An unnerving start to an era of “change”… most expensive Inauguration in history
Markets watching Britain, not Barack… U.K. unveils huge new bank bailout plan
EU, euro in trouble… Ireland faces default, S&P downgrades Spanish and Greek debt
China’s growth in jeopardy too… but Chris Mayer finds one industry still booming
Ed Bugos with a historic opportunity for gold stocks
Two million people don’t gather in one place unless things are really good, or really bad. We’re having trouble telling the difference these days… One thing is certain: Obama sure has a lot of hype to live up to. Guess that’s inevitable when you allow the nation to project all their fears and hopes on you.
When all the dust clears, the Inauguration will have cost $150-175 million, the most expensive inaugural celebration by a factor of three. The federal government will have spent $49 million. The leaders of Maryland, D.C. and Virginia are asking for $75 million more… someone has to pick up all the trash and empty the port-a-johns.
Good timing. At least the rest of celebration has been funded by private donations.
Historians say Kennedy was asked what he wanted to do about Cuba while leaving the podium following his Inauguration. What do you suppose people are likely to ask this one?
And just for old times’ sake…
We will miss him… in a way
Today’s market news isn’t in Washington, not even in I.O.U.S.A. Instead, investors are grimacing at news emanating from Europe.
For starters, the U.K. unveiled a massive new bank rescue plan today. Britain will spend another $147 billion on troubled financials in this complicated stimulus. Here’s the meat of it:
The Bank of England will set aside $74 billion to buy up unwanted assets… much like the original outline of America’s TARP
Financials with assets greater than $37 billion will be eligible for a state insurance program.
Banks will pay a fee and get some protection against future losses in return. Any participating institution will have to commit to a consumer/small business lending quota
Like the U.S., the U.K. government will guarantee debt of certain banks through 2009
And similarly, AAA asset-backed paper will get a government guarantee too… with John Q. Taxpayer set to pick up the tab should these assets continue to erode.
The new British rescue scheme might be too little, too late for Royal Bank of Scotland. The bank said it expects a $41 billion loss for all of 2008. That’s despite a $63 billion government injection RBS split with Lloyd’s and HBOS back in October. If the RBS forecast rings true, it’ll be biggest annual loss for any company in the history of the U.K.
Denmark announced a banking rescue of its own Sunday. The tiny country will scrounge up $18 billion to shore up various financials.
All kinds of nasty rumors are surrounding Ireland. There’s word the country is in talks with the IMF for a last-ditch bailout… and is also plotting debt default scenarios. Last week’s nationalization of Anglo Irish might have been too much for the weekend Irish government to handle. This morning, we see articles left and right on Ireland defaulting because of Anglo’s toxic balance sheet… or moving to drop the euro. Either would be very bad for all of the EU.
And it gets even worse… S&P stripped Spain of its coveted AAA credit rating Sunday. Why? Spanish debt is expected to exceed 6% of its GDP this year, while the trade deficit already exceeds 10%. Unemployment is among the highest in the eurozone. Spain’s once robust housing market has crashed. It’s service economy makes up the majority of Spain’s income (mainly, the currently busted tourism industry) and the world is collectively wondering whether Spain actually makes anything we can all use.
Spain is the first nation to lose its AAA status since Japan in 2001. They’re the second major downgrade of this crisis. Greece was bumped from A to A- last week. Baring a sudden change in global attitude, look for Ireland and/or Portugal to lose their ratings soon as well.
Maybe the only good news for Europe today, Russia and Ukraine signed another deal this morning to restore natural gas flow around Europe. Vladimir Putin insists he’s ordered Gazprom to turn on the juice, and the Ukraine has promised to move that gas through its lines across Europe. While this battle might be over, we suspect the war is just getting under way.
Ukrainian PM Tymoshenko and Russian PM Putin… no tension here.
In what can only be an incredible coincidence, Russian President Medvedev signed an order today that would impose large trade sanctions on countries that provide weaponry and technology to Georgia, another of Russia’s rivals. We’ll give you one guess which nearby nation just happens to be a major Georgian supplier.
China’s unemployment rate increased in December for the first time since 2003. The registered unemployed totaled 4.2% at the end of the year, the Chinese government announced overnight. Officials expect the rate to exceed 4.6% by the end of the year, which would be the highest since 1980.
Of course, in a nation as massive as China, you can throw that “official” rate right out the window. The Chinese government estimates more than half of the unemployed don’t register, and the real unemployment rate is likely above 9%.
“The China Electricity Council reports that electricity consumption rose nearly 7% in December, year over year,” reports Chris Mayer, finding one of the few growth industries remaining in the world. “If no one has doctored up those numbers, that would be the first such increase since July. And there is some anecdotal evidence that housing prices in China are on the rise again.
“Chinese utilities have budgets growing at 8-10% per year out to 2011. State Grid Corp. of China, the nation’s largest power distributor, plans to spend $14.6 billion building high-voltage electricity lines over the next three-four years. This is important, as it shows that a slowing economy has not stopped China from investing in energy projects. China’s power demand is still growing. And China overall increased spending on power grids by 18% last year.
China still has a long way to go in meeting demand. Power consumption per capita is well below Western countries, as this next chart shows.
