by Addison Wiggin & Ian Mathias
- Modernity in a nutshell: China scoops up Hummer
- Bryon King explains how to profit from the “Chinese national strategy”
- Rob Parenteau lists some smart hedges for U.S. hyperinflation
- Will the credit crunch kill technological innovation? Our tech analyst sounds off
- Plus, another 800 lb. gorilla… Americans throw trillions at health care, but do we live any longer?
The ultimate sign of the times: As you’ve likely heard, a Chinese company will soon own the Hummer brand. Heh, let’s count the ways this transaction epitomizes the new economic landscape:
1. A Chinese company now owns an automaker that will build and sell cars in the U.S. –a first.
2. That company — Sichuan Tengzhong Heavy Industrial Machinery — doesn’t even make cars. For their first foray into passenger automaking, they choose Hummer, perhaps the world’s most challenging and polarizing brand.
3. Business is so booming at Tengzhong HIM (their core is road construction and energy equipment) that the company will completely self-finance the deal… not one yuan borrowed from the Chinese government.
4. While neither party will disclose the price, Hummer was likely sold for a song… less than $500 million.
5. The White House is billing it as a victory: It’s “good news for the 3,000 Americans who will be able to keep their jobs, the two American plants that will remain open and the more than 100 Hummer dealers that should be able to stay in business all around the country,” said Bill Burton, a presidential spokesman.
6. Tengzhong claims their long-term goal is to make Hummer a legit brand in China, where there’s already demand for the vehicle that embodies American excess and overcompensation.
We’d be delighted if the Hummer takes off over there… nothing wrong with making something that China wants to buy. And if Americans stop buying them, we won’t shed a tear. After all…
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… would you really miss these things?
Commodity futures transactions on Chinese exchanges are up 60% from this time last year, reports the Chinese Futures Association. Chinese traders and resource users traded 138 million lots in May alone, worth $1.3 trillion. That’s a 60% spike in volume from 2008 and an 85% leap in cost.
“The Chinese national strategy,” explains Byron King, “is to go around the world and secure energy and other natural resources for the balance of the 21st century.
“The Chinese are buying up oil and natural gas resources, as you surely know. They’re making deals with the Venezuelans and Iranians for energy development. They’re making deals in Iraq for energy. They’re financing the development of Brazil’s deep offshore oil deposits.
“And the Chinese are locking up other natural resources. They’re making deals from Australia to Brazil over coal and iron ore resources. They’re building copper mines from Congo to Afghanistan. They’ve secured 97% (no typo, 97%) of the world’s known deposits of rare earths. And the Chinese are buying up entire forests in South America.
“Meanwhile, China is the world’s largest gold-producing nation. Yet China’s net exports of gold are zero. China imports far more gold than it exports. China keeps its gold at home. China is building its own national gold reserve, and monetizing it by buying and allocating much of its mine production of yellow metal to the state bank. China trusts the U.S. dollar about as far as Tim Geithner can throw the Great Wall.”
Now would be a smart time to check out Byron’s latest special report on metals investing. He’s prepared an impressive array of information… macro thoughts, stock picking techniques and individual company profiles he thinks you should buy today. Since some of these companies are very tiny, we’re limiting the number of reports available. Get yours here, before we run out.
“We cannot ignore,” adds Rob Parenteau, “the increasingly vocal complaints regarding the U.S. abuse of its privileges as the provider of the global reserve currency. Threats of foreign portfolio diversification away from dollar-denominated assets have become more credible as China has increased positions in commodities and the Gulf states explore launching their own common currency.
“We also cannot ignore the possibility that the mountain of government bond issuance around the world will prove difficult to place in private portfolios, and central bank accumulation will be forced to accelerate to prevent any spike in Treasury yields that would surely threaten any incipient economic recovery.
“We are far enough into uncharted waters that we can justify hedging portfolios against a second tail risk of hyperinflation. Too many people want their bubble back, and the politicians are listening and doing their best to provide it. Precious metals are one obvious hedge to increasing concerns about the future of fiat currencies, and we have used the exchange-traded funds (ETFs) on gold and silver to place this hedge. We are also finding short dollar positions against so-called commodity currencies like the Australian dollar, the Norwegian krone and the Canadian dollar are starting to prove profitable as the United States is viewed as the most aggressive in executing quantitative easing.”
The lowly dollar has arrested its recent fall. The dollar index plunged as low as 78.3 late last night, and has since found some stability around 79. The euro was at another 2009 high of $1.43, and then this happened:
The eurozone’s GDP contracted 4.8% in the first quarter compared to a year before. Unlike America’s latest GDP revision, the euro number was worse than anticipated. Quarter-to-quarter growth (or lack thereof) was left unchanged at a 2.5% contraction.
Both of today’s GDP figures constitute the worst quarter for the euro economy since at least 1995, when records began. The number shaved almost 2 cents off the euro and helped pause the dollar’s decline.
Back in the states, the latest jobs number has snatched the spotlight: The private sector shed 532,000 jobs in May, say the bean counters at ADP today. Believe it or not, half a million lost jobs is a good thing in this market, as the Street was anticipating at least 550,000 private firings.
