Pertinent Obituary, Dimon Says Worst Not Over, Oil Producers Struggle, The Next Bubble and More!

  “The worst of the economic situation is not yet behind us,” J.P. Morgan CEO Jamie Dimon told the FT yesterday. “It looks as if it will continue to deteriorate for most of 2009. In terms of our sector, we expect consumer loans and credit cards to continue to get worse.

”When we look back at industry excesses in areas such as highly leveraged lending and securitization, it is clear that some of these markets will never come back,” Dimon said. “In the next few years, the industry will go back to basics: serving individual and corporate customers as best as we can.”

Dimon said a credit card bubble might be the next to pop.

  J.P. Morgan shocked Wall Street this morning by reporting actual earnings for the fourth quarter of 2008. The company reported a $702 million profit during the quarter. Not quite the $3 billion it pulled off the same time in 2007, but better than the break-even earnings the Street was anticipating.

  86% of merger-and-acquisitions professionals say the current deal environment is “fair or poor,” says the latest from the Association for Corporate Growth. The ACG’s been polling M&A brains since 1954… never has sentiment been so poor.

Over the next six months, 44% of respondents say the M&A environment will likely get even worse. But if you insist on betting on M&A activity in 2009, those polled said the finance, health care, energy and manufacturing sectors will see the most activity, in that order.

We got a firsthand look at ACG operations today, and they likely got more than their fair share of us… details below.

  Bank of America, the nation’s biggest bank, is reportedly negotiating for “billions more” bailout bucks from Capitol Hill. BoA is worried (threatening?) that it won’t be able to complete its merger with Merrill Lynch without a capital boost from Uncle Sam. Well, we should say ANOTHER boost from Uncle Sam, as Bank of America has already been the recipient of $25 billion in TARP funding.

We’ve said this before, but it bears repeating: Half of the entire American banking population has some financial tie to Bank of America… though deposits, brokerage accounts, mortgages, etc. Why? We have no idea.

  But if you think BoA is mismanaging its assets, check out sovereign wealth on the other side of the planet. The sovereign funds of the six members of the Gulf Cooperation Council lost $82 billion in 2008 , leaving them with “just” $1.2 trillion.

According to a report from the Council on Foreign Relations, these mega losses come in spite of some $300 billion in oil profits from last year, when crude was as expensive as $147 a barrel.

“All these funds now look likely to shrink in 2009,” read the report, “as the price of oil has fallen to the point where many Gulf economies will need to draw on their foreign assets to sustain their current level of imports. Estimates of the Gulf’s current and future external wealth consequently need to be scaled back."

  Venezuela, another major oil exporter, is faring no better. Dictator in chief Hugo Chavez jammed his bushy tail squarely between his legs this week, as Venezuela’s nationalized oil industry quietly began soliciting bids from Western oil companies. Just months after kicking out the likes of Exxon Mobil and Conoco-Phillips, Chavez has turned to Chevron, Total and Royal Dutch/Shell for help.

Without the aid of high-end oil service teams, Petroleos de Venezuela’s ineptitude and currently low crude prices could send the country into total economic bedlam. Approximately 93% of Venezuela’s export revenue comes from oil.

  China is still booming… at least it wants us to think so. China’s National Bureau of Statistics proudly revised the country’s 2007 GDP from 11.9% up to 13% this week. That’s the final reading for 2007, says the office, which will go in the books as the second best year for Chinese growth on record.

Should China’s latest revision be accurate, China will narrowly leapfrog Germany and become the world’s third largest economy. With an annual GDP of around $3.3 trillion, China’s per capita GDP is still less than $3,000. Considering the U.S. is worth about $45,000 a head, we’re betting China still has a long, long way to rise.

  Back in I.O.U.S.A., home foreclosures soared a record 81% in 2008, RealtyTrac reports today. A total of 861,664 homes were lost to foreclosure last year, by their count. That’s an 81% from 2007 and an amazing 225% moonshot from 2006.

In total, more than 3.1 million foreclosure filings were issued in 2008. According to RealtyTrac, that’s one for every 54 American households.

  Wholesale inflation fell again in December, the Commerce Dept. says today. Its measure of inflation for wholesalers (PPI) fell for the fifth straight month, this time plunging 1.9%.

Headline readers will declare this another sign of price deflation in the U.S., but the details paint a more complicated picture. The majority of the decline was due to falling gas prices. Factor out food and energy, and the “core” rate bumped up 0.2% in December, to an annual rate of 4.3%, the biggest annual jump since 1988." That’s well above the Fed’s target rate.

  The dollar index remains at Wednesday’s levels today, a lofty 84.6.

