Let’s start with GM, the WSJ says: "GM’s loss widened to $39 billion from $147 million a year earlier on a $38.6 billion noncash charge." Those guys at GM are VERY clever. You read this and go – "Oh, it’s a $38.6Bn accounting charge, that’s not so bad." But if we do some complex math we can see that $39,000,000,000 in losses offset by a $38,600,000,000 accounting charge STILL LEAVES $400,000,000 in very real losses, more than double (closer to 3 times) last year’s pace.
GM earned a total of "just" $34Bn between 1996 and 2004, the last year they had a profit. In 2005 they lost $10.5Bn and last year they lost $2Bn and prior to this quarter they had made $900M for the year but this will likely be considered a bit of a setback. This is kind of like when the SS Poseidon was already upside down THEN the water started pouring in, THEN it caught fire and THEN things started exploding. I think in that move about 6 people survived – GM may not be so lucky!
Equally unlucky were people betting on a dollar bounce as Cheng Siwei, the Vice Chairman of the National People’s Congress who said: "“We will favor stronger currencies over weaker ones, and will readjust accordingly.” POW! That had to hurt, especially coming on the exact day the dollar was at the technical resistance mark of 76. Little did the poor dollar know it was a tag-team match and no sooner did Mr. Siwei finish than Xu Jain, a Vice Director of the Central Bank, took the podium and said: "The dollar is losing its status as the world currency." OUCH! That sent the dollar tumbling down to new lows, boldly going where no currency (except the Deutschmark after WWI) has gone before.
“The interest-rate outlook is dragging down the dollar against major currencies such as the Euro and the Australian dollar,” said Seiichiro Muta, director of foreign exchange in Tokyo at UBS AG, the world’s second-largest currency trader. “I cannot see the bottom of the dollar depreciation yet.” That statement was topped off by Australia’s Central Bank RAISING rates by .25 and saying more tightening may be required to curb inflation. This sent investors flying into the Aussi dollar as a 6.75% base rate in a rising currency beats the US offer of 4.5% in a falling currency hands down.
Also in Asia (and a World away from GM), Toyota posted its second-biggest quarterly profit and raised guidance. We got bored with our TM leaps as they couldn’t break $120 last month but it might be time to give them a fresh look as that company is firing on all cylinders. Their earnings guidance was raised to 1.7 Trillion Yen (and don’t worry about the conversion, it will be even with the dollar soon enough!) and sales in China were up 45% with an 18% DROP in America and a 2% drop in Japan.
Speaking of Japan, that country’s index of leading economic indicators hit ZERO in September, the worst numbers in 10 years. All 10 indicators included in the preliminary index worsened, the Cabinet Office said yesterday. The index compares the performance of data considered good indicators for gauging the course of the economy over the next five to six months. Housing starts dropped 44% in September from the prior year. "If the housing market keeps stagnating, the performance of contractors will continue deteriorating, and consumption of housing-related products such as durable goods will also decrease," said Tetsuro Okada, senior economist at Japan Research Institute. "It’s very likely that the economic-growth rate in Japan will worsen during the October-December period, compared with that in July-September."
Wow, that sounds harsh! Thank goodness we don’t have problems like that, right? Keep in mind that, like our ISM numbers, above 50 is a sign of economic expansion and below 50 is a sign of a contracting economy, ZERO IS AS LOW AS IT GETS! This is the end game of a loose Central Banking policy, played our right before our eyes since the Japanese real estate and stock bubble collapsed in the 90s. There’s an old saying "Those that forget the lessons of history are condemned to repeat them (or get high-level positions as US policy makers)."
Europe is trading off about a point this morning, and they’ve got the GOOD currency. Russia voted against participating in a European arms control treaty as they’re concerned that the US has exercised no control over their arms since 2001. The vote in the Duma was 418-0 effectively telling Bush to stuff it. Putin was gravely insulted by Bush when he sent Rice to discuss the US’s proposed missile defense system last month and wants to be recognized as an equal but this is yet another excuse for oil to go to $100.
The Euro jumped more than 1% in overnight trading to $1.4666 and is very likely to test $1.50 before this run is over unless we get some Federal intervention so expect the Fed Governors to attempt to jawbone our famous "strong dollar policy" without actually making any policy changes. The ECB and BOE make rate decisions tomorrow, they are also under pressure to raise rates to stave off inflation but will likely stand pat rather than consign the dollar to the global basement.
Our markets are hellishly down in pre-market trading but we’ve done a great job of holding our lower levels so far and we’ll be looking for some buying opportunities at least on the bounces. If nothing else it will be a great chance to take out some callers but let’s not be prejudiced until we see a real break out of the trading channel we’ve been discussing. The productivity numbers were actually very good and all we need is some encouraging words from the Fed to spark another round of irrational exuberance, which we can then short into! Such fun…
Be careful out there!