Posted by Gilmour Poincaree on November 11, 2008

First Posted 01:50:00 11/11/2008

by Ron Nathan

Philippine Daily Inquirer

THE UNEMPLOYMENT FIGURES IN the US for the past two months were awful but this was expected Unemployment line - USAand short sellers made money. For October, the figure was 240,000, about 40,000 more than expected, but the September figures were revised upwards dramatically to 284,000 so last month’s figure might well be revised to 300,000 next month. The percentage increased from 6.1 percent to 6.5 percent and the total for the first 10 months was almost 1.2 million. This rate is likely to increase over the next few months as 41,000 companies are laying off workers and many more have indicated further reductions.

I would guess that secretly, McCain is pleased to have lost the election because the problems facing Obama are daunting. The transition time is 10 weeks so expect him to name his treasury secretary and other key positions this week. In the meantime, both parties will strive to work out a stimulus package of $150-$300 billion. This will not solve the unemployment situation nor the mortgage problem but it will buy time to grasp the problems and formulate measures to alleviate some of them. Unemployment benefits are certain to be extended.

The simultaneous collapse of the US, the Eurozone and Japan has never happened before and the recession is likely to be protracted. At best, it might end in the second half of 2009 but it could well run on into 2010. The intraday bottom of 7,882 on the Dow might hold for the time being and there will be sharp short rallies but I think that the ultimate low has not yet been seen. No president has ever been tossed into such a bad situation. It will take a great economic team including Bernanke plus global cooperation to get us out of it eventually. Fortunately, we are seeing unprecedented cooperation between blocs and countries. After the Fed cut the base rate by 50 basis points to 1 percent, Japan cut 20 basis points to 0.3 percent, the European Central Bank 50 basis points to 3.25 percent and the Bank of England by a whopping 150 basis points to 3 percent. Other countries such as Australia joined in and Libor has been dropping steadily. Unfortunately, this has not yet had the desired effect of unfreezing liquidity. Banks just don’t want to lend, even though they have plentiful access to cheap money through the rediscount window.

China has also participated by cutting interest rates twice and indicating two more cuts this year. In addition, they have released 2 percent of the bank deposit and promised more to come. They have just announced a $586-billion stimulus package and this has sent the Chinese, Hong Kong and Japanese markets surging. The growth rate of 9 percent, down from 11.4 percent, is worrying the Chinese government and they don’t want to see it fall below 8 percent. Commodity prices have been hammered and with many steel producers closed, demand for nickel, manganese, copper has almost come to a halt. However, this should be temporary because Beijing factories closed down ahead of the Olympics so that the air would not be polluted. They reopened a month ago and the stockpiles should be used up by the Chinese New Year so I expected to see some recovery by then.

As the market lurches from crisis to crisis, battered by the housing market, credit crisis and increasing unemployment, consumer spending is certain to decline. Stores are selling goods at large discounts well ahead of Christmas. Wal-Mart is surviving but more expensive stores like JC Penney are suffering. In England, Marks and Spencer produced bad results.

Foreign brokers continue to sell equities, bonds and currencies of emerging markets so most of them are losing ground against the temporarily strong dollar. Price targets of stocks worldwide have been slashed and the Philippines has not escaped. Banks, except for BPI, have been downgraded and their target prices slashed by a third. Properties have come in for similar treatment and the price target for MEG was reduced from P1.64 to P1.24. In telecoms, TEL’s price target was cut from P3,200 to P2,600 and GLO from P1,725 to P1,315. AC, FLI, AP and AC are all raising money.

Vista Land fell from its IPO price of P7.50 to P1.04 on news that the buyback program would be extended for another 6 months. Its net asset value has been cut from P8.50 to P4 and its price target to P1.90 but the decline seems overdone. Most of its OFWs are in the Middle East. It is critical that the share price stays above P1, a major psychological support level. Once FLI broke P1, it collapsed to 38 cents and when MEG failed to hold P1, it dropped to 58 cents. The PSE has deferred for three years a new accounting rule that bars a developer from booking sales until a project is completed. This is good news for the property sector. Macquarie has downgraded SMPH from P10.50 to P7.50 and Credit Suisse said the stock looked expensive. AGI and SM look less attractive now that a Las Vegas casino is losing money. IPVG and ATRK have reduced the price of their rights issues.

There does not seem anywhere to invest one’s money. Mine is under the mattress and I have to climb a stepladder to get into bed.

* * *

HERE is an interesting item: A man bought a donkey from a farmer for $100 and the farmer agreed to deliver the next day. The following day, he drove up and said, “I am sorry son but the donkey is dead. I can’t give you your money back because I have spent it.” The man said, “OK, just bring me the dead donkey.” The farmer asked, “What are you going to do with him?” The man replied, “I will raffle him off.” “You can’t raffle off a dead donkey.” “Sure, I can. I won’t tell anyone he’s dead.”

They met a month later and the farmer asked, “What happened to the dead donkey?” The man said, “I raffled him off at $2 a ticket, I sold 500 tickets and made a profit of $998.” The farmer asked, “Didn’t anyone complain?” The man replied. “Only the guy who won so I gave him back his $2.” The man now works as a consultant to Goldman Sachs.



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