Data points stun the market… employment, service sector details far worse than expected
One asset class that’s already surpassed Great Depression declines
A utomakers retool bailout proposal… the new solution? More money.
Ed Bugos with a bullish gold fundamental the market has yet to understand
Deflation fears abound… yet this consumer expense remains absurdly inflated
More fun with numbers today:
The Institute for Supply Management’s (ISM) nonmanufacturing index — a fancy-pants phrase for the service sector — plummeted to the lowest level on record today. The November score fell to 37. That’s down from October’s already recessionary 44. The Street was expecting 42.
The employment firm ADP’s monthly private-sector employment report said 250,000 jobs were lost in November. That’s the biggest loss by ADP’s measure since 2001, and far worse than analysts expected. So far this year, when the ADP’s report has been worse than the Street expected, the Labor Dept.’s has been as well. The market is braced for job losses exceeding 325,000 this Friday… we’re expecting worse.
Even if losses are in line with estimates, Friday’s BLS jobs report will show the biggest jobs decline in 25 years.
Cooperate layoffs struck a seven-year high in November, reports outplacement firm Challenger Gray & Christmas today. Major U.S. corporations announced 181,671 layoffs in the month, the most since the Sept. 11 aftermath and the second highest total in the 29-year history of the survey.
According to the firm, 2008 announced layoffs now exceed 1 million, up 46% from 2007.
After a 270-point rally yesterday, the Dow is suffering a volatile session today. The index opened down over 100 points on some profit-taking and all the dismal data, but has battled back to a 100-point gain as we write.
Regardless, the U.S. equity market, as it’s been since its sudden decline in October, is in the driver’s seat. When stocks fall — at least in this crisis — they take commodities with
’em, and vice versa.
The decline in metals prices rivals the darkest days in America’s economic history. Check these out:
Base metals like copper, lead and zinc are down around 60% from their summer record highs. According to research published this week by Barclays, this sudden decline is the most drastic in American history, even compared to the Great Depression fallout.
The group estimated lead and zinc prices fell about 40% from 1929-1933, while copper plunged almost 70%. That copper fall corresponded with a stunning 85% crash in domestic construction, then the largest consumer of the metal.
So we’re experiencing the same declines today because of a “mere” 20% fall in home prices? Almost all base metal prices have returned to their pre-euphoric levels from 2004-2005.
Against this backdrop, Detroit’s biggest employers came back to Capitol Hill yesterday with a new bailout plan. This time, they’re asking for $34 billion, $9 billion more than Detroit’s leaders asked for just a few weeks ago.
GM representatives told Congress they need $4 billion to avoid bankruptcy… just for this month! America’s biggest automaker is asking for an $18 billion credit line, an amount it says will get it through 2010.
"Absent support, frankly, the company simply can’t fund its operations," said Fred Henderson, president of GM. Ugh, yeah… that’s why your businesses need reorganizing.
Ford and Chrysler were close behind, asking for $9 billion and $7 billion, respectively.
And what a coincidence. The automakers showed up with their tin cans the same day monthly auto sales data was published. Sales were, umn, slow, across the board.
Chrysler led the way this time, as November sales fell 47% year over year. GM was close behind, down 41%. The rest of the world’s major automakers were right on their heels. Ford, Honda, Nissan and Toyota all fell over 31%.
Total new car and truck sales fell to an annual rate of 10.2 million, the lowest since 1982. Last year, Americans bought over 16 million vehicles.
Imagine how auto sales would be if gas prices were back to their summer levels. It’s a reality we can all blissfully ignore today, as gas prices are down for their 77th day in a row. The national average is now $1.80 a gallon for the cheap stuff, down 56% from the $4.11 high in July.
Oil is a couple bucks cheaper again today. Light sweet crude goes for a mere $47 a barrel as we write.
Gold looks like it has stopped the bleeding for now. After shedding $40 yesterday, the spot price has stabilized around $775.
“The fundamentals are still significantly bullish for gold,” says Ed Bugos. “Mostly because the fundamentals are increasingly bearish for all paper currencies. Outside of the Bank of Japan, everyone is inflating madly. Narrow money (M1) is growing at 7-10% on a year-over-year basis in the U.S., Canada, the U.K. and Australia — more in developing countries like China. The ECB’s balance sheet increased by some 400 billion euros during October, which is the first big change since the second quarter. The Bank of Japan started inflating M1 again in September too, after holding it steady for most of the year.
“These actions governments are taking now are bearish for stocks and remarkably bullish for inflation… but the market has yet to come to terms with this. Deflation is a no-show so far, and I don’t think it will arrive at all. I think history will see this as just another scare.”
Despite the dollar’s dismal fundamentals, it’s still the leper king of the credit crisis. The dollar index is up a half a point from yesterday, to 87.1. That’s about a point and change shy of its two-year high.