  Factor in dollar strength, and all signs suggest that oil will get even cheaper in the near term. Crude is down another couple bucks today, to $35. The few bullish oil traders left were spooked out of the market yesterday after another surprising inventory report from the Energy Dept. The government reported oil inventories exceeding 326 million barrels, the biggest supply glut in 16 months. The same report said fuel demand fell 6% last week, the biggest decline in nearly five years.

Another $3 and oil will be retesting credit crisis lows.

  But gasoline prices are still creeping higher. Still responding to oil’s rise to $50 earlier this month, the national average price at the pump is now just below $1.80. That’s up almost 20 cents from its December low.

  “There is something distinctly different,” notes Greg Guenthner, “about the way we’re reacting to the comeback of cheap gas.

“Despite much lower energy costs, the green movement won’t just go away. Consumers continue to demand more earth-friendly products. A sense of urgency over climate change and OPEC’s stranglehold over our oil supply continues. We continue to seek alternatives. But alternative energy’s next wave needs to prove it can sustain once the hype dies down.

“Take ethanol. At first glance, 2006 looked like a great year to be in the ethanol business. Shares of Pacific Ethanol were on fire, shattering the $20 mark by the end of March. By May, shares broke $40. Bill Gates’ millions helped jump-start the stock, and new government mandates all but ensured the success of the corn-to-fuel business.

“As time would soon tell, the spring of 2006 proved to be a great time to sell your ethanol holdings. Pacific Ethanol’s light is not shining quite as brightly as it once was. The stock is more than 98% off its 2006 high, and Gates is steadily unwinding his stake in the company.

 
“So the big question remains — can someone successfully develop an alternative energy source that will actually make money?”

We suspect such a source of energy will start as a small project and blow up into the next bubble. Greg’s been slowly preparing his Bulletin Board Elite readers for green-tech euphoria… join his ranks, here. 

 Considering all the news above, we can’t blame investors for yesterday’s big equity sell-off. The Dow fell for its sixth day in a row, this time almost 3%. There have been nine trading days so far in 2009, and the Dow has already managed to fall 6.6%. Go back through the Dow’s 113-year history and you’ll find only one New Year’s kickoff that dreadful — the first nine sessions of 1978.

But if you’re superstitious, there’s hope: The Dow ended up 3% that year.

  Gold has fallen victim to this New Year’s slump as well, but is still faring better than stocks. It’s down around $60 so far this year, and has been slowly trending down most of this week. An ounce goes for $807 this morning.

  “After taking up Chris Mayer’s offer ," writes a reader, “to subscribe to Capital & Crisis AND receive a free copy of I.O.U.S.A., I went for it. I’m enjoying Chris’ insight and CORE principles, but in my infinite wisdom, I loaned my copy of I.O.U.S.A. to my son, who’s a senior in high school.

“I have now found out that my son ‘loaned’ the movie to his economics teacher, who was so thrilled that he showed it to his class of budding high school seniors in his econ class. My son became instantly famous, as they got to watch ‘a movie,’ instead of the usual class ‘stuff.’ Now the teacher has informed them that there will be a bonus question for extra credit on their upcoming econ midterm test concerning the content of I.O.U.S.A. So much for my son’s instant fame.

“Another unexpected surprise is that my son and his buddies have actually spoken to me and asked me questions concerning this mounting debt problem. This is unexpected, as my son and ‘the guys’ usually talked in some sort of monosyllabic text acronym language that is barely discernible, and they usually can’t wait to get to the computers and play video games.

“I thank you for such an intellectual film that has made my monosyllabic teenager talk to me in a language that I understand, plain-old English. This has, apparently, spurred this younger generation into some real eye-opening thought on their part.

“Now my only worry is that I hope I haven’t broken any copyright laws concerning your film (no admissions were charged for viewing) and I really want you to know that ‘the guys’ were listening and learning from your film and that this is the generation that is eventually going to have to tackle this problem.
 
“Please don’t have the bootstrapping lawyers at my doorstep for copyright infringement!”

The 5: Heh, you’re safe. Thanks for sharing your story.

Cheers,

Ian Mathias
The 5 Min. Forecast

P.S. Addison sends his regards, likely from somewhere on I-95 southbound. He sped up to Philadelphia this morning to deliver a presentation to the Association for Corporate Growth, the same organization that provided us with the M&A poll you read above. He’s headed back as we write… check us out tomorrow for the highlights.

P.P.S. We sent you a special pre-inauguration report last night… did you read it? It’s an investing strategy we think you’ve got to learn about before Obama is sworn in next week. There still time to read it, here.