Sunday, December 14, 2008

Halloween is Here! Five Tips to Make Sure You’re Not “Trick-or-Treating” with your Finances


With all the news about the current state of the economy, many people are going into “survival mode,” reducing their spending to make their money last longer. It seems that most of us are carefully watching every penny, due to the unpredictability of the current economic situation.

While it’s always important to keep a close watch on your finances, it’s also important to keep morale high by not cutting all the fun out of our budgets. With Halloween upon us, it’s a good time to think about ways we can maintain our traditions, without breaking the bank.
Here are a few tips to enjoy the season on a budget:

5 Tips To Help Your Bank Account Survive the Holiday Season in Uncertain Economic Times


At this time of economic uncertainty, probably the last thing many of us want to think about is the approach of the season when we tend to spend more money than any other time of year. With the way the unemployment rate, stock market and other sources of income and investment have been headed, many of us are struggling to make ends meet with our regular expenses, without adding in all the special extras that accompany the holiday season.
Between travel expenditures to see family, gifts for loved ones, large family dinners and elaborate decorations, the additional expenditures we’ll encounter over the next few weeks are enough to throw our budgets out of control. But who wants to think about monetary difficulties at this festive time of year? With the stress so many Americans are facing, the holiday season may be just what we need to restore spirits and rejuvenate ourselves for the approaching new year. So how do we find a balance?

Possible Holocaust in U.S. Bonds

“U.S. financial firms have taken write downs and losses of $666.1 billion since the beginning of 2007,” according to Bloomberg. There you have it. The number of the bust. The financial end times rolled on yesterday. The latest twist is the decision of U.S. regulators to come to the aid Citigroup, the world’s largest financial services firm. The Feds stepped in to guarantee around U.S. $306 billion of Citi’s troubled assets. In exchange, Uncle Sam gets preferred shares with an 8% dividend.That news was enough to send the S&P 500 up 6.5% on the day. It continued last Friday’s rally, and set just the right tone for decent days here in Australia. Whether that actually happens is something we’ll get to in a minute.
What do you make of this latest triage of the broken financial system? It keeps things ticking over. But how do you fix a nation that has too much debt by adding more debt? The U.S. government, through its various agency paramedics, is injecting money and buying equity all over the economic shop. But it’s not cheap.
Bloomberg tallied up the various commitments, loans, and guarantees made on behalf of the U.S. taxpayer by various Federal agencies and non-elected officials. It was not a small number. It came to U.S. $7.76 trillion, a vaguely patriotic sum, echoing the year the Declaration of Independence was proclaimed in 1776.
You can read the Bloomberg article as an explication of dependence. Or better yet, a pledge of eternal subservience to the power of debt. The $7 trillion plus figure is nearly half of annual U.S. GDP. Just under half of it — $3.18 trillion — is money tapped by financial firms through various auction facilities. It goes to rebuild balance sheets, rather than building factories, bridges, or new sources of power.
The Federal Reserve is the biggest instrument of this ramp up in commitments. The Fed has pledged $4.74 trillion on behalf of Americans. That’s 61% of the total amount, and $24,000 for every man, woman, and child in America (born free, but now everywhere in debt). More on this in a moment.
Here in Australia, local shares should get a boost from rising commodity prices (provided no more margin loans get called on insiders and short sellers cover). Oil was up $4.50 to $54.43 for a 9% gain on the day. Gold shot up nearly $30 to $821.90 for almost a four percent gain. Copper was up 6%, nickel 7%, zinc 6.4%, and tin 11.3%. And what, pray tell, may have led to that move?
Chinese monthly refined copper imports were up 15% in October, an eight month high. But what China gives it may also take a way. Cochilco, China’s state-run copper outfit, cut is forecast for copper prices in 2009. Where does that leave us with the base metals and with base metal shares? We asked Diggers and Drillers editor Al Robinson.
“China’s resurgent demand for raw materials is already surprising the market,” he wrote to us via e-mail from 2 metres away. “It reverted to ‘net importer’ status in all base metals for October, according to the London Metal Exchange (LME). China already needs more resources than it can get its hands on.”
“It’s buying more rock than it’s selling, in other words. That’s great news for the Australian resource sector in 2009.
“But this story goes further,” he adds. “China isn’t experiencing some sort of meek comeback, following the Olympic slowdown. It actually imported enough copper in October to offset the rest of the LME’s inventory rise. The ‘rest of the world’ may not be setting commodity demand ablaze. But China is already starting to fill in the gaps created by Western recession — on its own.”
While China fills the gaps, you may also start to see some short covering from traders who went short the base metals. That short covering could lead to big one day moves in the shares (which are appallingly over-sold). But it may not quite mark the bottom in metals prices. That’s going to be a function of supply and demand (with supply tightening as projects are shelved and demand idling).
The other thing to look for is bargain hunting. Investors and fund managers who liquidated long positions in the resource sector earlier this year to raise cash may begin nibbling if they find the right share at the right price. Take China for example.
Recently the Australian reported that “Rio may sell stakes to china to reduce debt.” Rio’s Chairman Paul Skinner was in Melbourne to discuss, among other things, the possibility of Rio selling assets or an equity stake to China Inc. in order to help pay off some of Rio’s U.S. $9 billion in debt that matures in 2009. Maybe Rio should first ask the Fed before giving up equity to China. Bernanke can be pretty accommodating, we hear.
And now it is time to bring that U.S. $7.76 trillion back into the picture and put it in the context of Australian resource equities. The Citigroup bailout deal prompted a rally in stocks and a rise in U.S. bond yields on Monday. The yield on two-year U.S. notes rose as the government auctioned another U.S. $36 billion of them into the market.
It’s hard to believe the Citigroup deal unleashed a lot of pent up bullishness on U.S. financial stocks. It’s easier to believe that the ever-increasing supply of U.S. government bonds is prompting investors who’ve rushed into them to look around for other, more desirable assets. Chinese investors, for instance, might decide than an equity stake in Rio Tinto — with its portfolio of iron ore, coal, and other assets — is a better investment than more promises to pay by the U.S. government.
Perhaps we’ve been hasty, though, in calling the pricking of the bond bubble in the past. It could be that the U.S. dollar becomes the clear winner in the global currency wipe out currently taking place. The dollar could end up being the preferred liquid currency in which to ride out the global crisis, despite the inflationary nature of U.S. monetary and fiscal policy.
If that’s the case, then the U.S. Treasury market will continue to suck up the world’s supply of available savings and capital the way a bush fire sucks up oxygen. A fire sucking up all the oxygen in a system leads to a massive destruction of life. Hence the Greek word “holokaustos.”
According to the Merriam-Webster dictionary, a holocaust is a “sacrifice consumed by fire,” or, “a thorough destruction involving extensive loss of life especially through fire.” The holocaust of the Treasuries, then, is what we’re getting at. First crowd all the world’s capital into the U.S. bond market. Then burn it up.
Smart money generally goes where it’s treated best (for yield and capital appreciation). In times of fear, what’s safe is smart. And so now the world’s investors and savers have an interesting choice: is the U.S. bond market safer than cash? Is it smart to play it safe? Or are equities safer than bonds? Or are equity stakes in projects with tangible assets better bets still, even in a world with a shrinking economy?
Our guess is that the printing of the Treasuries (increasing in the supply of U.S. bonds to fund the mega bailout, fuelling the eventual inflationary fire) will gradually spook investors now and into 2009. The leading edge of bargain hunters may already be finding their way into over-sold resource stocks for refuge. And will they find it? Or will their courage end in more losses?
It wouldn’t be surprising to see big one-day gains in over-sold resource stocks in the coming months. But we reckon the real story is that investors are rethinking their long-term asset allocation and will execute a new strategy after reviewing their 2009 performance.
More cash, fewer shares. And of the money that remains in shares, it will probably be parked in long-term positions that are selling at cheap valuations, perhaps with a nice yield. Expectations will be lowered and time horizons-for equities anyway-will be lengthened. You’ll have to expect less and be willing to wait longer.
Not that being in the equity market during the most serious financial crisis since 1929 is a sure thing. We live in dangerous times. Not much is certain. But for investors, the actions taken by U.S. monetary officials are starting to lead to movements in global capital. This could signal the beginning of the bottom in commodity prices, and the beginning of bargain hunting in resource shares.

