Posted On: 2006-11-30
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Well, hello everybody, we're starting a new tradition here, this is Johannes Ernharth and you're listening to the Vigilant Investor daily. This is the 15-minute concise version of our weekly show, we're just going to give a quick update, and get our information in smaller bites for listeners. If you want to join on in feel free to, we're just going to have a quick 15 minute, 20 minute discussion and move on, and give a quick recap of the news. And we're going to start doing this every day 4:15 or thereabouts 4:15, 4:30, ideally at 4:15 unless we are prohibited by our own schedules, we will do that. But, tune in and check out our web site, vigilantinvestor.com and click on through to talkshoe.com for our schedule, we have links at vigilantinvestor.com and you can find out when we're going to be on. But, let's see, news for today, all sorts of crazy stuff for the week has caused the markets to continue to be a little bit wacky. Dow Jones Industrial finished up down just barely by less than five tenths, or five one hundredth's of a percent down 4.8 points. We're looking at gold today, had another great day was trading up above 650 dollars there briefly. We look at the Nasdaq, Nasdaq was, where the heck is that, there it is, Nasdaq Composite was down just a touch and the S&P 500 we're looking at, S&P 500 trading at about 1,400, up just a bit, but generally just a lot of uncertainty in the markets there. The CBO Volatility Index, VIX was up, trading up about a half a percent today, just 9 cents but it's trading at 1,092, that's down from where it's been trading the past couple of days but it showing us that yeah people are still a little bit indifferent to that economic stuff that we talk about, even though people got a little bit of a shake up earlier in the week, with the Dow plummeting on Monday by a lot of points. It seems like people as the week has progressed as long as the Dow continues to go up a little bit and stay within a trading bandwidth that's not too volatile, they seem to be really indifferent to a lot of news which is kind of surprising. And when we take a look at, what some of that news ended up being, we're talking about all sorts of crazy stuff coming out this week. October the economy grew faster than forecast at 2.2 percent, but this is still the slowest pace for the year, so it's not as if the economy is really raging along. Makes me wonder why the news is going on up there. Stephan, co-host, you are there I see you, are you with us?
Stephan: Yes, I am.
Excellent, Excellent. The couple, I'm just going to hit a couple of key points here, I was just scanning the news, maybe you can throw your had in the ring here as we go along, I'll just do a quick digest. But, economy only up 2.2 percent, new home sales of course fell 3.2 percent, that's a number we talked about earlier in the week. That's the largest ever contraction and the Commerce Department was expecting a 1.6 growth of GDP, which is the biggest leading economic indicator, the indicator for growth, and they had to revise that up based on some increasing inventory numbers they saw, so still, clearly they're not all that hyper confident even at the Department of Commerce that tracks that number. Durable goods order, this is a huge surprise, dropped by 8.3 percent, that's the most since July 2000, which was just prior to the recession that kicked in, in 2001 and a lot of analysts are starting to suggest that the Fed rate cuts are all the more likely, especially if numbers don't improve fairly soon, and again the Fed's between a rock and a hard place. On one hand they're talking about inflationary worries, on the flip side they've managed to slow the economy down here, clearly housing starting to take it on the chin, between a rock and a hard place, I don't know how else you can describe it. Adding insult to injury the Chicago Purchasing Manager Index, the PMI, which is one of the leading gauges of business activity surprised consensus analysts once again by dropping to 49.9 from 53.5 in October, below 50 signals a recession and some predict that layoffs are in the future if PMI does not improve or continues to slump. Moving onward, retailer sales in November were growing slower than expected and the analysts dropped a lot of their forecasts along with Wal Mart as they lowered their expectations at Wal Mart announcing their worst monthly performance in 10 years. Wal Mart is the world's largest retailer, the nation's largest retailer, and it is the retailer for middle America, and in my opinion, you know similar to how GM goes, so goes the U.S. in my opinion is how Wal Mart fares, so fares the U.S. economy. I think what we're seeing here is a bifurcation of the economy where people in the lower wage earning areas are seeing severe constraints on their month to month income, their dispensable, disposable income, and that's reflecting at Wal Mart. A lot of people are