Survival In The Ice Age

Survival In The Ice Age – DR Weekend Edition
The Daily Reckoning Weekend Edition
January 10-11, 2004
Paris, France
By Addison Wiggin and Eric Fry

Yesterday, the Department of Homeland Security ratcheted back its terror alert to “yellow” from “orange.” But the nation’s job market is still on “red alert.”

The Labor Department reported that non-farm payrolls increased by a paltry 1,000 jobs in December, far below the 200,000 job additions that many Wall Street sages were predicting. Not only was the December report a complete bust, but revisions to the unemployment reports for October and November stripped away another 51,000 jobs. Net-net, the economy is only 278,000 jobs ahead of where it was five months ago.

Trying to find the main reason for December’s surprisingly weak result is like trying to find the main reason why the Detroit lions lose football games. The report reflected a dispiriting lack of growth in nearly every industry. Retail employment fell by 38,000, while the manufacturing sector extended its unbroken string of 42 straight monthly job losses by shedding another 26,000 working stiffs. The latest losses from America’s rustbelt mean that nearly 3 million jobs have disappeared from the manufacturing sector since the middle of 2000.

Another troubling facet of the December report was the continuation of a trend we predicted in this column several months ago: the mortgage industry is shedding thousands of jobs. The mortgage industry had been one of the very few sectors to expand payrolls since 2000. But the sting of rising interest rates has shifted this job-creation engine into reverse.

“Employment in credit intermediation declined for the third consecutive month,” notes the Labor Department’s dispatch,
“reflecting the reduced volume of mortgage refinancing. From July 2000 through September 2003, the industry added 251,000 jobs, but since then employment has fallen by 39,000.”

The weak jobs report lit a fire under the bond market, while incinerating stock prices. In the bond trading pits of Chicago, a moment of stunned silence followed the release of the unemployment report. “Traders couldn’t decide if the gain of 1,000 jobs was a joke or a typo,” said trader Phil Flynn. Almost immediately, traders started bidding furiously for bonds of all maturities. The buying didn’t stop until the yield on the 10-year Treasury note had dropped from 4.25% to 4.10%.

Meanwhile, the stock market struggled all day. The Dow slipped 134 points to 10,458, its first triple-digit loss in nearly two months. But the blue chip index managed to hang on to a 49-point gain for the week. The Nasdaq Composite ended its 5-day winning streak by falling 13 points to 2,087. For the week, the Nasdaq gained a plump 4%.

Following the stock market’s lead, the U.S. dollar tumbled anew the euro, hitting a new record low against the European currency of $1.2843. The dollar’s record-setting frailty, combined with fear and loathing in the stock market, coaxed investors into the gold market. Gold for February delivery jumped $2.40 Friday to $426.80 an ounce – a new 15-year high. The safe-haven metal ended the week with a nearly $11-an-ounce gain. Silver prices also surged — up 22.4 cents to $6.497 an ounce.

The precious metals were not the only commodities to attract buying interest Friday. The entire energy complex soared in response to the new Ice Age that has arrived in the Northeast. As your New York editor pecks away at his keyboard this Saturday morning, the digital thermometer just outside his office door reads minus four degrees… That’s Fahrenheit! (The reading in Celsius is minus 20!) Until today, this West Coast boy had never seen negative temperatures in his life, except in chemistry class.

So, yes, it is cold here. In Friday’s trading, heating-oil prices climbed above $1 per gallon for the first time since mid-March, while February natural gas jumped 19 cents to $7.46 per million British thermal units. Strength in heating fuels, as well as concerns over the tightening U.S. supplies of oil, pulled crude futures back above $34 per barrel. U.S. crude supplies are at their lowest levels in more than 10 years, and the recent crude oil rally reflects this fact. The price of this vital energy source has jumped 5.5% from its close on Dec. 31.

