Welcome to Wealth Daily's new weekend review. Each Saturday we'll take a look at the week that was and what's ahead, along with what you may have missed from our free sister sites, Energy and Capital, Gold World, and our free blogs. Enjoy.
The point of this article isn't to scare you out of the market and into cash. On the contrary, stay put. There are always profits to be made.
Let's get the bad news out of the way: Despite reports to the contrary, America is knee-deep in a recession.
So, does that mean we revert to the "mattress strategy" of hiding cash? Not at all. There's always an opportunity to profit in any market. Small Cap Trading Pit, for one, is putting together a list of recession-proof stocks and options as we speak.
But even with Fed rate cuts, wishful bullish thinking, and countless cash injections, we're not out of the woods yet. As we've seen with past Fed boosts, the party doesn't last long.
And when the "Oracle of Omaha" says we're in a recession, it's okay to be concerned.
We may have to wait six months for the "experts" to make the official announcement, but truth is we're already there.
Still, there are those who believe the U.S. is not in a recession, including President Bush.
Economic times may be tough, but "America is not in a recession," said President Bush on Wednesday. "If you want me to say we're in a tough patch, having a tough time, it's bad -- times are rough -- I'll say all those three, because that's the truth," he said.
But he stopped short of declaring a recession, "because there's a definition for the ‘R' word, and we haven't reached the definition."
Okay, sure, the classic definition is two consecutive quarters of GDP declines. But if you go back to the 2001 recession, there was only one negative quarter of GDP. And we may not see one negative quarter in this recession.
Truth Is, America Is In a Recession now... A Bad One.
According to Warren Buffett and numerous heavy-hitting CFOs, the recession has already started. Like I said, it may take the "experts" a few more months to catch on and admit it, but we're there.
Fifty-four percent of the CFOs that offered a prognosis in a Duke University/CFO Magazine survey of 475 CFOs said the U.S. is already in a recession. Another 24% said there's a high likelihood of a recession later this year. About 75% of them said they were "more pessimistic this quarter than in the prior quarter about the U.S. economy, reflecting concerns about consumer spending, turmoil in credit and housing markets, and high energy prices."
Worse, companies have already begun scaling back plans for capital spending and are not planning any significant hiring sprees because of higher labor costs.
- Most CFOs said interest rate cuts by the U.S. Federal Reserve have had no effect on their business.
- One third said credit conditions have directly hurt their companies by making capital tougher to get and more expensive.
- The Duke University index of economic optimism is at 52 (1-to-100 scale). That's the lowest in the seven-year history of the index.
- CFOs in Europe and Asia have grown more pessimistic about economies in their regions.
- Two thirds of Chinese CFOs said they are concerned about U.S. recession hurting their profit margins or demand for their exports.
Even JP Morgan chairman and CEO Jamie Dimon thinks America's in a recession... as do 71% of the 51 respondents in a Wall Street Journal poll. Poll respondents also felt there was a 48% chance "that the 2008 downturn could be worse than what was felt in the early 1990s and in 2001."
Not helping, U.S. retail sales fell unexpectedly in February by 0.6%, a dismal view of consumer spending. Unfortunately, there's not much consumers can do when faced with $3.25+ gasoline, the credit crunch, crumbling home values, and a weak jobs market that gave up another 63,000 jobs in February.
But as long as the Fed comes to the rescue, everything will be OK, right?
Nope. Cutting rates further only raises our inflationary risks, sends oil to $130, gold to $1,200, gasoline prices well above $4, while killing off the consumer.
But, hey, we can take comfort that President Bush favors a strong dollar because it would reduce inflationary pressures, especially for energy. "We have a dollar that's adjusting, and I am for a strong dollar," he said.
Hardly. When the Fed cuts rates next week (75 bps cut being priced in), toilet paper will be worth more than the U.S. dollar.
The only certainty these days is that Bernanke doesn't have great job security. According to the Wall Street Journal, "economists gave the Fed chairman just a 59% chance of being reappointed in 2010. ‘If a Democrat is elected he won't be reappointed, and [presumptive Republican presidential nominee John] McCain may opt for another, too,' said David Resler of Nomura Securities. ‘The problems occurred on his watch,' added Ram Bhagavatula of Combinatorics Capital."
Ouch . . .
