Contrarian Stock Market Investing News - Featuring Bargain Stocks » Unemployment Numbers

Buy, Sell or Hold: Capitalize on Resurgent Commodities Prices with the Market Vectors Steel (NYSE: SLX)

Horacio Marquez — Mon, 20 Jul 2009 16:19:35 +0000

With the market very near critical support levels, critical earnings reports on the docket, and inflation and employment data set for release, it was more prudent last week to keep the powder dry. But the market surprised to the upside, as key companies reported better than expectations.

Participation in fixed income issuance and trading, gave investment banks buoyancy. But JP Morgan Chase & Co. (NYSE: JPM) actuallyc onfirmed two of the three fears that I outlined last Monday: A bleak commercial real estate outlook – which will have little consequence for the bank given its limited exposure in this area – and a spike in credit card delinquencies.

The third fear I had, the rise in residential foreclosures, was confirmed by a report from RealtyTrac that said foreclosure filings in the United States jumped to a record 1.9 million in the first half of 2009.

Of course, there are some indications that the consumer problem loan and unemployment metrics might be in the process of peaking.

Headline unemployment numbers were much better than expected because of the methodology used for seasonal adjustment, which anticipates maintenance-related layoffs at automakers during this time of the year. The difference this year is that the layoffs occurred much earlier as General Motors Corp. (NYSE: GRM) and Chrysler Group LLC restructured. Therefore, the regular seasonal adjustment performed on the number over-corrected for these layoffs that occur at this time.

If unemployment is peaking, we may see end to the consumer malaise in the months ahead.

Still, the earnings season has just begun. The technology sector has also seen positive surprises, not just in bottom lines but sales growth in some cases – especially semiconductors. This is very important, since semiconductors typically lead the tech up-cycle. In this sector, the market has correctly anticipated the good news and rallied.

So, even though the U.S. Federal Reserve has assured the market, and the world, that it will bring an appropriate end to quantitative easing, there remains a possibility that the reduction in monetary stimuli won’t come in time to prevent inflation. Both the Producer Price Index (PPI) and the Consumer Price Index (CPI) came in higher than expected last week, with the main areas of price increases focused on food, energy and at the beginning of the production chain.

The June headline CPI rose 0.7%, while core CPI, which excludes food and energy, rose 0.2%. This was preceded by a hot PPI, which increased 1.8% from May, the largest monthly increase since November 2007. Once more, the main culprits were food and energy, since core PPI, which excludes these two sectors, was up 0.5% for the month. Still, on a year-over-year basis, core producer prices of finished goods remain 3.4% above those of the previous year.

Hence, the general strength in the price of oil and energy, some agricultural products and industrial metals, along with a pick up in retail sales and a possible peaking of unemployment offers some hope that the “reflation” policies of the Fed and the U.S. Treasury are having an impact.

This is the typical behavior of inflation in the early part of the cycle. What we do not know is what proportion of these price increases is the result of China’s extraordinary accumulation of oil, copper, iron ore and other resources, and how much is attributable to the standard surge in prices at the beginning of a recovery.

In any case, I expect continued firmness in these prices in the second half of the year. After the initial profit-taking and consolidation takes place, the weakness in the U.S. dollar, the expected acceleration in the deployment of the fiscal stimulus, and the traditional seasonal strength of the economy– spurred by back to school and later by the Christmas season – will provide us with as much as 2% growth in gross domestic product (GDP) in the third quarter of and a similar, or maybe even higher number, in the fourth quarter.

That’s why we are going to concentrate on the sector that I expect will gain the most momentum this summer: Public construction.

The global deployment of fiscal stimulus should translate into an unexpected surge in demand for steel. China’s stimulus is running at full steam, with that economy posting 7.9% growth in GDP in the second quarter – up from 6.1% in the first three months of the year.

Remember that China needs its economy to grow by at least 8% in order to employ the 18 million workers that join their labor force each year. With deflation still affecting some sectors of the economy, I do not expect Beijing to be quick in removing any stimulus and to only start doing so early next year. China’s public and private construction will remain robust and expand further, providing support for global steel prices.

