The Power Shift of 2009, Sell This Sector, Buffett’s Housing Cure and More!

by Addison Wiggin & Ian Mathias

  • One table that says it all… the great shifts of 2009
  • Not all is well with China… exports plunge again, debt sale fails
  • Stocks still wavering… Byron King says book profits, Bill Bonner says no recovery in sight
  • Warren Buffett backs up our solution to ending the housing bust

  Every once in a while, we stumble upon a chart or table that says it all… here’s one hot off the press:

Oh my, where do we begin? This beast calls for bullet points:

  • Obviously, Wal-Mart is no longer No. 1. That title now goes to Royal Dutch Shell. The American consumer is out, and a global oil conglomerate is in… ’nuff said
  • There’s a clear sea change in American business. AIG, Lehman and Bear Stearns fell off the list from 2008-2009. Nike, Google and Amazon moved up
  • The world is increasingly less Amero-centric. An American company is not No. 1 for the first time in over a decade. In the whole list for 2009, 140 companies are American, the lowest number on record
  • The world is increasingly more Sino-centric. Look at China National Petroleum and Sinopec. Both Chinese companies are by far the biggest movers up from 2008-2009. Sinopec, an oil and gas company, also marks China’s first foray into Fortunes’ top 10. China now has 37 companies in the list of 500, its largest presence ever
  • Oil is still where it’s at. In spite of all the price drama over the last year, seven of the top 10 firms are oil companies
  • In the face of the worst global economic environment of our lifetimes, the world’s biggest companies are still making lots of money. The 2008 top 25 pulled in $4.88 trillion in revenue. This year, they made $5.38 trillion
  • And freakin’ GE… what a black box. The world’s producer of everything was one of very few companies to retain the same position from 2008-2009. And despite the infamous GE Capital, the finance arm that apparently threatened to torpedo the whole company, GE ended up increasing revenues by nearly $7 billion. Hmmm…

  But lest you think all is well and good in the Far East, China announced today its exports fell another 21% in June. The year-over-year decline was an improvement from May’s record 26% fall, but still… the pillar of the Chinese economy is as wobbly as ever.

The Chinese government will report its second-quarter GDP reading next week. We’ll let you know.

What’s more, a Chinese bond auction failed for the third time this week yesterday. The Chinese Ministry of Finance was only able to dish out $3.7 billion of the $5.1 billion in bonds they aimed to sell. Just like the U.S., Chinese investors are losing their appetite for government debt thanks to massive government spending — in China’s case, a $585 billion stimulus package.

This week marks the first unsuccessful Chinese bond auctions in nearly six years.

Back in I.O.U.S.A., $73 billion in American debt was auctioned off this week with relative ease. Yesterday’s $11 billion auction of 30-year bonds capped off a busy week for the U.S. treasury — Wednesday’s $19 billion auction of 10-year notes was the biggest since March. Incredibly, that 10-year auction drew the largest bid-to-cover ratio since 1995. The 10-year currently yields 3.4%, just off a seven week low. It’s a mad world…

The U.S. is still on track to issue an incredible $2 trillion in notes and bonds this year.

  The stock market registered another dull day of trading yesterday. The Dow finished flat, while the S&P 500 inched up 0.3%. With second-quarter earnings season now in full swing, we fear for the major indexes… it’s one thing to have “less awful” numbers in the first quarter, but we doubt many companies will be able to produce the “green shoots” results the market now craves.

  “If you have gains, book ’em,” suggests Byron King. “I’m not issuing any official sell recommendations to my Outstanding Investments readers this week. But if you have gains in your holdings, now is the time to sell and book ’em. Even if you’re down a little bit, you should consider absorbing a small loss and avoiding a larger loss later on.

“Take gains on the industrial and infrastructure stocks. Even if everything were going great for the economy — which it’s not — the industrials and infrastructure guys would need another couple of quarters to get well.

“Be careful about selling out of energy and energy service companies. Yes, they could drift down a bit more, but not as badly as the industrials. I foresee oil in the $50s per barrel, and we’re almost there. Below that price? OPEC will tighten up. So it’s late in the game to sell down your oils and service companies. These stocks could, of course, go lower, but they’ll also recover faster. We could see $100 oil by the end of 2010.

“I’ve seen articles forecasting oil plummeting in price to the $20s per barrel. I doubt it. Why? Well, where will $20 oil come from? There’s a phenomenon called depletion. Most of the world’s daily oil comes from fields that were discovered 30 and more years ago, and those fields are coming to the end of their days. Even at reduced demand, the world is pumping out far more oil than the energy industry is finding. That can’t go on for much longer.”