saying, oh Wal Mart's made all these adjustments to their structure, how they do business and they've broken what was working. I doubt a lot of people who have been going to Wal Mart for years and years and years to get bargain prices forgot that that's the place to go simply because Wal Mart started changing it's advertising a little bit and trying to, you know, throw out a few designer brands. I don't think that's really going to be the real killer for them. My estimation is that we're seeing this because people's adjusted incomes are feeling it, but when you adjust them just for CPI, and of course CPI as we all know is well understated form reality. And when you're at the lower wage earning area, you're going to start having to contract your spending and you know meanwhile people who work on Wall Street, people who are in banking, people who are lawyers, their doing fine and the Neman Marcuses of the world are not showing this kind of stress yet at least. Now, just wrapping up here Stephan, the dollar showed continued weakness lumping further a long term trend, we should all expect a continue I think. But the dollar is trading relative to other currencies at 10 month lows, which is telling us that, you know this dollar slide that we expected, and we've been talking about for months and months and well over a year at Vigilant Investor may well have shifted into it's next leg and you know, I think that it's always important that our listeners and our readers remember that verses other currencies is only one way to measure the dollar. Because other central banks out there are trying to inflate their dollar, their currencies almost as rapidly as the U.S. inflates and the Federal Reserve inflates the dollar in order to maintain parity. In other words they don't want to have their currency gain in strength if the dollar grows weaker because that means that we conceivably can afford less and that will affect their trade. So, currency to currency is a little bit of a misleading indicator, bottom line is all central banks are out there, printing money out of thin air, trying to do their own little monkeying and rigging things for soft landings and all of that, but that's a charade and even though the dollar is losing value and will stand to lose value, I think proof will really show itself in hard assets and of course oil rising today 63 dollars above trading, above 63 dollars today. You know, we're talking about a multi month high there, two month high for oil, and talk of it dropping back down to 40 is starting to weed away a lot of those people ...
Stephan: Well Johannes, I think an important point to make, and we have said this, after the election, all bets are off. You know, people can say it's conspiratorial or what have you but it's pretty much common knowledge that attempts are made to keep the current administration, or at least the party of the current administration in power. And it was quite coincidental that unleaded gas dropped as low as it did and as quickly as it did a month or so before the election. But when you look at the fact that Goldman Sachs, i.e. Goldman Sachs, who Mr. Paulson, the new Secretary of the Treasury, was the former Chief of Goldman Sachs trim their unleaded gas weightings from 8 percent to 2 percent of their index of unleaded gas futures causing a ton of managers that mimic that index which is a benchmark to sell of a lot of unleaded gas futures. And that drew down oil, that drew down gold and it is an important thing to point out because I just happened to be watching Chris Matthews right around that time or as that started kicking in, and the number one, or one of the top reasons that people base their voting decision on is the price of gas.
Stephan: Okay? And to us, you know to anyone with a brain let's say, to anyone who just does not blindly go along, you have to say come on, that's just a little bit too coincidental. But like what we always say, you can only defy the laws of physics so much, and what you have going on right now is, you are starting to see oil track up world demand and world supply have not changed in two months -
And one last stat to add in Stephan, we're looking at gold trading above 650 today, it's up 40 dollars, over 40 dollars for November alone and up over 30 percent of the year so, that's the last of my numbers there so, continue with your commentary.
Stephan: Yeah, well basically gold was down at about 575 about you know a month ago, okay, a little more than a month ago. And we're up to 652. Remember, you know gold was 365 days ago, gold was 500 dollars. 6 years ago, gold was 280 dollars, okay? And the smart money out there, the average retail investor, nobody is talking to him about this. His advisors largely are not. Conventional wisdom says gold is risky, gold is a commodity. So there's some smart money out there buying gold. And that is, is that the Chinese? Is that the Saudis? Okay, are these people starting to divest themselves of dollars.