Since this is a sector call, rather than a company call, and I want to minimize the exposure to a possible mishap in execution from any one company, I recommend buying Market Vectors Steel (NYSE: SLX)exchange traded fund (ETF).

The ETF surged more than 135 last week and is still well below recent highs. It seems to be ready to break resistance and will show very strong price appreciation should this occur.

Recommendation: Average into the Market Vectors Steel (NYSE:SLX) ETF over the next month (**).

(**) - Special Note of Disclosure: Horacio Marquez holds no interest in the Market Vectors Steel ETF.

Source: Buy, Sell or Hold: Capitalize on Resurgent Commodities Prices with the Market Vectors Steel (NYSE: SLX)

U.S. Unemployment May Be A Bigger Problem Than Government Stats Say

Don Miller — Mon, 26 Jan 2009 14:18:05 +0000

The dismal U.S. unemployment numbers have gotten more airtime recently than Jerry Springer. And why not? The numbers are mind-numbing.

A total of 2.6 million jobs lost in 2008 – the most since World War II.
A jobless rate that’s at 7.2% – and climbing.
About 11 million people out of work.

As usual, however, the “official” numbers don’t tell the entire story.

“People say that they know how bad the economy is. But they don’t know how it feels to have the reality hit home,” said Stu Schweitzer, global markets strategist at J.P. Morgan Chase & Co.’s Private Bank (JPM). “It’s not the facts — it’s how the facts feel. And it feels terrible to have so many Americans losing jobs, and so many more likely to follow in the coming months.”

As it did last week with the government’s inflation statistics, Money Morning will now take an in-depth look at how the U.S. jobless situation may be a lot worse than the U.S. government statistics appear to show.

And “how it feels” comes home to roost with a behind-the-scenes look at the dramatic impact those horrific numbers have on the lives of just a few people caught in the crossfire.

Government Unemployment Numbers — Not What They Seem

The official government estimates of the current unemployment problem are staggering in their own right.

791,000 manufacturing jobs were lost in 2008, hitting the auto sector hardest.
260,110 people lost jobs in the financial sector, part of the overall service sector that accounts for some 80% of all employment.
The construction sector shed 899,000 since peaking in September 2006.
The retail sector shed 522,000 jobs for all of 2008.

All told, 2.6 million people lost their jobs in 2008. And, to underscore the accelerating nature of the problem, more than half of those job losses occurred in the final four months of the year. In December, a total of 11.1 million were unemployed. An additional 8 million people were working part time – up sharply from 7.3 million in November.

The average workweek in December fell to 33.3 hours. That’s the lowest average on record, dating back to 1964, and a sign of more job reductions to come since businesses often cut hours before eliminating positions entirely.

Those are the “official” government numbers. But, as a closer look demonstrates, the unemployment figures can be understated – and misleading.
The government actually compiles unemployment figures in six different categories; as you might expect, the numbers tend to minimize the bad news.
The most commonly number quoted in the media is the “official” unemployment rate – known as U3 (the bottom line of the three in the chart below) – which now stands at 7.2%.

But to get the real picture, you have to add both in what the government refers to as “discouraged” workers (U4) and “marginally attached” workers (U5) – those who have stopped looking for work, or who haven’t looked for work recently (represented by the middle line of the three in the chart). That number (U6) depicts an unemployment rate t that’s approaching an eye-popping 14%.

And it gets worse.

If you include the people that the government doesn’t even count – such as unemployed farm workers, the idle self-employed, and workers in private homes – the unemployment rate approaches an astonishing 18% (top line).

In other words, unemployment has insidiously spread to almost one-fifth of the U.S. work force, a number much larger than the single-digit figure commonly bandied about in the press.

If you regard unemployment statistics as an important means of gauging the overall health of a given economy, these “enhanced” statistics paint an ugly picture of just how painful this financial slump has become for the U.S. economy.

Layoffs of this magnitude are more than a mere shot across the bow of the economy; they’re actually a direct hit amid ship – below the water line, meaning that sinking is inevitable.

Fully 70% of all domestic economic activity is powered by consumer spending. People who are unemployed cannot buy homes, don’t shop heavily in retail stores, cut back on groceries, and are loath to take on added risk.

The numbers alone are bad enough. But in America’s heartland, many of the approximately 80% of workers thatarestill working are caught in the grip of unemployment vise as well.