The cost of higher education is still soaring, though. The latest report from the National Center for Public Policy and Higher Education has inspired us to revisit this absurdity:
According to the policy center’s report, average college tuition fees have increased 439% since 1982, outpacing inflation rates among any other typical personal expense. Net college costs — tuition, fees, books, room and board minus financial aid — now amount to an average 28% of the median household income… for a public university. The average private university costs exceed 75% of the median family income.
Student borrowing has more than doubled in the last 10 years alone.
“If you were to view a list of the 75 richest people in all of history” notes our small-cap guru Greg Guenthner, “adjusted for inflation, 14 are Americans born within nine years of each other in the mid-1800s. Magnates like John D. Rockefeller, Andrew Carnegie and J.P. Morgan, to name a few. Sociology author Malcolm Gladwell says that’s no coincidence. Gladwell’s latest book, Outliers, explores how factors other than intelligence and ambition affect the most successful members of our society.
“The answer becomes obvious,” says Gladwell, “if you think about it. In the 1860s and 1870s, the American economy went through perhaps the greatest transformation in its history. This is when the railroads were being built and when Wall Street emerged. It was when industrial manufacturing started in earnest. It was when all the rules by which the traditional economy had functioned were broken and remade. What this list says is that it really matters how old you were when that transformation happened.”
“Just as railroads, steel and manufacturing shook up 19th-century America,” notes Greg, “The credit crisis and this wicked bear market are changing our own investment universe.
“We have to take advantage of the fact that we are in what could be the right place at the right time. The market is presenting us with tremendous opportunity. And what better place to look than at the smallest public companies in the world — the aggressive, nimble firms that can adapt and grow while the titans of the old world slip and fall.”
“I must have fallen into a rabbit hole where the world is not as it seems,” writes a reader. “The price of oil has dropped so much that many numbskulls will go out and buy SUVs and pickup trucks if they can get credit. We need our government to invest in infrastructure and green energy production, and the last eight years have been lost. 433,000 new homes are being built, while there are hundreds of thousands being abandoned. What a country.
“The first thing President-elect Obama should do is put a variable energy tax on gasoline that keeps it at a $3 per gallon minimum. The tax can go down as it approaches $4. The money from this can go to the infrastructure and energy research, and it will keep the traffic down. Of course, the Republicans will be the first to scream, since that would actually generate revenue.”
The 5: Yeah, you must have fallen into a rabbit hole, genius. The feds manage everything so well now let’s figure out how to give them more money. And while we’re at it… let’s encourage them to use taxes and spending to manipulate social behavior, too. Love it.
“Do not overcriticize the Chinese,” insists a reader, as if we were, in fact, overcriticizing the Chinese, “as they are trying hard to improve their lot. So far, they have managed to decrease illiteracy for 95% of the people and virtually eliminated famines, and achieved this in less than 20 years for over a billion people. I do not believe they could have achieved that under democratic management and respect of human rights.
“Certainly, America or Britain did not become great nations through virtuous acts; empire building is not a philanthropic exercise. We were successful through our aggressiveness far more than by acts of righteousness. We are all sinners, lest we forget. Let us hope that if China succeeds in becoming a great empire, it will treat us better than we treated it.
“Sure, China has some way to go before it improves human rights, but I also recall that my European mother in the ’30s worked 16 hours a day in a raincoat factory under conditions similar to Asian sweatshops today, and did this for pitiful wages without any social benefits — there was no democracy then, and union members were hunted down. Perhaps we ought to appraise the developing world with more understanding and compassion than we do today. Unfortunately, the West prefers to forget its past… and for good reasons.”
The 5: Oy. They’re coming out of the woodwork today. Are you suggesting we adopt the mores of the Chinese Communist Party? This is the real horror of the Bush administration: It has tarnished the ideals of a free and prosperous society for an entire generation. Mao must be giddy with glee in his grave right now.
The 5 Min. Forecast
P.S. The Agora Financial Reserve is about to reopen. If you care to be considered for our most elite membership, keep your eyes on your inbox.
P.P.S. Who needs the Oscars? Our film has already won the most coveted award in the industry:
We were on a radio program here in Baltimore with Dean Baker before the holiday. It was cordial and we agreed with most things he said. The only conclusion I can draw is he really has a bug up his arse about Pete Peterson. That or he’s using the film to push his own agenda.
My two favorite parts of this critique: that “the film gives a starring role to… Alan Greenspan.” Heh… sure, we did. We featured him in a starring role opposite Ron Paul. And why not? Their love affair has been epic.
The second is that Patrick is a talented director, but “he just fell in with a bad crowd.” Shame on us for encouraging fiscal restraint in government. Let’s throw caution to the wind and nationalize health care!