'Tis Only My Opinion!

Halloween was not as scary as the upcoming mid-term elections.

The Democratic Party has selected two former Senators (Mondale in Minnesota and Lautenberg in New Jersey) with name recognition to replace them.  Whether the Republican's will obtain either of these two Senate seats is now unclear.

History says that the party that does not control the White House generally picks up seats in the mid-term elections.  Hence, I would not be surprised to find that the Democrats control both the House and Senate after Tuesday's election.

Someday, the Republican Party leaders will discover that accommodation and compromise leads to disaster.  It is impossible to share power with those who are unwilling to work together towards a common goal.

Consumer sentiment falls to 9 year low.

On Tuesday, I visited the Galleria in Dallas about 11 a.m. Parked next to the door and had almost the whole place to myself except for bored sales personnel.  Yep, retail sales are not booming.

About the only thing that is automobile sales and why not at 0 down, 0 percent financing for 60 months and cash back to boot!  No wonder Ford and General Motors are in trouble.

Of course, the used car market stinks and trade-in value is terrible but John Q. Public can drive a new car using some of Easy Al's fiat currency.

Help wanted index moves up to 43 in September.

Jobless claims throw cold water on the growth pundits!

The Labor Department said first time claims for jobless benefits rose by 16,000 to 410,000 last week. Jobless claims above 400,000 tend to signal a stagnant or
deteriorating labor market.

EDS announced it is cutting its workforce by another 5,000 this morning.  The good news on the labor front just keeps coming.

That is real good news for the Plano/Collin area in Texas.  They already have one of the highest home foreclosure rates in the U.S.  Guess I'll start looking at the foreclosure notices in McKinney to see if we can find some good buys.
 

The Trade Deficit continues to increase . . .

In August, the U.S. trade balance deficit hit an all-time record of $38.5 Billion.  At that rate, it will approach the 5% rate of the GDP at which point every other country has found its currency in deep trouble.

Despite the fall in the US dollar index from 122 in January 2002 to about 106 today, our exports have not significantly increased and in fact, have decreased during the three months ending in August. 

I wonder how many intellectuals have noted how difficult it is to export a service economy?

October 2002 was the best month for the markets in 15 years!

But is the economy really improving?

Suffice it to say that not much good has been reported recently:

• GDP grew 3.1% in Q3 but factory slowdown is growing.

• New jobless claims rose 16,000 to 410,000 last week.

• Chicago Purchasing Managers Business Barometer fell to 45.9 in October, the second straight month of decline.

• Consumer sentiment plunged to lowest level in 9 years.

• Trade deficit ballooned to record $38.9 Billion with exports declining.

• The U.S. Dollar looks like it is topping and will fall if Fed lowers interest rates.  The futures market seems to pricing a 50 basis point decrease in November and another 25 basis point decrease in December.

• The CRB index continues to climb but those inside the Beltway and on Wall Street continue to see no inflation.

• Retail sales even at the discounters are weak.

• Refinancing applications for homes are slowing down.

• Consumer credit continues to increase indicating that the debt burden on disposable income is getting higher.

Yet, to hear the administration tell it, things are getting better.

Low interest rates have lost their punch!

In the U.S. economic environment, decreasing interest rates are not the answer.  But true to form, Easy Al will ignore history and push the U.S. economy into a Japanese depression.

When capacity utilization hovers around 75%, corporate capital spending can not be jump started by lowering interest rates.  It takes increased demand to use up that capacity and where is it?

But Easy Al has spent too much time hobnobbing with politicians and getting a knighthood to understand the basics of economics . . . there is supply and there is demand.  Nothing else matters much in the final analysis.

For what it is worth, here is a picture of the December CBOT interest rate futures showing the markets expectation of a decrease in interest rates at the November FOMC meeting just after the elections.

The Dollar is vulnerable!

With the trade deficit increasing, exports decreasing, the Fed poised to reduce interest rates once again (will one more increase be the Magic Elixir for Easy Al), the U.S. dollar looks shaky as it undercut the support line yesterday.

During the past month, several of my overseas contacts continue to report that their Middle Eastern and Asian clients have used the October rally to sell their U.S. holdings and repatriate the funds off-shore.

During overnight trading, the yen and Euro have both strengthened against the dollar.  Foreign investors are extremely concerned about another rate cut in the U.S.

The next support level for the dollar is down in the 90's so if the slide occurs, it could be very dramatic.

Is the Gold Cartel on the ropes?

The chart clearly shows the pressure on gold bullion during the first 15 days of October. Since then, the physical off-take from the Middle Eastern markets and Russia and China have firmed up the price.  Overnight, the market jumped to the $321 per oz. level in London.

