by Addison Wiggin & Ian Mathias
- Canada declares “recession is over”… Doug Casey’s swift response
- When it ends, how will you know? Eight signs for when the worst is behind us
- Dollar down, Canadian dollar soaring… why betting on the recently strong loonie might be a mistake
- Dan Amoss on what makes this stock rally a sucker’s rally
- Byron King offers a bird’s-eye view of what “real stimulus” would look like
“The Recession Is Over,” reads the headline of The Globe and Mail today. The staff leaves the paper in front of our rooms here at that Fairmont Vancouver. When we cracked the door open to retrieve the rag, the headline caught our eye… and we thought of just tossing it back in the hallway. If there is any one single theme of this year’s Investment Symposium, it’s that despite the warm feelings and “green shoots” of summer, this contraction is far from over.
“I think this is really serious, and it’s just beginning,” Doug Casey said during his presentation yesterday. “Forget about the green shoots. They are weeds. This is the biggest thing since the Industrial Revolution. Stocks will be a good value when dividend yields are around 10%.
“Real estate? Way too early. Bonds? The bond market is much bigger than the stock market. Interest rates are being artificially depressed. They have to go back up to higher levels to encourage people to save and get out of debt. When interest rates assert themselves, the bond market will collapse, which isn’t good for the stock market, or real estate, either.”
So what’s Doug doing? Going long precious metals, shorting U.S. Treasuries and buying real estate in Thailand and Argentina.
“We are looking for eight signs before we get bullish again,” added Eric Roseman in his presentation:
1) Unemployment must stabilize
2) Home prices must stabilize
3) Domestic consumption must rise
4) Bank lending must grow
5) Toxic assets and bank balance sheets must be fixed
6) Auto sales must stabilize
7) Credit spreads must narrow
8) The dollar has to decline
“Only the last two have occurred. That gives us a very bearish outlook going forward.”
That’s just one minute of highlights from two 40-plus minute presentations. On our Symposium CD/MP3 sets, there are 24 more presentations in their entirety, including Marc Faber, Bill Bonner, Rick Rule, Frank Holmes, Chris Mayer, James Howard Kunstler and Byron King. We’re also including notes from their breakout sessions, full of specific stock and fund recommendations. At the currently discounted price, the set is a steal… get yours here.
By the way, what did the G&M mean in their “recession is over” headline? Heh, the Canadian central bank predicted that the economy would grow 1% in the current quarter. Forgive us, but our faith in central bank forecasts ran out a long time ago.
One thing is for sure here in Vancouver — the U.S. dollar is getting weaker and the Canadian dollar is on a tear. The weak greenback and steady oil price has bumped the loonie up 2 full cents, or nearly 3%, just since we arrived.
That’s the tail end of a six-day winning streak for the loonie, its longest against the dollar since May 2008. Among the world’s 16 most actively traded currencies, the loonie is the best performer against the dollar so far this month. So time to hop on the wagon, right?
Maybe not. “Carney Set to Act on High Dollar” reads another Globe and Mail headline today. Canada’s central bank chief said that he would intervene in the currency markets if it threatens his precious 1% growth forecast.
The dollar’s down across the board this week, but not by too much. The dollar index peaked Monday at 79.2 and found a low yesterday at 78.4. But for most of the week, it’s been hanging around 78.8, as it is today.
Commodities are holding steady today. Oil’s had an impressive rebound, though it was mostly helped higher by the ill-fated stock rally. It’s up $8 from its July low, to $68 a barrel.
Gold has been in a tight range all week. It started at $955 Monday and it’s at $952 an ounce today.
In the market this week, it’s earnings, earnings and earnings. The Dow rallied big yesterday, up 2.1%, straight through 9,000, to its highest level since November. The S&P and Nasdaq were even better, up closer to 2.5%. Just as in the rallies over the last two weeks, blue chip earnings led the way… surprises from 3M, Hershey’s, eBay and Ford grabbed the spotlight this time.
Today won’t be so pleasant. It was Amex’s, Microsoft’s and Amazon’s turn to show their second-quarter hands today… and keeping with poker parlance, they were holdin’ rags. The market is consequently just below break-even as we write.
“The broad stock market,” writes Dan Amoss, “doesn’t see a difference between earnings achieved by cost cutting and earnings achieved by sales growth — especially in the consumer discretionary sector. Earnings achieved by cost cutting tend to be one-time in nature. These do not deserve higher multiples. The latter — earnings driven by sales growth — certainly merits higher multiples. We have seen very little of this, outside of unique companies like Apple.
