Global Market Comments for March 4, 2009
Featured Trades: (SILVER), (GOLD)
1) The February ADP employment report showed a loss of 697,000 jobs. Since we are probably in a minus 6% GDP quarter, expect these numbers to remain grisly for months to come. Watch for the Labor Department's nonfarm payroll on Friday, which will be a blockbuster. Rumors of another China stimulus package caused stocks to pop, and took crude back up to $45. The bears have gotten complacent.
2) Simon Rubenstein, chief economist at the Royal Institute of Chartered Surveyors in London, sees global capital values and rents falling everywhere. The biggest hits are in formerly hot areas in China, Russia, and the Persian Gulf. Latin America has held up best so far, but now even it has started to crack. Falling exports and commodity prices are the villain, which is causing a reversal of a decades long globalization trend. The shortage of financing means only a few deals are getting done now, and we have some ways to go before we see a turn. Yields/cap rates have to rise 100 basis points before we draw in substantial investors.
3) I met my paperboy at 5:00 a.m. this morning, who is actually a Vietnamese girl driving a minivan. She delivered all five at once, which means the newspapers have outsourced local delivery to save money, who then aggregate customers to improve efficiency. Phuong took the rubber bands off of the papers when she saw that I was about to pick them up. Now that is cost cutting!
4) Now that we are at the 6,000 handle in the Dow and investors are jumping out of windows, it's time to put things in perspective. My old friend and global economist David Hale dug up some historical data for me. The maximum drawdown in real GDP from the 1929 high to the 1933 low was 26%. The decline nominal GDP was a steeper 46%. David's forecast for this recession is for a mere 3% drawdown. OK, what ifÂ this is optimistic, and it goes to 4%, or even 5%? We are not even in the ballpark of the numbers seen in the darkest days of the thirties. I know it makes for great, sensationalist headlines, but enough of this talk about another Great Depression already! Get a grip!
5) Howard Ruff is the irascible Mormon publisher of RuffÂ Times (http://www.cyrusfirst.com/guests/rufftimes3/index.php), which after 32 years is one of the oldest investment letters in the business, and one of the original worshipers of hard assets. He says that any investment denominated in dollars is a mistake, which is in a long term down trend. Silver is his first choice, which will outperform gold, and eventually top $50 from the current $12.50. Equities may never come back from their current slide. Don't buy ETF's because they may not actually buy the gold or silver they claim. The government is laying the foundation for a massive inflation which will begin in 6-12 months. You can't say this guy isn't entertaining.
QUOTE OF THE DAY
"Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway," said Warren Buffett, the Sage of Omaha.