No Runs, No Hits, Many Errors

Not only are record numbers of Americans suffering without jobs – they can’t even tell their troubles to a human being anymore. Most now have to navigate hard-to-use electronic systems, faceless entities that are ill-prepared to help so many people file for much-needed unemployment benefits.

With about 4.5 million Americans collecting jobless benefits, state government web sites and phone systems used to file for benefits are being overwhelmed by sheer numbers.

Electronic unemployment filing systems have crashed in at least three states amid an unprecedented crush of thousands of newly jobless Americans seeking benefits. Other states are adjusting their systems to avoid being next, The Associated Press reported.

Systems in New York, North Carolina and Ohio were shut down completely in early January by heavy volume and technical glitches. Labor officials in several other states are reporting higher-than-normal use.

And even some of the systems that are holding up under the strain are leaving filers on the line for hours before asking them to leave a message.
Still others are giving them the ultimate slap in the face: “We’re sorry, all circuits are busy.”

“Regardless of when you call, be prepared to wait and just hang on. Try not to get frustrated,” Howard Cosgrove, a spokesman for the Wisconsin Department of Workforce Development, told The AP.

To stabilize a phone system that has been overloaded for weeks, his agency boosted its staffing of telephone operators by 25% last month.
“We sympathize, we’re on their side, we’re doing our best to help them out,” he said.

Job Losses Gets Personal for Truckers

Depending on your geographic location, you might not notice when an automobile plant closes – but truckers do.

Any business closing – and the resulting layoffs – represents another loss of steady work for truckers, who are responsible for the movement of about 0% of the nation’s freight, including food and hard goods.

As many as 785 trucking companies with a combined fleet of 39,000 trucks went out of business in the third quarter of last year. Overall, more than 127,000 trucks, or 6.5% of the industry were idled in 2008, Donald Broughton, trucking analyst and managing director of Avondale Partners, told The Los Angeles Times.

That means tens of thousands of drivers previously on company payrolls are now competing with the nation’s independent owner-operators for a piece of a fast-shrinking cargo pie.

Joe Rini, from Grand River, Ohio, recently bid $3,400 to haul a load of building materials to the Pacific Northwest for one of his best customers. Usually, the load would pay $4,400, but with possible competitors in mind, Rini lowered his bid and got the contract.

Still, before he could pick it up, another trucker low-balled him with a bid of $3,000. Rini declined to match.

“I didn’t want to bid that low in the first place,” he told The Times. “I start down that road and I’m out of business.”

Elsewhere, fleet operators who so far have managed to survive are putting increasing pressure on their sales force to maintain revenues.

Despite being in the hauling business since the 1860s, Ventura Transfer Co. of Long Beach, Calif. is feeling the squeeze.

“Gone are the days where you can own a trucking fleet and just rely on the demand of the marketplace,” said Brian Olsen, Ventura Transfer’s chief executive officer.

California Dreamin’ No More

Even though he’s had no trouble so far staying gainfully employed in California, Mike Reilly, a 38-year-old engineering contractor, is leaving his home state’s lemon groves and beaches for the foothills of Denver.

California has often been called the “promised land” since the days of the Gold Rush. But in 2008, many families gave up their California dream and headed elsewhere.

With an unemployment rate of 8.4% in November, and a record 236,000 foreclosures on the books in 2008, the Golden State has lost some of its allure.

Barry Hartz lived in California for 60 years before moving close to his son’s family in Colorado Springs. Despite recent price declines from a glut of foreclosures hitting the market, he laments the escalation of home prices in the early 2000’s, “to the point our kids…could not live in the community where they grew up.”

The number of people leaving California outnumbered those moving in by a net total of 144,000 in the first six months of 2008 – more than any other state, the Associated Press reported. For the first time ever the state could lose a congressional seat.

With the state facing a $42 billion budget deficit, further tax increases and education cuts were the last straw for Reilly, the engineer.

“You see wages go down and the cost of living go up,” he said. Years of rising taxes, unchecked illegal immigration and bumper-to-bumper traffic have convinced him to move on.

