Markets plummet post-election… blame Barack?
Retail sales sink… consumer not just pulling back, but changing habits
John Williams with an important data point due for a “big hit”
Dan Denning on an immanent Obama policy that could give your investments a boost
Wish you bought Apple in 1990? Pat Cox with the next transformational industry set to soar
If markets of the world declared, “Yes we can!” Tuesday, they were grumbling, “Er… maybe not” yesterday.
The day after the biggest Election Day rally in 24 years, the Dow suffered its worst post-Election Day fall ever. The index dropped 5%.
Looking back on past Election Days, the best and worst Dow performances were :
Yesterday, “All the compelling reasons to sell stocks came back into vogue,” recounts Eric Fry. “Corporate earnings stink, credit remains tight and consumers continue to reduce their debt-financed consumption. Meanwhile, the U.S. government continues to find new ways to spend money it does not have.
“These trends, taken together, inspire more consternation than jubilation. And unfortunately, Barack Obama’s inspiring oratory alone can’t fix what’s wrong with our economy… caution still seems to be the prudent course of action. Hope for the best, if you are so inclined, but be prepared for something less satisfying.”
American retailers, for example, posted their worst month in eight years during October, says this morning’s monthly retail sales report.
The Thompson Reuters same-store sales index fell 0.7% during the month, twice as bad as the Street anticipated. Wal-Mart, as usual this year, was the bright spot. It managed to increase sales by 2.4% year over year, better than analysts expected.
Distressed American consumers appear to be cutting back indiscriminately. We found this table in our morning Wall Street Journal… we’re not only slowing our spending habits, but changing them, too.
Foreclosures continue to skyrocket in major U.S. cities. Here are October’s worst performances, as gathered by propertyshark.com:
LA: 2,389 foreclosures, up 11% from September
Miami: 861, up 35%
NYC: 336, up 50% (interestingly, almost entirely in Queens)
Seattle: 150, up over 100%
And tomorrow’s unemployment numbers could surprise to the upside:
“October jobs and unemployment numbers are due for big hits,” says government stats watchdog John Williams. “The October report is due for release tomorrow morning. Consensus expectations are running at roughly a 200,000 payroll loss and a 0.2% increase in the unemployment rate, to 6.3%, per briefing.com. They are not unreasonable, but still appear to be somewhat shy of reality.
“With both the October manufacturing and nonmanufacturing purchasing managers surveys showing their employment measures falling deep into recession territory, with September help-wanted advertising holding at its historic low and online advertising still tumbling year to year, and with a new claims for unemployment insurance continuing to rise sharply year to year, October payrolls should have dropped by over 200,000, along with a continued sharp rise in the unemployment rate.”
But John notes, never underestimate the government… “Election pressures are gone, but financial market pressures for rigged data remain. With the markets still far from stable conditions, a slightly better-than-expected payroll number might be a fair bet.”
Will all this economic data weighing in, what’s a Barack to do?
“Obama will try to give the market at least one thing it desperately wants,” suggests Dan Denning, “some mechanism to separate bank balance sheets from falling U.S. house prices.”
“He’s going to revive the Depression-era Home Owners’ Loan Corporation (HOLC). That federal agency was set up to prevent foreclosures in the 1930s by purchasing distressed mortgages from lenders and then renegotiating both the term and the size of the loan with borrowers. You can see how it would appeal to policymakers at the moment.
“Some version of the HOLC is what you should expect. Rather than providing banks with fresh capital and asking them to modify mortgages for distressed homeowners, the federal government can simply do the job itself. It will finance the HOLC the same way it’s financing everything else (borrowing money). The borrowed money goes to the banks for recapitalization and the purchase of dodgy mortgage securities. Then, the HOLC refinances those 7 million Americans into 30-year mortgages with lower interest rates and a lower valuation on the house.
“Of course, there are massive problems with it, not least that it encourages people to quit paying their mortgage now and wait for the bailout. But we don’t have time for problems today, just illusory solutions. Keep hope alive.
“There will be more from Team Obama in the coming days. But we reckon the biggest bang for the policy buck — and the thing that would really give stock markets a boost — is some plan to ‘save’ homeowners or provide them with relief. Look for that this month.”
For his part, California Gov. Arnold Schwarzenegger has proposed a 90-day freeze on foreclosures in that state. Some 80,000 Golden State homes went into foreclosure in the third quarter alone.
"Curtailing foreclosures,” said the Governator, “will stop the downward spiral of home prices, free up needed cash for homeowners, help save jobs and make an immediate positive impact on our economy."