The critical point for the gold derivatives explosion remains in the $325 to $330 level and if breached, the financial system and particularly, the gold bullion dealers like JPM, BAC, GS, and C could be in trouble.  Whether they are too big to fail is surely a question but there is no longer any doubt that the gold markets have been rigged since Rubin undertook in 1995 to institute a strong dollar policy.

Are we still in a bear market rally?

My initial answer to that question is, YES! 

However, I must qualify that answer.  The outcome of the mid-term elections will have an impact upon the markets.

• If the Democrats regain control of both the House and Senate (about a 40% chance in my book), the markets will continue to trade in a downward trend for the next two years.

• If control of the Congress is split between the parties, about a 35% chance in my book), the market drop will be somewhat less than in option one above but it will go lower.

• If the Republicans win control of both the House and Senate (about a 25% chance in my book), the immediate impact will be for the market to move up for a few weeks and then the slide will continue until real economic progress is made.

So there you have, straight from my Farmer's Crystal Ball, the answer to the direction of this market. 

Unemployment continues to increase!

The real problem with all the layoffs and new job creation is that the new jobs are for far less money than the previous one.  As a result, those laid off are faced with a serious down-sizing problem and a need to reduce the level of their spending.

In some sections of the country like the Telecom Corridor, the Silicon Valley, and other high-technology areas, the impact is already taking a toll on housing foreclosures and real estate prices, auto sales, retail sales, and sales tax receipts.

Wednesday, I had lunch with a former Telecom Corridor Marketing Director whose $175,000 per year salary was eliminated and is now driving a truck for a local hot-shot delivery service making $7.50 per hour + 45 cents per mile using his own pickup.  He wonders how he can keep his $450,000 house from being foreclosed despite having it on the market for 13 months.

At least, he is employed according to the government statistics.  A much better measurement of unemployment would be one that incorporated the compensation package received as well.

Truth in accounting does not reside in the Government statistics.

For the truth is that the deficit is much larger than they are telling us.  All you have to understand is that the growth in the Federal Debt between the last two fiscal years is about $500 billion as opposed to $176 billion as suggested. Now that makes Enron look insignificant to me!

Oh well, a billion here, a billion there and pretty soon we will be talking real money.  After all, it is only fiat currency, isn't it?

Gold is becoming more important!

The Islamic nations are moving forward with their plans for using a gold backed currency as a medium for exchange between their nations. No longer will their trade balances be settled in U.S. dollars but will be settled in gold.

The election of Lulu in Brazil has heightened demand for gold in South America also. The prospect of a Brazilian default in the near future has many individuals and corporations in South America very concerned about protecting their assets.

The South African government is taking steps to obtain control from outside investors of all mining properties there.  Initially, the demand is only for a minority position but rest assured, the Zimbabwean destruction process will be followed. The end result will be reduced production in all the South African mines within the next few years.

Conclusion

In short, the near term market will be affected by the election outcome. But until demand increases, the excess of supply in most industries as well as the globalization of manufacturing processes will work to continue to reduce the standard of living in the U.S.

As a result, the future does not look very bright for the U.S. markets and our citizens.

Until the Administration decides to get tough on border control, and return illegal immigrants to their native land upon apprehension rather than incarcerate or bond them out of jail, this country will continue to deteriorate.

Yesterday, the Dallas Morning News had a long article about the terrible fate that befell a young Mexican because a police informant had finger-pointed him as a drug pusher.  The Mexican cook was jailed for over two years before the police scandal broke and he lost his wife, children and his job.  Well, I am just a little upset.  He was an illegal immigrant and should have been sent back home along with his wife and children.  They broke the law or don't we care about the law anymore in this country.

I guess that is really the case.  We can bend the law for Clinton, Torricelli, and any one except a white Caucasian male or female.

The Dallas Independent School District is 93% minority and yet, we have a Federal Judge monitoring the district for discrimination.  Doesn't anyone ever ask why the DISD is 93% minority?  But like teacher accreditation, did Federal oversight improve the education of the minority?

The dropout rates in high school, and the SAT test scores would indicate that the answer would be NO!

But does anyone really care? Or do they just give lip-service to ideas that don't work?

But then - 'Tis Only My Opinion!

Corruptisima republica plurimae leges. [The more corrupt a republic, the more laws.] -- Tacitus, Annals III 27

This issue of 'Tis Only My Opinion was copyrighted by Adrich Corporation in 2002.
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Last updated - July 6, 2008