Data Galore, How the Credit Crunch Hits Home, Private Airports, a Very Bad Idea and More!

by Addison Wiggin & Ian Mathias

  • Time for an economic checkup: The 5 sorts through personal income, ADP jobs, ISM manufacturing and consumer confidence reports
  • Greg Guenthner with a product consumers buy when the economy sinks
  • Credit crisis hits home… local governments unable to finance projects
  • So what’s the solution? Chicago to take major airport private, leased to Citigroup
  • Meanwhile, sudden gas shortage strikes… Atlanta?

We begin today with a reading from the economy’s latest EKG:

Electrode reading #1: U.S. manufacturing activity plummeted in September. The Institute for Supply Management (ISM) says production sank to a score of 43.5 during the month. That’s the lowest level since 2001. A score of 50 is considered mildly healthy.

Electrode #2: 8,000 jobs were lost in September. Most economic doctors expected 55,000 lost jobs, so this reading is perceived to be good. Overall, according to the employment consultants ADP, the economy has shed 80,000 jobs in 2008.

Electrode #3: After taxes and inflation, real disposable income fell nearly 1% in August — the third monthly drop in a row. At the same time, the Commerce Department’s measure of inflation, personal consumption expenditures (CPE), rose to 2.6% — a 13-year high.

The 5’s quick-and-dirty prognosis: The U.S. economy needs to exercise more… and eat less. Hmmn… where have we heard that before?

Even so, the ever-ebullient consumer is as confident about his prospects in this economy as at any time in 2008. The Reuters/U. of Michigan sentiment survey inched up on Monday. Today, the Conference Board says the same: Its index of consumer confidence rose to a five-month high in September.

We haven’t seen a score of 59.8 since April.

“Know what people buy when the economy is down on its luck?” asks our small-cap adviser Greg Guenthner. “Lottery tickets.”

“Lotteries record their strongest sales when the economy weakens. A Rockefeller Institute of Government study reveals lottery revenue has experienced steady growth over the past decade. Even more telling is lotto’s highest rate of growth: during the post-Sept. 11 recession of 2001-2002.

“Some may call it a case of misplaced priorities… but in times of financial stress, more people resort to gambling on lottery tickets to put the pieces back together.

“Lotteries have now found themselves at a critical juncture. Thanks to the weak economy, many more cash-strapped customers would prefer to get their gambling fix close to home. Now is the time for lotteries to win even more new customers with innovative and exciting games.”

So how do you capitalize on an upswing in lotteries, given they’re a monopoly racket controlled by the government? Gunner has the answer… in the latest edition of Bulletin Board Elite.

The day after staging its biggest point fall in history, the Dow rose 485 points — its third biggest point rise in history and, at 4.7%, the best single day percentagewise since July 2002.

We’d love to think the rally came from shorts taking profits (oh wait, that’s illegal) or a “free market” defiantly telling the government where to stuff its congressional prop. But really, we suspect traders are betting Monday’s historic fall will scare Congress into action. Even though their “constituents” have screamed, “No bailout,” we wonder how far 401(k)s will fall before the average Joe is singing a different tune.

Don’t forget that the ban on short selling ends tomorrow… look for some fireworks, or last-minute extensions.

Senators will vote on their own version of bailout package today. The Senate has juiced up the rescue bill with tax breaks, alternative energy stipulations (say what?) and higher deposit limits for the FDIC. Senators are hoping after they pass their pork, the House will like the changes and pass the bill straight onto the president’s desk.

The global credit crunch is starting to pinch at the local level. Cities around the country can no longer afford to sell bonds to finance new projects (courtesy of the NYT):

In September of last year, state and local governments issued $23 billion in muni debt. Last month, they issued only $15 billion, and all but $2 billion came in the first two weeks.

Perhaps the “free market” could help out here, too. Midway Airport in Chicago might soon become the nation’s first privately run major air travel hub. A consortium of Citigroup, John Hancock Life Insurance and Canadian YVR Airport Services has bid $2.5 billion for a –long term lease of the airport.
 
The city of Chicago applied with the Federal Aviation Administration to grant this lease as a way for the city to finance other investments. The FAA and city government still have to grant final approval (on Oct. 8), but it’s looking like the deal might go through. Should make for an interesting experiment.

Weeks after Ike and supply disruptions from Gustav and Ike, Georgia, the Carolinas and Tennessee are still hurting for petrol. According to Reuters this morning, most gas stations in Atlanta are simply out of gas, covering the pumps with whatever they can rummage:

Motorists are swarming around stations that still have fuel, paying over $4 a gallon — well over the national average of $3.61. 911 operators have been overrun by knuckleheads calling to find a station before their Hummers run out of unleaded. Images of life in the post-Peak world, we suspect. Enjoy.

Despite the record-setting fall of U.S equities on Monday, gold’s spot price is largely unchanged. You could have bought an ounce for $880 Monday morning, and you can get the same ounce for $875 today.
 
