The first few years after it happened, it was called “the no-name storm.”
It struck the East Coast and Atlantic Canada in the days surrounding Halloween 1991. The toll — 13 dead, $200 million in damage.
Years later, it got a more famous appellation, as our Jim Rickards reminds us: “If you’ve ever read the book The Perfect Storm by Sebastian Junger, or seen the film version starring George Clooney, you know that the perfect storm was not one storm but three: two Canadian fronts and the remnants of a hurricane from the south that all converged off the coast of New England.
“The Perfect Storm” as seen via satellite, Oct. 30, 1991.
“At the point of convergence, each storm amplified the effects of the other until, as portrayed in the film, a rogue wave 100 feet high sank the vessel Andrea Gail, resulting in the deaths of the crew.”
“I believe the perfect financial storm is brewing at this very moment,” Jim wrote yesterday in an exclusive dispatch for Agora Financial Reserve members.
“Three head winds, any one of which would be challenging, have converged to create financial havoc.
“Some investments are safely in port and will survive the storm. Other investments are far out to sea and will suffer the effects of all three head winds.”
Head wind No. 1: The ongoing currency wars. We’ve chronicled the decision to “depeg” the Swiss franc from the euro, and the European Central Bank’s plunge into full-on money printing.
“But that was just the beginning of a flurry of similar actions around the world,” says Jim. “Canada cut rates on Jan. 21, and the Danish central bank cut rates on Jan. 29 — its third rate cut in two weeks.
“Both rate cuts were designed by the central banks to weaken their currencies. More cuts are expected from Canada and Denmark soon. Sharp declines were also seen in the Australian dollar, Chinese yuan and Brazilian real.
“The currency wars have been ongoing since 2010, but the start of 2015 marks a more intense phase where beggar-thy-neighbor retaliation is happening daily. Any U.S. company with significant foreign earnings will see the value of those earnings reduced when translated to U.S. dollars as long as these competitive devaluations continue.”
Case in point: Estee Lauder Companies (EL) warned this morning the strong dollar would drag down its earnings for the current quarter.
Too, we cited the impact on that bluest of blue chips, Procter & Gamble, a few days ago.
“The stronger dollar is slicing sales and profits at big American companies,” affirms The Wall Street Journal, “prompting them to put renewed emphasis on cost cutting and cramping the broader U.S. economy.”
Head wind No. 2: The slowdown in energy production. “Here the battle is being waged between Saudi Arabia and the frackers in North America,” says Jim.
“Saudi Arabia wants to maintain high production in the face of a global oil glut in order to force the frackers to stop drilling and even shut down some existing capacity. The cost of lifting oil from the ground in Saudi Arabia is less than $10 per barrel, whereas the cost of oil from fracking in North America averages over $70 per barrel.
“This is a war the frackers cannot win. The impact is already showing up in layoffs, canceled orders for pipe and declining rig counts. This damage will get worse.”
Supporting evidence: U.S. employers cut 53,041 jobs last month, according to figures this morning from the outplacement firm Challenger, Gray & Christmas.
That’s a 63% increase from December. And more than 21,000 of those cuts are tied to the decline in oil prices.
Reports MarketWatch: “There were 42% more layoffs in the energy industry in January than the sector cut in all of 2014 put together.”
Head wind No. 3: The slowdown in economic growth nearly everywhere outside the United States.
“Japan and parts of Europe are technically in recessions,” says Jim. “China still has growth, but it is slowing rapidly.
“The U.S. growth engine seems to be slowing also, with GDP falling from 5% in the third quarter to 2.6% in the fourth quarter, and with initial signs indicating even weaker growth ahead.”
Sure enough, the Chinese government just unleashed a torrent of money for banks to lend — the better to arrest the slowdown there.
Yesterday, the People’s Bank of China eased the amount of reserves commercial banks are required to hold — from 20% to 19.5%. That doesn’t sound like much, but it amounts to $100 billion that will soon wash over the Chinese economy. The Wall Street Journal calls the move “unusually broad.”
With these three factors — a global slowdown, the energy shakeout and the currency wars — all converging into a perfect financial storm, the time is right for Jim Rickards’ next live online briefing, exclusively for Agora Financial subscribers like you.
This is when Jim tackles the topics too hot for his interviews on CNBC, too complex to convey on his Twitter feed. The topic this month: “The Global Slowdown and You.” As always, there will be time to answer reader questions so you can batten down the financial hatches.
The date: This coming Monday. The time: 10 a.m. EST. As always, access to this event is free to subscribers of Rickards’ Strategic Intelligence. If you’re not among their ranks yet, you can join them here — no lengthy presentation to watch, just a sobering assessment of the facts.
Head winds notwithstanding, stocks are solidly in the green this morning. As we write, the Dow industrials have turned positive for the year at 17,816. The S&P 500 has powered up 16 points, to 2,058.
Gold and bonds are the losers: As we write, the Midas Metal is down to $1,261 and the yield on a 10-year Treasury sits at 1.82%.
Crude is once again demonstrating big-time volatility: After sinking below $48.50 overnight, a barrel of West Texas Intermediate is up to $50.69.
Has “irrational exuberance” finally hit the stock market in the form of… gourmet grilled cheese?
So suggests money manager and blogger extraordinaire Barry Ritholtz. Mr. Ritholtz called the stock market bottom in March 2009 — although he’s humble enough to concede luck was at work. He’s been bullish ever since… to the considerable consternation of doom-minded attendees at our conferences in Vancouver earlier in this decade.
