by Addison Wiggin & Ian Mathias
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Markets plummet again… how a more distant view of U.S. stocks makes sense of the volatility
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Former Fed chairmen unite: Volcker and Greenspan’s thoughts on the credit crisis
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Oil at 16-month low… Byron King’s “recession proof” oil stocks ready to rebound quickly
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Employment goes from bad to worse… “mass layoffs” reach historic high
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Housing crisis intensifies… latest data provide key bullish and bearish takeaways
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Plus, Barack Obama writes to The 5… the full letter, bellow
Another day, another 600-point swing for the Dow. But this one? All to the downside:
Despite a last minute spike, the Dow ended with a 5.7% loss. The Nasdaq fared a little better, down 4.8%. And the S&P 500 was hit the hardest, down 6.1%.
Ending the day at 896, the S&P 500 suffered its lowest closing price in five years. Another 60 points and we’ll be at the S&P’s credit crisis low.
But consider this…
While the sell-off in the U.S. spread to Asia overnight, it’s not THAT bad this morning. Markets are down there, for sure, but most major indexes in Asia fared better than those in I.O.U.S.A. Europe, too, is holding the line this morning.
Wachovia announced the worst quarterly loss of the credit crisis, perhaps in banking history. The “bank” lost an impressive $23.9 billion in the last three months.
Wachovia took the biggest hit after writing down $18 billion of its newly acquired mortgage originator Golden West. Wachovia bought Golden West, which specializes in pay-option ARMs (heh) for $24 billion just two years ago. Ouch.
With the little money it’s got left over, Wachovia added $6.6 billion in further loan loss provisions for the current quarter.
“We are really going to have to rebuild this system from the ground up,” former Fed Chairman Paul Volcker said yesterday. Until then, he asserts, “I don’t think we can escape damage to the real economy. I think we almost inevitably face a considerable recession"
"Given the financial damage to date,” Alan Greenspan told Congress today. “I cannot see how we can avoid a significant rise in layoffs and unemployment."
Mr. Bubble told Congress today that he remains in a “state of shocked disbelief” over the failure of leading financial institutions to self-regulate and protect their shareholders during the housing boom and bust. So Greenspan proposed increased oversight and regulation of the sector, including a requirement “that all securitizers retain a meaningful part of the securities they issue.”
Thanks, we’ll file that in the “Greenspan: Hindsight Is 20/20” folder. All things correct in due time, we’ve noted on occasion — even the reputations of men.
The volume of “mass layoffs” in the U.S. has reached a seven-year high. According to a Labor Department report issued yesterday, the number of firings involving at least 50 workers skyrocketed more than fivefold from August to September.
There were 2,269 such events in September, up 497 from August. You’ll have to go back to September 2001 to find a higher body count.
Goldman Sachs added a few bags to the pile itself today. The former haunt of Treasury Secretary Paulson announced it will cut another 10% of its work force, or about 3,260 employees.
Jobless claims related to the layoffs across the economy rose by 61,726 last week, to a weekly total of 235,681. That’s the highest level since post-hurricane Katrina in September 2005.
The manufacturing industry continues to get whacked the hardest. Twenty-eight percent of all mass layoffs were conducted by manufacturing firms. Thirty-six percent of current unemployment claims come from former laborers.
Remember the days when the “we think, they sweat” crowd thought declining manufacturing was a good sign? Wait until the populists start getting into these former grunts’ heads. Then we’re going to have some real fun.
Crude shed another $3 yesterday, to a 16-month low of $66 dollars a barrel. Evidence of waning demand and the prospect of a deep U.S. recession far outweigh threats surrounding the OPEC meeting today.
We suspect a 1 million barrel per day cut in production by OPEC today is already factored into the price. Crude blipped up to $67 this morning in anticipation of the cartel’s emergency meeting.
As oil declines, oil and energy stocks have become the new laggards of the U.S. stock market. Energy and basic materials stocks led the market down yesterday, as both sectors suffered about 10% declines.
“Oil and oil service companies have really been taken down,” notes our oil adviser Byron King. “But the thing about the oil service companies, though, is that a lot of their business is all but recession proof. And much of the oil service business is immune even to wide swings in oil prices. That is, many oil company capital budgets are drawn up a couple of years ahead of time. So oil service companies should have work despite the macroeconomic situation. Not as much as in the boom times, maybe. But it’s not going to be as bad for the oil service companies as a lot of people seem to think.
