Chinese exports dive; oil imports, money supply and leverage rise… sound familiar?
Bush asks for rest of $700 billion TARP… S&P says USA’s credit rating getting shaky
Dan Amoss predicts the oil surprise for 2009
Chris Mayer highlights a county most have never heard off… but many soon will
Plus, bigwigs beware… CEOs far from immune to surging unemployment
We begin today with travesty on the other side of the world: Chinese exports shrank 2.8% in December — the steepest drop since April 1999. Measured in yuan, the annual plunge in exports is even greater — down 9%, a huge departure from 2007’s 30% rise.
For the better part of 2008, we’d been forecasting that because the economic paradigm “We think, they sweat” was a bad one — it was unlikely to succeed. The idea is fairly simple: Smart people in the West would conceive of projects, assemble the financing… and then outsource the manufacturing to lower-wage markets in places like China. Unfortunately, the model was still dependent on mass consumption in the West. Without credit-fueled consumption… demand for Chinese gewgaws is drying up.
Still, while most imports fell in China this year too, we note that crude oil imports shot up 9.6%. Despite its slowing economic growth and precarious export economy, China brought in an extra 100 million barrels of the stuff in 2008.
What’s more, the Chinese money supply is up almost 18% from this time last year, thanks mostly to government stimulus interventions and the fastest pace of new loan generation on China’s books.
Let’s see: A quickly shrinking export economy, growing dependence on foreign energy and a new taste for printing and borrowing money? Hmn… I think we’ve seen this movie.
In order to stave off the inevitable, the outgoing president agreed to lobby Congress for the remaining $350 billion in TARP bailout funds for the Treasury Dept. yesterday.
"I told [the president-elect] if he needed the $350 billion on my watch,” Bush told reporters at the final press conference of his second term, “I’d be willing to ask for it. If he felt like it needed to happen on my watch."
With very little disclosure, the first installment of the bailout plan was given to big banks so they could buy other big banks… and not used to buy up toxic assets on their books, as originally designed by law. So… we suspect Congress will be a little more aggressive on the strings it attaches to this allotment.
But not too aggressive… lest it appears to lack the will to “do something” about the crisis.
With a curious sense of timing, Standard & Poor’s affirmed the U.S.’ AAA credit rating today, but with a word of caution.
"We believe the deepening financial turmoil and related global macroeconomic downturn,” the agency said, “will lead to noticeable deterioration in the U.S. fiscal profile." But for now, S&P lists the U.S.’ credit status as “stable.”
The U.S. trade deficit contracted by the most in 12 years in November, the Commerce Dept. reports today. The deficit plunged month to month by 28% ($16 billion), to “just” a $40 billion deficit, far better than Wall Street anticipated.
Has I.O.U.S.A. changed its ways? C’mon… the crashing value of oil imports was the real source of the huge decline. We pumped in about $17 billion worth of foreign crude in the month, down $12 billion from October. Most of the remainder of the narrowed deficit was attributed to a broad consumer pullback.
Nevertheless, the better-than-expected trade balance data is giving the dollar a boost. The dollar index is up a full point from yesterday, to above 84 as we write.
“The full faith and credit’ of the USD must mean something…to somebody… somewhere!” writes our Bill Jenkins.
“The greenback has enjoyed some recent favor since the abysmal jobs report last Friday. The dollar is stronger against the euro, sterling, Canadian dollar and Aussie dollar, just to name a few. And we have cashed out profits on these currencies to the tune of 48% and 68% with a holding time of just days. As the dollar races to make a peak, you don’t want to miss this, or the thrill of riding it back down.”
Bill’s Master FX Trader readers, by the way, pulled in 49% and 68% gains yesterday using options they held for less than a week. Given the relative strength of the dollar since the crisis began, this is a great place to speculate and earn some of your cash back from long portfolio losses in 2008. Volatility begets trading profits… for more from Bill Jenkins, click here.
Thus, a stronger dollar is putting pressure on already weakened oil prices. The end (for now) of the energy conflict between Russia and Ukraine pushed crude down a few extra dollars yesterday. Add that to last week’s surprising inventory report, a steadily decaying American economy and now a rebounding greenback… seems as though the oil market is simply mired in pessimism. Saudi Arabia announced that it intends to cut an additional 300,000 barrels a day of daily oil production, but no one seems to care.
The front-month contract is at $36 a barrel as we write… and falling.
“I expect a surprise for 2009,” writes Dan Amoss, “to be oil supply falling faster than demand, cushioning prices.
“The arbitrage trade involving sale of longer-dated oil futures, purchase and delivery of spot oil futures and storage on supertankers for six-12 months will alleviate the near-term ‘glut’ on the market. This oil will be taken out of the pool of oil immediately available for refining, and is destined for refineries six-12 months from now.