http://whiskeyandgunpowder.com/possible-holocaust-in-us-bonds/

Does Obama Understand Oil Scarcity?

A lot of readers are twanging on me for refraining to castigate President-elect Obama for deeds yet undone. They’re discouraged by the advisors and cabinet secretaries he’s picked, ostensibly because the crew coming in are Washington “insiders,” meaning they can’t possibly see or do things differently.
My own starting point for this is the belief that in the years just ahead any sociopolitical entity organized at the giant scale will flounder — this includes everything from the federal government to global corporations to factory farms to centralized high schools to national retail chains. So even expecting Mr. Obama’s government to act effectively may be asking too much in a situation that will require mostly local action.
The meta-situation will be the overall decline of energy resources and the necessary downscaling of our activities. We are obviously in a transitional period between the old profligate energy economy and the new economy of relative scarcity. We have no idea how disorderly this transition will be, but there is certainly potential for tremendous instability in daily life.
For a while, perhaps, the federal government may retain some ability to affect the way things go, or give the appearance of doing so. This raises the issue of what Mr. Obama and his team really know about our energy predicament. The president-elect has made some noises — recently on the 60 Minutes show — that he understands something about the current price dislocations in the oil markets resulting from the larger financial turmoil. He alluded to the public’s erroneous notion that current low-ish oil prices mean the oil problem is over. But does the incoming president know some of the following details?
For instance, does Mr. O know that global oil production appears to have peaked at around 85 million barrels a day, with poor prospects of ever getting beyond that? This single naked fact has broad ramifications, above all whether we can continue to think in terms of industrial “growth” as the benchmark for economic health. There are many interpretations of the current financial fiasco. Some of them are based on long-term technical wave theories. A more down-to-earth view suggests the shock of peak oil — though it doesn’t exclude wave theories.
Does Mr. O know that world oil discovery has fallen to insignificant levels after peaking long ago in the 1960s. Does he know we are finding no more super-giant oil fields on the scale of Arabia’s Ghawar or Mexico’s Cantarell, which have supplied most of the world’s oil for the past forty years and are now running down? Does he know that you can’t produce oil that hasn’t been discovered? Does Mr. O know that virtually all the oil-producing nations have entered production decline. Surely someone has whispered in his ear about the IEA’s projection that global oil production would fall 9.1 percent in the coming year.
Does Mr. O know that oil exports have been trending to decline at a steeper rate than oil depletion? That is, the exporting nations are losing their ability to send oil to the importers (like us) at a rate mathematically greater than the run-down in their production. They are using more of their own oil even while their production is going down. For example, Mexico is depleting overall at more than 9 percent a year (with the Cantarell field alone running down at more than 15 percent annually). Does he know Mexico’s net exports are crashing? Mexico has been our number three leading source of imports. In a very few years they will not be able to send us any oil. A deluded American public has no idea that this is happening. Will Mr. O explain it to them?
Does Mr. O know that the “old major” oil companies (Exxon-Mobil, Texaco, Shell, et al) produce less than 10 percent of the world’s oil now — the other 90 percent coming from the foreign nationals — and that blaming them for the situation is a waste of time. The foreign national companies are changing the landscape of the oil markets. They’re making special contracts with “favored customers” rather than just putting their oil up for auction on the futures markets. One thing you can infer from this is that we’re entering a period of national oil hoarding based on coming scarcity. The futures markets were based on relative abundance, and they will not operate very well in a climate of scarcity. Consider that the USA will probably not be among the “favored customers” for several oil producing nations. Figure that in with the coming loss of imports from Mexico (and Venezuela and Nigeria).
Does Mr. O know that the current drop in oil prices (due to massive financial deleveraging) has resulted in the cancellation or postponement of the very oil production projects that were hoped to offset the coming depletions? It’s not worth it for an oil enterprise (private or foreign) to drill in deepwater or venture into arctic regions when oil is priced at $50-a-barrel — if it costs $80 to get the stuff out of the ground. It’s not worth digging up tar sands in Canada at that price. This halt in activity is going to boomerang back on the US in a year or so, with depletions ongoing everywhere and no new oil to take its place. Does Mr. O know that we’re just as likely to see shortages as a resuming rise in oil prices here in the US during his coming term?
Does Mr. O know that the current re-inflation program being run by the Treasury and the Federal Reserve is so egregious that it may lead to loss of the dollar’s legitimacy, to the renunciation of dollar holdings by other nations, to the down-rating of US Treasury debt instruments, and finally to an inability of the US to purchase foreign oil — which comprises two-thirds of all the oil we use every day?
Does Mr. O know that we are not going to run the US automobile and truck fleet on any combination of alt.fuels? Continuing it by other means is a fantasy that will only disappoint us. The motoring era is coming to an end. Heroic investments in highway infrastructure to create jobs will be a tragic waste of our dwindling capital. The pressure for Mr. O to make these misinvestments will be enormous, perhaps insurmountable. There are probably not a thousand people in the US who agree with what I am saying — meaning the consensus to keep the cars running at all costs overwhelms reality at the moment. Does Mr. O’s concept of “change” include the possibility that we may have to live very differently in this society?
Chances are, if Mr. O knows any of these things he might be crucified in the polls and the media by acknowledging them. The only “change” that America really wants to hear about is evicting George Bush from the White House. They’re sick of him and all the disturbance he has caused in their financial affairs. But beyond that, the American public is deathly afraid of the kind of changes we actually face — such as, the end of consumer culture, the gross loss of value in suburban real estate (which forms the bulk of the middle class’s private wealth), the prospect of food and fuel scarcities, the need to re-localize our lives, the need to physically shape up to stop the costly and unnecessary drain on our medical resources, to grow more of our own food, to work harder at things that actually matter, and to save whatever we can for a difficult future.
If Mr. O introduces any of these themes into the national discourse, the public and the media and the bloggers will all dump on him for failing to prop up the wild party that American life became in recent decades.

