Up-Close In Haiti, Mutual Fund Madness, Peak Cars and More!

by Addison Wiggin & Ian Mathias

  • The “trauma protocol triage system”… A sobering up-close-and-personal view from Haiti
  • Mainstream touts “subdued” inflation in CPI report… The 5 finds contrary evidence
  • The pathetic 2-year performance of the typical mutual fund… and an ideal antidote
  • Peak cars? U.S. vehicle fleet shrinks for the first time since WWII
  • Readers commiserate about kids with high-five-figure student debt


  We interrupt our usual laundry list of business and economic failure for a frontline report from one of the only functioning hospitals in earthquake-ravaged Haiti.

“We are far from the epicenter,” writes Ian Rawson, manager of the Hospital Albert Schweitzer, in a personal e-mail to our Byron King, “but overnight [Wednesday into Thursday], we began to see more patients from areas outside of the valley, where two and three-story buildings are more common.”

As we noted yesterday, the hospital has seen its share of tragedy across 50-some years of serving Haitians. But with an estimated 50,000 dead and 300,000 homeless across the country, this one is on a whole other level.

“The influx of patients is straining our resources, but has been handled calmly and efficiently by the all-Haitian medical and nursing staff. All available gurneys and benches are in use, our trauma protocol triage system has been implemented and there is a steady flow of patients to the diagnostic center and the operating suite.

“The lack of communications has been a large psychological problem. All of our professional staff have families in Port-au-Prince, and all cell systems have collapsed, so people wait anxiously for news of relatives.

“Haiti has a long history of natural disasters: floods, mudslides, hurricanes and more. Each one reinforces our awareness of the limitations of the formal infrastructure and the resilience of the informal system of family and community support.”

Byron adds this: “Note the comment about ‘trauma protocol triage system.’ That means they’re picking and choosing who gets treatment and lives, versus who does not get treatment and dies.”

If you want to help people in Haiti and you’ve been wondering who’d be a worthy recipient of donations, Byron says you can’t do better than the Hospital Albert Schweitzer.

And as we promised yesterday, if you send us confirmation of you donation, we’ll credit you a year’s worth of Byron’s Outstanding Investments.

  Back in the world of finance and investments, one of the themes of the day is inflation remaining “subdued.”

Not that you’d actually come away with that impression if you carefully examine this morning’s report on the consumer price index. For calendar year 2009, it rose 2.7%. (In 2008, crashing commodity prices kept year-over-year CPI to 0.1%.) That’s a little outside the Federal Reserve’s usual 2-2.5% comfort zone. Does this signal the Fed might start tightening the monetary reins sooner than expected?

Hardly. The only thing being touted about this report today on CNBC is the fact the monthly figure in December was up 0.1%, right in line with the vaunted “analysts’ expectations.”

  U.S. stock indexes opened down about 0.5% this morning. “Subdued” inflation figures are trumped by the fourth-quarter earnings numbers from JPMorgan Chase, traders looking at them as a sort of bellwether for the health of the U.S. consumer.

And they’re not good. Yes, profits came in at $3.3 billion, better than expected. But most of that came from the money-shuffling side of JPM’s business, especially investment banking. Garden-variety retail banking and credit card lending generated losses.

CEO Jamie Dimon says he’s adding $2 billion in reserves for future loan losses, offering this understated explanation: “Weak employment and home prices persist.” Gee, ya think?

  It’s not just Dimon who recognizes consumers are still strapped; so do consumers themselves. Consumer sentiment as measured by Reuters and the University of Michigan registered this morning at 72.8 — up only slightly from the month before, but less than the “expert” consensus. Not as dire a picture as the survey we told you about Wednesday, but no cause for celebration, either.

  How about the manufacturing sector? We’re getting mixed signals there:

  • The Fed’s Empire State Manufacturing Survey shows accelerating growth this month, on the high end of analysts’ expectations
  • Industrial production was up 0.6% in December. But that number is skewed by output from utilities. (Cold weather, more output.) The manufacturing component of that number was essentially flat
  • Capacity utilization, one of our preferred indicators of economic health, is still anemic, but still rising. U.S. firms are now using 72% of their productive potential.

As we’ve noted before, recovery in this figure typically marks the end of a recession, although the National Bureau of Economic Research has yet to make that call this time. But the number’s now been rising six months in a row, and it’s no longer skewed by “cash for clunkers” the way it was at the start of this cycle.

  Chris Mayer is winging his way to Australia with a few select subscribers as we write… but we suspect he’d chuckle at this news: 97% of all stock mutual funds are down from where they stood at the beginning of 2008.

According to Morningstar, the average stock fund rose 35% last year… but that wasn’t nearly enough to overcome the 41% loss the year before. (41%? The S&P fell only 38%!) Only six funds — six! — managed double-digit returns across the two-year span.

This brings to mind some timeless wisdom Chris imparted in the summer of 2008: “I’ve long held that mutual funds are full of bad habits, like a boy who can’t stop picking his nose and burping at the dinner table. If you had to design a poor investor, you need look no further than the typical mutual fund.

“For example, the typical mutual fund turns over its entire portfolio at least once per year and owns 160 stocks. These are two things that often lead to mediocrity: too much trading and too many stocks.

