Unemployment Benefits in Jeopardy, GDP Jumps, A Currency to Watch, Signs of the Chinese Times and More!

by Addison Wiggin & Ian Mathias

  • Why Eric Fry isn’t surprised economists are calling the recession’s end
  • Congress fails to extend unemployment benefits… 1.1 million could be cut loose in March
  • Bill Jenkins eyes this currency as the next winning FX buy
  • Plus, a sign of times: World’s biggest diamond sold… to Hong Kong


  The U.S. economy grew even faster in the fourth quarter of 2009 than previously calculated, the Commerce Department claims today. The revised figure show a 5.9% increase in GDP, rather than the wimpy 5.7% we all believed in last week.

Take that! The recession is even deader!

  “The economists in Washington have absolutely no reason to doubt that the recession has ended,” Eric Fry reports in yesterday’s Daily Reckoning, “because the recession never arrived in Washington in the first place!

“Government employment in the Greater Washington, D.C., region has jumped more than 10% during the last eight years, while retail employment has gone nowhere. And this divergence has accelerated as the recession has deepened!

”Unfortunately, the employment trends depicted in the nearby chart are not the trends that typically produce national prosperity. If government employment were to continue rising while private sector employment fell, the economy would become less productive… at least that would be our guess. (Picture the post office operating every McDonald’s in the land).

“Of course, the economists on Wall Street believe the recession has ended, too. Why wouldn’t they? Former Treasury Secretary Hank Paulson shipped enough taxpayer money to Lower Manhattan in 2008 to employ every Wall Street economist for life… along with every Wall Street CEO, proprietary trader, managing director, vice president, secretary, security guard, lunch-runner, limo driver and yoga instructor.”

  In a similar vein, the U.K. announced this morning it too emerged from recession at a faster pace than previously reported. Heh, what a coincidence.

  U.S. existing home sales fell a staggering 7.2% in January — a continuation of the lousy housing data we’ve been getting lately. Like new home sales on Wednesday, today’s number was way, way below Wall Street expectations, and the second biggest monthly slide since 1999 — after December, which was the largest.

"It’s not good news," said Lawrence Yun, the chief economist for the National Association of Realtors, who — as we often note — has a history of being far too rosy on U.S. housing. "There is rising concern about the strength of the housing recovery."


  The House and Senate attempted to pass a $10 billion bill last night that would have extended unemployment benefits for 1.1 million people. They ran into this:

Tough love from the senator from Kentucky

Jim Bunning (R-Ky.), who says he’s not seeking reelection, and who admittedly gets his news only from Fox News, single-handedly blocked the legislation late Thursday. He vowed to again today — unless its authors tweak the bill to make it deficit neutral. Until then, “tough s—t,” he muttered.

While we suspect Congress will find a way to borrow and pay out those benefits anyway, the man’s approach was entertaining.

  Every other resident in Washington was camped out at Blair House across the lawn from the White House attending president Obama’s health care summit. Those invited met for seven hours.

Yawn, stretch… nothing happened.

  Neither did investors pay the presidential puffery any mind. Traders wrung their hands instead over the fate of Greece’s sovereign credit rating, pushing the market down 0.2%. The S&P 500 opened flat this morning.

And given the snow — and that it’s Friday — we’re not expecting much today either.

  It looks like the end of a long run for Bowne & Co. — the second oldest company listed on the New York Stock Exchange. What started as a small stationary shop in 1775 evolved into a huge global communications company… and then got bought out in the credit crisis aftermath.

Sotheby’s — the “Cal Ripken” of the exchange — was founded in 1744 and now claims the oldest firm status by many years. The Bank of New York remains the oldest listing. The bank was first offered to the public in 1792, roughly about the time the French king Louis XVI’s head was rolling off the guillotine.

Our managing editor, Chris Mayer, sold his stake in Bowne yesterday. Readers following along in Mayer’s Special Situations booked a 74% gain in less than three months. “Just goes to show you there are ALWAYS opportunities out there in the stock market,” Chris noted. For Chris’ latest list of spinoffs, takeover targets and other Special Situations, look here. Access it today for just $1.

  Most commodities are in a relative holding pattern today, too. Gold and oil are drifting up, at $1,110 an ounce and $78 a barrel. The dollar index is slowly falling, down almost half a point from yesterday’s high, at 80.7 as we write.

  “I like the Canadian dollar more and more,” our currency man Bill Jenkins wrote yesterday. “It has some fundamentals that are definitely improving, and some other aspects that are definitely worth considering. Here’s why.

“Traditionally, the loony has been linked with the Australian and New Zealand dollars. Now in the current market, currencies are often linked together by at least one of three elements: They either produce a high yield, they are commodity-based or they are funding currencies for a carry trade.