http://whiskeyandgunpowder.com/does-mr-o-know/

Thank the Government for the Ghetto

One of the conditions of employment as managing editor for Whiskey & Gunpowder—aside from rabid adherence to Austrian School economics—was relocation to Baltimore. I really didn’t think much of it at the time. I’d spent nearly my entire life in one of the four boroughs of the City of New York (anyone who’s lived there can tell you that secession-longing Staten Island doesn’t count) and I was ready for a change of employment and venue. Writing for Agora in a smaller and more affordable mid-Atlantic city seemed the perfect prescription.A couple of trips to Baltimore during the interview process only served to convince me that life here would be much better. Agora’s “corporate campus” is comprised of a handful of beautiful buildings in the center of the Mount Vernon neighborhood, one of the best-preserved bits of historic urbanism in the U.S…and I’m an absolute sucker for historic urbanism. I’d be able to live in an architecturally lovely part of a cheaper city, just a couple minutes’ walk from work that I would truly enjoy. What could be better?
I even did the usual due diligence and wandered around a bit at night to get a truer sense of how safe the neighborhood really was. Thing is, a cursory walk-through cannot substitute for actually living in a place. For example, I’m sure even downtown Baghdad has its moments; you’d have to stick around a bit to see exactly why the property values are so low in places. I’ve since come to know just how unsettling this otherwise lovely neighborhood can be in the dead of night. I’d heard endless stories of how rough Baltimore was (“Haven’t you seen the wire?”) and I knew it looked bad on paper, but what I’d seen of historic Mount Vernon assuaged any doubts…until I actually moved in…
My last neighborhood in New York was historic as well—in fact, last year it became NYC’s newest designated historic district—but it felt safer by an order of magnitude. I would often venture out to the local 24-hour grocery stores or all-night food carts at 2 or 3 in the morning. There were many other times I couldn’t sleep in the hours past midnight and would walk the ten blocks to the 24-hour gym. I can’t remember once feeling the least bit afraid while doing so. New York has had the distinction of being the safest big city in America for a while, a phenomenon I’ll address in a bit. Baltimore’s not nearly as big…nor nearly as safe.Ironically Baltimore does resemble the fictional New York in the movie adaptation of the classic Richard Matheson novel I Am Legend. For those of you who didn’t catch that Will Smith vehicle, the plot in the movie is as follows: a treatment that was supposed to cure mankind of an age-old plague becomes a virus that transforms over 99% of humanity into violent, blood-sucking, mindless monsters.
I hope you see where I’m going with this.

http://whiskeyandgunpowder.com/thank-the-government-for-the-ghetto/

Public Schools and Social Security: Killing America, Part I

There are a lot of ways to kill something, either slowly or quickly. As for a living thing, you can shoot it, run over it, or use some other instant way of getting rid of it. There are slow ways, such as poison administered gradually, or perhaps destroying its ability to care for itself. If you took a domesticated animal, and put it out in the wild, it would starve or be eaten because it wouldn’t know how to hunt or protect itself. In the animal kingdom, the weak are eliminated because of not being able to protect themselves from predators, illness, or some other form of weakness. This is the natural method which nature uses to keep the animals strong and healthy. The old and weak are at times eaten by the young and strong. Mutants are sterile, so their kind won’t reproduce and pollute the animal kingdom.
Enough about animals; let’s examine how America has, and is being killed. In the main by two methods: (1) Currency destruction, and (2) Weakening the populace. The currency destruction is inseparably linked to the second method. Before FDR, people used to plan for their retirement, save in sound dollars, own a home, or in a hundred ways, plan for old age. Americans were strong, intelligent, hard working, and knew that if they didn’t plan for retirement and old age, they might die early. Did it work? Of course! Naturally, the weak and stupid didn’t plan for their old age, and guess what? They died early, which is as it should have been. Just like stupid animals, they couldn’t survive if they didn’t act and plan properly. An animal has to find a place to live, build a nest, store food, and the like. People had to pay their debts, pay off their home, save money, and PLAN. If they did, all was OK. If they didn’t, they died early. The human strain was kept strong by this method, just like in the animal kingdom.
What stopped this necessity to plan and save? Social Security, for one. Government would take care of the oldsters, and remove their duty and necessity to care and plan for themselves. Government would force a deduction from their paychecks, put it away for them, and then when they retired, all would be well. This, of course, weakened the populace. They no longer had to plan, save, sacrifice, and work hard for their old age. The weak no longer failed and died. They lived, and continued to live, when they should have, by all logical means, been dead and buried. By staying alive, they became and become a burden on the rest of the populace and families. Does this sound coarse, mean, crude, and ungodly? Maybe it does to you, but it is so logical. The Social Security scheme, like all other government “plans” and bureaucracies, have ruined the value of the dollar. Forced, compulsory, Social Security, like all other government entitlements, has become a disaster. There are far more retirees than workers, and the original 1% deduction, now is close to 20%, still not enough, thereby weakening all of us. As if that weren’t bad enough, government continues to lie about inflation, which it causes, so the welfare checks are far less than they should be; thereby screwing the supposedly well cared for recipients. No one can live on a Social Security check today, even though we have all been forced to pay through our noses to support it. The entire American citizenry has been made weaker, made unable to care for itself, and at the same time been stolen from in a wholesale manner. Government then, is killing its citizens and itself at the same time.
Originally, there were no public schools. Everyone taught their kids at home. Literally, or in a private or religious school. Caring, smart parents taught them well, and the kids succeeded. America, a hundred years ago was far more educated and cultured than now. By knowledge and skills of reading, math and other subjects, the eighth grader of a hundred years ago compares equally with today’s college student or maybe even graduate. This was without any public schools. The stupid parents who didn’t teach or show caring, demonstrated it in their kids who failed in life, probably died early, and didn’t become a burden on the rest of society. Next, there were thousands of one-room schoolhouses, paid for by the local populace, and these schools did very well, but it was the beginning of large public schools, which seem to be not much more than baby sitters. Home schooling has once again become the smart thing to do by caring parents, because they realize that government schools are a disaster, like every other government scheme and “program.” Public schools now consume three quarters of all property taxes, and do a lousy, expensive job. Catholic parents usually send their kids to parochial schools which are in no way “public” and not paid for by taxpayers. Wealthy parents may have sent, and still do, send their kids to private schools, not paid for by taxes, and they always did and still do a fine job.
Government schools had to fail, like all “programs” fail, because of inefficiency and cost. The failure and cost of public schools is partially responsible for populating the streets of America with thugs, criminals, druggies, shoplifters, burglars, rapists, and all sorts of riff-raff, which should be dead, and maybe not have been born in the first place, probably. Trash, uneducated, uncaring people seem to multiply at enormous rates and cause a lot of crime, don’t they? Cruel, ungodly, and coarse? Maybe, but picture America if there had never been a public school, and every child had been home-schooled or sent to a private school, paid for by its parents, with little or no property taxes, and no terrible, microscopic educating in failing public schools. There would be thousands and thousands of private schools operating for profit, and competing with each other for achievement, being used by parents who chose not to home-school. No teachers unions and inept teachers. There couldn’t be because competition in the market wouldn’t allow for it. There would be schools specializing in cooking, engineering, language, math, or whatever the parents chose for their kids. There would be an abundance of religious schools, paid for by churches and parents of pupils, but no drain on taxpayers of any kind, and superb education.
The public school systems, even in small towns like the one I live in, have proved to be expensive disasters. Homeowners are being taxed severely to pay for these incompetent, inefficient, poorly educating, sinkholes of fading dollars. So ingrained have public schools and Social Security become in the American mind, that most will disagree with my thesis. They will moan and groan about how, “We have to care for old people and educate the children,” even though facts and logic prove that the opposite has happened, and cost a fortune in dollars and crime. America has inflicted wounds on itself over the last hundred years, because the general public opinion is that, “People need to be helped and taught,” regardless of the cost or lack of success at either. Perhaps 1% of America will agree with me on this first part, because they are so mind-numbed by government propaganda, the media, and the garbage they themselves have learned in classrooms of public schools. Government and “programs” always come out ahead, and are painted as glorious and wonderful by the media, schools, and bureaucrats. They are the opposite, and are partly responsible for the killing of America. Once something gets started, regardless of the total illogic of it, such as public schools and Social Security, there is a zero chance of obliterating it, because so many have become dependent, and thereby weak. How can a nation survive if it is weak?