Which specific companies should you buy and sell? You’ll have to check out Byron’s Outstanding Investments… one of the best values in our business.

  Oil is under pressure again today. The front-month contract is down a buck and change as we write, to $58 a barrel.

  Another bad sign for the “green shoots” camp: Retail sales fell 4.9% in June, says data released this week by Thomson Reuters. According to their poll, more than half of retailers missed sales expectations last month, with department stores and teen apparel leading the way down. Generally speaking, this sea of losses says it all.

  But here’s a step in the right direction: The U.S. trade deficit shrank in May to just $26 billion, the Commerce Department claims today, our smallest deficit since November 1999. In a decidedly un-American month, imports fell 0.6% while exports surged 1.6%, their biggest rise in a year.

  “There is no recovery in sight,” Bill Bonner insists. "It’s really not very complicated. We’re in a depression. Not a recession."


“And it will remain a depression until this huge pile of debt accumulated over the last quarter century has been paid down. Until businesses and banks that are no longer viable have gone broke and been restructured. Until consumers have real money to spend – not just more credit. Until those things happen, there is no way for a genuine recovery to take place.

"For more than half a century, the driving force of the world economy has been the willingness of English-speaking consumers to go further and further into debt. That permitted businesses to expand sales and profits.


"Now, that trend is finished. Consumers aren’t going further into debt. Bankers aren’t lending them more money. Their houses aren’t going up in price… so they have nothing to borrow against. It’s over. And now, after working your whole careers in a growing economy…you have to figure out how to survive in a declining one.”

  “If you want to end the recession as soon as possible,” Warren Buffett told CNBC yesterday, “do nothing to encourage new home builders. That’s tough on the home builders, but that’s the prescription for getting supply and demand back in balance… The best thing we can do is not to be building a lot of new houses.”

Heh, sounds familiar. Where was CNBC when we wrote the same thing in May?

  The dollar’s been under pressure over the last 24 hours, thanks to one Mr. Dai Bingguo.

“We should have a better system for reserve currency issuance and regulation,” said Dai, a Chinese state counselor, “so that we can maintain relative stability of major reserve currencies exchange rates and promote a diversified and rational international reserve currency system.”

While tame to Western ears, Dai’s implicit call to ditch the dollar is China’s “highest-profile criticism” to date of the greenback, according to the Financial Times. That sound bite helped push the dollar index below 80 yesterday, but it’s already back up to 80.3 as we write.

  Gold’s been holding steady since we wrote you last. The spot price has been hovering right aruond $915 an ounce.

  Last, a surprise: GM exited bankruptcy today. Like the rest of the free world, we laughed when GM promised complete the bankruptcy process in less than 60 days. But like many others as well, we underestimated the overbearing hand of government. GM essentially sold all its good assets to a government-backed version of itself, and got rid of the lousy assets to whoever had the stones to give it a shot. Uncle Sam will own 61% of the new GM, with the Canadian government and UAW owning most of the rest. God help us…

  “In order to save money,” writes a reader, reprising a story we covered yesterday, “Illinois is about to release 10,000 prisoners (criminals), into society that is experiencing the greatest recession in over 50 years with record unemployment. Law-abiding citizens can’t get jobs to feed themselves. How does the government expect the prisoners to do such? I suspect many of these prisoners (criminals) will resort to crime (nonviolent, of course) again to feed themselves, requiring significant tax dollars (police, prosecutors, courts, etc.) to be spent to get them back behind the steel bars once again. Will Illinois really end up saving money in the long run by its action? Not likely.”

  “How stupid can you get?” asks a reader. “Half of these prisoners will be back in the prison in a year… what else could they do but to turn to crime; no money, no jobs, etc. Also, they will be a burden on Illinois’ social system from the day one as they walk out of prison, on top of the havoc they will cause to Illinois citizens. Sorry to say, but America is going down to toilet fast; stuff like this is just a one more nail in the coffin. As a naturalized American who lived 22 years in LA who now is back in my native Finland, I can see the ruining of America afar much clearer than most Americans. I am glad that I was able to jump the ship in time.”

Have a great weekend,

Ian Mathias

The 5 Min. Forecast

P.S. You only have a few days left to take us up on this one: Our 50% off Strategic Short Report offer ends Monday.


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