American optimism at all-time low, 2009 recession imminent… Fannie and Freddie to the rescue?
Chris Mayer with good news for oil investors
Another day, another double-digit decline… Russian market, currency plummeting
Pat Cox with a “huge” breakthrough medical tech about to become reality
Have we hit a nerve? The automaker debate rages on in The 5’s inbox
Oy. “The $700 billion financial bailout program,” the New York Times sums up Treasury Secretary Paulson’s speech this morning, “will not be used to buy troubled mortgage-backed assets, as originally intended. Instead, capital would be provided directly to nonbank companies, as well as banks and financial institutions, and that more would be done to prevent home foreclosures.”
Is it any wonder 83% of Americans think the U.S. is “headed in the wrong direction”?
According to a CNN poll released this week — after Obama rode to victory on the audacity of hope, mind you — a record number of respondents think I.O.U.S.A. is in trouble. CNN’s been asking this simple, ambiguous question for 34 years… last week’s was the gloomiest response yet.
A record low 16% think the U.S. is in good shape. Stewards of the study note that optimism was higher during the worst of the Carter years… and the week of the Watergate scandal.
The U.S. economy will likely contract at an annual rate of 3% this quarter and another 1.5% in the first quarter of 2009 , says a slightly more articulate Bloomberg survey. Citing a recent poll of economists, the financial publisher says this current downturn will be the worst since at least 1974.
But never fear, Fannie Mae and Freddie Mac are back, and they’re ready to save the world.
Only two days after Fannie revealed a $29 billion quarterly loss, these two government-controlled mortgage enablers — which as late as December 2007 were involved in 90% of all new home loans in the U.S. — announced, umn, an audacious mortgage rescue plan. We’ll give you a few seconds to digest the irony.
Here’s the new plan: Fannie and Freddie will modify hundreds of thousands of distressed loans. In order to qualify you must be at least 90 days late on a mortgage payment, owe at least 90% of your home’s value, live in the house with the distressed mortgage and have not filed for bankruptcy.
If you fall within this “not a total deadbeat, but still incapable of managing money” sweet spot, congrats! You’ll qualify for a free Fannie/Freddie refi. The companies aim to bring payments down to at least 38% of the monthly household income for at least five years, with interest rates as low as 3%. After five years, the rate will climb 1% annually until it meets the market rate.
Preliminary estimates suggest about half a million homeowners will be eligible. If you are one of the millions of homeowners who took out a traditional mortgage on a house you were able to afford… umm… you get… ahhh… nothing. Enjoy watching your home’s price continue to fall while you pay 6%.
The naysayers are already complaining that the plan will not reach enough of the folks who are facing foreclosure to matter. About 200,000 homeowners will fall into foreclosure by the end of the year, bringing the yearly total over a million. Plus, Fannie and Freddie only control about 20% of America’s seriously delinquent mortgages.
Investors made more sensible decisions in equity trading yesterday. Major indexes in the U.S. fell about 2% yesterday after a choppy day of trading. Energy and commodity stocks suffered the most again, as the hard assets trade is still out of favor.
Cash is still king in today’s market, specifically the U.S. dollar variety. The dollar index is a breath away from its 52-week high this morning. Clocking in at 87.3 as we write, it’s about a half a point from the high-water mark set late last month. Should the index crack 88, the dollar will be at its highest valuation since 2006.
On the other side of the trade, gold and gold stocks are still in the dumps. The spot price is down another $15 today, to $725.
And at $57 a barrel, light sweet crude resides at its lowest level in 20 months. Traders shaved another $3 off the forward futures contract yesterday, mostly in anticipation of the Energy Dept. announcing higher oil and gas inventories today.
That’s bad news, of course, if you’re an oil investor… but good news if you’ve got a daily commute. Retail gasoline prices are now down for the 17th week in a row, with a national average of $2.20 a gallon.
Enjoy it while it lasts. According to the International Energy Agency today, the world will need to cough up a $26 trillion investment in global energy infrastructure over the next 20 years just to keep the status quo.
“The IEA’s findings state,” notes Chris Mayer, picking up where Dan Amoss left off yesterday, “that without additional investment to raise production, output will decline 9.1% annually. Everyone knows that oil production is on a treadmill, on which aging fields produce less oil over time. But that decline rate was faster than previously thought. Even with investment, the annual decline rate is 6.4% per year. These are big annual declines in a market that already wobbles along a knife edge of supply and demand.
“That’s a good backdrop if you own oil shares. Demand probably will continue to taper off as we get into this recession. But supply is falling also, and it’s not as if there is a lot of unsold oil lying around. The Economist reports ‘Official oil stocks [or inventories] are well below their average of the past five years.’
“And we can’t forget that most of the world’s oil reserves are in the hands of governments who use the cash for political purposes and social spending programs. They are not making the needed investments to keep these oil fields producing at current levels.”
There’s still time to get a free DVD and companion book with your subscription to Chris’ Capital & Crisis… details here.
We’re also polishing off the final details on a special report that addresses this matter directly… stay tuned.
Russia is taking the oil correction hard. For starters, check out the slide in the country’s currency:
The ruble got a nice bump as oil soared through the stratosphere this summer, but its retreat, the global credit crisis and a crashing Russian stock market has put the ruble in the doghouse.