http://whiskeyandgunpowder.com/public-schools-and-social-security-killing-america-part-i/

The Fed’s War on Cash


Markets are dithering their way to the end of the year. It doesn’t look like much is happening. But some interesting things are going on. Pressure is building. For example, the dividend yield on the S&P 500 is 3.48%. The yield on a 30-year U.S. bond is 3.16%.
According to Mark Hulbert at CBS Marketwatch, 1958 was the last time the yield on the S&P 500 exceeded the yield on the 30-year bond. 1958? Are you kidding? Elvis joined the U.S. Army in 1958. Eisenhower was in the White House, Khrushchev in the Kremlin, and Menzies was elected for the fifth time in Australia.
The world may have lived on the edge of nuclear holocaust in 1958, but at least some things were more certain. You were better dead than Red. What was good for GM was good for America. And everyone liked Ike.
The world is much more confusing today. The yield on S&P stocks was 2% this time last year, a 74% increase in the last twelve months. We reckon stocks will start to look even more appealing when the yield reaches 5% or 6%, which would also mean lower stock prices first.
But there’s a bigger story going on, too. It’s what we call the Fed’s war on cash. You see, the Fed is driving down yields on government bonds and notes of all maturities quite deliberately. More on what it’s up to below. But it’s not just the Fed that’s pulling out all the monetary stops to float the world on a sea of credit.
It’s a now a race to the bottom for central bank interest rates. New Zealand’s central bank cut its main interest rates by a whopping 1.5% overnight. But the Kiwis have some work to do. Short-term rates across the Tasman are still at 5%, 450 basis points above Ben Bernanke’s Fed.
You don’t normally see such aggressive rate cutting in an economy until unemployment levels are much higher. It’s the classic Keynesian trade-off between inflation and unemployment. You can keep prices stable by keeping the rate growth low and savings high.
But slow, steady, prudent growth doesn’t create jobs fast enough for politicians. So rates are lowered! This leads to lower unemployment rates, but higher inflation. The big change in the last thirty years is that higher inflation was tolerable for most workers in the Western world because it seemed to come with some juicy benefits.
The first was asset price inflation. Houses and stocks went up too! Real wage growth was flat (or even fell). But the value of things you bought went up! On paper, everyone got wealthier.
Then, when China came along and started churning out geegaws and widgets faster than you could slap down a credit card, the apparent virtues of a little bit of inflation seemed limitless. Stocks and house prices went up, but consumer goods, durables, and electronics got cheaper.
This so-called “Great Moderation” suckered people into a dangerous financial strategy: asset-based saving and debt accumulation. And why not?
In a way, it’s perfectly rational. If credit is cheap and asset prices are rising, why not borrow to buy stocks and houses? The debt service is low, employment was pretty easy to find, and capital appreciation in your assets would smooth out any rough edges to the strategy.
Well, now that strategy is coming unhinged. In fact, the larger implication is so scary that only people like Robert Shiller dare to mention it: asset price appreciation is not a retirement strategy. It was a good run, from 1982 to 2000. But the idea that the stock market is society’s way of managing the risk of old age is now showing its own age. Investors are skittish.
“Fortress Investment Group LLC fell 25 percent to a record low,” reports Bloomberg, “after the private-equity and hedge-fund manager halted redemptions from its Drawbridge Global Macro fund, which had lost value this year.” Investors are seeking redemptions of over $3.5 billion from Fortress.
The run on the hedge funds is only restrained by the lock-up periods most investors agree to when turning their money over to a fund manager. But time takes care of that. Investors will continue asking for their cash back if they believe the market is either too risky or too mediocre.
This move to cash must distress the Fed and other central banks. It wants banks to lend, businesses to spend, and consumers to borrow. But the exact opposite is happening. So now we see the Fed doing its best to punish those in cash and force them to spend, or at least get out of government bonds and buy stocks.
Banks are content for now to build up a war chest of excess reserves. In fact, there’s been a surge in excess reserves held at the Fed by banks, and not just since the crisis began last October (the same is true of cash held at the RBA by authorised deposit taking institutions, see column K).
In other words, banks are happy to borrow from the Fed, but sad to lend to anyone. So what do they do? They deposit their new borrowings right back with the Fed, where they earn 1.5% interest (in excess of the target Fed Funds rate).
According to Fed data, U.S. financial institutions had just $60 billion in excess reserves held at the Fed at the end of September. On October 5th, the TARPenstein was passed. By the end of October, excess reserves held at the Fed had grown to $267 billion. By the end of November, it was $610 billion. Don’t fight the Fed! Flee to it!

