Sunday, February 14, 2010

China and Greece Slam Stocks, Marc Faber's Latest Forecast, Strange Lumber Prices and More!

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5 Min Forecast

February 12, 2010

  • Retail sales delight… The 5 suggests a reason that should give Pollyannas pause
  • China and Greece send U.S. stocks tumbling… Why the Greek bailout is looking shaky
  • Forget "the next Greece"… Faber forecast sends CNBC talking heads into frothing frenzy
  • A real-world economic stat that actually looks healthy
  • Readers write: Are the Olympics a boondoggle? Are taxes really going up? Sit back and watch the show…

Bummer. The federal government is back on the job today -- just in time to juice up Wall Street with these retail figures: Retail sales for January rose 0.5% from December -- more than the mainstream consensus expected.

Even better, the numbers weren't particularly skewed by rising gasoline prices. Take away gasoline and auto sales and retail sales rose 0.6%.

Looking over these numbers, we recall a little news that flew under the radar last week. A report from TransUnion revealed the percentage of consumers current on their credit cards but delinquent on their mortgages grew to 6.6% in the third quarter of 2009 -- up substantially from 4.3% a year earlier.

That's a lot of people who can maintain -- or even increase -- their standard of living by staying in their homes for free. Their lenders are only too willing to go along because they don't want to book the losses that would come with foreclosure.

Everyone is happy in this fantasy world.

Alas, strong retail numbers aren't enough to perk up traders this morning. The major U.S. indexes opened down 1.4% because…

The China sneeze play is back in action. For the second time in a month, Beijing has jacked up banks' reserve requirements. Big banks now have to keep 16.5% of their deposits on reserve, smaller ones 14%.

Evidently, the last tightening wasn't enough to slow the growth in either loans or property prices. Once again, U.S. traders assume Chinese domestic demand will collapse, and so will the world economic recovery.

Nor is the news from euroland helping matters.

The Greeks have put Wall Street in a headlock for more than 24 hours now. Let's recap…

  • Before market open yesterday: Greek debt deal announced, traders rejoice. Futures up
  • After market open: Traders realize there are no specifics to the deal. Market down
  • By midday: European Council president clarifies -- the EU stands ready to help Greece, but help isn't actually needed right now. Best of all worlds. Market up
  • After market close: German Chancellor Angela Merkel let it be known Athens would have to get its own act together and, in the words of the U.K. Guardian, she "brushed aside all questions of financial support." Bummer.

Is Frau Merkel acting wisely? Behold…

Fourth-quarter German GDP figures just came out… and they're flat. Not good after two consecutive quarters of growth. Year over year, the German economy shrank 1.7%.

French fourth-quarter GDP came in better than expected, up 0.6%. The eurozone as a whole grew barely -- 0.1%.

This news sent the euro to a nine-month low against the dollar, at $1.3533. The dollar index in turn is up to 80.75, a seven-month high. For now, as long as the euro looks shaky, the dollar retains its sheen as a safe haven. For now….

The U.S. Treasury auctioned $16 billion in 30-year bonds yesterday, and it didn't go very well. Before the auction began, yields were 4.68%. Afterward, 4.72%. Clearly, buyers are getting more nervous about the notion of going "long America" for the next three decades. The bid-to-cover ratio looked lousy, at 2.36.

Maybe all this talk of who's going to be "the next Greece" is rather beside the point when debt is weighing everyone down -- including the keeper of the world's reserve currency.

"All governments will eventually default, including the U.S.," says Marc Faber -- except for a handful like Singapore that have their debts more or less under control.

This comment drew gasps, first of horror, then of outrage, from CNBC anchors Sue Herera and Dennis Kneale. You can watch for yourself here -- the moment of truth comes around 2:15.

Still, the guardians of the Temple of the Perpetual Bull gave Faber a chance to explain himself. "In the developed world, we have huge debt to GDP, in terms of government debt to GDP and unfunded liabilities that will come due, and these unfunded liabilities are so huge that eventually these governments will all have to print money before they default."

(An aside: if you type Dennis Kneale's name into Google, the first auto-fill suggestion that pops up is "idiot." Seriously. Heh.)

Dr. Faber was one of the most popular speakers at last year's Agora Financial Investment Symposium in Vancouver, and we've just confirmed he'll be back this year as well. There's nothing like seeing and hearing him and his candid assessments in person. Early bird registration is still available. I urge you to book early… make a vacation out of it. Vancouver is very nice in July.

"Like Pandora's box," says our forex maven Bill Jenkins, "what is let out is not so easily put back."

"The widely heralded recovery that we heard about during the closing months of 2009… rising CPI, increases in retail sales, the uptick in home prices and sales, increases in manufacturing, elevations of consumer confidence… it's all completely and fully because of the stimulus that has been delivered -- and it will absolutely require additional and ongoing stimulus in order to continue. However, even with additional doses of money, the outcome is still problematic.

"If the powers that be actually believe that removing stimulus will work, and they continue to attempt to do so, I will tell you now, what they will see is a decline in demand.

"Take my word for it. With the same confidence with which I predicted the massive debt troubles in Europe and the contagion it would become, this too is my prediction for the United States. Sadly, when it comes to adding stimulus, we'll be danged if we do and danged if we don't. If we don't, the economy will tailspin. If we do, it only becomes more apparent that the debt we have racked up has become insurmountable."