The MICEX, the ruble-denominated major Russian index, fell 12.6% Tuesday. The decline was so swift, regulators shut down the exchange until tomorrow. The index is down a remarkable 67% since May.
“There’s some huge news coming on the medical front,” forecasts our tech adviser Pat Cox.
“I predict that real stem cell therapies will be offered offshore within the year. Currently, there is a billion-dollar industry offering stem cell snake oil, but real lifesaving and life-extending therapies are already available in the laboratory. These therapies are relatively inexpensive to produce and will revolutionize medicine. Even the FDA will come around when wealthy early adopters begin reporting true rejuvenation results. By the end of Obama’s first term, we will see S.C. and other therapies that will radically cut the cost of treating horrendously expensive illnesses.
“Obama already announced yesterday that he plans on reversing current bans on embryonic stem cell research funding. The market has already begun to lift stem cell companies, but mostly the wrong ones. We’ll be adding to our stem cell portfolio soon, and I’ll have much more on that in my next monthly issue.”
If you’re looking to capitalize on this breakthrough technology, be sure to read Pat’s latest report, here.
“I’m wondering,” ponders a reader, “why a financial institution that accepts tax dollars in order to be able to loan money to other business does not step up to loan to the automakers. Was that not Paulson’s argument for TARP?
“I mean the banks have received $3.4 trillion-plus in tax bucks… they can’t spare a dime to help out the economy… like preserving jobs so there will be someone left to borrow from them or pay on their mortgages?
“Two-10 million more laid-off workers and untold business failures like plastic plants, steel mills, etc., can’t be good for the bankers. Banks would fail also, causing all them bucks we spent bailing them out to be a waste.”
The 5: What a mess…
“It is true,” writes another, “that the American consumer should be able to buy any automobile that he can afford, domestic or foreign. It is also true, at least the last time that I checked, that Toyota, Mercedes-Benz, Nissan, BMW and the like have no obligation to pay for the American consumer’s unemployment benefits, Social Security, Medicare and Medicaid. So I will not feel sorry for those buyers of foreign cars when there are no more funds at the national or state level to satisfy these financial promises.”
The 5: So… you recommend before buying a car one should check to see whether the maker contributes to entitlement programs? You’ve lost us already. But let’s continue…
“Ah, but you say that it makes perfect sense that Americans should buy Japanese and German autos when they are clearly more reliable and of higher quality. Wrong! If you had cared to do some minimal research on this subject, rather than mouthing long-outdated facts and uneducated opinions, you might have stumbled upon some interesting, accurate and pertinent information. J.D. Power has at least for the past five or six years pointed out in its annual Vehicle Dependability Study that though Lexus has ranked No. 1, it has consistently been followed by Buick (this last report finds Buick TIED with Lexus), Cadillac and Lincoln. So three American makes have routinely scored higher than Infinity, Toyota, Acura and Honda. As for BMW and Nissan, they have rated well below Ford, Chevrolet, Mercury and Dodge. And as for such makes as Mercedes, Mitsubishi and Volkswagen, they were ranked well toward the very bottom of the list for most of the time.”
The 5: We’re not saying you should buy Japanese or German cars per se, but that the choice is up to the person spending the money. As a consumer, I’ve always been under the impression the J.D. Power and Associates is just a shill for American automakers. But that must also be our mouths stating another uneducated opinion.
“Do you and other automobile buyers know or even care that to know other salient facts about the industry, such as the recent imprisonment of the head of Mitsubishi for failing to initiate safety recalls of his company’s cars, as mandated by Japanese law? It amuses me to see the smug looks on the faces of drivers of such luxury makes as Infinity and Mercedes when I contemplate that my Cadillac CTS-V has higher build quality and reliability than their much-overpriced status symbols.”
The 5: If the dude broke the law, he should go to jail. We’re not quite ready to indict all foreign carmakers because of one guy. You clearly have a lot of emotion invested in your own choice of status symbol.
“I am disappointed in you for not performing the same kind of research in this area that you so highly recommend that the consumer perform before making investments in the stock and bond markets.”
The 5: Uh… we would say we’re disappointed in you for expressing such a bizarre xenophobic affinity for American cars, but we happen to agree with your point. People should make big-ticket purchases with care. But if they choose badly… isn’t that their problem? When did it become a federal issue? Let’s see, GM’s share price has fallen to a 65-year low and banks refused to lend them any more money. If that isn’t enough evidence of a broken business model, what more do you need?
The 5 Min. Forecast
P.S. We had a nice chat with Mary Delach Leonard of the St. Louis Beacon this morning. The St. Louis Beacon is a startup Web site in St. Louis conceived by a bevy of reporters who were forced to take early “buyouts” from the St. Louis Post-Dispatch but weren’t ready to hang up their reporting hats. They’ve started their own online newspaper and are taking the Dispatch on head-to-head… bravo.
Mary’s a fan of I.O.U.S.A …. and is hosting a screening this weekend in conjunction with the local PBS affiliate. We’ve put her in touch with our friend Chuck Butler, who also resides in the Gateway City. If you’re in the area check out the Beacon for details. Thanks, Mary.
P.P.S. Don’t forget… if you’re still contemplating our 50% off deal for Bulletin Board Elite, better pull the trigger soon. After tomorrow it’s back to full price for our high-end small cap advisory. Get the details here.