They have announced that they're going to begin divesting themselves with their dollars. They're going to start backing off the pace of their purchases which will you know in turn affect the dollar value and where else are they going to put their money?
Stephan: Yes and latest news today, you know you were talking about the consumer and the Chicago report because basically, you know, you know you hear comments that the consumer is weathering, the housing is shock, that is, that it could very well be spin, we'll see how that goes. But, manufacturing does look very weak, and that's something that has not been focused on so much but basically, you know spending has increased by the consumer a little bit, but you know how resilient they'll be basically, you know your report about the counsel of shopping centers showing retailers November's sales, rose less than analysts estimated. And the wild card here is this. The, as Bill Fleckenstein, who we respect often says, the home equity loan, it's really, it's like the home ATM. And when that thing runs out, this market has been driven so much by the consumer credit based purchasing, when that runs out, you know that's going to be very intriguing.
Well, it is running out as we speak and I think that we were talking last night on our hour long show about the Goldman Sachs America study that showed that American home owners have withdrawn enough funds from their home equity via equity loans at 2.5 percent of growth a year to real GDP since 2002 which averaged out approximately 4 percent. It's just a massive amount -
Stephan: That's half your GDP...
Exactly, and the suddenly, I mean we're talking what, 670 trillion in 2004 and about 640 trillion in 2005 that's, or excuse me, billion dollars, that's a lot of money.
Stephan: Absolutely, and another thing we wanted to point out, the labor department just released a report showing that jobless claims last week rose to the highest level since October, 2005. Okay? Now, they're saying, hey maybe these numbers have been skewed by an early Thanksgiving holiday, we'll see. But basically, you know, manufacturing was growing quite slowly the last few quarters but not fast enough to generate jobs and I think the comment out there is what we're seeing here is that it's going from bad to worse.
Right, and the, another indicator that's on the job front that is raising alarms although some people discount it these days because the nature of how jobs are advertised, and that is the advertising index for jobs which is down at one of it's lowest levels in many, many years. It has not been this low since sometime in the 90's. So, in other words we've exceeded the recessionary low in terms of the advertising index. Now, that is a, maybe there's some issues with that number because more people are now putting their jobs, posting them up on monster.com and so forth. But, still as an indicator for your general, your more blue-collar jobs, which are not typically going to be on monster.com, it's very revealing.
Stephan: Yeah, and I think it's important point right now, the quanundrum that we're, that the Fed. and our policy makers are involved in right now. The dollar is dropping through the floor and as you mentioned, you know we don't, we pay attention to a degree as to how you know, against the yen, against the euro, against the yuan. But as you mentioned, especially all first world countries, they are trying to manipulate their currencies against other currencies, a), to make their exports affordable, secondly all first world countries are cut and what we call the inflationary trap. They have for generations and generations pushed the cost of social benefits et cetera on to the next generation. But what's going on now, they've massed such massive debts and liabilities and the demographics are not playing ball. In many countries in Europe the birth rate is between one and, or the replacement rate is 1 to 2.. i.e. people having 1 to 2 children. They're not even replacing themselves, and that doesn't add up in passing that buck on to the future generation. Americans are barely replacing themselves,. But you've got a scenario here because of that these countries must continue to borrow and print more money. Alright? Which means that the dollar or the mark, well the euro now, or the yen is going to continue to decline in value relative to itself today. So take a look at your dollar today, this is the most you'll ever see it worth for the rest of your life.
Absolutely, well we're pushing on up on 15 minutes you want to call it a wrap?
Stephan: Let's call it a wrap.
Okay, we'll tune in tomorrow, same time, 4:15 or so and we will be right back here with Vigilant Investor our daily show. This is Johannes Ernharth, and that was Stephan Ernharth, take care and we'll talk to you then.