Bush speaks, markets surge… did Dubya deliver a market bottom?
More dismal data… record jobless claims, foreclosures
Government budget expanding at 4 times 2007 pace… T-bond sales show crack in Empire’s armor
Byron King on why you should enjoy $60 oil… while it lasts
Chris Mayer with one region seemingly unfazed by the global credit meltdown
“History has shown” the lame(st) duck president said yesterday in a speech at the Manhattan Institute, “that the greater threat to economic prosperity is not too little government involvement in the market, it is too much government involvement in the market.”
Curious words for one who has presided over the largest government intervention since Franklin Delano Roosevelt made it illegal for ordinary Americans to own gold.
“If you seek economic growth, if you seek opportunity, if you seek social justice and human dignity, the free market system is the way to go.”
So does that mean he’s calling off the dogs at the Treasury and the Fed? Of course not, Dubya was just philosophicatin’.
Even so, a wave of nostalgia gripped traders while Bush 43 was speaking , and together they helped the U.S. stock market stage a defiant rally.
Phew! Earlier in the day, the S&P 500 had fallen below 839 — a new credit crisis low. The crash flag was flying high and whipping in the wind.
But by the time Bush was finished, stocks were soaring. The Dow staged a 911-point swing, or over 10% from valley to peak. When the dust settled, major indexes were up 6.5-7%.
Was it Bush’s speech? The mysterious “plunge protection team”? Nah… it was likely a technical correction to the upside. Pre-election volatility is still in full play. Look for the markets to test new lows again soon. We’re a long way from capitulation in this bear market.
The following list of economic data points doesn’t help matters much…
The markets started out the day in a sour mood because of a historically bad jobless claims number. 516,000 Americans filed for jobless benefits last week, the most since the Sept. 11 attacks.
Even worse, the total population seeking unemployment handouts now exceeds 3.9 million, the most in 25 years. You can expect more news of this vile ilk in the months to come.
The housing sector was looking as homely as ever yesterday, too . Nearly 85,000 homes were foreclosed upon in October, RealtyTrac reported. A total of 279,561 borrowers received some kind of foreclosure notice during the month — a 5% jump from September and a 25% rise from the same time in 2007.
October was the 34th straight month foreclosure activity increased year over year.
Since August 2007, the month RealtyTrac identifies as the beginning of the end, nearly 1 million homes have been repossessed by lenders.
And retail sales fell a record 2.8% in October. Retail is now down for the fourth straight month… this time, by the biggest margin ever.
We weren’t at all surprised to see auto sales hit the bricks, down 5.5%. But it was interesting to see gas sales plummet 12.7%, despite the cheapest price at the pump since early 2006.
Mortgage enabler Freddie Mac lost a tiny bit of money in the third quarter… about $25.3 billion.
Like Fannie Mae last week, Freddie unleashed some horrid earnings numbers today: $14 billion lost in “deferred tax assets”; another $9 billion in mortgage-backed security-related write-downs; $6 billion more for credit expenses.
The government-sponsored entity (GSE) announced that it would also tap the Treasury’s $100 billion emergency fund for $13.8 billion to fill in a gaping shareholder equity deficit. Freddie Mac’s liabilities have overwhelmed its capital cushion to the tune of $13.7 billion.
The European Union declared a recession for their member nations today. Collectively the 15-nation shrank by 0.2% in both the second and third quarters — the first eurowide recession in 15 years.
You’ll find this reassuring: Yesterday, Congress interrogated the world’s five highest-paid hedge fund managers in 2007.
Hedgies called to the principal’s office
George Soros, James Simons, John Paulson, Phil Falcone ad Ken Griffin — likely the most wealthy panel ever convened before the House Oversight Committee — each took home at least a $1 billion annual salary last year.
“Hedge funds were an integral part of the bubble.” Soros admitted in his testimony. “But the bubble has now burst and hedge funds will be decimated. I would guess that the amount of money they manage will shrink by between 50-75%. Excessive deregulation has inflicted enormous losses on the general public and there is a real danger that the pendulum will swing too far the other way.”
“In my opinion,” suggested Simons, “the most culpable [are] the rating agencies, which allowed sows’ ears to be sold as silk purses.”
Perhaps Congress should spend more time balancing its books than bothering the private sector.
The U.S. budget deficit ballooned a record $237 billion in October, the first month of its fiscal year. That’s four times bigger than last year’s month opener, and more than half the budget deficit for the entire 2008 fiscal year. According to data released this week, total government spending in the month exceeded $400 billion.
The Bush administration’s 2009 budget forecast still reads a deficit of around $482 billion. Good job guys… you’re already halfway there!
Of course, by pointing this out, we’re being alarmist. Better not mention it to your friends.
The dollar enjoyed a quick sell-off yesterday as stocks surged. The index shed a full point, to 86.2. The Dow, however, was down 275 by midday today… so the index is catching some flight to cash enthusiasm. As we write, it’s closing in on 87 again.
Yesterday’s auction of long-term Treasury bonds may give us an indication of where dollars are headed in the long term, however.
A couple of weeks ago, we noted the 30-year note was paying its lowest dividend since inception. We suspected that once the election was over and there was a clear trend in place in the equities markets, it would get a lot harder for the government to sell these bonds at auction… and interest rates would have to rise dramatically just so they could keep the lights on at the Treasury Building.
