Mr. Bearbull
US loses more jobs
By Ron Nathan
Philippine Daily Inquirer
First Posted 03:29:00 08/05/2008
Filed Under: Economic Indicators, Markets & Exchanges, Stock Activity
Last week, my wife said to me, “Darling, it is exactly 14 years to the day since we met. I want you to take me somewhere really expensive.” So I took her to a gas station. Unfortunately, this led to a fight, and I got out of intensive care last Friday.
While I was in the ICU, the doctors noticed that patients died on the same bed on Sundays at 11 a.m., regardless of their medical condition. This puzzled the doctors, some of whom thought it might be supernatural. No one could solve the mystery so a worldwide team of experts were assembled to investigate the cause of the incidents. The following Sunday at 11 a.m., a crowd of doctors and nurses watched nervously outside the ward, some carrying crosses, prayer books and amulets to ward off evil spirits. At exactly 11 o’clock, the janitor walked in and unplugged the life-support system so he could use the vacuum cleaner!
Makati City police are testing a car that runs on fuel that is 60-percent diesel and 40-percent cooking oil donated by McDonalds. The car runs perfectly and gives the officers, when hungry, a chance to siphon off some fuel into a frying pan and cook sausages.
Now, 25 McDonalds outlets are donating this product and the police might run their entire fleet on the mixture, as it is much cheaper than gasoline. It emits carbon dioxide, water vapor and an occasional Big Mac.
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It was a really crazy week on Wall Street. On Monday and Thursday, it dropped over 200 points a day and on Tuesday and Wednesday, it rose by around 200 points a day. It was slightly lower on Friday and ended virtually unchanged. The dividend season contributed to the volatility but this is coming to an end shortly. The Federal Reserve and the Securities and Exchange Commission in conjunction persuaded Congress to pass a bill giving Fannie Mae and Freddie Mac $4.5 billion between them to help out homeowners who were about to be foreclosed. Unfortunately, it will take time before it can be implemented so foreclosures are likely to continue rising. There is no sign that house prices will stop falling and Greenspan said, “House prices are nowhere near the bottom and the resulting turmoil shows no signs of abating.” Another economist said this is going to be a very long recession.
The number of US jobs lost in July was 51,000, less than expected, but still it is the seventh month of straight job losses, which now total 463,000. There was a rise in the monthly unemployment rate to 5.6 percent and this suggests that the trend will continue. The Fed rescued two small banks from closure and has another 125 on the watch list. The Fed has extended massive liquidity through its discount window to Fannie, Freddie and 17 other banks that might be in trouble.
The Fed is also trying to clamp down on speculation, especially by speculators selling naked options, i.e., options on stocks they do not possess. This is legal in the US and in most countries. Maybe, I am a prude but in all my four years of option trading in London, I only sold options on stocks that I held. The tightening of regulations caused many operators to cover their positions and the sight of dozens of naked option traders covering their Fannies was revolting. Others were busy trying to cover their shorts.
Merrill Lynch announced a further loss of $5.7 billion and said it would sell $11.1 billion worth of mortgage securities this quarter. Market sources said these were being sold at 22 cents on the dollar, a discount of 78 percent. They will then attempt to raise $8.5 billion in new capital by selling new shares. The CEO left the meeting through the back door to avoid being lynched. Washington Mutual reported a quarterly loss of $3.3 billion, far more than expected, as it set aside more money for bad loans. Wachovia lost $9 billion in the second quarter, exceeding all analysts’ estimates.
The Fed Beige Book turned black after it said the economy remained in a slump, consumer spending continues to be sluggish, home prices still dropping and the Red Sox lost again. Other important news: Mr. Busch will sit on the combined boards of Anheuser Busch. Don’t they have chairs? Ahead of the Beijing Olympics, China is removing dog from its menus. Presumably, this does not include hot dogs. Honasan went to Jeddah to buy cheese, and in Malaysia, Anwar Ibrahim was again charged with a bum rap, sodomy. Apple will soon announce its latest product—the iBall.
In the UK, the economy has taken a turn for the worse with a housing crisis similar to the US but no Fannie Mae and Freddie Mac to come to the rescue. House prices are declining at an accelerating pace and consumer confidence is at an all time low. The situation is the same in Spain where buyers wishing to live in its warm climate pushed house prices to unsustainable levels and the malaise has spread to Australia, Ireland and many other countries.
The latest GDP number from China shows a welcome slowdown from 11.4 percent last year, to 10.4 percent in the first quarter and 10.1 percent in the second quarter. China wants to stabilize sustainable growth at 8.0-9.0 percent and appears to be heading for a soft landing. The government is letting its currency appreciate slowly, about 1 percent a month, to slow down exports and increase imports as its trade surplus and foreign exchange reserves are embarrassing. They are also clamping down on IPOs and expanding infrastructure into rural areas.
The Philippine Stock Exchange index (PSEi) has shown amazing resilience, ignoring Wall Street despite continued small foreign selling. Last Friday, Wall Street slumped 240 points, yet the PSEi closed seven points higher. Inflation is expected to reach 12 percent by October before a gradual decline next year, assuming oil prices will remain at the current level. Goldman Sachs, however, is predicting that oil will reach $149 by the end of the year.
The national treasury sold P75 billion worth of three-year retail bonds at 8.5 percent and five-year bonds at 9.0 percent, making it unnecessary for the government to borrow overseas, through it might still do so. Turnover has hit a new low.
Governor Amando Tetangco has warned that the central bank would take whatever action necessary with regard to interest rates so don’t be surprised if he raises it by a quarter point after the July inflation number. Credit Suisse has upgraded the Philippines from underweight to overweight, and has recommended five stocks and displaced three others.
Metro Pacific will begin operating the Cardinal Santos hospital. I hope the directors are also surgeons.
Previous columns:
Central bank fights inflation – 2008/07/22
Paulson to the rescue– 2008/07/15
US in Bear Nanke market – 2008/07/08
Bear market in Dow is imminent – 2008/07/01
Are we in a panda market?– 2008/06/24
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