Government Tries to Outrun Recession… Again

I have a good friend named Bill who lives on the convergence of two tidal streams in an area aptly named: Twin Rivers. Last year his bulkhead was destroyed in a severe storm. The problem with repairing a bulkhead is that it is underwater, and that presents peculiar challenges. The easiest way to repair it is when the tide goes a long way out. That only happens when we get a strong northwest wind for a few consecutive days. Thankfully, we just got one of those spells recently. Of course, a NW wind in this part of the world, at this time of year, makes for a bitterly cold day working on the water. Nevertheless, it is only during a great receding that repair can be done.
The recent jobs report is letting us know that the “Great Receding” is continuing. The winds of change are a-blowin’. The question remains, however, “What kind of ‘repairs’ will be made, and how will the market respond?”
We are now approaching 2 million jobs lost in the US. The most in over 25 years. The number came in at -533K, meaning 25% of all jobs lost were in the last month alone. An interesting thing about receding tides and receding economies - as long as the winds keep blowing - they keep receding. But even after the winds stop, things don’t return to normal right away.
It appears now that we are in for yet a deeper and longer recession than previously thought. Each week that passes, more and more people say that exact phrase. But let’s stop for a minute and review what we have at hand.
-A negative GDP
-A 50% cut in the Equity Market
-A new weekly high in the dollar
-2nd Highest Monthly Job loss in History
-Moving toward Highest Annual Job Loss in History

http://whiskeyandgunpowder.com/government-tries-to-outrun-recessionagain/

Change We’ll Get: Oil, Money and Strife

In the twilight of the Bush days, in the twilight of the twilight season, a consensus has formed that we are headed into a long, dark passage leading we know not where. Even CNBC's Lawrence Kudlow has been reduced to searching for stray "mustard seeds" of hope on hands and ...


http://whiskeyandgunpowder.com/change-well-get-oil-money-and-strife/

Tuesday, December 9, 2008

World Markets Slump, Obama Gears up for Crisis


Markets across the world slumped Thursday – just days after a sharp rally in response to the US presidential election. The Emerginvest heat map is awash with red as markets tumbled for the second day. The UK’s FTSE 100 was down 5.7% today, along with Germany’s DAX down 6.8%, France’s CAC40 down 6.3%, and Russia’s MICEX down 9.6%.
Tomorrow, President-elect Obama will meet with economic advisors as how best to face the oncoming crisis.
According to a Marketwatch article entitled: “Obama will make economic mark before Jan. 20”, his economic advisors include: “Warren Buffett, former Federal Reserve Vice Chairman Roger Ferguson, former Treasury Secretary Robert Rubin and former Securities and Exchange Commission Chairman William Donaldson… Treasury Secretary Lawrence Summers, former Federal Reserve Chairman Paul Volcker and Google Inc., Chief Executive Eric Schmidt, according to a report in the online edition of The Wall Street Journal.”
As the only president-elect to be a sitting senator since Kennedy (along with his running mate senator Biden), he will have the opportunity to wield great influence on the upcoming economic policy. This is at a time when democratic legislators proposed an additional $100 billion stimulus package in the form of a tax cut.
The Marketwatch article further states that: “Obama’s team may also have some input on shaping the execution of the plan to buy up bad assets from financial institutions.”
In addition, the upcoming November 14-15 global economic summit looms large in the wake of the US presidential election. It is unclear what role, if any, Obama will play in the soon-approaching summit as world leaders convene, and what subsequent effect it will have on world markets.
One thing is certain: Obama will face a tremendous challenge with one of the worst global recessions upon entering office.
The U.S.’s performance over the last quarter:

US and World Markets Slump After China Stimulus Package


China announced on Sunday that is was going to put a stimulus package worth approximately $585 billion dollars into effect over the next two years.
A Marketwatch article entitled “China unveils stimulus package as growth slows,” describes the use of the funds as mostly infrastructure-related:
“Funds from the stimulus package will be spent in ten major areas that include low-income housing, rural infrastructure, water, electricity, transportation and improvements in the environment.”
World markets rallied sharply with the news, posting 3-5% throughout Asia. The US soared in early Monday trading as well – gaining 3-4% in just a few hours.
According to the Emerginvest Asian Heat Map, almost the entire continent had solid gains. China, India, and Russia all soared 5-7%.

However, the upward trend did not last long as the article also foreshadowed the declines: “Economists said the size of the headline figure was less important then than how quickly authorities could get the funds into the economy to help offset slowing growth and a housing sector contraction.”
Investors quickly realized that it would still take time for the plan to be executed (only approximately $14B to be spent by year-end), and that the world is already deeply entrenched in recession. That, among other corporate news pushed stocks downward again in late trading Monday and so far on Tuesday.
Stocks globally have fallen throughout trading yesterday and today. As of this writing the Dow is down approximately 4% today, the NIKKEI is down 3%, the Hang Seng is down 4.77%, and Australia is down 3.44%. A Forbes.com article entitled: “Global Markets Scorecard,” suggested that Chinese energy stocks are due to come out of the slump with extremely high growth (supported by an argument of post-recession energy demand and current low-valuations. That still remains a long way off however, and it is yet to be seen how quickly the Chinese government will start executing on their plan and pumping capital into their economy.

