Take our quiz: Is the market even close to normal anymore?
Credit freeze continues to thaw… Mayer and Denning on what companies need to rebound
Home prices fall again, consumer confidence crashes, but market rallies?
Eric Fry on when this global financial trauma will come to an end
Plus, want a DVD copy of I.O.U.S.A.? Get the details below
Pop quiz: The biggest company in the world? Nope, not Exxon Mobil, not today anyway. Would you believe…
Oh, how twisted the markets have become.
In European trading this morning, shares of Volkswagen AG leapt 93% when word leaked that Porsche would be upping its stake from 49% to 75% — a controlling stake of the company. Buyers rushed in, short sellers were squeezed (big-time) and, for a moment, VW’s market cap crested $370 billion — greater than the beaten-down value of the world’s most profitable company, Exxon Mobil.
The moment was fleeting, but for a moment there, VW was the largest company on Earth… the Leper King during the worst of credit epidemics.
The short squeeze on VW was so extreme today the automaker was momentarily trading for 100 times projected 2009 earnings. Rumors abounded that Goldman Sachs was caught up in the short squeeze… which it quickly denied. Still, the stock fell over 10%. Morgan Stanley dropped over 12%.
The London interbank offered rate (Libor) — the rate at which banks lend to each other — is down again today. The introduction of the Fed’s new Commercial Paper Funding Facility (CPFF) helped the three-month Libor fall another 5 points yesterday, to 3.47%.
The mist rising off the frozen credit markets is still causing a heavy fog, but there’s hope the sun may come out again and burn it away. Coupled with some more European Central Bank injections this morning, the Libor is on track to have fallen 13 days in a row.
Still, according to the Bank of England today, global credit crisis losses now exceed $2.8 trillion. In its semiannual Financial Stability Report, the BoE reported global banks are financially unstable and losing money. Really.
Cheers, mates, thanks for the update.
“It’s a great contraction,” notes Chris Mayer, “a historic liquidation in the stock market and a mad dash to grab cash wherever you can get it. Across the world, the goal is to build up cash reserves and cut back. The Financial Times reports that 5-10% cuts in capital spending are common. In the commodity world, it’s more like 10-20% — as mines shut down and projects freeze. Most expect more cuts of one kind or another. As the FT opined, ‘The hoarding of cash is likely to intensify.’
“This slowdown also comes with a complete shutdown of the credit spigot. It’s tougher to raise money no matter who you are. If you a smaller miner or resource company, forget it. A lot projects that looked good at higher commodity prices are just bleeding money at current levels. Yesterday Russia’s Ufaleynickel, the third largest producer of nickel in Russia, said it would shut down nickel production entirely. It costs it $26,000 to produce a ton of nickel that it can sell for $8,000.
“And so the commodity markets begin to correct. Some will correct more quickly than others. The survivors on the other side, though, stand to make fortunes. I think we’ll have a bunch of those, but it certainly looks bleak today in a big-picture sort of way.”
“The ability to generate new earnings off net tangible assets,” Dan Denning adds from down under , “is what you’re after in this market. Alcohol, tobacco, farmland, food… all these are good, recession-insulated businesses for the future. But more importantly, run properly, the capital structure of these businesses means you’ll get increased earnings, despite tighter access to credit in the global economy.”
For Chris Mayer’s play on Saskatchewan farmland, be sure to read your latest issue of Mayer’s Special Situations.
The S&P/Case Shiller continued its swan dive in August, the group reports today. Annual declines in home prices are down by another annual record, 17.7% for its 10-city composite, 16.6% for the 20-city.
Nine of the 20 regions report record annual declines. The last region to report a positive change in annual home prices was Charlotte, in April.
But we must admit, the housing picture in August isn’t looking as bad as previous months. The two composites were only slightly worse than their July scores, and the chart is starting to look like the very beginning of a bottom. But until we start seeing some data for October… we’re reserving judgment.
Is anyone (with a brain) surprised to see consumer confidence plummet in the first half of October?
Oh wait, some were. Pundits on CNBC exclaimed, “WOW!” when they reported the Conference Board’s latest reading today, which showed consumer confidence had been effectively cut in half over the last three weeks. Wow? Really… sometimes we wonder if we’re covering the same market as these guys.
The Conference Board’s gauge of confidence crashed to 38 in October, from a score of 61 in September. That’s just a bit worse than the 52 mark economists expected, and easily the lowest score since the report’s inception, in 1967.
The Dow ended down Tuesday, nearly 2.5%. We’d love to say there were compelling reasons to buy and sell stocks Tuesday, but really… it doesn’t seem like anyone knows what the hell they’re doing, day to day. The index traded in another 400-plus-point range during the day and crossed between positive and negative territory 60 times.
The VIX remains above 80, just shy of another record high.
Either way, at 8,175, the Dow put in a new five-year low. Any blue chip investments you’ve made since April 2003? Probably gone.
Nevertheless, and true to form, the stock market is rallying today. The Dow opened up over 200 points. We’ve yet to see any shockingly putrid news this morning. And since the markets have been getting decimated all week… can you blame traders wiping away debris looking for value?
“Most of the rest of the world’s stock markets also tumbled to new multiyear lows,” notes Eric Fry of yesterday’s market. “Many of the year-to-date declines look like misprints: London’s FTSE is down 53%, Hong Kong’s Hang Seng Index is down 60%, Russia’s RTS Index is down 76%.
“Down 76% is more than just a bad year; it’s a disaster. ‘That’s not going to happen here!’ we tell ourselves, as we cross our fingers, knock on wood and light a candle to St. Martin of Tours. ‘The U.S. is not an emerging market, after all.’
