by Addison Wiggin & Ian Mathias
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Jobs bombshell… half a million lost. How much worse can it get? Chart reveals all
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Global central banks slash interest rates… Chuck Butler on how low rates could go
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Denning on why 2009 will be a "strange" year for gold and oil
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Incredible gold demand around the world… a summary of the latest record-setting data
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Sure sign of worse to come: Infamous credit crisis victim calls bottom in stocks
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Plus, attention wordsmiths: How you can score 5 ounces of gold for free
The Labor Dept. dropped a jobs bombshell this morning. Over 533,000 jobs were shed from the U.S. economy in November — the most since President Nixon claimed he wasn’t a crook, and then resigned anyway.
When the number was released, a collective “Ooohhh” rose from the trading floor on the NYSE… like when a man sees his buddy getting kicked in the crotch.
The Labor Dept. began keeping monthly employment stats in 1939, at the end of the Great Depression. Today’s count ranks among the top five worst monthly losses since then, but doesn’t yet hold a candle to the Depression:
The unemployment rate in the U.S. rose to 6.7% on the news today. Job losses were widespread, hitting manufacturing, construction, retail, financial… but so much of this contraction is the “wealth effect” from the housing bubble going into to full reverse.
Retailers, for example, posted the worst November sales numbers in 30 years yesterday, said the International Council of Shopping Centers. Sales declined 2.7% in November year over year.
And let’s keep in mind that early in 2009, we still have Alt-A and option ARM resets lined up to wreak even more foreclosure havoc. Despite record-setting stimulus from the government, it’s going to take a long time to clean up the mess left after this housing bubble has popped all over the Uncle Sam’s face.
The stock market took the jobs report in stride. In fact, it appears as though these numbers were already baked into the cake — the Dow opened down only 90 points today… not bad, considering. As we prepare to hit “Send” on this e-mail, it’s down only 27 points.
Appropriately, another voice joined the “bottom is in for U.S. equities” harmony rising among the financial class yesterday. “Looks like the bottom has been made,” (in)famous Legg Mason fund manager Bill Miller said yesterday at an annual luncheon for the media.
Hmmmn… you may remember when Miller told his shareholders “by far the worst is behind us” back in April. We’ve had a lot of fun watching him buy Fannie Mae, Citi and Countrywide all the way down this year. Has the bottom really “been made” for stocks? Only time will tell, but we suspect there’s more hilarity on the way…
Outside the U.S., the central banks of Europe, Britain and Australia have embarked on a super-sized rate-cutting campaign. After the Bank of Australia cut its lending rate by 100 bps last week, the ECB and BOE followed suit yesterday, with 75 and 100 bps cuts, respectively.
Unlike the Fed here in the U.S., the three central banks still have plenty of room left to lower rates. The Reserve Bank of Australia’s lending rate is a lofty 4.25% — still a six-year low for Aussies. The European Central Bank has lowered its rate to 2.5%. And the Bank of England is now down to 2%.
“I believe,” notes the inimitable EverBanker Chuck Butler, “the BoE has taken a page from the U.S. and Japan’s book on how to deal with all this and is on the road to zero percent rates. But I don’t think the ECB will go there. While they may go lower in the eurozone, I don’t think ECB President Trichet, has any intention of following the ‘Japanese model.’
“‘We mustn’t confuse deflation with disinflation,’ Trichet said yesterday. ‘We have to beware of being trapped at nominal levels that would be much too low.’ Still, central bankers are quite aware of the fact that the markets’ focus has become so myopic on the credit crisis that they could do a handstand on their desk while sticking out their tongue while announcing a rate cut and the markets wouldn’t notice.”
Thus, rates in both the eurozone and in the U.K. are likely to go lower still.
Accordingly, we saw some big swings in the dollar index yesterday, but in the end, it is back to the same level it’s been all week… about 87.
If you’re trading options on currencies, as our Bill Jenkins is wont to do, these sharp swings in euro-dollar or pound-dollar exchange rates can mean significant speculative earnings. Bill’s service The Master FX Options Trader is being added the Agora Financial Reserve suite of products as we speak. For more details on the Reserve, including our “one-time only” rebate offer during the month of December, please click here.
Despite the dollar’s stability, crude oil is still getting treated like a foster child with ADHD. Traders have turned their economic angst against the poor lad. Any lousy economic news is bad … and there’s no shortage of dismal data these days.
The front-month crude contract has fallen to $42 a barrel.
Making matters worse this morning: “A temporary drop below $25 a barrel is possible,” reads a report by Merrill Lynch, “if the global recession extends to China and significant non-OPEC cuts are required. In the short run, global oil demand growth will likely take a further beating as banks continue to cut credit to consumers and corporations.”
Oil and gold, two commodities that generally trade in the same direction, appear to be setting up for a historic separation.
Currently, it takes 17.5 barrels of crude oil to buy one ounce of gold. The historical average for this ratio is about 15 barrels to the ounce. So… “Either oil is oversold or gold is overbought,” writes Dan Denning.
“For the ratio to return toward its historic average, oil prices would have to rise or gold prices fall. But for the short term, we reckon the ratio will increase, with the oil price falling more and the gold price holding steady or rising. There’s no law of physics that says the ratio must return to 15, but 15 is the average over time.