“This is very important to keep in mind, because the rally in the market since the March lows is entirely driven by expansion in price-to-earnings multiples, not growth in earnings. This type of rally is fine if we’re at a trough in earnings and earnings are about to come roaring back as the economy recovers. But this type of earnings recovery is not going to happen. In the consumer discretionary and financial sectors, the market has gotten way ahead of itself. I expect this to correct itself as the fall season arrives.”
The government will jack up the minimum wage today for the third year in a row. The federal minimum wage goes from $6.55 to $7.25. That’ll affect only 29 states… the ones whose state minimum wages are currently below the new federal minimum. We won’t get into this debate today, but we doubt the hike will be of any help to the struggling economy.
“As my Delta flight flew over eastern Washington the other day,” writes Byron King, who joined us in Vancouver this week, “I looked down and saw a familiar sight. It was a long, narrow body of water, with a stark, linear feature at the end of it. It was Lake Roosevelt, impounded by the Grand Coulee Dam, of which I wrote last year.
“From 36,000 feet, Grand Coulee Dam sure looked small. But it’s the largest man-made structure in North America. It’s three times the height of Niagara Falls. It’s larger than the Great Pyramid of Cheops. It has enough steel in it (9 million tons) to build about 225 World War II-era battleships, at 40,000 tons each. Today, it’s rated at about 6.8 gigawatts of electrical power, or the equivalent of about seven large nuclear power plants.
“Grand Coulee was built in the 1930s as a government ‘stimulus’ project. This was back in the good old days when the government knew how to ‘do stimulus.’ Y’know, build big dams. Kick-start the steel and cement industry. Employ tens of thousands of skilled workers. Do some heroic engineering and create an energy project that will benefit the nation for decades into the future.
“No, Grand Coulee by itself didn’t solve the issues of the Great Depression. But it sure did come in handy when it started spinning power in 1942, just as the U.S. entered into fighting World War II. One lesson is that if you dream big dreams, you never know what will come out on the other side.”
“I currently work overseas in Afghanistan,” writes a reader, “for an American corporation for a Department of Defense contract and have been here in Kabul for one year. I see all the U.S. waste and abuse in this military operation. As a taxpayer, I am infuriated at our expenditures here and in Iraq. I believe in supporting our troops, but we cannot continue on this road, as the mission is not clear and the cost too great.
“Is there any interest from Agora Financial in getting involved in the political arena on the issues mentioned in your newsletters and daily commentary? I believe many of your readers are of the same mind: Government is out of control, and if the American public does not demand from our U.S. Congress major changes to spending and priorities, we will be down the same path as other great nations: a secondary power that was imploded by reckless spending and living for today, not tomorrow.
“I am about one year from retirement and want to become very active in the political process, but without a base of Americans who believe in the same mission, one voice will not make a difference.
“Appreciate your response to such a proposal.”
The 5: Well, first, thanks for reading The 5 and writing to us. That really makes our day, even if it’s a horrid idea.
Will we write about politics? To quote H.L. Mencken, “The only way for a reporter to look on a politician is down." We’d follow that plan to a T, but it would probably get old after a couple of weeks, and it certainly wouldn’t do anyone any good. And even the thought of entering the same arena as Bill O’Reilly and Keith Olbermann… the mere prospect of meeting mainstream politicians like Barney Frank… we’d rather dig ditches (and stuff those people in them).
Life is too short, you know?
Have a nice weekend,
Ian Mathias
The 5 Min. Forecast
P.S. You’re almost out of time to pick up the Investment Symposium CD/MP3 set at a hefty discount. That’s every presentation, every prediction, every stock pick, every mutual fund, notes from breakout sessions and more. Once this show is officially over, we’ll start charging full price, so the smart move is picking one up now… details here.
And by the way, have you been reading Greg Grillot’s daily dispatches from the event? We’re fully engaged in this event — listening to every presentation — and we still enjoy reading his “roving reporter” perspective. Check your inbox… good stuff.
P.P.S. This will be our last dispatch from Vancouver, B.C. It’s been a great trip and a pleasure to chat with so many readers of The 5. Thanks for taking the time to say hello. That being said…
Where’s the criticism? We rarely get the chance to be with this many readers at once, and we’re shocked that only one man has dared to cast a stone. Last night, we met Kirk P., a good soul from Colorado, who said, “I love The 5, but you’ve got to stop holding back. If people are idiots, lay into ’em.” That’s probably good advice, Kirk, thanks.