The G20 Summit: A Disappointing Bunt to the Spring

The G20 Summit was first proposed by the UK and France during the first waves of the global economic meltdown. It was long anticipated as a coming together of the major nations in the world to discuss necessary changes to help better regulate international finance, attempt to help stabilize the current turbulent markets, and discuss ways to have additional oversight on the international playing field.
After unprecedented global cooperation of bank bailouts and stimulus packages during the crisis, there was much debate about the outcome of the summit this past weekend. Unfortunately, world markets reflect a relatively negative viewpoint of the outcome– falling multiple percentage points in Europe (-2.4% UK, -3.35% Germany, -3.3% France), the Middle East (approx. -1.0% in Israel, Kenya, and Egypt, and 6% in Saudi Arabia), and mixed returns in Asia (+3/4% in Japan, -1/10% in HK, +2% in Shanghai, and -2.3% in Australia).
While some of the initial shell-shocked mentality has worn off, most experts agree that some measures of oversight need to be implemented- the question is how? A number of factors put an unusual strain on the meeting where many claim little substantive work was accomplished. First, there are significant differences in ideological standpoints – According to a NYTimes article published on Saturday “World Leaders Vow Joint Push to Aid Economy,” stated “Europeans in general favor more state control over markets, even to the point of granting regulators cross-border authority, while the United States stresses the primacy of national regulators. President Nicolas Sarkozy of France, who called on Mr. Bush to organize the meeting, alluded to those differences, saying the negotiations, even on general principles, had been challenging.”
Furthermore, the article stated that: “Despite broad support for economic stimulus, the leaders were not able to agree on a coordinated global effort. The Bush administration, which does not favor a further stimulus, resisted that idea. And the proposal for colleges of supervisors fell short of an international regulatory agency favored by the French. The Bush administration opposes any regulatory agency with cross-border authority.”
It seemed like it left the world with conflicting messages. President Bush provided extremely strong language (in my opinion quite hyperbolic) about the state of the world financial system: “Mr. Bush said he felt compelled to act because ‘if you don’t take decisive measures, then it’s conceivable that our country could go into a depression greater than the Great Depressions.’” Yet, obviously the White House is in transition and Obama’s emissaries (who attended the summit in his place), discussed policies with attendees which probably conflicted in part with President Bush’s.
Another issue which has been in the forefront of many individuals’ minds (and certainly for those of us here at Emerginvest) is the fact that most emerging market and developing countries have been ravaged by the impact of the turmoil. In the same article, is states “Some leaders were simply eager to be heard. “Emerging market countries were not the cause of this crisis, but they are amongst its most affected victims,” the prime minister of India, Manmohan Singh, said.”
This is especially underscored by the fact that “With the United States and Europe struggling economically and consumed by efforts to stabilize their banks, China, Japan and Saudi Arabia emerged as the likeliest candidates to help distressed countries.” In numerous previous articles, I have mentioned how a number of nations will be filling the gap of power created by a recovering US and Europe – and cash-rich nations such as the three aforementioned make extremely likely candidates.
In short, it seems like the conference produced relatively little substance. There was a 5-page communiqué written which described broad goals, however detailed, actionable plans about how to attack the more difficult issues like financial regulations was scheduled for another meeting on April 30, 2009. A quote from the NYT article described it perfectly: ““This is plain-vanilla stuff they could have agreed on without holding a meeting,” said Simon Johnson, an economist at the Massachusetts Institute of Technology and a former chief economist of the International Monetary Fund. “What’s new, except that this is the G-20 instead of the G-7?”
Despite additional stimulus and bailout packages being announced (for example the $7.6 billion requested by Pakistan), it seems like the world will be without a major overhaul until late Spring of next year – which gives plenty more time for the violent economic waves to keep crashing around the world.
The Emerginvest Heat Map of the world for the past quarter:

http://blog.emerginvest.com/the-g20-summit-a-disappointing-bunt-to-the-spring/

China vs. US: Ultimate Economic Showdown Part II


In an article I wrote on October 28th of this year entitled: “China vs. US: Ultimate Economic Showdown,” I made some controversial statements about how the US was losing political and economic clout on the world stage, and how that vacuum of power could let others like China, India, and Japan take a stronger role, especially given the state of the world economy last quarter from the Emerginvest heat map:


One of the ways in which evidence of a tectonic shift in political and economic power has occurred is in those who are able to help the economies which suffered the worst at the hands of the global storm. Traditionally, the US and Europe have been able to come to the rescue of weaker/developing countries which have needed assistance. However, as the US and Europe are reeling from a constant stream of shocks to their economies, they need to focus all of their attention on stabilizing themselves before they can significantly help other markets. This leaves cash-rich nations like China, Japan, and Saudi Arabia to potentially fill the gap.
In addition, the tremendous amount of national debt the U.S. has been carrying weighs heavily as US-dominance of world markets is being called into question.
Even more evidence has been leaking out of China and Japan about the role the US should play in the next phase of the international economic sphere. In an article published today on the front page of the “International Finance” section of the Wall Street Journal entitled: “China Asserts Its Voice on Crisis,” Jin Liqun, chairman of China Investment Corp., and former vice-president of the Asian Development Bank as well as China’s former vice minister of finance, came out with some of his strongest language to date:
“China should be and will be playing an even greater role in this process, but I don’t think China can be a leading player.”
The WSJ article further discusses Mr. Jin’s viewpoint: “Mr. Jin said China doesn’t have the answers on how to create a proper global regulatory regime. However, he also doubted that Western systems he once admired could provide all the answers either. ‘There is no such thing as international best practice, only an approximation.’ We are all developing countries. We all learn from our mistakes.”
My translation: a not so subtle way of saying that the US and other developed countries do not hold nearly as much power as they claim to have – citing debt and regulatory issues which helped produce the crisis as examples of their fallibility.
“…China’s role as one of the largest creditors to the U.S…. Those holdings by China and other developing countries will dominate the conversations, but the dialogue should be done on equal footing, Mr. Jin said on the sidelines of the China Financial markets conference,” the article further stated. It is unquestionable that the US has lost its economic super-power status that it held until recently. Certainly, the US still has sheer economic size and output, however the age when large economic blocks (China, the EU, US, India, Russia, the Middle East, Africa) will share global economic power on a much more equal footing.

US and Asia Jump while Europe Stumbles


More extreme market volatility continued today as the US markets jumped nearly 6.5% in late trading. Barack Obama announced that Timothy Geithner was selected as the secretary of the Treasury. The news induced a buying frenzy. A NYTimes article entitled: “Stocks Soar in Late Trading,” stated that “Earlier this week, Wall Street slid to its lowest point in 11 years after two days of fevered sell-offs effectively erased all the gains of the Internet and housing booms. The Dow closed near 7,500 points on Thursday, and the S.&P. was lower than any point since 1997.”
The Emerginvest heat map reaffirms the tough week for world markets:


Only the UAE, Germany, Uganda, and China were positive for the past week before Friday (all around 2%).
Citigroup announced that it might consider selling part or all of itself and in response Asian markets were also up across the board (except China which was down -0.72%): Japan’s NIKKEI was up 2.7%, Hong Kong’s Hang Seng was up 3%, India was up 5.5%, and Singapore was up 3% as well.
Europe however was badly hit today as most major European exchanges plunged multiple percentage points. The UK was down 2.4%, DAX Germany was down 2.2%, CAC40 of France was down a hair over 3%, and Belgium’s Bel 20 was down 4.1%.
A Marketwatch article entitled: “Stocks in Europe slip, dragged by pharmaceuticals,” stated that “The losses came on a day of a gloomy economic report, as the euro-zone composite middling performance managers index slumped to a reading of 39.7 in November from 43.6 in October. Any number below 50 indicates economic contraction,” as well as “Underscoring the economic state of affairs, strategists at Goldman Sachs said earnings estimates have been revised downward for 70% of the companies in the Stoxx 600.”
Some analysts claimed that the US markets were simply reacting to Barack Obama’s announcement that Timothy Geithner – that the reaction was not necessarily positive or negative, but that it was simply a headline which indicated “change.” This leads the way for a potential downturn in the US markets Monday morning as the decision is weighed.

