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Wednesday, December 25, 2024

Merry Christmas Eve!

 

First of all, what are you doing here?

Why it’s Christmas Eve, Mr. Scrooge – Most global markets are having a half day so, if you are waiting for a Santa Clause rally on a half-day’s trading, you are very likely to be disappointed.

Remember Marley, who cried: "Business!  Mankind was my business. The common welfare was my business; charity, mercy, forbearance, and benevolence were all my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!"

Marley was a man who worked and worked until the day he died and regretted it every day after.  If you don’t believe in an afterlife and you don’t believe in leaving behind the World a better place than you found it, at least find some time for yourself so people don’t call you "a squeezing, wrenching, grasping, scraping, clutching, covetous old sinner!" 

Those covetous old sinners over at the NYMEX are getting coal in their stockings this evening, and plenty of it because coal prices are falling along with everything else.  Just 3 days after the start of the February oil contracts, prices have fallen from $43 on Monday morning to under $37 pre-market today.  Do you think we can get a refund on all that $140 oil we bought with our credit cards?  I know some offer price protection and I wish I'd thought of this sooner as we had some really quick substantial drops and why should it matter whether I was ripped off on a Barbie doll or a tank of gas?  This could be something for all the recently unemployed lawyers to look into.

Japan wishes they took the whole day off as the Nikkei dropped right to the 2.5% rule, playing catch-up with the US markets this week as they came back from the emperor's birthday.  As with our markets, the auto sector led them into the abyss along with the hated SOX, which I find interesting as I would challenge you to count the amount of gifts you get this year that have no semi-conductors in them.  Unfortunately, semis are just another commodity that are suffering from the global slow-down.  Just like gasoline, although it takes an effort to create and process the product, there is such a massive pipeline in place that the product continues to be produced in quantity, even if it is not wanted.  This is something I call Inelastic Supply and I'll be counting on your support when the Nobel Committee seeks nominees for the economics prize.

Somehow we went from the glory of "just in time" manufacturing that took us out of the last recession to a multi-bubble market where almost everything was taken to a ridiculous extreme in less than 20 years.  Clearly greed was the driving force that caused too many houses to be built, too many cars to be manufactured, too much oil placed in storage by speculators, too many loans to be made, etc.  Now we are in the very early stage of a dollar bubble, where too many dollars are being printed which will also lead to an inelastic supply of dollars.  Right now, we have thrown $8Tn worth of stimulus at the US markets but the lending cycle remains frozen so there has been little impact.  Generally banks leverage cash up 10 time but let's say that $4Tn was needed to cover losses (Whitney's prediction) and "only" $4Tn will find it's way back into circulation.  Even if banks go very conservative and only lever the money 5 times, you are talking about another $20Tn thrown into the economy over the next 12 months.

So there is a lot of money and not a lot of people who want to spend it.  That means the banks need to incentify you to take the stuff, just like any other commodity broker.  The way they get you to take money is by making it cheap and that is accomplished by lowering interest rates – the "cost" of the money.  THAT is why interest rates are so low at the moment.  It does not point to deflation long-term, it points to the fact that money is plentiful and it does the lender little good to hold onto it so they are willing to put it to work for 10 years at as little as 2.19% (the price they US pays to borrow at the moment).  The US government itself is printing/creating more money this year than existed on the planet earth 20 years ago (this confused Dr. Evil when he traveled to the future) but, just like 20M SUVs that are sitting on car lots across America or the 1.7Bn barrels of oil the US now has in storage – if you keep making it an no one wants it, the price goes down!

Of course you "want" money but you want debt-free money you can spend and not pay back.  You (and that includes the corporate you) don't WANT a loan, even at 2% if you are not positive you can support the monthly payments.  We have been sold on thinking about loans as only something we want but what they really are is the business of banks.  They NEED you to borrow money, they WANT you to take on an obligation to pay them back and, in a poor economy, they are having trouble finding people willing to take on those obligations so the rates go down and down and down.  I've been saying for a long time that this country is suffering from a crisis of confidence caused by lack of leadership and I got exactly what I wanted for Christmas when Obama was elected.  We are getting a charismatic leader and a fresh start on January 20th (just after options expiration day) and I think that a slight change in attitude will open the monetary flood-gates and spark a rally, as well as inflation as MUCH more money begins chasing more limited goods and services (and I believe I have mentioned how much I like gold as a hedge here).

Gold was one of the gifts of the wise men and I'm pretty sure my wife will like that better than frankincense or myrrh this Chrismas so we can say that it is the gift that has stood the test of time.  I'm sure that if Balthazar were giving gifts today, he'd probably rethink the myrrh and give the newborn king some high-dividend yeilding blue-chip stocks or perhaps some ETFs in finance and commodities because Jesus may have chased the money changers out of the temple 2,000 years ago but cockroaches have nohting on capitalists when it comes to adaptability and survival.  By the way, you do realize that the 3 Wise Men were Iranians right?  Fun topic for discussion with the family…

Speaking of things nobody seems to want: 586,000 people lost their jobs last week and Durable Goods dropped 1% but ex-Transportation they were actually surprisingly up.  Why, because people DO want a new washer or dryer for no money down and no payments until 2010 (Sears' current promotion).  There is a price at which you will agree to borrow money, especially if you already owe money at a higher price.  That is what they call a "win/win" proposition as you cash out the CDO that the banks have written off 70% at full price when you pay off your old mortgage and new mortgages are packaged clean at lower rates.  So the bank books a "profit" on the "bad" loans they either bought or wrote off and you lower your interest payments and improve your monthly cash flow.  That is how our crazy-seeming monetary policy CAN get us out of this mess. 

Of course, there are about a dozen things that can go wrong with this plan but, as I mentioned, I'm a "Yes we can" kind of guy and I do think we are not plunging into the abyss but have taken some very good steps towards recovery on the fundamental side and now it's a question of helping the people get over their economic shell-shock and get them back in the game.  Can we do it?  I think so

Have a very Merry Christmas and let's all look forward to putting the markets of 2008 behind us, hoping for a happier New Year!

 

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