Two Opportunities, One Top Presidential Priority, Zero Sectors Still Growing, Some Sweet Irony and More!

by Addison Wiggin & Ian Mathias

  • Sweet irony… the No. 1 selling book the night of the election
  • The top issue for President Obama… latest data make this task all the more daunting
  • Dan Amoss shares a contrarian opportunity… no shorting required
  • Greg Guenther on why China might be a credit crisis safe haven
  • I.O.U.S.A. out of legs to stand on… service, retail sectors contract sharply

Oh, the irony… even the AP picked up on it last night. Check out the last paragraph of this piece .

While John McCain was reading his prepared concession apology from Phoenix last night, this book was sitting atop the Amazon best-seller list:

The first African-American president might want to demand a recount this morning.

The economy was the No. 1 concern of voters with the patience to stop and answer the exit polls. 93% of respondents said the economy was in “not so good or poor” shape, and 63% said the economy was the most significant influence in choosing their next president. No other concern even came close… Iraq was second, at 10%.

For perspective, 18% of 2004 voters said the economy was their biggest voting influence. We don’t know what that 18% was thinking, as both home and equity prices were guaranteed to rise forever.

So many people have been taking us up on the I.O.U.S.A. DVD and companion book offer for Capital & Crisis that we blew up our system last night. We’d been planning to cut off the discount after the new president was declared. But at this moment, that doesn’t exactly seem fair. If you were trying to order but couldn’t, we’re going to keep the offer open for one more day… but only at this link . We’ve got our tech geeks working out the kinks, so you shouldn’t have any trouble this time.

As we noted on Monday, one of Obama’s first concerns will be the unemployment rate. And if today’s ADP report is an accurate guide (which is far from certain), he’ll have his work cut out for him: The private sector, according to the employment firm, lost 157,000 jobs in October, way more than the 100,000 the Street expected.

Friday, we get the Bureau of Labor Statistics version of the story. Typically, ADP understates BLS losses by about 100,000 jobs. So should they stay true to form… the government’s expected announcement of 200,000 job losses could be a doozy.

The stock market had its best “Election Day rally” yesterday in 24 years.

Markets rallied across the board, with the S&P 500 booming 4%. The Dow and Nasdaq weren’t far behind. We suspect traders were more excited about the end of the election cycle than the possible election of either candidate.

Ironically, oil and energy companies led the way yesterday… some of the very organizations Obama has threatened to beat with windfall taxes and new regulations.

The U.S. dollar didn’t seem to care for another president promising big government and bigger budget deficits. The dollar index dropped 2 full points yesterday, to about 84.

Oil, however, jumped 10%, to over $70 a barrel. Just as on its way down, oil perked up yesterday, almost solely because of the U.S. dollar. Traders raced into cash during the worst of the commodity and equity bust, and it now seems they’re rushing out of it during the snapback rally.

“I think the shortsighted fear about U.S. oil ‘demand destruction’ is noise,” says Dan Amoss. “It’s distracting investors from an important signal: sustainable worldwide demand and supply constraints that will determine the long-term price of oil.

“In times of panic, the market tends to project the past year’s negative fundamentals into the future. For example, how much does the fact that U.S. gasoline demand is down 4% year over year matter to the value of oil stocks? It matters if gasoline demand keeps falling at a 4% annual rate over the next decade.

“But you probably agree that this has little chance of happening, since oil consumption generally doesn’t fall quickly in response to higher prices. Yet most oil stocks now trade at valuations that anticipate an endless spiral in demand and prices

“So you have the opportunity to take a contrarian stand, buy cheap oil stocks and hold them as long as fundamentals stay intact and valuations stay reasonable.”

Dan added to his blockbuster trading record this year by recommending a rare call option to his Strategic Short Report readers… a play on a popular oil stock that’s already up 115%. You can get the details, here.

Gold managed a decent rally of its own. The precious metal rose about $30 through the course of yesterday’s trading, to $750 today.

Frozen credit markets around the globe continue to thaw this morning. The Libor-OIS spread we mentioned yesterday is down another 17 bps, to 1.9%. That’s a good thing for a world addicted to cheap and EZ money. At least in the short term, that is.

“Chinese preparedness could trump the global slowdown,” adds our small-cap adviser, Greg Guenthner, giving hope to millions.

“Most of the talk about China has been downright scary lately. A lot of folks are worried — understandably so — about the global economic slowdown. Asian markets have crumbled this year. Investors have sold the Shanghai Composite to a 26-month low — down more than 70% from its 2007 high.

