Profiting Under Obama, TARP Already Down $64 Billion, Auto Shake Up, Zimbabwe Trillionares and More!

by Addison Wiggin & Ian Mathias

  • New leader, new investment strategy… The 5’s mystical first step in adapting to the 44th president
  • Market reacts harshly, worst Inauguration Day sell-off ever… what’s behind yesterday’s market malaise
  • Dan Amoss on how to profit from Obama’s reign
  • Government provides TARP update… $64 billion already lost
  • Changing of the guard among U.S. autos… GM losses its No. 1 title, Chrysler bailed out by Italians
  • Zimbabwe update… Behold the world’s first $100 trillion bill

  Yesterday, while watching the Inaugural address with the huddled masses at Mick O’Shea’s pub on Charles Street, we thought, "This president is going to be much harder to poke fun of than the last goon. Gone are the days when putting a picture with no caption in The 5 will do the trick. We’re going to have to be much more creative."

Then, last night, while sleeping off our angst, we were visited in a dream by Divine Inspiration herself, and she whispered: “Mellifluous oratory.”

That’s it! We arose this morning with renewed conviction. The object of our challenge will be the source of our strength.

Today, I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, O reader of the 5 — they will be met.

In the words of scripture, the time has come to set aside childish things. We will harness the sun and the winds and the soil to fuel our portfolios. We will transform our publications, our e-letters and Web sites to meet the demands of this new presidency.

All this we can do. All this we will do.

Whatever… you can read the whole of Obama’s address here.

We like the part about cynics not realizing “the ground has shifted beneath them” the best. It reminds us of the Joseph Schumpeter quote referring to consumers during the Great Depression: "People for the most part stood their ground, but the ground itself gave way beneath them."

  The stock market welcomed the new president with a gift yesterday too. The Dow fell right through resistance at 8,000… and closed with the worst Inauguration Day sell-off in the nation’s history, down 4%

The S&P 500 dropped 5.2%. The Nasdaq fared even worse.

  But it looks like “big blue” has come to the rescue today. IBM beat analysts expectations for the fourth quarter, turning in a surprisingly robust 12% gain in net income. The company dashed rumors of imminent layoffs and upped its 2009 growth forecast.

Coupled with some rebound momentum from late-day gains yesterday, IBM helped the market get off to a pleasant start today. The Dow opened up well over 100 points.

  We doubt the rally will be strong enough to save financials this year, though. State Street Corp., a huge mutual fund and institutional money manger many thought was crisis immune, provides our case in point today. Throughout the credit crisis, shares in State Street stock had fallen “only” 50% or so. Investors with enough cajones to jump into the banking sector sought refuge in STT.

Unfortunately, they were wrong.

Shares of State Street were chopped in half yesterday when the group reported a 71% crash in fourth-quarter profit and delivered a nasty 2009 forecast. Despite previous forecasts to the contrary, State Street now projects flat growth this year — at best — and hinted that it might need to raise capital.

If STT will struggle in 2009, all financials will, the market suddenly concluded. All 24 members of the KBW Bank Index fell, bringing the index down almost 20%, to a 14-year low.

  And so goes the Troubled Asset Relief Program (TARP)… the government’s bank bailout plan has already lost 26% of taxpayer funds. Bean counters at the Congressional Budget Office (CBO) announced yesterday the current market value of the $247 billion in loans and purchases made by the Treasury through Dec. 31, 2008 has declined by $64 billion.

Wow. $64 billion… gone… in less than three months.

Meet Jerry Yang, last year’s World Series of Poker champion, and his $8.25 million prize. Jerry’s pile of winnings weighs more than he does… about 181 pounds.

How much does $64 billion weigh? Somewhere around 1.4 million pounds… if entirely denominated in $100 bills. Without a backhoe and tanker load of lighter fluid, we don’t think we could burn $64 billion as fast as the Treasury has lost it.

Thanks, guys.

  “As distasteful as it is,” notes Dan Amoss, “there will be ways to make money from the federal government’s attempt to reshape the U.S. economy. Take, for instance, the inevitable move toward taxing carbon emissions. Attaching a price to carbon dioxide would, obviously, increase utility bills (and the price of anything made with electricity), so the government would probably find some way to use the tax code to offset the extra burden on family budgets.

“It’s clear that whatever global warming legislation comes from the Obama administration will favor natural gas-fired electricity at the expense of coal. I’d be surprised to see any new coal plants being built in the U.S. So natural gas will help fill the gap. A cap-and-trade system would raise the price of coal (and the extra carbon it emits) closer to the price of natural gas. Right now, many natural gas-fired power plants are brought online only at times of peak demand, while coal is considered a ‘base load’ fuel since it’s cheaper.

“Assuming the political popularity of natural gas will keep growing, and that solar and wind cannot grow fast enough to be meaningful (even with heavy subsidies), it makes sense that natural gas-focused exploration and production (E&P) companies and their critical suppliers are facing years of attractive growth opportunities.”

  Another prosperous industry for 2009? This one is already booming: “Career transition.”

That’s the nice euphemism for downsizing consultants. Career transition companies are usually hired to work on both sides of the fence… they teach management how to fire, and they help the fired cope and find work.

As you can imagine, as the unemployment rate rises, so does business in the “transition” industry. The New York Times recently profiled two such companies: Right Management and Ayers Group. Both reported a boom in business in 2008, especially in the fourth quarter.

