April 1, 2009

Global Market Comments for April 1, 2009
Featured Trades: (COPPER), (GOLD), (TM), (YEN)

1) The March ADP private sector employment report was diabolical once again, showing a loss of 742,000 jobs, the worst monthly showing in history. Boy, am I getting sick of saying 'worse than expected'. To add insult to injury, February was revised up from -675,000 to -702,000. Manufacturing has lost jobs for 37 consecutive months, while services have shed jobs for 27 months, but services are now losing at a faster rate. Some 1.15 million construction jobs have been lost in two years. There is no way to sugar coat these numbers. We will easily top a 10% unemployment rate in the next few months.  Watch out for Friday's nonfarm payroll report, which will be a complete disaster. But I believe the numbers this month, or for April or May, will prove to be the absolute trough of this recession.

2) Yuba County, California, a semi rural area in the Sierra foothills commuting distance from Sacramento, has the highest underwater rate in the nation. There, 78% of all homes have larger mortgages than the houses are worth, and the numbers are rising. Four out of the five highest negative equity counties in the US are in the Golden State's Central Valley.

3) Japan's closely watched tankan report was released today, a quarterly report of business sentiment, showing its sharpest drop in history, cliff diving from -24 to      -58. Japan is the one nation that has profited the most from globalization, and is therefore the most severely punished now that it is in retreat. Exports have dropped by half, industrial production plunged 9% in a month, and unemployment is soaring. Q4 GDP shrunk an unimaginable 3.2%, double the fall seen in the US. The last time the numbers were this bad, two atomic bombs had just been dropped on Japan and it lost WWII. Prime Minister Taro Aso's government is embroiled in multiple scandals, taking his approval rating down to 23%, so the ruling Liberal Democratic Party's half century long hold on power is in doubt. Elections are due in September. Perversely, a hurried unwind of a decade long accumulation of yen carry trades has pushed the yen up just short of a 20 year high of  ¥87 in January, making the country's essential exports even less competitive, and vaporizing the foreign earnings of Japanese companies. Toyota Motors (TM) has been reduced to begging for bail out money from the government, GM style. The government has passed four bailout packages in the past year totaling 13% of GPD, none of which have so far been spent. Japan has little choice but to wait for a US economic recovery, and then grab hold of its coat tails for dear life.

YEN-2.png picture by  sbronte

4) More than $19 billion has poured into commodity funds since January 1, $4 billion more than was seen during all of last year. This explains why my beloved copper soared 35%, while gold jumped 9%. Buy hard assets, sell paper ones.

CopperNew.png picture by  sbronte

5) If you want to finance any new business ventures in the San Francisco Bay Area, go to the Bank of Marin. They were one of the first four banks to repay TARP money to the Treasury today. Apparently they didn't want to undergo the full proctologic exam the Feds were threatening.


'Chance favors the prepared,' said the great French chemist Louis Pasteur.