“The public remains completely ignorant about supply, and 60 Minutes isn’t helping, with another slanted story last night concluding that Wall Street speculation was entirely responsible for the price run-up (why didn’t they talk to any geologists, or analysts covering the global supply chain?):
“Over the past year, the futures markets were just reacting to supply/demand data (with a vengeance, and with far too much leverage, in hindsight). But I think it’s actually prudent for the likes of CalPERS to have exposure to commodity futures. If all the big institutional money sold out of oil futures in recent months and are sitting in Treasuries, they could regret that decision and soon reserve it.”
Even though oil is back near credit crisis lows, retail gasoline prices have rebounded. According to AAA, the national average price at the pump has risen 16 cents in the last 12 consecutive days, to $1.79.
“Check out Turkmenistan,” advises Chris Mayer.
“Back in October, while the world was busy putting out the fires of a financial crisis that still burns, little-thought-of Turkmenistan made a bombshell of an announcement. It seemed to gather little notice at the time. But it could become much more important as the Russian-Ukraine dynamic gets worse.
“Gaffney, Cline and Associates, a British consulting firm, completed an audit of Turkmenistan’s Yoloten-Osman natural gas deposits. Based on GCA’s first results, the fields have a minimum of 4 trillion cubic meters of gas…and as much as 14 trillion cubic meters of gas, a truly staggering sum. The announcement put Yoloten-Osman among the four or five largest natural gas fields in the world.
“The country’s biggest field was Dowalatabad, a rich and extraordinary field in its own right. Yoloten-Osman is at least five times as large. And Turkmenistan has many gas fields not yet explored.
“Turkmenistan has the potential to rival Russia’s clout in natural gas and provide an alternative for Europe. By creating a pipeline from Turkmenistan, through Azerbaijan, Georgia and onto Turkey, the EU could bypass Russia entirely.
“You can be sure the Russians won’t like that. It’s as if Turkmenistan just drew an ace face up — and now Moscow is starting to sweat it a bit. Turkmenistan now has even more clout to peddle with eager Americans, Europeans and the Chinese — all who want Turkmen gas and the opportunity to build out the infrastructure. Russia will have to play the game like everyone else. Turkmenistan is in the driver’s seat.”
Gold stopped yesterday’s bloodletting early this morning, after falling about $30 an ounce. You can score an ounce for yourself this morning for just above $820.
U.S. stock indexes fell for the fourth straight session in a row Monday. The Dow fell 1.4%, led by bad news from Aluminum giant Alcoa. The company posted its first net loss in six years, a notable $1.1 billion. Alcoa was the first of the Dow’s 30 components to report fourth-quarter earnings… suffice it to say that was not the start investors desired.
For the year, the Dow is already down over 3%.
Here’s a likely bull market for 2009: CEO firings.
In the last eight days alone, six CEOs of publicly traded companies have gotten the ax, one of whom was the head of a S&P 500 company. Boards of Seagate, Tyson Foods, BeBe, Chico’s, Borders and Orbitz all ousted their head honchos over the last few days.
In all of 2008, 61 S&P 500 CEOs were fired, a 10% jump from 2007. At this rate, we’ll see well over a hundred in 2009.
“Oh, my God,” writes a reader, responding to yesterday’s “interesting” inbox. “You guys have some real morons writing in with their suggestions.
“All these suggestions fail to address the fundamental problem with government. Namely, that government does NOT produce ANYTHING. The ‘stimulus’ money that everyone is getting so worked up about has to be borrowed, begged or stolen from someone, if one doesn’t have the ability to create value. Borrowed, begged or stolen… that’s it. I would suggest it will not be begged, which leaves two alternatives.
“Few people expect the Mafia to be able to fix any problems in an economy, yet they all idiotically look to government to fix these same problems. Even fewer realize that there is little real difference between the two. Let them all get what they deserve… servitude!!”
“Listening to all these commie readers” writes another, “in a free-market contrarian newsletter like The 5 Min. Forecast kinda makes me want to park the car in the garage and curl up into a fetal position while hugging a teddy bear and just let some of that $1.80 per gallon gasoline purr me to sleep.”
The 5: Heh… easy.
“How about we shut down the government and restructure,” suggests the last. “Send the bankers and politicians to Europe and put an ad in three of the worldwide newspapers stating we are not responsible for any debt incurred by the previous government or its financial institutions or insurance agencies. And then put this plan in place. I found it on the Web. I think it’s an amazing plan: It goes by the name of ‘the U.S. Constitution.’ Then reopen the government with more enlightened politicians in place. Maybe Ron Paul Washington as prez, to get us started in the right direction.
“Either that or cut out the middleman and send our paychecks directly to Europe or Asia and realize slaves to debt are not freemen.”
The 5 Min. Forecast
P.S. Apparently, the companion book to the film I.O.U.S.A. debuted at No. 1 on the BusinessWeek paperback best-seller list this week, on newsstands now… and it’s No. 7 overall on The Washington Post list. Funny, we’d never been given the time of day from The Washington Post until this project. Guess it helps to interview the largest shareholder of the company (that would be Warren Buffett) and publish the entire transcript.