A review of the open positions in Bill's Master FX Options Trader shows his readers are sitting on quick gains of 36% and 66%. For access to all of Bill's recommendations, go here.

Meanwhile, dividend hounds are taking note of a proposed takeover in the utility space. Electricity provider FirstEnergy is offering $4.7 billion for Allegheny Energy -- forming a mid-Atlantic powerhouse in four states.

Assuming it gets past the usual regulatory hurdles, this is a big deal to our income investing specialist Jim Nelson. "It would create one of the largest electric utility companies in the country, with more than $17 billion in annual revenue. FirstEnergy also expects an additional $530 million in cost savings in the first two years.

"We are bullish on the utility industry in the long term. This proposed deal marks the beginning of what we expect to be a massive industry consolidation. We could easily see a few of our plays experience the effects of this merger-and-acquisition landscape."

Jim has two companies in mind, already in the Lifetime Income Report portfolio. For access to his full range of star dividend payers, go here.

For reasons we can't quite figure out, the Internet is awash with jobs forecasts for the rest of 2010. Here are a few:

  • A consensus of 62 economists polled by Bloomberg says unemployment already peaked last October, and will close the year at 9.5%, slightly below the present 9.7%
  • A consensus of 56 economists surveyed by The Wall Street Journal believes unemployment will fall to 9.4% at year's end
  • The White House, choosing to be gloomier (perhaps on account of our relentless mockery), is figuring on average 10% unemployment throughout 2010.

The economy needs to add at least 100,000 jobs every month just to accommodate new entrants to the work force. And the White House expects average monthly job growth of only 95,000 for the rest of the year.

Not ones to miss a party, we'll offer our own 2010 jobs forecast: On the first Friday of each month, much like we got this month, we'll learn where the economy is losing jobs, but the unemployment rate will continue to go down… as "discouraged workers" no longer count. Good times.

After a post-credit crisis lull, looks like thefts of scrap metal are back. Someone's removing the brass hardware from plumbing fixtures all over the University of California-Berkeley campus. Total losses to date: $9,000.

For the record, copper is about $3 a pound right now, about 25% off its 2008 high. Zinc is just under $1, still 50% off its 2006 high.

Now for a "real-world" statistic that would make Warren Buffett and James Howard Kunstler giddy.

As you'll recall, the brand-new Pulse of Commerce Index measuring truckers' purchases of diesel dropped like a stone in January. But rail shipments are looking sharp…

This looks especially encouraging compared with two weeks ago, but we caution this number is still skewed by a big increase in auto shipments -- 53% over this time a year ago. Lumber and coal traffic are actually down year over year.

Still, lumber prices stand at a two-year high -- up 60% year over year.

How can that be when home building is in such sorry shape? Turns out production is down by around 30% over the last two years. Supply and demand.

Our short specialist Dan Amoss sees the price spike as a "likely temporary" phenomenon. He tells MarketWatch that "if not for [the] stimulus and housing tax credit, there would be practically zero housing starts in the U.S." You can read more of his comments here. For steps you can take to profit from the slump, you can still take advantage of Strategic Short Report for up to 60% off full price. Here's how.

"I am from Vancouver too," a reader writes in objection to yesterday's Olympic kvetching, "and most of us are proud to host the Olympics and welcome the visitors.

"I also remember 1986, and at the time, the situation was much the same. There was intense opposition to Expo 86 from those who believed the money should be spent on health care and housing for the poor, but after the fair got under way, most of them participated and we lived to see the great benefits to the city. The same seems likely happen again."

"To correct any misunderstandings concerning Olympic costs for the complainers from Vancouver," writes another, "I would like to point out to them that all residents of British Columbia are on the hook for the costs of this fiasco. Just like the Montreal Olympics, we'll be paying for this extravaganza for years to come, yet we in the outback will have to content ourselves with watching events on television (not necessarily a bad thing) with little likelihood of attending in person.

"Already our provincial government is covering some of the costs with reduction in services (already paid for with taxes) and additional fees, increased premiums for health care insurance and cancellations of other services also already paid for through taxation. The whole catastrophe is all about egos, politician's legacies; vanity, vanity, all is vanity. 'Twas ever thus."

"It's not a new tax in B.C.," writes yet another reader, calling foul on someone who wrote in yesterday. "The current provincial sales tax (which has been around my entire life) is being HARMONIZED with the federal sales tax (GST).

"It's impossible to sell tax reform to the public, because they don't understand. When the GST replaced the MST, the GST was called a new tax on the public, but they never mentioned the ending of MST.

"I actually thought your readers were smarter."

The 5: We thought they were smarter, too. Darn. After yesterday's comments, we took a look under the hood: Last year, we brought speakers, investors and thinkers from 22 countries to Vancouver. And all seven continents, as one attendee had come from a "vacation" at the science outpost in Antarctica.

Heh. That's part of what makes the Vancouver event so great. You never know who you'll meet. Just one more reason to carve out space in your calendar and join us this year.


Addison Wiggin
The 5 Min. Forecast

P.S. "Chocolate has emerged as an inexpensive indulgence," Alan Knuckman reports keeping an eye on another popular commodity, "along with coffee, that has remained popular during this current economic crisis," he comments in a recent MarketWatch article. Members of Alan's Resource Trader Alert just laid on a cocoa play this week he figures has $3,500 profit potential.

Just three weeks ago, he recommended closing out a play that delivered a 67% gain. If you'd like in on his next recommendation, here's where to go.

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