“China is actually better prepared for slower growth than most investors think. When it comes to emerging markets, the Asian giant is in a league of its own. China boasts $2 trillion of reserves and current account and budget surpluses. You’ll also find few connections to foreign banks and toxic debt. The ruling party’s iron fist also appears to be loosening its grip…

“China has passed the point of no return. It is critical to understand this turning point in history and take advantage of the current crisis. The Chinese economy is probably better off than the mob thinks, still better positioned for growth than the U.S. Smart investors are shopping for solid, industry-leading Chinese companies with plenty of cash on hand that aren’t dependant on commodity prices.

Gunner’s got two such stocks in his Bulletin Board Elite portfolio… check ’em out, here.

Here in I.O.U.S.A., the American service sector went back into contraction in October, another kiss of death for fourth-quarter GDP. Nonmanufacturing sectors actually contracted by its biggest margin so far this year in October, the Institute for Supply Management said today.

The ISM gave the service sector a score of 44 last month, worse than the Street expected and crossing the growth/contraction threshold of 50.

Factor in yesterday’s ISM manufacturing survey and auto sales numbers and last week’s consumer spending data — all of which also showed sectorwide contraction — and ummmn… we’re fresh out of growing economies.

Even “the rich” seem to be bracing for recession. Sales of luxury items were down over 20% in October, year over year. According to a MasterCard study, high-end jewelry, apparel, goods, events and restaurants deemed “luxuries” actually took the biggest hit of all consumer sectors during the month.

But that’s not to say cheaper goods fared better .MasterCard’s “SpendingPulse” survey showed declines across the board during the month. Electronics’ sales fell 20%. Furniture and home furnishings down 18%, ditto with women’s apparel. Men, interestingly, cut back on clothing purchases by only 8%. The bright spot? Fast food, up 1%.

“Any area that deals with consumer durables,” said Mike McNamara, MasterCard VP, “especially areas like furniture, electronics and appliances… that relies heavily on sales purchases that exceed $1,000 in value are under significant pressure. Sales above $1,000 just aren’t really moving… Anything related to food, gas or drugstores — if you’re selling those types of goods, you’re probably holding up a little better.”

Still, a majority of online retailers expect 15% or higher sales growth this holiday season, compared to last. According to a separate sales report today from the National Retail Federation, the lure of free shipping, easier cost comparison and product research will bring record revenues for 2008, despite the global crises.

The group expects online orders will grow by 17% for all of 2008, to $204 billion.

“I was a little surprised,” writes a reader, “by Dan Denning’s comment about the issue of deficits never being brought up in the campaign. Of course they’re not, and never will be. Since only the Republicans and Democrats have been in charge, who can the public blame for this mess other than them? The only thing that the Demopublican Party stands for anymore is re-election, and that’s it.”

“I think you have a fundamental error in your analysis,” writes another. “You show which party held the presidency — but it is clear that the spending and taxing power lies in the legislative branch, not the executive branch.

“I realize that presidential candidates, especially recently, have run on the theory that they control everything; and while they do have the ability to greatly influence policy, I think you do a disservice to your readers, and to the Constitution, to perpetuate the misconception that the executive branch bears the brunt of fiscal responsibility.

“Today especially (Election Day), it is time that Americans recognized how critical the legislative branch is. Too often, presidents are blamed for actions taken by sitting Congresses, and people tend to give congressmen a pass while they send this country into the tank. And until people wake up, we are going to continue to reap the garbage we are sowing with irresponsible Congresses that spend far more than their taxing policies bring in.

“Had any one of our last five presidents held the line on federal spending, we would not be where we are, but many were held over the barrel and forced to sign budgets that were, frankly, obscene in their wastefulness and size.

“So while I agree that there is little distinction between the parties, let’s at least get the facts straight. Until Congress is held to account, it will continue in this destructive vein. And so long as people blame the president, this country will ignore the real culprits. If you are going to call attention to what is going on politically, do it CORRECTLY.”

The 5: Jeez, who appointed you defender of the executive? Still…

You’re not the only one disappointed with Congress

While you’re correct Congress bears the lion’s share of responsibility — a sad fact that will probably only get worse — the executive is supposed to provide leadership. For the current administration, the record speaks for itself. A pox on all of them, we say.

Enjoy your day,

Addison Wiggin

The 5 Min. Forecast

P.S. Again, we apologize for our system going down. If you’re still trying to place an order for the I.O.U.S.A. bundle, please use this link.


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