Still, he’s been ever-watchful for “signs of excess and froth in the equity markets.” This week, he’s found one…
Corporate goal, as defined on the firm’s website: “to become the largest operator in the gourmet grilled cheese space.” [Photo by Flickr user ricardodiaz11]
The Grilled Cheese Truck Inc. (GRLD) began trading over the counter last week. “Based on the 18 million shares outstanding and a recent stock price of $6,” writes Mr. Ritholtz, “the company has a market value of about $108 million.”
Hmmm… Some more numbers to chew on…
- $1 million in assets versus nearly $3 million in liabilities
- Sales of $2.6 million in the first nine months of the year, and a loss of $4.4 million.
“But forget the losses for a moment,” says Barry, “and make the generous assumption that it will have sales of $4 million this year. This means its shares trade for more than 25 times sales, a very rich valuation…
“I can’t think of a more interesting sign of the old irrational exuberance in equity markets than a publicly traded grilled cheese truck (four in this case) business trading at a $100-million-plus valuation. That sort of thing doesn’t happen unless there is significant excess in the markets.”
“Yes, Russia does have 13% flat income tax,” a reader writes, “however, the lowest income tax rate in Russia is a flat 6% if you choose the simple accounting method — i.e., no deductions.”
“You know nothing about Russia,” a reader writes.
[We don’t recall asserting we did. But please, go on…]
“Let me tell you something. I worked in Russia after medical school for 14 years as a neurosurgeon. In 1991, I moved to U.S. and worked for 14 years as a neuroradiologist at University of MS Medical Center before I moved to private practice. Last year, I became 60 years old, which is retirement age for Russia and MS State.
“My Russian pension is $95, and my pension from MS State is $1,100 for life, and my wife (she is 17 years younger) will be getting it if I die. Do you still want to move to Russia? And I am not talking about everyday life, which is very expensive in Russia. Average monthly wages in Russia are about $500. And I am not talking about terrible corruption, awful hospitals.
“Please stop talking about what you do not know about. You spread misinformation. Go there and try it yourself.”
“You ‘glam’ Russia as so great — I don’t see ya moving there,” says another.
[Oy…]
“Spout out all ya want about the difference in corporate taxes between the two countries — you still won’t move there. Why? Because it’s communist — yeah forget about the breakup and ‘elections.’ Putin is Old Joe with a better body, but he’s still what he is — an authoritarian and a communist bent on restoring the glory of Soviet Russia!!!”
The 5: This is really going off the rails: We try to call attention to the risks of hot war between the United States and Russia and we’re accused of being Putin apologists.
“America has never had a vital interest in Crimea or the Donbass worth risking a military clash with Russia,” writes Pat Buchanan this week. “And we do not have the military ability to intervene and drive out the Russian army, unless we are prepared for a larger war and the potential devastation of Ukraine.
“What would Eisenhower, Kennedy, Nixon or Reagan think of an American president willing to risk military conflict with a nuclear-armed Russia over two provinces in southeastern Ukraine that Moscow had ruled from the time of Catherine the Great?”
We’re reasonably sure Patty-Patty-Buke-Buke is no more eager to move to Russia than we are…
“I will miss Radio Shack for the same reasons so many other readers have mentioned,” a reader writes, “but I almost predicted 10 years ago that they were in trouble.
“Our local stores were selling all the usual electronic thingamajigs, and I knew I could find all sorts of needs there. But when I took them to the clerk, he would calculate it out on a pocket calculator and write the receipt by hand on a pad. No computerized register or tape receipt at the counter. I would ask the clerk if they found that strange and would always just get an embarrassed shrug.
“It was possibly the worst piece of contact marketing for such a business one can imagine.”
“Before Radio Shack, it was Allied Radio with Knight-Kits,” writes another. “My first venture in the ’50s was with their Ocean Hopper all-band radio kit.
“With all parts, optional plug-in band coils and long-wire antenna, the cost was under $10, but it took months to save up in those days. What a thrill to fire it up and listen to BBC, Radio Moscow, etc.!
“Many happy hours perusing their phone book-sized catalog for other exciting projects took place with a flashlight under the sheets when we were supposed to be asleep.”
The 5: Your, um, somewhat younger editor never got into kits… but my first modern shortwave radio was the Sangean ATS-803A, which Radio Shack sold as the Realistic DX-440.
In the late ’80s it was what a budget-minded young adult bought if the legendary Sony ICF-2010 was too much of a stretch… Heh.
“There is something more sinister regarding Radio Shack’s demise — it marks the end of the era of independent learning, creating and building technology.
“Fifty years ago, when I was a child, I read every issue of Popular Electronics, Popular Science, Popular Mechanics and Scientific American, including ‘The Amateur Scientist.’ Then I would take my hard-earned dollars and hustle off to various electronics stores, including Allied Electronics, the military surplus electronics shops and, later on, Radio Shack, to get the components and parts to build numerous projects.
“Now, no one builds anything except a plethora of smartphone annoying apps, and the magazines mentioned are there only to sell us more stuff. It seems to me that we have lost much more than a retailer.”
The 5: Hmmm… With the proviso that we’re not hobbyists, it seems there’s no shortage of tinkering going on with Arduino microcontrollers and Raspberry Pi single-board computers… to say nothing of 3-D printers, laser cutters and CNC machines.
Hey, we had to say something not completely doomy today.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Every time I throw out this challenge, it gets a response, so here goes one more time:
If you think wealth comes only with hard work… if you recoil at the idea of wealth without effort… then you absolutely must not click on this link. If you do and you’re offended, you can’t say we didn’t warn you.