For the week of March 10, 2008, here's what we covered in Wealth Daily and elsewhere.
Energy Storage Stocks: The Lucrative Play No One's Talking About
A UK-based company is placing its bet on the storage of energy in hydrogen. It is developing an electrolyzer that uses solar or wind power to split water into hydrogen and oxygen. The hydrogen is then pressurized and stored for use in electricity production or for powering cars.
Rising Oil Prices: How Can You Protect Your Investments from Surging Oil Prices?
Remember when people felt oil was too expensive at $60 a barrel? How about when it reached $80 a barrel? Now ask yourself, "How will I feel about $109.72 per barrel when prices hit $120 a barrel this summer?"
Libyan Oil: One Country's $109 Profit on $110 Oil
In February, $85 to $90 sounded like an agreeable oil price to Shokri Ghanem. Then in early March the head of Libya's national oil company declared that his country had "no complaint" with $100 per barrel. Now we're pushing $110, and Libya's big-mouth momentum is building with each dollar.
$1,000 Gold: Gold Hits $1,000 an Ounce
At last look, gold for April delivery spiked to an all-time nominal high of $1000.80 an ounce. The precious yellow metal has gained about 18% so far this year after tacking on nearly 32% during 2007, says Luke Burgess.
Ben Bernanke to the Rescue: Homebuilders Bounce . . . for Now
Ben Bernanke strikes again. And for the homebuilders, his $200 billion injection into the financial markets was the equivalent of manna from heaven: more money thrown at a mortgage market in crisis. All of them rallied sharply in the wake of the latest cash dump courtesy of the Federal Reserve. But that deluge of dollars managed to completely overshadow more troublesome news from the downtrodden industry.
Health Sector Stocks: Anavex: Under-the-Radar Stock up 39%
It was November 30, 2007, when Brian Hicks introduced you to Anavex (AVXL:OTCBB) as it traded at a paltry $3.75. "If it is able to execute its business plan, even a small investment in this stock is going to be an absolute home run," said Brian. "Seven of their drug discoveries are currently working their way through the approval process after very promising early trials."
American Express Stock: Only the Naive Are Investing Long on American Express
The Bernanke Fed move is a temporary band-aid. It turned a 24-hour lending window into a 28-day lending window. That $200 billion banking blood transfusion was placed to ensure that your checks clear. That's how bad the banking world is. You don't want to hold the American Express, Bear Stearns, Citigroup, or even Bank of America.
The Chinese Market Bubble: What a Chinese Death Cross Means for Your Portfolio
It's known to technicians everywhere as a death cross, and it is happening on the Shanghai Composite Index. That's the index that has jumped by over 450% during the last two years--a sure sign of a speculative bubble. A death cross is formed when the 50-day moving average of a stock falls below (crosses) the 200-day moving average. It indicates that there are currently more people selling than buying the stock. It is as bearish as it gets.
105% gains in 16 trading days: Take It.
While we remain bullish on natural gas and our United States Natural Gas (UNG) stock, we're recommending that you exit the second half of the UNG April 2008 43 calls (UNGDQ). In no way does this move reflect bearishness on our part . . .
The Credit Crisis Is Nearing An End (We Think): Unfortunately, They're Wrong . . .
"Standard & Poor's Ratings Services believes that the bulk of the write-downs of subprime securities may be behind the banks and brokers that have already announced their results for full-year 2007. There may be some additional marks to market as market indicators have shown deterioration in the first quarter. However, when we dissect the percentage of write-downs taken against various types of exposures, in our opinion the magnitude of some write-downs is greater than any reasonable estimate of ultimate losses . . ."
Bear Stearns pulls a "Countrywide"?: Too Bad the Rumors were True...
It was 2007 when Countrywide Financial (CFC) had us believing that it had ample capital and liquidity to stay in business. They disclosed $35.4 billion in reliable liquidity. And they disclosed "sufficient liquidity available to meet projected operating and growth needs and significant accumulated contingent liquidity in response to evolving market conditions."
Oil Will Pay for the Iraq War?: Where $52 Billion Worth of Oil Is Disappearing Per Year
Last year alone, says Bryce, the American forces in Iraq burned through more than 1.1 billion gallons of fuel.
Have a great weekend,
Ian L. Cooper