What’s Next …

Overall, 48% of all companies downsized in 2008, and a staggering 60% are planning reductions in 2009, according to a Society of Human Resource Management survey.
Economists predict a net total of 1.5 million to 2 million or more jobs will vanish in 2009, and the “official” unemployment rate could hit 9% or 10%, underscoring the challenges that new U.S. President Barack Obama will face and the tough road ahead for job seekers.

Obama has called the jobs losses “a stark reminder of how urgently action is needed” to revive the nation’s staggering economy. His administration is planning a stimulus package costing upwards of $800 billion, consisting of tax cuts and other ways to try to help individuals and businesses.

But unemployment is feeding into a vicious cycle that Washington policymakers are finding difficult to break. The jobless are now forcing almost all U.S. consumers – employed or not – to retrench for an uncertain future.

Source: U.S. Unemployment May be a Bigger Problem Than Government Statistics Say

Oil Falls $2 to Below $39 as Demand Weakens

Contrarian Profits — Mon, 12 Jan 2009 12:30:03 +0000

Iran says OPEC could cut output again in March… Russia-Ukraine gas row not finally resolved…

Oil fell more than $2 to below $39 a barrel on Monday, dragged down by widespread evidence that deepening recession was reducing global energy consumption.

The decline came despite news that Saudi Arabia planned to cut output to below its agreed target, as well as gas supply disruptions in Europe as a result of the Russia-Ukraine dispute and tensions in the Middle East.

U.S. light crude for February delivery fell $2.18 to a low of $38.65 by 1020 GMT. London Brent crude fell $1.62 to $42.80.

U.S. jobless data on Friday set the tone for the market.

A U.S. government report showed employers slashed jobs by 524,000 in December, driving the national unemployment rate to its highest level in almost 16 years.

“The U.S. unemployment numbers on Friday started the latest leg downwards. We have had a string of bad news, with companies and economies all reporting negative data. It is almost relentlessly bad,” said Rob Laughlin, senior oil analyst at MF Global in London.

Oil prices fell 54 percent last year and have shed more than $100 from a record peak of above $147 a barrel last July as the global economic downturn hits demand for fuel.

SUPPLY CUTS

The world’s top oil exporter, Saudi Arabia, plans to cut output by up to 300,000 barrels per day (bpd) below its agreed OPEC target, a proactive step to prop up a collapsing market, industry sources said on Sunday.

Riyadh has already lowered supply this month to 8 million bpd, meeting its target under OPEC’s pact to reduce overall supplies by a record amount from Jan. 1.

Saudi Arabia’s cutbacks add to similar moves earlier this month by other OPEC producers including Iran, the United Arab Emirates, Kuwait and Libya to curb supplies, although evidence that oil producers are cutting output has not lent much support to prices so far.

Iran’s representative to OPEC was quoted as saying that the group could decide to reduce oil output again at its meeting in March if crude prices fell further.

The front months on oil futures have been taking the brunt of the falls with the markets is steep contango. March U.S. crude futures have been trading at a premium of more than $5 above February, while April is around $3 above March.

Traders say the wide price spread partly reflects a lack of prompt demand but also a view that OPEC cuts will eventually start to impact the market and support prices.

Also worrying the oil market was the status of a deal to restore Russian gas supplies via Ukraine to Europe.

In the Middle East, Israel leaders trying to find a knockout blow for Hamas militants defying a 17-day-old assault have thrown army reservists into the battle.

Although the Russian-Ukrainian gas price row and Middle East tensions could help push oil prices higher, analysts said any rebound was expected to be short lived.

Goldman Sachs Commodities said in a research note on Friday that a market surplus was expected to continue to drive inventories higher and put pressure on its forecast oil price of $30 a barrel for the first quarter of 2009.

LONDON, Jan 12 (Reuters)

Global Investing Roundups Thursday, December 11th, 2008

William Patalon III — Thu, 11 Dec 2008 13:13:06 +0000

China Exports and Import Decline; Rio Guts 14,000 Jobs; Wells Fargo CEO Sees Housing Bottom; Orascom Lands North Korea Telecom Deal; Office Depot Shutters 112 Stores; JA Solar Cuts 4Q Estimates

China’s exports fell 2.2% and imports plummeted by 17.9% in November, pushing its trade surplus to a record $40.09 billion, Bloomberg reported. “The figures are horrifying,” Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai, said. “Plunging imports show that on top of faltering global demand, domestic demand is also shrinking as the economy cools.”