“However, even though Canada is linked with the commodity currencies because of its rich natural resources, it is not a high yielder, nor is it a funding currency. Thus, up to this point, it has not been a real capital attracter.

“But its strengthening fundamentals are already reflected. We saw a strong Canadian employment figure at the beginning of February, and last week, inflation nearly hit the official target. We may be looking for a rate increase out of the Bank of Canada

“If retail sales continue to rise and we see decent numbers out of its GDP report coming up at the beginning of March, we may be onto a good trade.” If and when Bill fires off a Canadian dollar trade, only his Master FX Options traders will know… Join their ranks here.

  The most expensive rough-cut diamond in history was sold overnight. Petra Diamonds of London sold this 507-carat beast for over $35 million. The buyer, par for the course in the 21st century, was from Hong Kong. Chow Tai Fook Enterprises had the winning bid. They’re a luxury Chinese conglomerate with big stakes in hotels, casinos, jewelry, telecom and transport all over the Far East.

There’s going to be a very happy lady somewhere… in Asia

Some fun layers to this story: Petra named the stone Cullinan Heritage, after the Cullinan mine in South Africa, which also produced the original Cullinan stone — the world’s largest rough-cut diamond, roughly six times the size of the one pictured above. That giant was sold to the British government in 1905 and was carved into “The Star of Africa,” the prize of the Crown Jewels… and given the sale of its modern cousin, a pretty accurate assessment of the shift in economics over the last century.

What’s more, Petra announced an earnings rebound last week. They made a $37 million profit over the last six months, compared with an $88 million loss in the same period the year before. The company cited a rebound in rough diamond prices and… strong demand from China. By their count, China has eclipsed Japan and the U.S. as the world’s biggest gem market.

  “I always have to laugh when everyone sings the praises of the Chinese economy,” our first reader writes. “Their economy is truly a wonder, we are told. All the same free market dolts that point to the power of the Chinese economy forget that it’s a managed economy (managed by whom? The GOVERNMENT) and a dictatorship.

“Hooray for China making the big bucks. But let’s get real. Any of the Republicans or free market capitalists that are hollering that Obama is a socialist would poop their pants if they had to live under the Chinese regime. The Chinese market may be something, but Capitalism it ain’t.”

  “I think you guys have finally fallen off the edge: admiration for the murdering pilot tax cheat and the Chinese fascists.

“Next, you’ll start arguing for a strong leader to take control of America; no need for democracy when a leader really reflects the will of the people. And who needs the rule of law when there are lower tax rates to be gained? Guys, you run money for a living. I bet the Chinese can run money too, and they’ll work for a lot less than you do.”

The 5: Hey, how dare you suggest we run money!

  “It would be impossible to answer your question is China more capitalist than the U.S. in less than a dissertation, so I won’t try. All I would say is GO. Go there and judge for yourself. I lived and worked in China for a number of years, and from my perspective, China is a far freer and more open society than the U.S., a country whose leadership respects its people and tries to do the very best for the largest number of people, and not just the very, very few that the U.S. leadership tries to placate.

“I often cringe when I read things that ignorant Americans say about China. America is really a barbaric, violent, corrupt country compared with China. I am reminded every day of George Orwell’s astute comment in his history of the world that the Chinese had had a high culture and an advanced civilization for thousands of years when Europeans were still living in caves and eating each other.”

  “I am a VP of a biotech company here in the U.S. and married to a Chinese woman. We travel frequently to China. In many ways, it is more capitalist than the U.S. Or at least it is more friendly to capitalists than the U.S. How does a capitalist in America compete with the following: free land for your factory, free building for the factory, labor wages of a few dollars a day, well-educated middle managers for less than US$20,000 per year, tax holiday, no environmental problems…

“On one trip, I talked to an American businessman who has set up a factory with all of the above incentives who told me: ‘I tried to set up a factory in the Midwest, but gave up when I tried to deal with the costs. Then I saw what can be done here… who can compete with me? How could I possibly do this in the States?’ He makes auto parts. He also confessed that there was a moderate amount of corruption in the form of stock to local officials. If you are willing to set up shop in an area of unemployment and commit to hiring a fair amount of people, you can do well. Oh, and the government will build low-cost housing across the street from the factory for the workers.

“By way of contrast, it took us nearly a year just to get a building permit for a building expansion here in Capitalist America. My opinion… they will eat our lunch unless there are some major changes in tax incentives for business expansion or establishment.”


Addison Wiggin

The 5 Min. Forecast

P.S. We’re writing from the Marlborough Hotel on Bloomsbury Street in London today. We just arrived, so don’t have anything material to report as yet. Tomorrow, we cross the street to the British Museum with a camera crew. Gregg Stemm, the founder of Odyssey Marine, is going to be debating the merits of “commercial underwater archeology.” We’ll let you know how that goes when we write again from Baltimore on Monday. (Yep, quick trip.)


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