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Jan
31
Another Rate Cut, More “Stimulus,” Crazy Weather in China, The Super Bowl, and More!
Filed Under Rate cut, Super Bowl, MBIA, Japan, I.O.U.S.A., Dollar, China, Gold, Wall Street, Today's 5 Minutes | Leave a Comment
by Addison Wiggin & Ian Mathias
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Mighty American consumer shows new signs of strain
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Markets react to 1.25% rate cut in a week: “Is that all?”
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Tales from the credit crunch: MBIA gets bailout, S&P cuts ratings
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Senate’s stimulus: Costs more, puts less in your pocket
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Putting a price tag on China’s “Storm of the Century”
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Retailers’ own Super Bowl bet set to pay off big
Consumer spending in December rose 0.2% from the month before — the lowest rise since it fell a tenth of a percent in September 2006. Personal income rose half a percent. Adjusted for inflation, spending went nowhere… zilcho. And income increased two-tenths of a percent.
Whoa, Nellie! We need to slow this economy down before we overheat.
As expected, the Fed cut its lending rate again yesterday… by 50 basis points. That’s 125 points in a week.
The U.S. stock market rejoiced. The Dow skyrocketed over 200 points within an hour. But the buzz wore off quickly, as market makers realized the cut had been baked into stock prices long ago… U.S. benchmarks ended the day down 0.3%. Just as Ian predicted.
Likewise, the U.S. dollar got creamed just as Eli Manning will on Sunday. Nearly stagnant GDP growth and the Fed’s 50 points whipped traders into a frenzy. When the dust cleared, the dollar index had fallen to 75 even, about half a point short of its all-time low.
The euro surged up a cent and a half, to $1.49. The pound is back to $1.99. The yen regained 106, and the loonie passed parity again, now trading at a $1 and change.
We reviewed cover copy and a final manuscript for the second edition of The Demise of the Dollar this morning. Should be hitting shelves within the month… we’ll keep you up-to-date. Go Patriots!
Gold buyers rejoiced en force on the rate cut news, too. The yellow metal surged to a record $942. Overnight in Asian trading, gold settled back to a respectable $926.
The Senate Finance Committee approved its version of the “stimulus” package yesterday. It’s already $12 billion heavier than when it left the House… now weighing in at over $150 billion. Despite the extra funding, the average American will actually get less than they would had the House’s $146 package gone straight to law.
The current version of the stimulus package encompasses a wider range of potential recipients… now anyone making less than $150,000 per year will get a check. The new package will also now include those living on Social Security and unemployment, while additionally extending unemployment benefits and lightening requirements.
“This package will put rebates into the hands of 20 million additional American seniors,” said committee chairman Senator Max Baucus, “plus lower-income payroll taxpayers and disabled veterans — all of whom will spend this money quickly and give our economy the shot in the arm that it needs.”
Yawn… stretch.
Bond insurer MBIA announced a $2.3 billion quarterly loss this morning, thanks mostly to a $3.5 billion write-down due to its credit derivatives portfolio. Big surprise, there. MBIA also announced it has received a $500 million shot in the arm from private equity group Warburg Pincus. Heh, it was either private equity or a sovereign wealth fund (SWF).
Japan is taking steps to create its first sovereign wealth fund. Japan’s financial services minister, the U.K. newspaper the Times says, is touring other SWFs of the world, and Japan is well into the design phase of its own state-controlled investment body.
Japan is the world’s largest holder of U.S. Treasuries. Of the country’s $973 billion in reserves, $580 billion are U.S. bonds. That investment, versus the value of the yen, is down about 13% over the past year alone. If and when Japan launches its SWF, it could easily become the world’s second largest (behind Abu Dhabi’s massive $1.3 trillion fund). Our Chris Hancock has put together a special report on how such funds could save your retirement nest egg… read it here.
Ratings agency Standard & Poor’s said it has begun cutting ratings of as much as $534 billion in additional mortgage backed securities and CDOs.
According to S&P officials, the downgrades could cost the world’s holders of such securities more than $265 billion in losses. Such losses would have a “ripple impact” on broader financial markets, a release from the agency said. That would be shocking.
The Chinese are currently suffering through their worst winter in over 50 years.
What was a bitter nuisance is quickly becoming nothing short of a national crisis. A particularly nasty storm struck China this week on the verge of the Chinese New Year… the biggest annual human migration in the world.