  2008 marked the end of an impressive streak for GM, the automaker announced today. After reporting an 11% drop in 2008 sales, GM officially relinquished the crown of world’s biggest automaker to Toyota. The American automaker ranked No. 1 in sales every year for the last 77… until now. GM sold “only” 8.4 million cars and trucks in 2008, compared with Toyota’s 8.9 million.

  In a similar changing of the guard, Italian automaker Fiat tossed Chrysler a much needed lifeline yesterday. As a sign of just how desperate Chrysler has become, Fiat will increase its stake in the American car company to 35% — without giving Chrysler so much as a dollar in cash. In exchange for the huge stake, Fiat will provide technology and autos that Chrysler believes it can market in the U.S.
And there’s a twist… the deal is contingent upon Chrysler scoring at least $3 billion in additional government loans. Without the money, we assume Fiat to believe, the company doesn’t have a prayer.
Should Chrysler get its bailout bucks, and if Fiat can find a way to turn around domestic sales, Chrysler has agreed to offer the Italian company an additional 20% stake in 12 months, for just $25 million.

Fiat would then be the majority shareholder of GM. Oh, how the market doth swirl.

  In the currency world, the latest dollar rally is taking a breather. The dollar index is back above 86, less than 3 points shy of its credit crisis high.
The British pound is certainly the currency to watch this week. It’s fallen over 10 cents versus the dollar since Friday, when the U.K.’s banking crisis started to pick up speed again. This morning, it goes for $1.37, the lowest level since 1985. The euro, at $1.28, is hardly faring better.

  All is relatively quiet on the gold front. The spot price boomed earlier this week on renewed fear in the financial sector and has held steady since. An ounce goes for about $850

  Oil is having a bizarre week. We saw the price plunge to $33 early Monday as the dollar rallied and political tension around the world abated. But the February contract expired yesterday and a rush to cover short positions pushed the price back up to $38. This morning, we see barrels going for $41.

  Some cities are still living high off the fumes of the oil boom, however.

Calgary: Looking a little Dububble-esque

No less than eight skyscrapers are currently under construction in this city of just 1 million people. One of those eight will be the one above, the block long Eighth Avenue Place. By the time they are all completed, downtown office space will be bumped up 15%.
The unofficial capital of Canada’s fossil fuel industry, Calgary has boomed over the last five years. Office rents have risen 2½ times since 2003. The current vacancy rate is just 5.2% — a level other cities would kill for, but actually much higher than the mere 1% rate Calgary office buildings garnered in 2007.

  Lest you think the U.S. is the only place where cynics thrive, yesterday in England, the BBC dubbed the beginning of this week “Blue Monday.”

Using a half-facetious formula that includes weather, time since Christmas, debt statistics, “motivation levels” and other odd metrics, the U.K. media has decreed Tuesday to be the most depressing day of 2009.


  Oy. It could be worse, though, couldn’t it? Two weeks ago, Zimbabwe began circulating the Z$50 billion note, pictured here:

The country’s currency is eroding so quickly, the above note is already nearly worthless. The “government” started producing Z$10, $20, $50 and $100 trillion notes last week. Z$100 trillion was worth $33 Friday… it’s value is likely cut in half already.

A reader recently sent us this photo. Sums up the scene over there pretty accurately.

In 1980, when Robert Mugabe began is reign, one Zimbabwe dollar was worth as much as a British pound.

  “I would argue that saving is neither a right nor a privilege, but simply a responsibility,” writes a reader, who we’ll allow to end the debate that began Friday. “Back in the day when we all lived off the land, saving was essential to get us from one growing season to the next. It was not a matter of right or privilege; it was simply necessary for existence. Now, even though most of us no longer have to live quite so hand to mouth, nature still demands responsibility or consequences.

“To be responsible for taking care of ourselves and others we care about during unforeseen mishaps, to provide for retirement, maybe have a few luxuries, etc., we must save or depend on others to provide. Some, no, it seems like many, seem to think the government should assume the responsibility — but wait, aren’t we supposed to be the government? Of and by the people and all that?

“Seems to me that if we were a responsible people, and thus had a responsible government, that government would encourage (perhaps even demand) some level of personal responsibility. As a small example, even if such a government could somehow conceive of the complex tax system we are now stuck with, perhaps it would provide tax breaks for interest on savings, instead of interest on debt.”


Addison Wiggin
The 5 Min. Forecast

P.S. “Congratulations!” exclaims a reader. “I.O.U.S.A. made the socialist Canadian television station CBC (Canadian Broadcasting Corp.). It aired Sunday night at 8 p.m. Pacific. I work nights, so wasn’t able to watch. However, I believe we have a copy on the way via snail mail. I’m looking forward to it.”

Thanks. We weren’t even aware of the screening, but our experience has been that Canadian audiences have been much more receptive and engaged by the film than those her in the States. Tomorrow, the socialists who vote for the Academy Award nominees will announce their picks for Best Documentary. We’re told they’ll make their announcement at 8:30 a.m. EST.

Many Oscar watching bloggers have included I.O.U.S.A. on their list of possible nominees…. And the president of the Academy was at our screening back in June in Silver Spring, Md.… so who knows? We’ll let you know how it turns out.


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