Global mining leading Rio Tinto PLC (ADR: RTP) announced it would slash 14,000 jobs (or 13% of its workforce), sell more assets and halve its capital spending. “Drastic times call for drastic measures… They’ve definitely gone into survival mode, which is appropriate given the market circumstances,” Tim Schroeders, portfolio manager at Pengana Capital in Melbourne, told Reuters.

Despite ascending unemployment numbers, Wells Fargo & Co. (WFC) Chief Executive John Stumpf said Wednesday he is seeing signs of a bottom in the U.S. housing market. “My suspicion is there is some more to go. But we’re starting to see some early signs that maybe we’ve reached the bottom in housing or close to it,” Stumpf said at Goldman Sachs Group Inc.’s (GS) U.S. Financial Services Conference, Reuters said.

Egypt’s Orascom Telecom Holding landed a contract to provide mobile phone services in North Korea, a company source told Bloomberg. The deal marks the first foreign telecommunications deal on the recluse Communist country’s turf.

Office Depot Inc. (ODP) will close about 9% of its North American stores and cut 2,200 jobs over the next three months, The Associated Press reported yesterday (Wednesday). The plan to close 112 stores will reduce the chain’s base to 1,163. Office Depot will close 45 stores in the Central United States, 40 in the Northeast and Canada, 19 in the West and eight in the South.

Solar cell maker JA Solar Holdings Co. (ADR: JASO) yesterday (Wednesday) cut its fourth-quarter revenue and production outlooks as a result of declining demand. The China-based company lowered its revenue forecast to $124 million, from an earlier estimate $191 million to $220 million. The company also cut its estimates for 2008 production output to between 250 and 260 megawatts from 310 megawatts.

Source: Global Investing Roundups Thursday, December 11th, 2008

Job Losses Pile on in October, Expected to Accelerate as Economy Worsens

Jason Simpkins — Thu, 06 Nov 2008 17:15:42 +0000

Job losses spiked in October according to two key employment reports released yesterday (Wednesday). The rate of unemployment has risen steadily over the past year but job losses expanded in both size and scope in October and will likely continue to accelerate well into 2009, further exacerbating an already potent economic downturn.

Private U.S. companies cut an estimated 157,000 jobs in October, the largest decline in nearly six years, ADP Employer Services said yesterday (Wednesday). Separately, outplacement firm Challenger, Gray & Christmas Inc. said job cut announcements by U.S. employers soared to 112,884 in October – a 79% increase from last year.

“We are starting to see more recession-like declines in employment,” said Sal Guatieri, a senior economist at BMO Capital Markets, told Bloomberg News. “The loss of jobs means consumers will continue to retrench in the next couple of quarters.”

The ADP National Employment Report used ADP payroll data that averaged 500,000 payrolls for 24 million U.S. employees. It showed that private sector jobs fell by 157,000 in October – the largest decline in close to seven years. Job losses have been mounting since January, and ADP doesn’t expect that trend to reverse course anytime soon.

“It would not surprise me at all to see many more declines in employment in the near-future,” Joel Prakken, Chairman of Macroeconomic Advisors, said in a conference call with reporters.
Prakken added that it is “highly likely” unemployment numbers will be in excess of 200,000 job losses per month over the next several months.

Challenger, Gray & Christmas offered up an equally bleak assessment. The company said job cut announcements by employers rose to 112,884 in October, the largest number since January 2004.

A total of 875,974 planned job cuts have been reported this year. That’s 14% higher than the total number of planned job cuts announced throughout all of 2007 and the largest 10-month total since 2003, CNNMoney reported.

“Year-end job cuts are typically higher than at other times of the year, but the fact that October was significantly higher than recent years suggests that companies not only have been hit hard by this downturn, but they do not see a rebound any time in the near future,” said John Challenger, chief executive officer of Challenger, Gray & Christmas.

“Even if the economy begins to rebound in the spring or summer, it could be months before we start to see net gains in employment and a decline in the unemployment rate,” Challenger added.