Some 178 million Chinese — more than the entire population of Russia — are attempting to travel throughout the week to celebrate the New Year with families. All over China, the winter weather has shut down the majority of airports and railroads, and now tens of millions of Chinese travelers are stranded.
What fun: Just a few of the 500,000 people stuck at the Guangzhou Railway Station.
BusinessWeek estimated the railroad crisis has already cost the Chinese government over $3 billion in damages. Protestors are taking to the streets. If anything, it’s an incredible testament to the multitudes and groupthink at play in China… where else would 178 million people try to get up and go somewhere at the same time?
Despite recession and personal income fears, this weekend’s Super Bowl is expected to be one of the most lucrative of all time. The National Retail Federation estimates the average American will spend $59 dollars on Super Bowl-related goods, up 3 bucks from last year.
The NAF says some 1.8 million pieces of furniture will be purchased just for the big game, up 38% from 2007. That’s not including the nearly 4 million TVs expected to be purchased, up 50% from last year. Also, the average cost for a 30-second commercial during the game will cost $2.7 million this year, up $100,000 from last year — double that of 1997.
Yeah, good to know where the consumers’ heads and hearts lie.
“I found your take on the buying of Jaguar and Land Rover by Tata interesting,” writes a reader. “These cars have about as much ‘Americana’ symbolism as cricket and kidney pie.”
The 5: Touche. We heard from a number of readers on our misuse of the term “Americana.” Apart from the fact that one of your editors drives a Land Rover and loves it, we only meant to show that now they’ll no longer have anything to do with the American economy.
“I felt a never-before numbing chill,” writes a reader, “when I read about the Chinese establishing manufacturing plants in the U.S. by buying up land and buildings and hiring local workers. The word that leaped to mind wasn’t “slavery.” It was “serfdom.”
“We are becoming a nation of serfs beholden to foreign powers in the Mideast and Far East. The America I knew when growing up is changing forever as the dissembling Chinese take all those dollars they’ve accumulated by unfair trade policies, i.e., yuan valuation, and use them to dump junk in our country, build up their military and buy our country out from under us in a pincer movement.
“Next in line to buy up America are the Islamic oil sultans. Add to this unholy mix NAFTA and the Mexico-U.S.-Canada superhighway and you no longer have a country. Nationalism is being replaced by mercantilism, and those dumb *&$#tards in Washington and the greedy bankers in New York who have given us a worthless dollar and our subprime moment in history have brought it about.
“Can the amero currency be far behind? Or a one-world government to manage the global economy? I fear for our future. This is not what our forefathers fought the British for back in the 1700s, or our grandfathers fought for in the 1940s to stop the Germany-Japan axis. Where are today’s Samuel Adams, George Washington and Dwight Eisenhower? Doesn’t anybody see what’s happening to us? Doesn’t anyone care enough to pull us back from the abyss?”
“What ought to be done is for the government to invest $400 billion in our infrastructure,” writes another reader. “The government can contract (with American companies and employees only) to build all the renewable energy (wind, solar, wave and geothermal) systems needed to replace all the coal and natural gas systems, and get ourselves started on an electrical transportation system in the process.
“This would stimulate the economy, as opposed to squandering more dollars and devaluing the dollar, which only leads to more inflation. Our country would then have the cheapest and most reliable power in the world — one great asset when it comes to being competitive on the world market. Be one healthy place to live, too.”
The 5 responds: Amen.
“Now that you are an experienced media exec, how about putting The 5 Min. Forecast on video downloadable through the Web?” asks our last reader. “A 20-30 minute show should do it. I suspect 90% of your readership is male, so good-looking female presenters would be a plus. Once the masses understand that they can make 3 times the money watching your show instead of CNBC, advertisers will beat down your door.”
The 5: Hmnn… maybe we should. But do you really think the world needs 30 more minutes of us each day? We were thinking five minutes is a stretch.
Regards,
Addison Wiggin,
The 5 Min. Forecast
P.S. I.O.U.S.A. continues its post Sundance “buzz” online. Yesterday, Zoom In Online, a local Webzine that covers Sundance, posted some audience member comments after they saw the movie… and Patrick, Dave and Bob did an interview with Federal News Radio, here.
Now we just need to get the candidates addressing these issues. Yes, we know Ron Paul does… but what about that tired old war hero who’s promising to keep us in Iraq for 100 years? Or Hillary and Barack, who keep dissing each other over who’s more “likeable”?
