Bankers and Blue Chips Lose Decade, Sectors to Buy, Inflation Forecast, Ron Paul and More!

by Addison Wiggin & Ian Mathias

  • The lost decade… financials back to 1992, Dow a breath from ’97 lows. 
  • Investors fearful, time to buy? Chris Mayer with two stock sectors worth considering
  • Gold just below $1,000… the reason behind the metal’s sudden rise
  • Government says inflation lowest since 1955… John Williams says it’s still his No. 1 concern
  • Plus, our military-industrial complex debate rages on… Marine officer, Ron Paul get last words

  Wow… according to the markets, the U.S. banking industry is back to 1992.  

While the turmoil amid most stocks has been tempered since the market crash late last year, you can see above that it’s been nothing but pain for the financials. The KBW is down over 80% from its high in 2006, and down a whopping 50% year to date.

And this week, financials are under more pressure than ever. The recent buzz of bank nationalizations we mentioned Wednesday has the few brave souls remaining running for the hills. This morning, the KBW goes for 21, the lowest score in 17 years. 

  That’s not to say other stock sectors are faring any better. The historic levels of Dow support we’ve been watching all week have failed. Bring on depressing chart No. 2:

The Dow closed at 7,465 yesterday, its lowest closing price since 2002. This morning, the index opened down another 130 points, breaching November 2008 intraday lows. If it manages to close at this level — or lower — we’ll be officially back in 1997.

  But it could always be worse. Japan’s Topix index, not unlike the S&P 500, hit a score of 739 overnight. That’s the lowest reading since 1984.

  And since fear is so rampant, it makes sense to pick up a few shares here and there. So what’s an investor to buy?

“It is trite to say,” notes our value maven Chris Mayer, “but the world needs to eat. Even in recessions, the ever-growing demand for food doesn’t slow much. Usually, demand grows 2-3% per year. Since 1980, the average growth rate for meat and grain consumption was 2.7%. During recessions, demand has grown 0-1%.

“But you’d never know that looking at what’s happened to the fertilizer stocks. Most of them have been squashed like an earthworm under a farmer’s boot. Yet the businesses are surprisingly resilient. And today, several trade at deep discounts to net asset value (NAV).

“From an investment point of view, it’s hard not to like potash. The price of potash has held up better than any of the others. And the supply is more limited. It’s also pretty darn expensive to get a potash mine up and running — assuming you can find a potash deposit worth mining.”

  “I feel like I should add,” continues Chris, “that you should not be afraid to invest overseas. As The Economist reports this week, more than half of the world population is middle class — for the first time in history. Most of the newer members speak Hindi… or Mandarin… or Portuguese. The emerging markets are still the great shining stars of economic growth.”

  Another “safe” asset class of late: gold. The shiny metal is up another $20 today, to just a few bucks below $1,000 an ounce.

“How come gold just keeps hitting new record highs?” asks the BullionVault’s Adrian Ash in the Rude Awakening .

“Gold offers a deep, liquid market (if held in its internationally tradable form of large wholesale bars) with no risk of counterparty default (if owned outright, rather than through a trust or a fund or a similar financial structure).

“In our debt-deprived world today — where the outstanding value of what retirees and savers are owed is deflating much faster than costs — it’s this attraction of gold… its ‘off-risk’ advantage…which is fast gaining appeal among large funds and private investors alike.

“Inflation and deflation — both a crisis in money — both also force business and growth to give up. What remains, paying zero and promising nothing, is the need to simply store wealth and savings for a better future, whenever it shows.”

  And today we are presented with an odd combo of inflation and deflation. Consumer prices increased 0.3% in January, the Labor Dept. reports. The food and energy stripped “core” CPI rose 0.2%, too. Both rang in higher than Wall Street anticipated, and the core rate is actually up 1.7% from a year ago.

But at the same time, annual rates of headline inflation reached Great Depression lows. The consumer price index registered 0% inflation over the last 12 months. That’s the lowest rate of change since 1955.

  “Inflation should remain the concern,” insists John Williams. “Mr. Bernanke is dedicated to debasing the U.S. dollar, in order to create inflation and to avoid deflation (he outlined such plans as a Federal Reserve governor in 2002). The broad money supply has started to grow again, annual growth in required reserves at depository institutions is soaring and the velocity of money likely is rising again, all suggestive of double-digit consumer inflation later in 2009.