“Out to 2030, China alone could make up a third of the total world increase for power. To meet that demand, China will invest heavily in wind and hydropower, nuclear power, transmission lines and much more.”
Of course, Chris has a company in the Capital & Crisis portfolio poised to profit. It’s a global leader in electricity management and construction. Get the ticker, along with the rest of Chris’ portfolio, here.
Back here in the land of the free, the first two bank failures of 2009 occurred over the weekend. It’s curtains for National Bank of Commerce in Illinois and Bank of Clark County over in Washington state. The two banks had around $800 million under management, and both will be absorbed by other institutions. Still, the FDIC expects to pay around $200 million
That makes 27 failed banks so far for all of the credit crisis. More to come…
The Dow greeted President Obama by opening down nearly 200 points. The index is now again flirting with the 8,000 mark, a point of resistance during much of this crisis.
Considering all the stress in the eurozone, we aren’t surprised to see the dollar in the driver’s seat again today. The dollar’s rise has been sure and steady since we spoke to you last. The dollar index goes for 86 on the dot today, up 2½ points from Friday’s low.
The dollar’s strength is putting a hurt on oil too. Geopolitical risk is also off the table for today, as peace has emerged between Israel and Gaza as well as Russia and Ukraine. The light sweet stuff was as cheap as $34 a barrel this morning, but has already inched back up to $37.
Gold responded vigorously today to weekend’s barrage of global economic strife. The spot price jumped $30 in London trading this morning, to $855 an ounce.
“Maybe it’s time to shed our cautious outlook on precious metals investments,” says our gold analyst Ed Bugos.
“For what it’s worth, the last time the Amex Gold Bugs Index (HUI) fell two-thirds in a similarly short period of time was 2000. The other gold share averages fell a bit less that year. But over the next two years, the HUI nearly quadrupled; and over the next eight years, it gained some 900%.
“If you missed that run because you’ve been waiting for ‘values’ like you saw back in 2000, then now is the time to back up the truck, if you will, and buy every quality gold and silver share on the board. Even though a lot of other stock sectors are down as much as the gold and silver shares, these metal shares continue to represent the best values of all.
How much longer until it’s called Los Tiempos de Nueva York? Mexican gazillionare Carlos Slim tossed the flailing New York Times another financial life preserver over the weekend, this time with a $250 million check.
Slim, who already owns almost 7% of the rag, will receive a 14% coupon for what’s basically a six year note. Times people say Slim won’t get any board seats or additional ownership of the paper… not yet anyway. Slim’s notes can be converted to common stock, should he decide to up his ante over the next few years.
“This type of person is the reason folks like Patrick Henry and Thomas Jefferson were/are necessary,” writes a reader, headlining a host of outrage over Friday’s reader who suggested that savings is a privilege, not a right. “When thinking such as his becomes codified, it becomes impossible for the saver to live in peace with him.”
“The ability to save is not a privilege, you freaking moron,” writes another. “It is my right…
“Good luck to you, to us all,” he continues, “because this one simple post has finally clinched in my mind where we are going. Ironically, I find myself shocked at how far down the road we already are to needing hard, physically expensive actions on broad fronts in our society against those who would deprive us our of rights.
“My money is mine, not society’s… You know what? I greatly appreciate you guys and all you do. This person and I simply cannot share the same society. Sooner or later, he will push for that which will make me have to make some very, very hard choices with regard to the laws with which I am willing to comply.”
“To the pseudo-intellectual who actually had the stone-stupid… wait, no one is this stupid,” writes another. “You cannot actually believe what you wrote.”
“I almost fell off my chair when I read this,” writes another, “and this is an actual reader of The 5 Min. Forecast? It just highlights how far the corruption has gone with a corrupt monetary system. Apparently, I should have no rights to save virtual firewood and food (i.e., money) to care for myself and my family. Instead, I should allow the government to confiscate it all via inflation and give it to people who are not daily 9-5 slaves.”
“Now I know I am underprivileged,” writes the last. “I was being a socially responsible American by spending every penny I earned and then spending every penny I could borrow. I was brought up mistakenly thinking that saving was a personal discipline that required the sacrifice of forgoing some immediate pleasures and comforts for the opportunity to build security and… forgive me… wealth.
“Now I’m set straight. Spending into insolvency is the true American way. Ben Franklin, Thomas Jefferson and those privileged Founding Fathers had it all wrong. The nation must have been built on spenders, not savers.
“Those Chinese and Japanese are extremely privileged. They have national savings rates of 40% or 50%. What a bunch of silver spooned aristocrats they all are!”
The 5 Min. Forecast
P.S. In a fierce show of historical awareness, the president-elect shut down the city of Baltimore on Saturday. We were trying to get across town to pick up a chair we’d had reupholstered, but every route was shut down, including I-83 from Penn Station to the Inner Harbor.
Apparently, Obama wanted to follow the same route as Lincoln did when he was smuggled through Baltimore on his way to his own Inauguration. The night Lincoln was here, say historians from the Maryland Historical Society, he stayed in a room in 702 Cathedral St. Aren’t we fortunate? We have our very own Lincoln Bedroom.
We have a fine way for you to celebrate the new president’s Inauguration, right here. It’s your best chance at harnessing the change that’s a-comin’. Lord knows you’re going to need it.