“All that churning fattens the brokers of the funds. And the funds often have unseemly arrangements to direct commissions to brokers who help market the funds. Owning all those stocks also means the fund managers often know little about what they own.

“No individual stock matters much, nor does any single issue make much of a difference, so why bother looking at any of them in detail? It is little wonder the typical mutual fund puts in such an indifferent result.”

The new numbers from Morningstar reinforce Chris’ thesis that you’re better off buying a small basket of stocks that meet his four basic criteria: priced cheap, in good financial shape, with a business model that’s easy to understand, run by managers who own a good chunk of shares themselves.

A couple of hours ago, Chris told his Capital & Crisis readers about the “one idea that you really should own” in 2010 that fits the bill perfectly. For access to this and all of his best ideas, go here

  Not only has China overtaken the United States as the world’s biggest auto market… but it appears the U.S. fleet actually shrank in 2009 for the first time since World War II.

The environmental group Earth Policy Institute crunched numbers from the Federal Highway Administration and the R.L. Polk research firm. Its conclusion: 14 million motor vehicles were scrapped last year, compared to sales of just 10 million.

That means the U.S. vehicle fleet shrank by 2% last year. Whatever the reason — the recession, improving public transit in some cities or plain-old market saturation — it could be just the beginning. The EPI notes that Japan’s vehicle fleet peaked in 1990 — the first year of that nation’s permanent economic funk. Since then, annual sales have shrunk by 21%.

These numbers also start fulfilling a prophecy issued last year by former CIBC World Markets chief economist Jeff Rubin: By the time the world adjusts to perpetually shrinking oil production, one in five U.S. vehicles will be off the road for good.

  “Why do you continue,” a reader complains, “to avoid telling your readers: 1) In 1999, Bill Clinton (by executive order) ordered Fannie Mae to make more loans to people that could not afford these loans. 2) Franklin Raines (Bill Clinton’s economic adviser) took over Fannie Mae and continued this wild lending, bankrupting Fannie Mae, and walked away with $90 million in bonuses!! 3) Jim Johnson (Barack Obama’s economic adviser) did the same thing at Freddie Mac, but walked away with only $25 million. 4) Both institutions were Democratic piggy banks, giving millions to the Democrats, including Barack Obama, Chris Dodd, Barney Frank, etc.

“They also gave $65 million to Democratic lobbyists. I don’t think any of this money has been back. The current head of Fannie Mae just received a $6 million bonus while the taxpayers are picking up billions of dollars of losses.

“Also, you forget to mention that the Republicans tried to tighten things down and the Democrats said, ‘Oh, there is nothing wrong!’ Please tell your readers the truth!”

The 5: This is an odd complaint to lodge against the research firm that way back in 2004 uncovered and exposed a memo detailing the rot on Freddie Mac’s balance sheet — a memo that soon vanished from Freddie’s Web site, only resurfacing from the memory hole during a hand-wringing congressional hearing in 2008.

Oh, and we seem to recall Republicans were in charge of both Congress and the executive branch at that time of that memo. There’s ample blame to go around.

  “Wow,” writes a reader, “we need to take a poll of how many of our kids are in the same situation on $80,000 in student loans and now working part time at GameStop. No hours this week! Maybe four-eight hours next week! He decided to go to a very expensive accelerated two-year game programming development school with the impression that when he graduated, he would be ‘assured’ a $50,000-plus per year job. Nothing is ‘assured’ but death and taxes! He is having to go back to school to ‘delay’ his loan. His dad (he is my stepson) and grandmother are on the hock to pay back, but how will he ever get out from this debt? I think the schools and system are way broke! Or should I say RICH?”

  Of course, not everyone identifies with this situation. “For the sucker with a $90,000 family education debt,” another reader writes, “doesn’t sound like you taught your son much fiscal responsibility.

“For the wannabe teacher, take any private enterprise job offer (McDonald’s, Wal-Mart, Home Depot, etc.) and break the string of inept government schools begetting inept government students. If you work hard and are honest, agreeable, instructable and dependable, you’ll advance quickly. If you really like to teach, start private tutoring on the side. When you make a name for yourself, you just may be able to quit your other job. Break the line of government dependence NOW. There is no future in public school teaching. Once the feds have leeched all the blood out of the productive, there’ll be no more financing for these behemoth ‘public’ institutions.”

  “The simple reason schools have not really taught money and finance for generations,” the last reader writes, “despite modern math books having a smattering of simple mortgage calculations, is that the financial elite and government catering to same have never wanted disclosure of the ways they make obscene money. That would be critical thinking, to be de-emphasized at all costs. The volume of talk has been advertising to them as consumers, on how they can save by buying more.”


Addison Wiggin

The 5 Min. Forecast

P.S. Patrick Cox continues to be astounded by the progress scientists are making with high-tech breakthrough cures that literally help the body heal itself. “In the past few weeks, the amazing promise of this work has appeared on 60 Minutes and in The New York Times, The Washington Post, U.S. News and World Report, National Geographic and Newsweek.

“Yes, the story is building. It’s gaining momentum — and it could be about to change the world while making you richer than you ever imagined.”

If you haven’t checked out Patrick’s six mind-blowing forecasts for 2010, you really owe it to yourself. You’ll find all of them right here.


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