Well, yesterday, the Treasury had an unusually hard time unloading $10 billion worth of long-term IOUs. They had to raise interest rates 10 basis points during the auction just to sweeten the deal. In other words, it cost the Treasury another couple hundred million bucks just to get enough interest to sell ’em all. This, my friend, is how foreign lenders can have a larger influence over interest rates in this country than even the Federal Reserve does
We’ll be keeping a close eye on this trend. A nation addicted to debt cannot afford rapidly rising interest rates.
Gold got a nice pop from yesterday’s equity rally. And it’s still rising today. The spot bounce bounced off $700 an ounce yesterday, to above $740 as we write.
Oil rebounded yesterday, too. Light sweet crude rebounded a few bucks, to just below $60. Today, though, it’s following stocks again… back down. As we write, a barrel goes for $57.
“Enjoy cheap oil while it lasts,” warns Byron King in today’s Rude Awakening .
“Don’t get me wrong. The world won’t run out of oil in seven-10 years. That’s not how it works. It’s just that volumes of conventional oil are declining. The takeaway point is that the energy markets will tighten up, like a hangman’s noose around the collective neck of the oil-consuming world.
“So how long will we have to wait for this ‘future’ to show up? Well, how long will the current worldwide recession last? I don’t know. But I do know that if you can afford to be patient with your funds, you should be buying at this very moment the companies that own oil reserves in the ground, and the oil service companies that extract oil and natural gas. These firms should eventually stage a comeback as oil prices rise again.
“The nearby chart shows the total hydrocarbon resources in the world and the relative costs to convert them into a barrel of oil or oil equivalent. This is my summary, based on several different government and academic compilations:
“These are big numbers, right? And they can supply a lot of energy over a long time…at a price. But that price will almost certainly be more than $60 a barrel…much more.”
“Looking at Saskatchewan,” notes Chris Mayer, with another investment opportunity, “you’d never know markets are suffering a global slowdown.” Chris has been hunting for investment treasures in all the “last places you’d look” regions of the world. Again and again, he tells us Saskatchewan is where it’s at.
“As far as natural resources go, Fortune has smiled broadly on this land between the 49th and 60th parallels. It is the world’s largest producer of uranium and potash. The former is a critical component in the ‘nuclear renaissance.’ The latter is a key fertilizer that sells for $1,000 per ton, compared with only $300 per ton a year ago. Saskatchewan is the world’s largest exporter of chickpeas and lentils. And it is also rich in oil and gas. The U.S., in fact, buys more oil from its northern neighbor than it does from Kuwait.
“Saskatchewan is also in a particularly good spot to gain from biofuel and farmland trends. Almost half of all the farmland in Canada is found in its golden prairies. Wheat, canola and barley represent three-quarters of the crop acres in the province.
“The primary attraction of Saskatchewan farmland is cheapness. For all farmland prices in the region, Saskatchewan is the cheapest of the lot, at $405 per acre.
“At a time when governments everywhere face gaping budget shortfalls, Saskatchewan is awash in cash. On a budget of only $9.4 billion, the province reports a surplus of $3.1 billion. Of this, some will go toward highway repairs, better hospitals and improved schools. Not needing so much money, the government announced the largest cut in personal income taxes in its history.
“It also paid off 40% of its provincial debt. Prudently, the government also decided to sit on a $2 billion cash cushion, just in case. Even the icy-cold fingers of the credit crisis seem stunted here. Canada’s big agricultural lender is backed by the state. Farmers still have access to credit to plan for a big harvest next year.”
“It seems likely,” writes a reader with perhaps the last word we’ll print on this American automaker debate, “that most who so vehemently argue in favor of purchasing cars from U.S. automakers might be future (or current) recipients of UAW pensions. Two other thoughts:
“1.) When executive management is spending more time trying to figure out how to ring their bonus plan bell than they spend on real improvements in their company’s operational efficiency and long-range planning, they’d better be ready to pull the rip cord on that golden parachute — and hope their company still has the money to pay them when it’s over.
“2.) If your job is so awesome that your skills and the free market won’t allow you to replace more than 60% of your current income (can you say $30-40 per hour assembly line watchers with obese benefit plans?), then your days are numbered — and your employer is headed down the tubes. That kind of system simply doesn’t represent reality — at least not in the 21st century.
“So what do GM executives and their rank-and-file UAW workers have in common? Their legal representatives both negotiated such wonderful contracts that they put the company out of business. Turn out the lights, I hear the fat lady humming!”
“Enough with the union bashing already,” says another, responding already. “If anybody’s been paying attention, the percentage of union jobs has fallen drastically over the last few decades, due to union busting and right-to-work laws. At the same time, real wages have not gone up at all, while prices have drastically. People have had to borrow to make up the difference. Now they’ve borrowed too much, and the whole house of cards is falling. The middle class has been decimated, and the lack of unions has had a lot to do with it. You need a strong middle class to have a good economy, but politically, we couldn’t care less about them.
“The executives’ wages went up. The people who complain most about unions are usually on those higher pay scales. They decided not to compete for quality. People used to buy American when it wasn’t junk. I wouldn’t plunk down an investment in an American car. My ’95 Maxima has 250,000 miles. Blaming unions for sh***y cars is stupid. They didn’t come up with planned obsolescence.
“And let’s not forget that when they close plants, they are generally moving them out of the country. What was that comment about no manufacturing base and third-world countries again? Who’s been shipping out the manufacturing jobs?
“All the American car companies had to do was make quality cars that weren’t designed to fall apart. We operate a union construction company. People pay for quality. And I’ve never seen stronger Buy American’ sentiment than among union members.”
Enjoy your weekend,
The 5 Min. Forecast