“The key with gold right now,” advises our Ed Bugos from his camp in Vancouver, British Columbia, “is to assess all the news in terms of its impact on Fed policy. There is no more room on its balance sheet for sterilized swaps. The Fed and Treasury have been creative at putting off the helicopter option so far, so I would hate to continue underestimating them. However, while I won’t know with any certainty for another day, or maybe even a week, the early evidence suggests that the Fed has already begun to monetize its liquidity injections.
 
“It is unfortunate to see all the pain, but the news could not be more fundamentally bullish for gold if China invaded Canada. The changes that have occurred are enormous, and they are happening fast. The implications and shock waves are going to reach too far and wide to be able to understand or even predict them at this early juncture. But gold should shine in this environment.”

As always, for the best ways to play gold in the equities and options markets, we recommend you check out Ed’s Gold & Options Trader.

Incredible… not only is the dollar holding up during the madness this week, but it’s actually booming. The dollar index shot up a point and a half yesterday, to 79.5. All the banking drama in the eurozone on Monday started the dollar’s comeback. Then yesterday, using logic that is beyond us, the dollar rallied in anticipation that Congress’ second go-round at the bailout package would be a “success.”

“Why not just take that $700 billion bailout,” suggests a reader, “and divide it equally among every adult 18 and older. Let each person pay taxes on their share, which would give the U.S. Treasury one hell of a boost, put several thousand dollars (after taxes) into the pockets of the American people, who would then be able to save it, pay college expenses, pay into their mortgages, spend it or do whatever they want with it. That should turn the economy around, kill the recession and bring us back to prosperity.

“As far as the original intent for the $700 billion, I say let those chips fall where they may. Maybe if that sum were in the hands of the people, instead of where it’s now intended, it would be put to better uses.”

The 5: You’re being facetious. You have to be. Your idea, as many times as it’s been suggested over the past week, ranks right up there with these other great winners: AAA-rated subprime mortgage-backed securities, Crystal Pepsi, the designated hitter and Sarah Palin for vice president.

“What is so galling,” writes a reader, “is that pretty much everyone in the mainstream media has concluded that the bailout is a positive development, the right thing to do — and that anyone who opposes it ‘just doesn’t get it.’

“I chalk this up as just one more piece of evidence that a bull mentality is pervasive among the elite crowd and that a true free market economy in which there are consequences for rotten decision-making is unacceptable. They really believe in Cramerica! My thesis is that the bottom in this colossal mess will not be reached unless and until these individuals internalize this basic tenet of capitalism. That, of course, will involve a painful, expensive and humbling lesson in Econ. 101 for a lot of really smart suits… but hey, what do I know, I’m just a musician.”

The 5: Heh, speaking of Cramerica, check out his latest gaff.

“I have never been a big fan of Ayn Rand,” writes a third, “given her militant atheism and personal immorality.

 “However, the current financial situation seems like something right out of Atlas Shrugged. The root of the crisis is government interference in the marketplace. The end result is an economic crisis. So what do we do? Give the government even more power. What do we do next time?

“How about letting the rotten financial superstructure collapse along with all the Masters of the Universe, lobbyists and politicians and start rebuilding the economy from the ground up, beginning with making products people need and want, rather than shuffling paper?”

The 5: We may get there, with or without Ayn Rand.

Cheers,

Addison Wiggin
The 5 Min. Forecast

rspertzel

Recent Alerts

A Breakthrough 100 Years in the Making

“With sales of $49.3 billion in 2020, recreational boating is a huge industry,” says our technology authority Ray Blanco, “an industry primed for disruption.” Read More

An “Asymmetric” Gold Trade

So much for gold’s latest run past $1,800… And yet, Jim Rickards says: “We have a setup for asymmetric trade in gold.” Read More

Gold (Standard) Resurrection

“We’re going to see a collapse of confidence in all paper currencies,” says Jim Rickards. “The only question is what will replace today’s dollar-based monetary system?” Read More

Trump Raid: Point of No Return

The last thing The 5 wanted to write about this week was the FBI raid on Donald Trump’s estate. But down the rabbit hole we go… Read More

Wall Street’s Biggest Delusion (“The Pivot”)

“Wall Street thinks that the worst of the rate hikes are over and that the Fed will begin easing by early next year,” observes Paradigm’s macro expert Jim Rickards. “But will it?” Read More

The Return of Cash (But Will It Last?)

Remember when the pandemic prompted folks to conduct more commerce electronically? No more, at least not in the U.K. Read More

Beyond Alex Jones: Censorship 2022 Style

Two weeks ago, the social media industry crossed a Rubicon — slapping a “misinformation” label on an expression of opinion about the economy. Read More

Growing the IRS Goon Squad

At the heart of our harangue today is a plank in the “Inflation Reduction Act” that would build out the IRS’ capacity to audit and harass everyday taxpayers. Read More

“But Where Does Dave Get His News?”

Paradigm Press, New York Times, BBC, Financial Times, Wall Street Journal, Drudge Report, Twitter, conservative news sites, teletype machines, international news channels Read More

Pharma Scandal: Doctored Photos and Wasted Billions

An extremely important medical story the mainstream mostly buried… Read More