“More than likely, the beleaguered Dow Jones industrials’ 38% loss year to date will not ‘do a Russia’ and double to 76%… at least not immediately. But the line between ‘developed markets’ and ‘emerging markets’ has become very blurred. Nearly every stock market in the world has become a ‘submerging market.’
“When will this global financial trauma come to an end? Probably not for many years. At least that’s our guess.”
After peaking at a remarkable 87.8 yesterday,more than a 2-year high, the dollar index has backed off a point this morning. As we write, it’s back to around 87 even.
Oil is taking a break from the norm today by rallying a buck to $64 a barrel. It fell as low as $61 yesterday, a 17-month low.
Gold is up, too… a mere $10, to $740 an ounce.
This morning, we have further proof this is not the time to be in the newspaper business. As if you needed any.
Combined circulation of all 507 daily print newspapers tracked by the Audit Bureau of Circulations fell 4.6% last month. Combined circulation of all those rags averaged about 38 million in the six months ending in September, down 2 million from the same period in 2007.
“Mr. Wiggin, that was a bit harsh for a reply to a subscriber,” writes a reader of yesterday’s issue. “I know The 5 Min. Forecast is a free publication, and I also have a number of paid subscriptions to various Agora services through a number of their companies. Even high-priced ‘premium’ ones… and think subscriptions might even provide some of your cash flow.
“I did listen/watch the Webinar and got much the same opinion, that it was an advertisement. So much so that I hit delete when I received the e-mail pertaining to the Strategic Short Report. These are trying financial times for many of us: rich, moderate or poor. They have left me poorer than I was. How about you? Is it possible that the other subscriber that you referred to has been badly hurt?”
“Sounds to me like your Agora Reserve member is a little ticked,” suggests another, “about their lost principal and took it out on those who could be trusted the most with such emotion… your team!
“I would like your readers to know that I phoned in after the Webinar and was honestly told that purchasing Strategic Short Report was not in my best interest, due to my personal circumstances, and was advised that perhaps a subscription to Outstanding Investments was better suited for me. I appreciated that I had a conversation with an understanding person who was not just interested in getting my credit card number. I am a current subscriber to Strategic Investment and will be forever thankful for having found you a year ago. My situation is too complex to go into, yet I want you to know that the philosophies of Agora Financial resonate with me so well.
“In fact, in September 2007, I had just placed my home on the market and ultimately took it off in November 2007, after studying your newsletters. I remember distinctly telling my real estate agent and her mortgage broker that we were ‘in for a global meltdown of epic proportions,’ based on what I had learned. They looked at me like I was crazy, especially since we live in Seattle, a city considered to be removed from the rest of the country’s economic pains (Ha! Can you say WaMu?). I wonder what they think of my comment today? Because of all you do, I am one single mother of six children, who is still a current homeowner and continuing to make positive changes every day because I have read and taken heed to all you share…
“I saw the movie I.O.U.S.A. and was amazed that I was only one of seven in the theater. I have full faith in the integrity of your company. My future and that of my children’s is and will continue to become more beautiful and abundant because of Agora Financial. Thank you.”
The 5: You’re welcome.
When you begin an e-mail “I dare you,” what kind of response do you suppose he’s expecting? We’ve noticed when people write by e-mail, they dispense with civility a lot faster than they might if they were to speak to us in person.
Regarding the film: The economics of releasing a documentary about the national economy — even during an epic financial crisis — are rather complicated. We’re releasing to 35 additional markets starting this Friday, but most of the push is being funded by the Peterson Foundation , rather than high attendance numbers.
Still, our experience with the film has been extremely positive. We just finished a stretch of media in screenings in Toronto and New York City. They were all well attended and the conversations that the film provoked are exactly what we wanted to see happen. As happened after our screening before the National Board of Review yesterday at the Disney Screening Room on Park Avenue, the audience wants to know immediately what we’ll be doing to get the film into high schools and universities. “We’re working on it,” we reply. The film is now in the hands of the foundation. They’re setting up programs to help teachers screen the film and conduct discussions with their students.
The 5 Min. Forecast
P.S. OK, so the I.O.U.S.A. DVD is finally ready. But there’s a huge caveat. In our sales agreement with the Pete Peterson Foundation, we negotiated an allotment of DVDs for Agora readers before the “official” DVD release. The official release isn’t until Dec. 21, having to do with restrictions placed on its distribution because of the theatrical run and the premiere we hosted with Fathom Events.
The Agora Financial DVDs are available now… but we agreed in the contract to give them away only as a premium to the book. To make that work, here’s what we’ve done: We’re bundling the DVD and companion book and offering them as a incentive to subscribe to Capital & Crisis. If you accept the following offer, you’ll get Capital & Crisis, a copy of the book and a copy of the DVD for the regular price of a subscription to Capital & Crisis. If you’re already a subscriber, we’re just asking that you renew for a year. All the details are explained in this promotion .
And since we’re so keen on discussing Agora’s cash flow these days, hear this: If we offer the book and DVD in this way and include the fulfillment costs for a subscription to Capital & Crisis, we’re effectively breaking even on the offer. The movie is a long way from being profitable. As is the book. So we won’t be able to sell Capital & Crisis at this price and give away the DVD and book together for very long. We’ll see how it goes from here and let you know soon how long we can keep the offer open. Thanks… take a look.
P.P.S. We saw copies of the companion book to I.O.U.S.A. in the bookstore in Penn Station yesterday. It was at eye level facing out. We only mention it because we NEVER get placement like that for our books. And it means that more people are interested in this one than anything we’ve written. That’s exciting and bodes well for getting "the message" out to a much wider audience. Thanks if you’re helping to spread the word.