Financial services and automotive companies have led the way in payroll reduction. Their combined 239,760 layoffs represent 27% of all layoffs this year, according to CNN. However, those losses are beginning to bleed over into other industries.

The Labor Department is expected to report 200,000 jobs were lost in October, bringing the total this year to nearly 1 million. The unemployment rate is also expected to rise to 6.3% from 6.1%. Economists forecast that the jobless rate will rise to more than 8% before the job market recovers.

A new analysis by Goldman Sachs Group Inc. (GS) said the economic downturn, and the job losses inherent to it, are only just beginning. Goldman sees unemployment climbing to 8% in 2009.

McKelvey, economist and co-author of the Goldman study, told TIME magazine that over the next year, “lagging” sectors of the economy – such as construction, manufacturing, financial services and retail – will absorb most of the coming losses.

“As the economy slides into a deeper recession, it appears we are closer to the beginning of the labor market downturn than the end,” McKelveyover said.

Source: Job Losses Pile on in October, Expected to Accelerate as Economy Worsens

Mainstream Media is SO Late on This

Charles Delvalle — Fri, 02 May 2008 16:53:02 +0000

So a few weeks ago I wrote an article bashing the McCain gas-tax holiday plan. My conclusion was that the gas-tax did absolutely nothing to fix the reason that gas prices are higher. And in the end, all it would do is spur more demand for gasoline, meaning prices would go even higher.

And lastly I talked about how the only thing you’d have extra money for are the higher food prices you’ll have to pay.

Well, now the mainstream media is catching on, albeit a few weeks late. Today I saw this Bloomberg article.

Let me take an excerpt, because it looks like these people are reading IDE everyday.

Economists have a different take: They say the oil companies may end up the biggest beneficiaries, while the aid to families wouldn’t be enough to buy a $35 backpack.

The trouble with the plan, they say, is that oil prices are rising because of low supplies, and companies will continue to charge the average $3.60 a gallon and just pocket the money that would have gone to federal taxes.

“That’s $10 billion, and it’s going into the pockets of oil refiners,” said Leonard Burman of the Tax Policy Center in Washington. “The last time I checked, they didn’t need it.”

As it appears now Clinton is joining the gas-tax holiday bandwagon. She thinks that this tax somehow takes excess profits away from oil companies. Um, last time I checked a tax holiday takes money away from government. After all, they’re the ones taxing!

And then McCain thinks this holiday will somehow give parents the money they’ll need to go back to school shopping. What does he think, that parents fill up their tank twice a day? This money won’t be anough for a damn thing!

Oh well, asking the government to be logical is like asking a kid to not eat chocolate.

Today the market looks like it wants to push much higher. The Fed announce an expansion of their term auction facility (now they’re loaning $75 billion instead of $50 billion) and unemployment numbers came in less than expected.

Makes me happy that I got into three recent long positions and they’re all doing well. In fact, the one I bought in my personal account rallied nearly four percent from my buy point!

Hopefully today ends on an up note.

The Fog of Financial War

Bill Bonner — Thu, 10 Apr 2008 20:16:49 +0000

Entering a dangerous and troublesome period in financial history…the battle between the forces of inflation and deflation wages on… The Liquidation War…the coming of the Greater Depression…Cattle is no longer such a hot commodity in Argentina…what will hobble agriculture in the future?…and more!We are way out in the high desert with no access to the news. This gives us a chance to think.

What we’re thinking about is that we have entered a much more dangerous and troublesome period in world financial history. The planet was leveraged up. Now it is going to be de-leveraged.

We have been talking about the battle between the forces of inflation and the forces of deflation. It is not clear which way it will go…or when. The feds – who favor inflation – seem to have the upper hand one week. The next week, Mr. Market – who seems to have thrown his lot in with the force of deflation – seems ahead on points.

Meanwhile, many of the foot soldiers are lost, separated from their units…shooting at their own men…and often blowing themselves up. Many don’t know which side they are on and are willing to switch sides at any minute. But in the fog of war you always get a lot of people bumping into one another. That’s why we get such peculiar reports from the front – such as when the feds cut short rates (which is inflationary)…but long rates nevertheless go up (which is deflationary). Or when the unemployment numbers go up (which is deflationary)…causing the dollar to fall (because investors expect another inflationary rate cut!)