The commodity rally that almost no one trusted when it began two years ago, keeps going from strength to strength. The CRB Index of commodity prices surged another 4% last week to a new 15-year high. At its current level of 267, the index is only 70 points below its all-time high of 337, set in the infamous inflationary year of 1980. We would not be surprised to see the CRB take a run at its old highs.

The commodity markets always represent a kind of financial Southern Hemisphere – a balmy refuge whenever the chill winds of distress blow over Wall Street. The crumbling dollar is reason enough to expect new record highs for the CRB. But if the ice cold dollar begins to create icy conditions on Wall Street, investing in the commodity markets will remain as inviting as Buenos Aires in January.

Eric Fry,
The Daily Reckoning
January 10, 2004

THIS WEEK in THE DAILY RECKONING

NEW YEAR’S RESOLUTIONS, PART II (1/9/04)
By Bill Bonner

“… Alas, we have no constructive advice [for 2004]. The best we can do is to continue digging down… day by day. Our resolution for the New Year is the same as for the old; we are still trying to get to the foundation… the hard meaning of it all. It is slow going, for we are digging into the bedrock of the modern consumer economy… trying to understand what it rests upon. When does it give way, we wonder? What happens when the proud tower of debt and paper money finally becomes too high, too heavy for the earth beneath it? What happens when the wind blows? Which direction will it fall?… ”

THE IDEA OF AMERICA (1/8/04)
By Bill Bonner

“… “Proud to be an American” says one bumper sticker. “One nation – indivisible,” says another. America was, of course, founded on the opposite principle… the idea that people were free to separate themselves from a parent government whenever they felt they had come of age. But no fraud, no matter how stupendous, is so obvious as to be detected by the average American. That is America’s great strength… or its most serious weakness… ”

HOW TO IDENTIFY A BUBBLE (1/7/04)
By Kurt Richebächer

“… In a balanced economy, credit expansion is fully matched by available domestic savings. The decisive evil thing is [a] credit expansion that exceeds available domestic savings. That is the regular, cardinal culprit behind all dangerous economic and financial imbalances, and also behind all inflations. What the Greenspan Federal Reserve refuses to accept is that their beloved wealth-creation reflects incredibly dangerous inflation in the asset markets… ”

THE DISAPPEARING DOLLAR (1/6/04)
By Ron Paul

“… The inescapable truth is that the value of the U.S. dollar has fallen over 30% in the past year, which to most people would not seem indicative of strength. There are several reasons for this decline, but the single biggest factor has been Mr. Greenspan’s relentless increase of the money supply… ”

BAD BETS (1/5/04)
By Bill Bonner

“… Who noticed, on those perfect days of early 2000, that odds had changed; the stock market had become very different from the stock market of ’75… and that the few investors who bought shares in ’75 were very different from the many Moms & Pops who put their money into stocks in 2000? Who noticed, as Buffett put it, that these people may have bought for the right reason in ’75… but they bought for the wrongs ones 2000…

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HEADLINE, NEWS And INSIGHT: An action plan for maximizing your investment opportunities offshore…  with the proliferation of ‘good news’ for the economy, the good doctor asks a few critical questions…

Minimizing Political Risk – Offshore
by John Pugsley

“… The most obvious way to minimize political risk to your investments is to diversify your portfolio internationally –
particularly through offshore investment options. Yet many investors are uncertain how to choose offshore investments. Part of the problem is confusion about what it means to invest offshore. A second and greater part comes from a failure to understand how to structure a rational financial plan… The following points provide a guideline of how to allocate your
assets, depending on what you foresee for the overall economy:..”

The Great Disconnect
by Dr Kurt Richebächer

“… To us, the exciting growth number raised more questions than it answered. Yes, it was the U.S. economy’s fastest sprint in 19 years. At the time, it was actually 7.3%, but this rate referred to GDP growth over the whole year. This time, it was an annualized quarterly growth rate of 2%, which is not always meaningful. Considering that the U.S. economy’s long-term growth potential is around 3%, it should be clear that it still needs a lot more demand and growth acceleration… ”