“Which means 2009 is going to be a strange one. Oil prices should fall to reflect a slowing world economy. Gold prices should rise to reflect the inflationary fires being stoked all over the globe.”
Still, the gold-to-oil ratio is worth watching over time, however, because as in nature itself, markets tend to revert to the mean. When? That’s the question mixing with everyone’s spittle.
“Gold demand has exploded,” reports Doug Hornig of Casey Research , “and not just here and there. Everywhere. Around the world, customers have been queuing up to strip coin shops’ shelves bare. Mints have been running 24/7 and still have been forced to ration coin shipments to their dealers. ETF vaults are bulging.
“Now the World Gold Council has confirmed the trend with hard numbers for the third quarter of this year. In a page-and-a-half press release summarizing 3Q 2008 activity, the WGC had to use the word ‘record’ 10 times. Some highlights:
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Dollar demand for gold in Q3 was a record US$32 billion, 45% higher than the previous record, set in 2Q 2008
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Identifiable investment demand, which incorporates demand for gold through exchange-traded funds (ETFs), bars and coins, rose to $10.7 billion (12.3 million ounces), double year-earlier levels
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Retail investment demand rose 121%, to 7.5 million ounces, with strong bar and coin buying in the Swiss, German and U.S. markets. Europe as a whole saw an all-time record 1.64 million ounces of bar and coin buying. France became a net investor in gold for the first time since the early 1980s
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Gold ETFs posted a record quarterly inflow of 4.8 million ounces in Q3. After the collapse of Lehman Bros. in late September, ETF inflows shot higher by an unprecedented 3.6 million ounces in only five days
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Demand for gold jewelry hit a record $18 billion. Leading the way was India, which witnessed a rise of 65% in dollar value (1.3 million ounces) compared with 3Q 2007. The Middle East, Indonesia and China all experienced increases of more than 40% in value or 10% in weight, year over year
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At the same time that demand is setting records, supply has been unable to keep pace, falling 9.7% from year-earlier levels. The drop was largely due to inaction on the part of central banks, which have increasingly shut their vault doors.
“Heavy demand, declining supply… small wonder that gold prices have remained near record highs in most of the world’s currencies, that dealers have been marking up coins by 10% or even 15% (when they can get them) and that 1-ounce coins still fetch bids close to $1,000 on eBay.
“When will the spot price in U.S. dollars, which is set by the futures market, catch up? No one knows. But it will.”
We apologize for how complex the oil and gold trade has become been lately. In our simplistic dream world, the trends that were in play in early 2008, when both were rising in tandem and everything made sense, would have continued indefinitely. Alas, even commodities are subject to the whims of the market… and the mob. In an effort to make it up to you, here’s a way you can score 5 ounces of gold for free.
Sharpen your pencils…
Tirex Resources, an Albanian miner, needs a new slogan. In simple terms, they recently found a whole slew of gold in the Mirdita district of Albania… so much that the company feels the need to change their brand identity. Instead of hiring a fancy marketing firm, they’re conducting a “Golden Slogan” contest. Visit their site here and offer a catchy slogan. The company promises that if yours is the winner, they’ll fork over 5 ounces of gold. We have no ties or familiarity with Tirex, so caveat emptor.
But be warned, you’ll have to top the Mogambo Guru’s highly succinct slogan (MGHSS):
"We had a lot of success in establishing Mirdita as a potential gold-rich VMS district, whatever in the hell that is, because governments and central banks around the freaking world are creating so much money and credit so as to finance massive deficit-spending that it is now accelerated to terrifying degrees undreamt of heretofore, as unwieldy and pretentious as that is to say, and so inflation in consumer prices in response to this tsunami of new money will be equally as terrifying, while the deflations of the other asset bubbles as they go predictably bust from so much stupid leverage that losses are thus magnified 20 times, 30 times, 40 times or more, and that is why people go to gold, go running to gold, go stampeding to gold, screaming in fear at the economic destruction raging all around them, and then all this demand makes gold and gold mines suddenly worth a lot of money as people realize that government promises and central bank fiat currency ain’t worth diddly squat!"
“I am thoroughly convinced,” writes a reader, “that we are doomed to be, at best, an average performing nation in every regard. I simply just cannot believe how limited a large majority of Americans are when it comes to understanding economics and freedom. You could draw stick figures in the most basic behaviors to show these brain washed people how real market forces provide the best solutions and you would still have at least 75% of this country agree that the government should oversee that. Sadly, most people won’t even understand the irony of that last sentence.
“The only things that are even close to resembling free markets are illegal drugs and prostitution, as they are not mandated, regulated or taxed. Seems simple enough, but no one seems to get this and the pricks in D.C. are clever as cats by doing the finger-pointing dance so they just keep the average Joe missing out on what’s really going on right in front of their eyes. They are socializing the nation, and no one’s doing a damn thing about it.”
The 5: Hmnn. Who would you want to do a damn thing about it? A different government?
Confused,
Addison Wiggin
The 5 Min. Forecast
P.S. The Agora Financial Reserve is now accepting new members . This year we’re throwing in a special treat for those who qualify… cold hard cash. Get the details, here.