Those same pundits have now revised their expectations for Friday’s BLS jobs report. The government is expected to announce 525,000 lost jobs, with an unemployment rate of 9.2%. Given all the rosy data and soaring stocks in May, we wouldn’t be surprised if Friday’s report beats expectations, too.
May auto sales are perking up investor sentiment too. Americans bought cars at an annualized rate of 9.9 million in May. That’s still an anemic rate (for U.S. standards), but marks a jump up from April and the highest rate this year. Even Chrysler, despite being in bankruptcy for much of the month, managed to sell more cars in May than any other month in 2009.
Before you break out the champagne: Total sales were down over 33% from last year.
“There is every reason to believe that the current economic downturn will not significantly slow tech innovation,” opines our tech analyst Patrick Cox. “Important new tech products will continue coming to market. There are several reasons I’m able to make this prediction confidently.
“One is that tech innovation traditionally saves money. Successive generations of technologies have always been cheaper than their predecessors. In the tech biz, he who hesitates finds himself overpriced and obsolete.
“Even when I lived and worked in Silicon Valley, there were only a few tech pundits I paid much attention to. One was Michael S. Malone. He wrote a very good piece recently about the innovation — if you get a minute, you can check out the full article here. Let me quote a few paragraphs, but you really should read the whole thing:
"‘The great companies of high technology are at the starting line and waiting for the pistol to fire. When they come out of the blocks, it’s going to be a dazzling sight… and our lives will change in the process.
"‘For the electronics industry, driven by the unrelenting pressure of Moore’s law, downturns are merely interregnums between booms. They are a time for consolidating resources and staff, abandoning low-performing product and market ventures… and most of all, stealing the march on competitors by gearing up new products for the return of demand.’
“Don’t let yourself get too depressed,” concludes Patrick, “by the mess government has created. We’ve done well recently with countercyclical biotech stocks, but it’s important to remember that this may be a once-in-a-lifetime opportunity to pick up IT stock at historic bargain rates.”
Readers of Patrick’s Breakthrough Technology Alert are capitalizing on this “once in a lifetime” opportunity. Are you? Get his favorite breakthrough tech plays, here.
After a registering a small gain yesterday, the Dow and S&P opened down 1% this morning. Despite the better-than-expected jobs and auto sales numbers, profit taking and buying fatigue look to pull stocks down today.
“The run-up in crude prices has been very helpful to the Dow,” our resource man Alan Knuckman told CNBC this morning. “I know that’s not intuitive, but crude supports Exxon and Chevron, which are two huge Dow components. If you remember last summer, they led the Dow as crude was making all-time highs.” Alan says he’ll be keeping his eyes on crude when trading major indexes… watch him discuss it, here.
By the way, Alan’s in the hot seat for our latest installment of the Retirement Recovery Series. In a Webinar that will be available for viewing today at 3 p.m. Eastern, he’ll be discussing the bond bubble and how to trade it. His actionable advice is completely free of charge… you just need to sign up, here.
Oil’s down a buck and change today, to $67 a barrel.
Gold is holding its ground. The spot price has been consolidating between $975-985 all week.
Last today, something’s gone awry with the U.S. health care system. We admit, this is a little off our beat, but charts like this leave us scratching our heads:
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Given our grotesguely overgrown Medicare entitlement, we suspect Washington is going to start looking into this paradox soon. As we’ve noted before, whenever confronted with a coming debt crisis, President Obama almost always diverts the discussion to health care reform. Whether his approach will work or not, we’re no experts… but something’s got to give here. According to the Congressional Budget Office, $2.5 trillion will be spent to keep America “healthy” in 2009.
“I’m going to have to disagree with the reader about the debt argument,” a reader writes, referring to yesterday’s inbox.
“If you promised to buy your son a Porsche when he turned 21 and then said just kidding when he got there, he’d just think you’re a jerk. But if like Social Security and Medicare, you took part of his wages as he worked during his teen years and told him that you were putting them into a high-yield savings account for him so that he could buy his own Porsche when he turned 21 (that would be one sweet high school job to afford that) and then when he turned 21 you said sorry the money is gone, well, you’d be more than a jerk, and he might seek restitution… or hire a hit man, if he supports revolutions.
“Now imagine that you’re driving a Porsche when you say sorry. Don’t you think he’d realize that his money paid for your Porsche and he got screwed? Now, at this point, he’s probably pretty close to calling that hit man.
“The truth is that we all pay into Social Security every time we get a paycheck. Look at the stub and you’ll see that the government does owe you money… BECAUSE THEY TOOK IT OUT OF YOUR PAYCHECK! That is most certainly a debt. And look at the senators who are spending your son’s Porsche money. They’ve got the best health care, retirements and big wages for part-time labor. All paid for with money that we are owed and disappearing faster than a 911 Carrera does 0-60.”
Cheers,
Ian Mathias
The 5 Min. Forecast
P.S. Byron King’s special report on precious metals investing is flying off our virtual shelves. As we write, less than 400 remain. And once they’re gone, they’re gone for good… get yours here or risk missing out.
P.P.S. As we write, Ben Bernanke is urging Congress to start “demonstrating a strong commitment to fiscal sustainability.” Mr. 0% rates is worried about our fiscal future… you don’t say? Check us out tomorrow for the details.