After Apple, Three More Sells

Dave Gonigam – April 24, 2012

  • When the jobs are no longer there: Flood of immigration from Mexico dammed up
  • Housing time machine turned back five more months… while Social Security’s doomsday is moved up three more years
  • After his “Sell Apple” call, Chris Mayer suggests three more things best kept out of your portfolio
  • Central banks take advantage of gold’s pause to buy up more…
  • Well-traveled reader reinforces our warnings of a centuries-old conflict… a new volley fired on the “shut up about politics” front… the shocking volatility in a forgotten corner of the commodities market… and more!

   How bad is it in the United States these days? No one wants to come here from Mexico.

“The largest wave of immigration in history from a single country to the United States has come to a standstill,” says the Pew Hispanic Center. The researchers crunched numbers from both the U.S. and Mexican governments and concluded the northward flow of immigration has been dammed up.

Net migration from Mexico to the U.S. totaled 2.3 million between 1995-2000. Net migration between 2005-2010 totaled zero.

“The standstill appears to be the result of many factors,” say the researchers, “including the weakened U.S. job and housing construction markets, heightened border enforcement, a rise in deportations, the growing dangers associated with illegal border crossings, the long-term decline in Mexico’s birth rates and changing economic conditions in Mexico.”

Two effects of this trend find their way into today’s episode of The 5: After all, with fewer immigrants, there are fewer homebuyers… and fewer contributors to Social Security.

   The dysfunctional time machine that is the U.S. housing market reversed five additional months this morning.

Toward the end of March, we told you home prices reached their lowest since March 2003. This morning’s figures now take us back to October 2002.

The Case-Shiller home price index is down 3.6% year over year… bringing the index of 20 major metro areas down to a level last seen 9½ years ago.

Meanwhile, new home sales fell 7.1% last month, according to the Commerce Department.

   “Distressed sales” now account for 47.7% of all home sales, according to Campbell/Inside Mortgage Finance.

That’s both foreclosures and short sales, in which the home sells for less than the value of the mortgage. “With nearly half of the market being distressed, we’re a long way from a return to a normal market,” says Campbell Surveys research director Thomas Popik.

   Traders, assessing these numbers as a whole, have nonetheless pushed the Dow back above 13,000 this morning. Yesterday’s losses? Gone.

The broader S&P is up a half percent. Small caps are up almost two-thirds of a percent.

But the Nasdaq is the outlier… dragged down by Apple, which reports earnings after the close today. Apple currently makes up 20.49% of the index. That proportion will be cut to 12.33% next week… which won’t help today.

   How big an impact does Apple have on the broader market? The firm has lost $74 billion in market cap since it hit an all time high two weeks ago.

That’s equal to one-third of the S&P SmallCap 600 companies going out of business, says Greg Guenthner of our small-cap team. “I really think,” he quips, “that AAPL and Europe are fighting over who gets to hold the market hostage.”

The early read on Apple today is ugly: Verizon reports iPhone activations are down 30% over the last quarter, and AT&T says its iPhone activations are down 43%.

As Chris Mayer noted in his now-famous “Sell Apple” call on March 6, the iPhone makes up half of Apple’s sales… and the likelihood it can make up for flagging U.S. sales overseas is somewhere between slim and none, and Slim just bought a Samsung phone.

   “Don’t own coal producers, national oil companies or iron ore producers,” adds Chris today, offering up three more things you might do well to avoid.

Credit where it’s due: Chris picked up these ideas from legendary short seller Jim Chanos at the recent Grant’s conference in New York. Chanos is the guy who saw Enron as a fraud long before it was exposed as a fraud.

The problem with coal? “It’s the flip side of the shale gas boom,” Chris says. “Cheap natural gas means coal-fired power generation is in trouble as more switch to natural gas. U.S. coal prices are down 20-32% from last year, depending on where you are and what type of coal. Coal train carloads are down 18% from a year ago.”

   As for national oil companies, Chanos says they “are being run for the benefit of the states.”

“The general model for a national oil company,” Chris explains, “is for the government to retain a big stake in the company, push for costly investments and keep prices at the pump low.”

In the worst cases, governments see state-owned oil companies as cash cows… to be milked dry to fund government operations.

   The problem with iron ore is mainly a problem with China. Granted, Chanos is one of the most vocal China bears, but he has a point.

“China alone makes up 66% of global iron ore consumption,” Chris explains. “China’s boom has taken a ho-hum commodity and made it exciting. Take a look at this price chart”:

“How sustainable is today’s price? Already, Chinese demand seems to be flattening out.”

“And as Chanos pointed out, iron ore is not particularly rare. You just have to dig it up and get it to the coasts, which is what people have been doing. There has been tremendous investment in rail and mines in the last several years. All of the major iron ore producers are ramping up production at a time when Chinese demand is flagging.”

[Ed. Note: We’re sure you find it helpful for Chris to point out these three sectors worth avoiding. We’re also sure you’d find it more helpful if he’d suggest three places you could put your money to grow.

That’s exactly what’s he’s done in a new report. He identifies three plays set for huge gains — driven by three bombshell events he sees coming before 2012 is over. They’re not front-page news now… but they will be soon. We’ll explore these events in the days ahead here in The 5, but if you want to get a jump-start, you’d do well to give this a look.]