Jeez… that’s easy. Congress should follow suit. All they have to do is stop payments for three months and the whole “crisis” will blow over. Hey, they should propose a 90-day moratorium on selling stocks too! (Wait… didn’t they do that already?)
Wells Fargo, one of the few relatively unscathed banks in this crisis, revealed a chink in its armor today. The San Francisco bank will dilute its shares by issuing $10 billion in new common shares.
Heh… Wells wasn’t being facetious when they said the Wachovia takeover would be an old-fashioned share-for-share merge. They just left out one small detail… the shares didn’t exist yet.
Wells also announced they anticipate a $71 billion loss after absorbing Wachovia’s $482 billion loan portfolio, over $118 billion of which is pay option ARMs.
The Bank of England slashed its lending rate by 150 points yesterday. Its overnight rate is now down to 3%. The move shocked U.K. investors, who were anticipating a 50-point cut — 75 points at most. The 1.5% slash is a record for the BoE, and lending rates there are now at their lowest level in more than 50 years.
Fearing having its thunder stolen by the BoE, the European Central Bank announced a 50-point cut shortly after. The eurozone rate is now down to 3.25%.
Markets in Europe could not have cared less. They’re all down by an average of 4-6%.
The dollar index jumped a point and a half from yesterday’s lows, to 85.5. The euro is down 2 cents today, to $1.27. The pound is swinging wildly, but still averages around yesterday’s cost of $1.58. The yen, at 98, has been strengthening all week.
The spot price for gold has been stuck at $750 for the last 24 hours. The only real news in the gold markets comes from this guy:
Your brain on socialism
Venezuelan dictat… president Hugo Chavez is trying his hand at gold mining. He nationalized Venezuela’s biggest gold mine this morning, Las Cristinas.
The property was controlled by Crystallex, a Canadian group, and holds about 31 million ounces of the yellow metal, valued somewhere around $35 billion. Its stock fell 25% this morning in Toronto.
KRY was already down 83% this year.
“The robotics industry is the next PC industry,” opines our breakthrough technology adviser Patrick Cox this morning. “Investing in robotics today is comparable to buying companies like Apple, IBM or Intel in the early days of personal computers. Robotics will grow into a major industry, and it will grow fast.
“Within 10 years, some roboticists say, personal utility robots will have the ability to do everything from cleaning your toilets and washing dishes to keeping your schedule and monitoring your vital signs. That may actually be a pessimistic projection. On the higher-tech side, they will automate advanced microchip and biotech production lines. They will also perform sophisticated surgeries that are impossible today.
“If this seems far-fetched, I would caution you to think twice. Think back 10 years. Did you think then that we would be using the advanced Web-connected cell phone/PDA/media player devices that are common today? If you are a physician, as are many of my readers, did you foresee the current state of medical robotics?
“I’m particularly interested in medical robotics stocks. Aside from the booming robotics industry, the medical industry has a particular advantage during a recession. Health care is one of the sectors most protected from business cycles and economic slowdowns. We cut back or eliminate lots of things when budgets get tight. Nonelective surgery isn’t one of them.”
Maybe they’ll make a robot that can run the country, fix the mortgage industry, repair balance sheets in Wall Streets biggest banks, provide health care insurance for everyone, guarantee a safe and relaxing retirement, kill terrorists, increase consumer spending and invent new alternative energies… that would be something.
If investing in transformational technology is your cup of tea, you should really check out Breakthrough Technology Alert. We’ve been delighted with the changes Patrick has brought to the publication. Get the details, here .
“The reader who argued we should focus the current fiscal blame primarily on Congress, rather than the executive branch,” writes another reader, “undoubtedly forgot to recall the president’s ability to veto spending bills. This is understandable since Bush himself also seemed to forget this tool the first six-seven years of his administration.
“Given the Bush-Cheney attitude that deficits don’t matter, let’s return some of the blame where it squarely belongs. I suggest the historical record will show that Republicans thought they elected a conservative, but inherited a greater fiscal radical than they ever could imagine in their Democrats-have-won nightmares.”
“Interesting comments about the incumbents Monday,” responds another, “but I think your reader got his definitions mixed up. Anyone that is a member of the Republican or Democratic Party is, in fact, an ‘incumbent,’ since they all get the ‘you are nobody without the party’ talk.
“Ever wonder why there is very little change no matter which of the two parties is elected? Its because the two-party system is part of the larger ruling elite. It’s time to break the two-party system wide open to multiple parties, and then we will hear about and have some new ideas and solutions that will inspire greater participation.”
The 5 Min. Forecast
P.S. If you only had $500 in savings, could you retire in 30 days? Maybe… find out how, here.