“There are many reasons for this. Sometimes an oil company has leases that are going to expire if it does not drill within a certain time frame. So the oil company has to drill. Or maybe the oil company has a rig under contract. So it has to drill before the contract expires and the rig moves onto other sites. Or maybe there is maintenance or a major workover on a well or field that just plain has to get done for reasons of safety or the environment. As I said, there can be a lot of reasons.
“So keep an eye on the oil service companies. As Monty Python once said, they are “not dead yet.” The oil service companies are way down from previous high prices. I believe that this is a time to nibble. Don’t blow your whole wad of cash, but begin to accumulate a position while we watch how the larger economy unfolds. I think we’ll see stronger oil prices sooner, rather than later.”
This morning, Byron mentioned three oil service plays in the Outstanding Investments portfolio worth your consideration. If you’re a subscriber, take a look. If not, get on it, right here.
Gas has further beckoned suburbanites back into their SUVs this morning. The average gallon of the cheap stuff will set you back $2.82 today — the exact average price one year ago. Somehow, it seemed a heckuva lot more expensive on the way up…
The lifeblood of the great American strip mall is down a remarkable 90 cents a gallon in the last 30 days, $1.29 from its July record of $4.11 a gallon.
After trouncing other currencies yesterday, the U.S. dollar is taking a breather. The dollar index remains at yesterday’s levels as we write, a two-year high of 85.5.
Gold, though, is still getting shellacked. It’s at $720 an ounce now, another $20 lower from yesterday. Commodities remain out of favor, but a bargain, if you ask us.
U.S. foreclosures grew by 71% in the third quarter compared with the same time in 2007. (Don’t forget, during this “same time” in 2007, the housing crisis was already in full swing.) About 766,000 homes received at least one foreclosure notice during the period, says the latest from RealtyTrac. 250,000 properties were repossessed.
And this nugget is the one that really worries us: 23% of all Americans who have at least one mortgage, about 12 million people, owe more on their mortgages than their homes are actually worth.
But we must admit there’s a bright spot or two to the latest RealtyTrac report. For starters, while the aggregate third quarter was as lousy as ever, September foreclosures backed off their August highs.
Also, the worst of the foreclosure crisis is relatively pocketed. California, for example, makes up more than 25% of all U.S. foreclosures. Add in Florida, Arizona, Ohio, Michigan and Nevada and you’ve got 60% of the total American foreclosures in the third quarter.
But if your address is near the top floor of 740 Park Ave., you needn’t worry. Courtney Sale Ross, widow of Time Warner’s Steve Ross, is quietly testing the value of her duplex atop the famous New York City address. While there is no “official” price, The Observer reports that you need not call her broker with less than $60 million.
Should the 32-room “apartment” sell for over $60 million, it would be the most expensive residential sale in NYC history.
“I too was one of the ‘frustaterati,'” writes a reader, “who couldn’t get the Webinar link to open after submitting the required e-mail address. Today, however, after getting my daily three-pronged Agora fix (Whiskey & Gunpowder, The 5 and Rude Awakening, waiting for Bonner to get his crotchety old butt out of bed to pen The Daily Reckoning and make it an even “4-bagger”) the link worked just like Joe — your geek guy — I assume, said it would. Loaded in an instant, quality was great, and message greater.
“Keep up the great work. Your insights have not made me a millionaire yet, but have saved my bacon by my following your impeccable foresight. Thanks!”
The 5: Thanks for the note… we’re glad you were able to gain quick access to the Webinar.
If you’d like to give it another go, you can still check it out for the rest of the week, here.
“I thought I read a few weeks back,” notes another, “that you’d be offering I.O.U.S.A. for purchase on DVD soon. Has that happened/will that happen?”
The 5: That has not happened, but will soon. We reviewed and approved the “check” disks yesterday. As soon as we have a firm delivery date, we’ll let you know. Of course, 5 Min. readers will get the first crack… thanks for asking again.
Cheers,
Ian Mathias
The 5 Min. Forecast
P.S. Addison sends his regards from the last place you’d expect. Even MTV Canada wants to know about I.O.U.S.A…. who’d have thought? If you’re around the MTV studios in Toronto today, keep an eye out for him. In the crowd I’m picturing, I suspect he won’t be hard to miss.
P.P.S. We just received this letter from Barack Obama … likely the most he’s mentioned the national debt in his entire campaign.
