwise, the KSE-100 cannot go below yesterday’s two-year low of 9,144. Either buy or pack up shop.
Hmn… price controls on an entire exchange? Brilliant. That ought to fix everything.
The dollar is just about where it was yesterday. The dollar index is a shade lower, at 76.8.
But that’s enough to generate some quick profits for the test pilots of our latest service, Master FX Trader. Our Reserve subscribers were offered free beta subscriptions to our dabble into the currency trading biz. Editor Bill Jenkins suggested readers sell British pounds and buy U.S. dollars ahead of this morning’s GDP data. He nailed the upside surprise, and the belabored pound shed a few “pips.”
Gold remains in a steady uptrend. After pausing for most of this week, the spot price is up another $15 today, to $840.
Tropical Storm Gustav is still on track to reach hurricane speed and barrel into the Gulf oil fields this weekend. Offshore drilling rigs are preparing to evacuate. New Orleans is already in a state of emergency.
Traders are waiting with bated breath for reports of carnage… or calm. Light sweet crude hasn’t budged from $119. We’ll let you know when and if anything happens. We can bate our breath as well as anyone.
Gas, too, is holding still. The national average is stuck at yesterday’s $3.66 a gallon for the cheap stuff.
“Gas prices are too mother$*#^ing high,” declared rapper Sean Combs — aka Puff Daddy, Sean Jean, P. Diddy or just Diddy — yesterday in a YouTube upload.
“I do own my own jet and I have been flying back and forth to L.A. pursuing my acting career. Now, if I’m flying back and forth, like, twice a month, that’s like $200,000 or $250,000 round trip. F^&! that. I’m back on American Airlines right now.”
“Look. I want to give a shout out to all my Saudi Arabian brothers and sisters and all my brothers and sisters from all the countries that have oil, if you could all please send me some oil for my jet, I would truly appreciate it. But right now, can you believe it, I am actually flying commercial…”
What a travesty.
“This is proof that gas prices are too high,” P. Did goes on, offering an explanation for why Americans continue to elect exactly the type of leaders they deserve: “We need to do something about it, so tell whoever the next president is that we need to bring gas back down.”
“No matter which presidential candidate wins,” Byron King e-mails us with an eye on the DNC, “I know one industry — and one company — that will benefit.
“There’s one thing both candidates have in common, at least if you watch almost any of their campaign television commercials: They both like windmills.
“Each candidate has been running TV commercials that show windmills. Often as not, there are attractive shots of rotating blades amid rows of corn on some dark-soiled farm. And then there is the comforting commentary about how your vote can help the U.S. achieve energy security.
“Wind power currently produces a fraction of 1% of the U.S. total electrical supply. But there are plans and policies afoot to increase U.S. electric power output to more than 20% of the total supply within the next 20 years. The only way to do this is by setting big turbines onto big tubular towers. No, make that lots of big turbines onto lots of big tubular towers.”
And who makes those big tubular towers? Byron just told his Outstanding Investments readers, and the stock is well below the “buy” price. Click here to subscribe to OI … one of the best values in our industry.
Many wind power plants in the U.S. have not been built simply “because there is no way to move that electricity from there to the load centers,” Gabriel Alonso, chief development officer of Horizon Wind Energy told The New York Times. America’s 200,000 miles of power lines (owned by over 500 companies) are unprepared for a boom in domestic electricity capacity.
According to federal figures, at present, electrical generation is growing four times faster than transmission development. New York state, for all its booming electricity demands, has built two major power lines in the last 20 years. Both were underwater connections to Long Island.
“It’s not enough to just build windmills,” adds Chris Mayer, “or find new natural gas out in the mountains somewhere or discover new oil deposits miles offshore. You have to have the infrastructure in place to get it to market. That’s why, for instance, we have a boom in pipe building to carry oil and gas (and water, too). And it’s why companies that own infrastructure are in the catbird seat now.”
If you have not yet invested in infrastructure, you should check out Chris’ new “paycheck portfolio.”
“Yesterday’s reader writing about the rationality of thinking optimistically,” writes a reader today, “was so moronic that I can’t resist. First, the United States is not a democracy. We are a republic, with arguably democratic processes.
“Second, to argue that the United States is ‘closer to the “that all men are created equal” ideal than at any other time in history’ ignores the fact that since the start of the millennium CEO pay has ranged from 364-525 times the pay of the average worker. The shrinking middle class and expanding lower class must be news items your reader missed.
“Finally, to argue that 200 years of ‘poorly planned and executed events’ create a track record upon which to be optimistic about a bet on the USA really shows the depth of understanding your reader has of the fiscal and governance problems we face. Zero. Come on, Homer/Marge, send us some more of your ‘thoughts.’”
“I.O.U.S.A. is too important to hold back,” urges a reader. “Sorry to the financial backers, but you need to get this out to the masses ASAP, especially with the upcoming election. I agree with the gentleman from the Cato Institute that no politician will go far enough to really address these pressing issues. Every politician up for election should be challenged to view the film and respond with what they would support to begin to remedy the problem. If they can’t come up with a valid plan, they do not deserve my vote. Thanks for your efforts.”
“When is this coming to DVD?” asks another reader, cutting straight to the point. “If you want it to be widely consumed, you just need to distribute some DVDs. Everyone young who becomes interested will pass it around and make copies for their friends. If you upload the entire movie to video.google.com, it is sure to be heavily watched, as well.”
The 5: We agree. We want to get it out there as quickly as possible. We’re making the DVD as we speak. And we firmly believe that the best way to get it out to as many eyeballs as possible is to make the film a commercial success. We’ll keep you posted on the DVD and future screenings… stay tuned.
But is it just us, or does it strike you as odd, too… that so many people are asking us to give a movie about "no free lunches" out for free?
Addison Wiggin
The 5 Min. Forecast
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