US, Asian, and European Markets Skyrocket on Citigroup

The bailout plan for the banking giant Citigroup was announced early Monday morning which induced one of the largest surges in global markets since the crisis began. Following several extremely harsh days of declines, executives and government officials talked until the late hours of the night finalizing the terms of the deal.
According to a NYTimes article entitled: “Citigroup to Halt Dividend and Curb Pay,” the terms of the deal are as follows:
“Under the agreement, Citigroup and regulators will back up to $306 billion of largely residential and commercial real estate loans and certain other assets, which will remain on the bank’s balance sheet. Citigroup will shoulder losses on the first $29 billion of that portfolio.
Any remaining losses will be split between Citigroup and the government, with the bank absorbing 10 percent and the government absorbing 90 percent. The Treasury Department will use its bailout fund to assume up to $5 billion of losses. If necessary, the F.D.I.C. Corporation will bear the next $10 billion of losses. Beyond that, the Federal Reserve will guarantee any additional losses.
In exchange, Citigroup will issue $7 billion of preferred stock to government regulators. In addition, the government is buying $20 billion of preferred stock in Citigroup. The preferred shares will pay an 8 percent dividend and will slightly erode the value of shares held by investors.”
In my opinion, those are extremely favorable deal terms for Citi, especially in light of the fact that other players (we can all think of examples) were denied bailouts by the federal government because they were not big enough to be a threat. As a titan of the financial world, with “$2 trillion in assets and operations in more than 100 countries,” Citi is the quintessential example of the ‘too big to fail’ philosophy.
Regardless, news that nearly a third of a trillion dollars worth of loans would be backed by the government, in addition to shouldering the majority of the losses, sent Citi shares skyrocketing over 50% on Monday. It lead the full banking sector in a steep rally which had the S&P500 up an astonishing 6.5%.
Another NYTimes article entitled: “Markets Surge for a Second Day; Dow Up Nearly 400,” illustrates the gravity of the rally: “In the last four trading days, the S.& P., a benchmark gauge of the market, has ricocheted across the same range — up and down 12 percent — that the index has in the past taken several years to cover. The combined gain on Friday and Monday in the S.& P. was the biggest since the recovery that followed the October 1987 crash.”
In response to the soaring US market, Asian and European markets jumped as well. Japan’s Nikkei was up nearly 4.25%, Hong Kong’s Hang Seng was up 4%, and China remained relatively constant. Europe posted astonishing gains as the UK’s FTSE 100 climbed 9.84%, the DAX Germany jumped 10.3%, and France’s CAC40 climbed 10%.
However, it begs the question, how much will the US shoulder? Between the $700B banking bailout, the new Citi bailout, and Obama’s call for a $500B stimulus package government-spending is skyrocketing with an already exorbitant $10 trillion of national debt. Clearly, a second move was needed over the weekend given the spiraling-out-of-control nature of the preceding trading, however will short-term stimulus packages really completely jumpstart a severely hurting economy? Personally, I think the government didn’t have a choice with the Citigroup bailout. Whether I like it or not, there is some truth to the fact that it was too big to fail. However, I think that the US’s national debt is already a major international issue, and adding hundreds of billions more to it is simply compounding an already difficult problem. Unfortunately, I think we are due for at least 18 months of a painful recession, and any artificial attempts to reduce that time or make it less agonizing – other than moves to ensure survival like Citi – will yield very few substantial results.
That being said, in the meantime we can still enjoy the upward turn in the world economy for the last few days, and take a look at the bright green Emerginvest World Heat Map.

http://blog.emerginvest.com/us-asian-and-european-markets-skyrocket-on-citigroup/

How much spending does it take to get to the center of the US Recession?

Early Tuesday morning, the federal government announced a new, massive $800B program to buy up bad debt and pump money into the sagging credit markets. According to a NYTimes article entitled: “U.S. Unveils New Programs to Ease Credit,” the program would be structured as follows: “The Federal Reserve said that it would buy up to $600 billion in mortgage-backed assets from the government-sponsored mortgage finance giants Fannie Mae and Freddie Mac. The agency would also buy up to $100 billion in debt directly from the companies and up to $500 billion in mortgage-backed securities.”In addition, the Fed and the Treasury unveiled a different $200B package to help commercial lending (car loans, student loans, etc).
The NYTimes article describes the move as: “The action by the Federal Reserve on buying mortgage-backed securities brings the full force of monetary policy to bear on the credit markets. Having already reduced the benchmark federal funds rate to just 1 percent, the central bank is now effectively using what economists call “quantitative easing” to reduce the costs of money.Instead of trying to reduce overnight lending rates in the hope of influencing longer-term interest rates for things like mortgages, the Fed is directly subsidizing lower mortgage rates. It is doing so by printing unprecedented amounts of money, which would eventually create inflationary pressures if it were to continue unabated.”
It begs the question though: how much spending is going to occur as a result of the crisis? With additional programs, government spending is piling up quickly: $700B banking bailout plan, $50-$150B on the Citi bailout, the new $800B credit program, $200B commercial lending program, the looming question of government-backed aid package to the American auto industry, and talks of additional stimulus packages being put into place.
The NYTimes article stated that: “Democratic leaders in Congress are gearing up to move quickly on an economic recovery package that aides said could cost more than $500 billion. The goal is to have a legislative package approved by the House and the Senate and ready for Mr. Obama to sign, perhaps on his first day in office, in January.”
Clearly, with such unprecedented spending, it begs the question what is the net result when it is all said and done, and is the federal government overcompensating? Obama has already issued some ‘belt-tightening’ language such as: “’The economy’s likely to get worse before it gets better,’ Mr. Obama said. “Full recovery will not happen immediately. And to make the investments we need, we’ll have to scour our federal budget, line by line, and make meaningful cuts and sacrifices.’” However, even with his proposed reduced military spending, there is still going to be grossly over budget with the proposed programs being implemented. US Markets remained turbulent today and are currently relatively even. Emerginvest will be extremely interested to see how the proposed plans are both structured and carried out in the upcoming months as the Obama administration transitions into the White House.

http:///blog.emerginvest.com/how-much-spending-does-it-take-to-get-to-the-center-of-the-us-recession/

