2008 retrospective… unless you reside in a small African country, your market lost money
A closer look at the year for American markets… the few winners, and many losers
Worst year on the books for commodities too… with four notable exceptions
Crude oil pops 14%… Russia moves another pawn in the coming resource war
But isn’t there “a lot of oil out there” to share? Byron King explains crude misconception
Need to recover from 2008 losses? The 5 unveils “Income on Demand” solution
Had you known it at this time last year, you would have taken a page out of William S. Burroughs’ book and hidden away from this global crisis with a hookah pipe in your hand.
You could have wiled away your time studying the remnants of Carthage, reading up on your St. Augustine, dipping your feet in the Mediterranean… and had your money stashed away in the only market on the planet where stocks increased in “value” in 2008.
As we promised Wednesday, here are the best and worst global markets over the last 12 months. What a disaster:
Iceland is even worse than it appears. The table above values its stock market in kronur, which thanks to the Icelandic government are… ummm… worthless. Convert what’s left of their market to U.S. dollars, and the crash was closer to 97%.
We’d say Iceland’s year was a valuable lesson in the pitfalls of leverage, debt and central banking… but we doubt many leaders learned much from the tiny nation’s collapse.
Here in the U.S., we finished the year in the middle of the list of worst performers. The Dow, despite a nice series of up days over the last week, ended 2008 down 33.8%, its heftiest annual loss since 1931. Only two of its 30 components stayed in the black for the year: McDonald’s and Wal-Mart.
Other major indexes fared even worse. The S&P 500 closed the year with a 38.5% loss. All 10 of the S&P 500’s sectors declined… financials the worst, down 58%. Consumer staples fared “best,” falling 18%. Only 31 of its members ended the year in the black. Family Dollar was the S&P 500’s best performer, up 36%.
The Nasdaq ended up the worst of the big three U.S. indexes, plummeting 40.5%. That’s the biggest yearly loss in its 37-year history.
Approximately $7 trillion of investor worth was wiped out. If you’re sitting on some of those losses and waiting for the market to come back, we’ve designed a specific strategy to help you earn Income on Demand. For details on getting details… see the P.S. below.
In the strange, but popular world of ETF investing, 19 of the top 20 ETFs this year were of the short or ultra short variety. Here’s the cream of the crop:
ProShares UltraShort Semiconductor (SSG), up 110.9%.
ProShares UltraShort Technology (REW), 95.3%
ProShares UltraShort Russell MidCap Growth (SDK), 94.4%
ProShares UltraShort Russell 1000 Growth (SFK), 80.8%
ProShares UltraShort QQQ (QID), 77%.
But in the rough and rugged markets of 2008, commodities were a decent place to hide your money, right? Maybe? No?
Behold, the worst year for commodities since, well, we believe, the Great Depression. The Reuters/Jefferies CRB Index, the most followed gauge of all commodity prices, fell 36%. The index was born in 1956, and this is its worst year on the books.
15 of the 19 raw materials tacked by the CRB fell this year. The biggest losers include:
But all was not lost for commodity investors. The Ivory Coast, the world’s biggest producer of cocoa, had a tough harvest this year. As simple as that, cocoa bucked the biggest commodity trend of our lifetimes, with a few others in tow:
Still, we expect once the year of the Great Government Intervention concludes… that would be 2009, not its predecessor… commodities will once again be a great place for your money.
Crude oil ended the year with a 14% surge when Russia took another step towards resource wars with Europe. Light sweet crude jumped over $5, to $44 a barrel, after Russian owned energy giant Gazprom announced it was cutting off supplies to Ukraine. Russian officials insist the move was only a result of unpaid bills… but it’s easy to picture ulterior motives.
Europe gets about a fifth of its gas from pipelines that run through Ukraine, and it’s no secret Gazprom (and Russia in general) has been crushed by fall of resource prices. Earlier this year during Russia’s skirmish with Ossetia, we forecast a future of resource-related war. We’ll add this story to that file… and keep an eye on Mother Russia. More on the preposterous ideas coming out of the former Soviet Union in reader mail, below…
Today, traders have brushed off Gazprom and oil is back down another 8%, to $41 or so. Lousy manufacturing stats from the U.S. and China (more below) prompted traders to return to the popular mantra: Demand is down, supply is ample.