   Gold has recovered from yesterday’s losses. At last check, the spot price was $1,642. Silver is slowly climbing off the mat after yesterday’s pummeling at $30.92.

   While gold wallowed in the $1,650-1,700 range during March, several emerging market central banks took the opportunity to load up.

The International Monetary Fund says Mexico added 16.8 tons to its reserves, bringing the total to 122.58 tons. With that purchase, Mexico has cracked the top 30 among the world’s gold holders.

Turkey, meanwhile, is now in the top 25 with a purchase of 11.5 tons. And Russia added 16.5 tons to its already-substantial stash.

“There is an increasing realization among central bankers,” write the analysts at GoldCore, “that gold is a less-risky alternative to most paper currencies, and a recent survey showed that that majority of central bank reserves managers were favorable toward gold.”

Central banks became net buyers of gold in 2009, and the trend is in no danger of reversing. Got some of your own?

   The Social Security trustees have once again moved up the timeline for its “trust fund” to be cleaned out.

Last year, they figured it was 2036. Now it’s 2033. “At that point,” explains NBC News, “payroll taxes and taxation of Social Security benefits will provide only enough income to pay about 75% of the benefits that Congress has promised to retirees and survivors.”

The trustees say that can be alleviated if the payroll tax is upped from 12.4% to 15.01%. Which would be an interesting trick, considering that since the start of 2011, the payroll tax has actually been 10.4% (4.2% from employees, 6.2% from employers).

But whom are we kidding? As the former comptroller general David Walker said at our Symposium in Vancouver two years ago, the “trust fund” can’t be trusted and isn’t funded. It’s already been cleaned out to pay the government’s day-to-day bills — whether for bombers or food stamps or parties in Vegas.

This is why we hammer away at the idea of lining up alternative sources of retirement income… and why we have an income desk. Check out their best ideas right here.

   Medicare, meanwhile, is supposed to run out of funds by 2024, according to the same trustees who oversee Social Security.

Here too, the situation is more dire than the trustees let on. That’s because their projections overlook something Addison spotlighted in a recent issue of Apogee Advisory: Government spending on health care doubles every seven years or so.

Worse, the projections assume that automatic budget cuts kick in at the start of 2013 and Medicare reimbursements to doctors will be cut by 31%. As if Congress would really let that happen…

   Here’s a crisis Congress could address, mostly by getting out of the way: the screaming volatility in onion prices.

Seriously. With all the carping about how “speculation” is driving up oil prices, look at the much wilder swings in onion prices, highlighted in this chart by blogger Mark Perry:

“The bulbous root is the only commodity for which futures trading is banned,” explains a 2008 Forbes article. “Back in 1958, onion growers convinced themselves that futures traders were responsible for falling onion prices, so they lobbied an up-and-coming Michigan congressman named Gerald Ford to push through a law banning all futures trading in onions. The law still stands.”

What’s the saying? There’s no problem we face that Congress can’t make worse.

   “I have been watching your prognostications about the probability of a war between the Islamic major sects,” writes a reader of Byron King’s New War forecast, “and am amazed that anyone in America (at least natural born and educated here) should even be aware of the possibility.”

“I have spent nearly 16 years in various Middle Eastern countries — 5½ in Iran pre-revolution, and also in Egypt, Jordan, Bahrain, the UAE, Kuwait and a couple of other North African countries — and have long held the idea that the West’s best hope for delay in Islamization is this tension between the factions — I had not followed through to the conclusions drawn in the presentation.”

“Thanks for the information — I hope the threat will be widely disseminated and Americans will wake up to the potential event.”

The 5: You’re welcome. As it turns out, Byron knows that part of the world well from his Navy days.

The war drums in Iran appear to be in pause, at least until the next round of nuclear talks on May 23… but the ancient tension between Sunni and Shia could blow up the region at any moment with no involvement by the United States or Israel. It’s an essential point of Byron’s presentation… one you can’t afford to overlook.

   “It shouldn’t be this way,” writes a reader responding to yesterday’s mailbag, “but what the governments of the world do is affect finance and economics like nothing else.”

“We can only hope that one day the market will be left to itself, free from government interference and manipulation.”

   “In response to ‘let’s not talk politics,’” adds another, “now, come on, finance, economics and politics are a marriage made in hell.”

“How could you not discuss them when the politicians control transportation; gas and oil; infrastructure; military spending; Social Security; welfare; unemployment; education; the manufacture and distribution of food and drugs; communication; and oh, that pesky little operation the Fed in cooperation with the Treasury, who manages all things, the IRS?”

“If ya don’t watch the political scene, how would you know what to do? Or maybe which way to run?”

“By the way, I am not leaving, just preparing for the fight. The eventual fight to get the country back.”

The 5: You’ve heard about our latest project in that vein, right?


Dave Gonigam
The 5 Min. Forecast

P.S. “What appears to me is occurring,” writes another reader of that project, “is that Laissez Faire Books is becoming another moneymaking proposition, rather than a ‘public service.’”

“A shame. I will miss it.”

The 5: Yes, that’s why we’re practically giving away printed copies of four classic books, the typeset rebuilt from scratch, and with new introductions placing them in the context of the early 21st century.

Oh, and a 20% discount on every printed book in the LFB catalog. And those aren’t even the primary benefits that come with our new project. Seriously, check them all out.


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