So great is America’s economic squeeze that people can’t even afford a cup of coffee. Starbucks reports that its profits are off 97%. Not much left.
- From: periodistalibre@xxxxxxx
- Date: Wed, 12 Nov 2008 11:59:48 -0800 (PST)
Poor Mountain House, California.
The town is underwater, reports the International Herald Tribune .
Nine out of ten houses are worth less than their mortgages. There are
some 1,856 mortgaged properties in the zip code area of Mountain
House. Only 209 of them have any positive equity.
How the screw turns! Is this the “ownership society” promoted by the
Bush Administration? Now, people own less than ever!
There are said to be almost 8 million houses with negative equity in
the United States.
Of course, people own a lot less in stocks than they did a few months
ago too. Worldwide, stocks have shucked off about $28 trillion worth
of value.
Poor...rich...middle class – everyone has been hit. The marginal
homeowner has already been tossed out onto the street. And now comes
word that an extraordinary resort in Montana, designed for the super-
rich, has gone bust.
“Where did the money go?” asked Montana governor Brian Schweitzer,
speaking of Tim and Edna Blixseth’s swanky resort in the Gallatin
mountains. Of course, he might have been referring to almost anything
– the Russian stock market, the oil market, the mining industry, Wall
Street...everywhere you look...from trailer parks to Park
Avenue...poof!... the money’s disappeared.
The oil price is signaling more doom and gloom ahead too. It slipped
below $60 yesterday...
.... And now, in the art market, “prices finally plunge,” reports the
Daily Telegraph . An auction in New York of Impressionists and modern
art was supposed to bring in $800 million. Instead, it barely fetched
half that much – only $470 million by Friday night. Some lots didn’t
sell at all. Only 60% of the artworks sold...at prices most about 30%
below estimates.
Let’s take a quick look at how these losses are transformed from
financial problems into economic problems.
“The domino effect,” is how today’s Independent describes it.
On the cover is the photo of a “news agent,” someone who runs a little
shop selling magazines, newspapers, snacks, and so forth.
“Hit by falling sales, he decided not to repair his window. Thousands
of other people did likewise. So Chemix, a chemical company in
Stockport that supplies the building trade, went out of business –
with 60 people losing their jobs. These are the sort of tiny decisions
that lay behind the loss of 5,000 jobs yesterday. And this is why
experts predict 2,000,000 people [in England] will be unemployed by
Christmas.”
In the United States, the figure is 10 million.
So great is America’s economic squeeze that people can’t even afford a
cup of coffee. Starbucks reports that its profits are off 97%. Not
much left.
And, yesterday, General Motors shares fell to a new low of $2.79. The
last time you could have bought the automaker so cheaply was in 1937.
Back then, it would have been a good investment. The U.S. auto
industry was on the way up. Now, Detroit is going down – hard. In the
town itself, you can buy mansions for pennies. Empty warehouses are
available almost for free. But who wants them?
Investors fear GM may run out of cash within weeks and be forced into
bankruptcy. Nancy Pelosi says a special lame duck session of Congress
may be called to get emergency cash to Detroit.
Of course, that’s they way the feds do business – always trying to
prop up failures...trying to block progress...trying to delay the
process of correction. In short, they’re trying to stop “nature’s
delight” – change.
Meanwhile, the Dow fell another 176 points. The panic is gone, but the
retreat continues. The Dow stood at 8,694 at the close of business
yesterday.
At these prices, many investment pros are ready to get back in. Stocks
are a bargain, they say. You get more value for money than you got in
years, they point out. “Both my money and my mouth say the same
thing,” adds Warren Buffett: “Buy equities.”
Take a look at Starbucks, for example. It used to be such a growth
company that shares traded at 50 times earnings. Now you can get them
for 12 times earnings. But with collapsing earnings...the share price
could fall a lot more.
The stock market bulls aren’t necessarily wrong. But we announced a
“Trade of the Decade” in 2000 – sell stocks, buy gold. The decade has
a few more months to run, so we’ll stick with it. At the beginning of
this decade you could get about 40 ounces of gold for a unit of the
Dow stocks. Now, you barely get 12. If you’d done the trade and stuck
with it, you’d be up about 200%.
Besides, it looks to us as though the Dow is going to drop below 5,000
before this is over. Dividend yields have risen to almost 4%. When the
dividend yield reaches 6%...and you can trade one ounce of gold for
the entire Dow...call us.
By Bill Bonner
The Daily Reckoning
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