Japanese Nikkei Stock Exchange Falls on Slowing Global Economy

Early Tuesday morning, selloffs began across Japan’s Nikkei stock exchange as investors were scared away by more negative reports of the slowing global economy. Eventually, the decline lead to steep fall as the Nikkei 225 index fell approximately 6.4%. A Marketwatch article entitled: “Nikkei sinks below 8000 level; Woodside, HSBC fall,” attributed a large part of the decline to news about the ailing manufacturing sector. In addition, the Bank of Japan announced that “it would accept a broader range of collateral against the provision of liquidity. The new standards will see the bank accept corporate bonds rated BBB or higher, loosened from its previous standard of A-rated or higher.” The measure was the latest attempt from the central bank to help ameliorate the seemingly ever-mounting problems derived from the credit crisis.
The article continues to say: “’Financial conditions in Japan have become less accommodative on the whole, as the financial positions of small firms have deteriorated and an increasing number of large firms have faced a worsening in funding conditions,’ the BOJ said in a statement.”
The drastic swing resulted after a report was released on Monday stating that the US manufacturing sector contracted at an exceptionally fast rate. This is only one of the latest of worldwide developments which has resulted in 6%+ single-day swings in major markets and underscores the continuing fragile, and exceptionally volatile, nature of markets worldwide. Japan in particular has had a rocky quarter, as shown by the Emerginvest Japanese Market

http://blog.emerginvest.com/

Emerginvest’s Weekly Highlight: Middle East

Despite the extremely troubled US markets in the last week, especially in light of the dismal report from the US about the 500,000+ job losses in November, one area has posted extremely significant growth over the last week: the Middle East. According to the Emerginvest World Stock Markets Performance page: Qatar is up 5.69%, Saudi Arabia is up 5.29%, Jordan is up 5.19%, Palestine is up 4.02%, and Kuwait is up 2.15% in the last week alone. These represent five of the 14 world stock markets which posted over 2% gains last week (of the 120 that Emerginvest tracks) and are at a time when 53 other world stock markets are severely hurting – such as Canada and Switzerland who lost 12.44% and 14.88% of their value last week alone.
John Maulin highlighted the Middle East (specifically the GCC states of Saudi Arabia, the UAE, Kuwait, Bahrain, Qatar, and Oman) in his award-winning weekly newsletter. He discusses how these economies have been largely insulated from the global economic storm because of their immensely cash-rich oil reserves. Indeed, Mr. Maulin states: “…all of the GCC states — with the exception of Bahrain — are ranked in the top 20 of world oil producers, with Saudi Arabia and the UAE leading the pack. Saudi Arabia alone made $194 billion from oil exports in 2007, and $212 billion (in real dollars) between January and October 2008. The GCC states are so capital-rich that their usual financial management strategy involves attempting to soak up as much liquidity as possible in order to contain inflation,” and “… massive infrastructure and development projects such as Qatar’s liquefied natural gas facilities, Dubai’s fanciful real estate explosion and Bahrain’s attempts to convert itself into a financial mecca. Indeed, the GCC states have used the past several decades of oil wealth to engineer massive development projects and have become, in the process, quite reliant on foreign direct investment (FDI) and the technology and expertise that accompany it. Though Qatar and Kuwait are net exporters of FDI, the other four states are importers of FDI, from Bahrain’s modest 0.51 percent of GDP to Oman’s more substantial 4.67 percent of GDP.”
In the context of the global financial crisis, these cash-rich states are better equipped to deal with the global economic buffeting and look like relatively stable markets in the world. There are a number of ways to specialize within the UAE or Saudi Arabian markets, but even a broad ETF would be sufficient to capture some of the growth and stability in these markets while much of the rest of the world recoils to mounting substantial news of a world recession.

http://blog.emerginvest.com/middle-east-investing-in-qatar-the-middle-east-and-the-uae/

US Economy Outlook: Straddling Depression and Recession


After the initial shockwaves of the banking collapse and credit crunch occurred in September, many experts predicted that the ensuing recession would be relatively shallow. Unfortunately, the massive stock market declines look like they were just the tip of the iceberg, instead of an acceleration of the painful recession. The past week revealed a series of gruesome reports which indicate the recession will result in additional job losses in the millions over a protracted 8-14 month period.
For the Emerginvest perspective, global markets, especially the US and Europe, have been reeling with each new shock like a boxer in the ring for two rounds too many. There are a few promising markets – this last week the Middle East has proven to be an especially attractive area. According to the Emerginvest Middle East Stock Markets page: Qatar is up 5.69%, Saudi Arabia 5.21%, Jordan 5.19%, and Palestine 4.02% all in the last week alone. However as a whole, the Emerginvest Emerging Markets Heat Map paints a gruesome picture of blood-red for the last quarter’s performance of world markets:

The unsettling truth is that, while experts have been agreeing on the fact that the recession will be long and protracted, last week’s report of 500,000+ job losses in a November puts an actual “face” to the monster. Even if job losses continue at a fraction of that pace, it undeniably results in millions of lost jobs over the next year. That alone frames the context of what this recession will mean to the majority of working class Americans.
However, that is assuming we have seen the worst of the recession in November, and given the jargon by most financial experts, there is substantial evidence that the worst is yet to come. An article written by the New York Times on Sunday, December 7th entitled: “In a String of Bad News, Omens of a Long Recession,” begins by a foreboding statement: “This recession, which officially began in December 2007, now appears virtually certain to be the longest downturn – and possibly the most severe – since the end of World War II, as evidenced last week by the rat-a-tat of grim reports on jobs, sales, and public confidence.”
The article goes on to compare the current recession we find ourselves entrenched in, with those from 1982 and 1974, both of which indicate that there will be at least another 6 months of economic pain - and those are with comparably less severe conditions than we have now.
That feeds into a statement made by Jared Bernstein, the economic advisor to Joe Biden in the same article, which states: “’ We’ll be lucky if the unemployment rate is below double digits by the end of next year,” adding to the already tenuous conditions with credit, housing, and stock markets which have collectively wiped out trillions of dollars worth of value from Americans. In addition, the shadow from the teetering American auto industry casts a grim pall on the typically retail-rich month of December. Despite strong language from Congress and the president-elect in regards to the big three automakers, many realize that if the Detroit three were allowed to fail, the instantaneous job losses in the hundreds of thousands might be enough to collapse the already-fragile house of cards that is the American economy.
So what does it mean? It means a number of things, including that we are likely to see some of the most comprehensive government-spending programs in half a century. Given the consistent message from President-elect Obama on the severity of the issues, it is clear he is fully intending on introducing a massive stimulus package once is sworn-in in January. In an interview on “Meet the Press,” yesterday, he stated that the package would be “’the largest infrastructure program in roads and bridges and other traditional infrastructure since the building of the federal highway system in the 1950s.’”
In addition, for those who are lucky enough to have saved up some discretionary income above a contingency laid-off emergency nest egg, there are tremendous retail deals to be had in light of the approaching holiday season. In addition, there are some incredible growth-buys in terms of investing – both here and abroad – for those who are looking to save, assuming they can stomach the recent volatility. Lastly, for those who are looking to enter the housing market, it might just be one of the best times to do so in the last 30 years. The impending significant job losses will coerce some those who have been holding out to sell their homes until after the crisis at severely depressed rates, creating opportunities for buyers while simultaneously losing significant value for sellers.
For everyone else who is not looking to enter into any of the investment or housing markets, it looks to simply be a grim time with the omnipresent threat of job loss, pervasive belt-tightening, and overall low consumer confidence for the next 8-12 months.