“When people say things like ‘There’s still a lot of oil out there,’” notes Byron King, “they are not necessarily wrong. But they mean that there is a lot of oil out there that is NOT in giant oil fields. (Or if they’re so smart, how come they haven’t found any giant oil fields lately.) It’s oil that you will not drill up with just a relatively small number of high-output wells, like in the big oil fields of Saudi or Russia.
“The ‘lots-of-oil’ crowd is talking about hydrocarbon molecules (not necessarily light, sweet crude, either) in deposits that are more dispersed, further out, in deep water, under more rock or salt layers, with higher temperatures and pressures. Or they are talking about heavy oil, or bitumen in tar sands, or kerogen in oil shales or even some transformation of coal.
“When people use the expression ‘lots of oil,’ they mean the expensive stuff. It’s oil that requires many expensive wells or immense processing facilities, drilled or built with technology that we have just barely invented. And it’s the oil that you will never see if prices stay at $37 per barrel for long.”
Amazingly, the dollar ended the year stronger than it began. The dollar index reads 81 today, a full 5 points higher than it did 12 months ago. The euro goes for $1.39, about a nickel cheaper than its price at the start of 2008. The pound, at $1.45, is one of the world’s biggest currency losers for the year… its down almost 50 cents for the year versus the greenback.
And if the pound was the dollar’s biggest victim, the Japanese yen is surely its biggest rival. The yen strengthened 19% this year versus the dollar, its best year since 1987. One greenback will get you about 90 yen today, compared to 110 at the start of the year.
Gold buyers celebrated the end of 2008 by installing a bottom on New Year’s Eve, around $860. The spot price has been trending up ever since. You can get an ounce today for around $880.
In December, Chinese manufacturing activity contracted for the fifth month in a row, their government announced today. China’s purchasing managers’ index scored 41 in December (below 50 signifies contraction), just above the record low set in November.
America’s gauge of manufacturing, the ISM’s monthly report, found a fresh 28-year low in the same month. The ISM reports this morning its measure of factory activity shrank to 32.4, the lowest score since 1980.
Today’s jobs report was postponed until next Friday. We’re certain the Bureau of Labor Statistics didn’t want to put a damper on anyone’s New Year’s euphoria just yet.
With the new year comes some big changes in the banking world. Bank of America closed its $19 billion all-stock buyout of Merrill Lynch today, creating the biggest financial services company in the U.S.
Wells Fargo concluded its own $12 billion purchase of Wachovia today, too.
“If you have heard of the intelligence term ‘PSYOPS,’” writes a reader, “or ‘psychological operations’, then may I suggest that this is what we are dealing with with regard to Mr. Panarin’s comments about a U.S. split into the various parts. Panarin’s comments are merely misinformation and half-truths put out by an ex-KGB intelligence operative to the intended victim: that is, U.S. citizens.
“Don’t get me wrong, the parts of his statements dealing with economic, financial and leadership calamities in the U.S. are partly true; however, that is the trick of the propagandist, to insert half-truths into their statements. The fantasy that is the breakup of the country into its regional subcountries is just that, pure fantasy and an ‘off the top of my head’ kind of statement that doesn’t deserve the text space that people are currently writing on it… including my own blurb.”
“While Panarin’s scenario,” writes another, “seems a bit off-the-wall with regard to the US getting split up and divided among other nations, it is not so far off the mark in being a realistic possibility with regard to our country acknowledging the disadvantages of being such a large nation with a very big pile of eggs in the henhouse.
“An eventual dismantling of the federal government in favor of state sovereignty would be a step in the right direction. It is much easier see progress, however slight, at the local level, where almost all of the good people who call themselves Americans are ready to knuckle down and work harder AND offer helping hands to their living, breathing neighbors (if not bankers) RIGHT HERE at home!”
“The reader who actually believes,” writes our last reader, responding to Wednesday’s inbox, “that a majority of the population will fight to keep the U.S. a ‘single, sovereign nation’ is the one who is delusional.
“I’m as patriotic (and heavily armed) as the next fellow, but I wouldn’t lift a finger to preserve this bankrupt (morally, politically and fiscally), warmongering shell of an empire. As far as I’m concerned, it (and its subjects) has failed nearly every test given to it since the federal coup of 1779 and it deserves to be dumped unceremoniously onto the scrapheap of history. And good riddance.”
The 5: Welcome, 2009… what calamities await ye?
The 5 Min. Forecast
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