No, we don’t know exactly which way it will go (so don’t ask us when gold will hit $2,000…or when the Dow will break below 10,000). But it scarcely matters. Because, we’re like the innocent civilians caught in the crossfire. Sooner or later, our assets are going to be shot down…and our liabilities are going to blow up. In other words, dear reader, this is not a war in which you should try to speculate on which side will win…this is a time to keep your head down.

It’s a Liquidation War…in which mistakes will be corrected BOTH by inflation and deflation. Take stock prices, for example. Our guess is that they’ll be taken down – either by inflation or deflation, or both. Prices will fall either in nominal terms, in other words, or relative terms. Already, adjust the Dow to the price of gold, or wheat, or oil, or copper and you get a very different picture. Instead of being flat over the last 10 years…the Dow is down a half to two-thirds.

“It’s the Greater Depression,” said Doug Casey at dinner Monday night, with a satisfied look on his face. “I’ve been expecting it for a long time. I was a little early. But now, it seems to be finally getting going.”

What happens in a Greater Depression? We don’t know, but we think we’re going to find out.

And we imagine its most important feature will be a general markdown of debt and the relative value of Western assets – stocks, houses, currencies, and labor. The East and developing world is on the rise; even if it stays put, the West, in relative terms, will sink.

Some assets will go into default – which is what is happening in the financial industry lately. UBS (NYSE:UBS) alone has lost 38 billion. Hedge funds are going broke. And the captains – present and past – of the financial industry are pointing fingers at each other.

Many people say we’ve seen the bottom for equities, and the financial sector in particular. Maybe in nominal terms. And maybe in the East and the developing world. But in America, in real, inflation-adjusted terms, we’d expect more of a selloff. The S&P is still selling for more than 18 times earnings; there is still plenty of room on the downside.

The financial sector looks particularly bad; there’s probably a lot more bad news coming. And since it was the big winner for the 25 years, it probably needs a bear market of at least 5 or 10 years. At the beginning of the boom in finance, which began roughly during the first Reagan Administration, people still wanted their children to grow up to be doctors, lawyers and businessmen. At the end of it, every mother’s son was encouraged to into ‘finance.’

But now, the bubble in finance is over. It will probably take many years before values appear and prices begin to rise – just look at what has happened in the NASDAQ. Or look at our favorite example – Japan. Many people thought Japanese stocks were a once-in-a-lifetime bargain after the Nikkei Dow crashed in 1990. Well, they’re an even bigger bargain today!

*** “Señor Bonner…I have to tell you. I won’t be able to work here any more.”

Francisco, who has been our ranch foreman, quit. He explained why:

“There’s no money in cattle now. So my father sold our ranch over in Angustura. We’re buying a big farm in Bolivia. It’s about 7,500 acres. Very rich. And with lots of water. It’s not in the high part of the country. It’s out on the eastern plain, where the Amazon begins.

“The place we’re getting is practically virgin land. It was farmed many years ago, and then abandoned. I don’t know why. And we’re going to plant soybeans. You just stick the seeds in the ground; three months later you have a crop you can market. And with prices this high, we can’t resist.

“Farming soybeans is about the easiest farming there is. You only have to go out to the farm a couple of times. And you don’t need any labor – it’s all mechanized. Labor is cheap in Bolivia, but it’s still a lot easier when you don’t have to deal with farm labor. And now with these genetically modified plants, it makes it easy to kill the weeds. We just spray herbicide from the air; it kills everything but the soybeans, because they’ve been modified to resist it.

“We’re going to plant about 1,000 acres this spring. Then, we’ll add another 1,000 next year. Some of the land is still covered by jungle. It’s just the opposite of here. Here it never rains. There, they get plenty of rain. We would plant more land, but the Bolivian government has banned clearing any more jungle. At least, there’s some restriction on it.

“And in Bolivia, the government lets you sell your crop on the world market, without taking half of it. [He was referring to the Argentine government's 49% tax on soy exports].

“Everybody is planting soybeans. But I’m not worried about the price going down. It can fall in half, and we’d still make money.”