“Yet with some early suggestion of a possible renewed stall in the growth of the broader money measures, the systemic solvency crisis may be intensifying again, frustrating Fed efforts to get more cash into the system. Ahead lies an opportunity for the Fed, with heavy Treasury fundings needed to cover the stimulus package and an otherwise recession-driven deterioration in the federal government’s fiscal condition. With likely light foreign and domestic demand for the Treasury securities, Federal Reserve monetization of that debt would be a reasonably easy option for Mr. Bernanke to help reignite inflationary pressures. The Fed mentioned the possibility of such purchases in its most recent FOMC statement.”

In his latest Shadow Stats issue, Williams predicted a hyperinflationary crisis within the next five years.

“Over the shorter term, volatile oil prices still will move the CPI… Any renewed strength in oil prices would start to boost short-term consumer inflation concerns anew.”

  Oil prices showed some — you guessed it — renewed strength yesterday after a worse-than-expected inventory report. The front-month crude oil contract soared 14%, to $39 a barrel, Thursday. Oil got a kick in the pants when the Energy Dept. announced the first decline in supplies since December 2008. We suspect there was some built-up buying pressure as well, as crude was already dwelling near credit lows. The March contract also expires today, so short sellers scrambling to cover helped push oil up as well.

The U.S. dollar is still just shy of a credit crisis high … amazing. It’s the same trade we suffered in November of last year: When the going gets tough in equities, traders flee to cash. Since the dollar is still the “best of the worst” paper out there, the dollar index is sitting pretty today. As we write, it’s just under 88.

  We have to sneak in this credit crisis first, if only for irony’s sake: When you go to buy the paper this weekend, you’ll have an interesting choice. You can shell out $4 for the current newsstand price of a Sunday New York Times or $3.77 for one share of the entire company. Quite a departure from the $50-plus price tag a few years ago, eh? How long until a share is free with your subscription?

  “I worked hard,” says a reader, adding to the housing bailout debate, “and had to start over from scratch 23 years ago when I lost all but my shirt, pants and children in a divorce. I always searched for bargains and wore clothing found at garage sales. I paid my credit card bill on time every month to avoid interest charges. I finally bought a home and was able to pay it off in approximately 12 years by loading up my payments by denying myself the new cars, vacations and other luxuries that I saw others around me enjoying. I changed my own oil under my leaky, drippy old car and put off making my home more comfortable with improvements. I finally obtained the prize last year when I paid off the mortgage and felt so good being responsible and doing the right thing.

“The joke was on me, because now my government has signed my name onto a contract to help pay for the mortgages of all of those people that I saw driving around in the new cars and enjoying their hot tub every night in their great big beautiful homes. I am glad that I bought gold along the way so at least I can eat in my broken-down paid-off shack.”

  “I’m not lamenting the fact that I spent a year away from my wife and two daughters,” writes a Marine Corps soldier, responding the debate we’ve been having   over the size and scope of the U.S. military.

“I consider it an honor to serve my country and my fellow citizens. I’ve been doing it for 16 years now and am fortunate to find myself in a position to again take some of the world’s finest into harm’s way in Afghanistan this summer.

“I didn’t realize that so many of your readers feel that my efforts are really nothing more than leaching off the American taxpayer. I fear that as I leave my family behind again to fight people bent on destroying us and our way of life, I can’t help but wonder is it even worth the effort? My time would be better spent looking out for me and mine and simply pursuing wealth and riches for myself.
“I do believe this is the biggest problem with our nation: So many are focused on their own selfish pursuits and not on helping their neighbor, and it has finally caught up with us.

“So regardless of whether or not my efforts are appreciated, I will go so that, hopefully, my children can raise their children in a free and peaceful country.”

The 5: Thank you for your service, and for writing in. This is a tricky debate, no doubt… likely too big to really flush out in our humble 5 Min. Feel free to continue the conversation on our blog , but for now, we’ll let this tired old friend have the last word.

Enjoy the weekend,

Ian Mathias
The 5 Min. Forecast

P.S. Last, a backhanded congratulations to the White House. Today they are crafting the final details of what they call a “fiscal responsibility summit.” It’ll be quite a meeting of the minds, with the Obama Administration, 30 House members, 30 senators and 30 scholars and industry reps invited to attend. The “summit” will last three hours, just enough time to figure this whole mess out.

Would have been nice to chat about this sort of thing before passing a $787 billion stimulus plan, no? Or maybe back in 2001, before GW got his chance to slap nearly $5 trillion on to the public tab. Ugh… at least they’re pretending to care about it. Here’s what the folks at the Peterson Foundation have to say on the matter.  


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More