50 Economic Numbers from 2011 “That are Almost Too Crazy to Believe”

Tuesday, December 20th, 2011

The following list of 50 “crazy” U.S. economic numbers from 2011 comes courtesy of The Economic Collapse blog:

#1 A staggering 48 percent of all Americans are either considered to be “low income” or are living in poverty.

#2 Approximately 57 percent of all children in the United States are living in homes that are either considered to be “low income” or impoverished.

#3 If the number of Americans that “wanted jobs” was the same today as it was back in 2007, the “official” unemployment rate put out by the U.S. government would be up to 11 percent.

#4 The average amount of time that a worker stays unemployed in the United States is now over 40 weeks.

#5 One recent survey found that 77 percent of all U.S. small businesses do not plan to hire any more workers.

#6 There are fewer payroll jobs in the United States today than there were back in 2000 even though we have added 30 million extra people to the population since then.

#7 Since December 2007, median household income in the United States has declined by a total of 6.8% once you account for inflation.

#8 According to the Bureau of Labor Statistics, 16.6 million Americans were self-employed back in December 2006. Today, that number has shrunk to 14.5 million.

#9 A Gallup poll from earlier this year found that approximately one out of every five Americans that do have a job consider themselves to be underemployed.

#10 According to author Paul Osterman, about 20 percent of all U.S. adults are currently working jobs that pay poverty-level wages.

#11 Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.

#12 Back in 1969, 95 percent of all men between the ages of 25 and 54 had a job. In July, only 81.2 percent of men in that age group had a job.

#13 One recent survey found that one out of every three Americans would not be able to make a mortgage or rent payment next month if they suddenly lost their current job.

#14 The Federal Reserve recently announced that the total net worth of U.S. households declined by 4.1 percent in the 3rd quarter of 2011 alone.

#15 According to a recent study conducted by the BlackRock Investment Institute, the ratio of household debt to personal income in the United States is now 154 percent.

#16 As the economy has slowed down, so has the number of marriages. According to a Pew Research Center analysis, only 51 percent of all Americans that are at least 18 years old are currently married. Back in 1960, 72 percent of all U.S. adults were married.

#17 The U.S. Postal Service has lost more than 5 billion dollars over the past year.

#18 In Stockton, California home prices have declined 64 percent from where they were at when the housing market peaked.

#19 Nevada has had the highest foreclosure rate in the nation for 59 months in a row.

#20 If you can believe it, the median price of a home in Detroit is now just $6000.

#21 According to the U.S. Census Bureau, 18 percent of all homes in the state of Florida are sitting vacant.  That figure is 63 percent larger than it was just ten years ago.

#23 As I have written about previously, 19 percent of all American men between the ages of 25 and 34 are now living with their parents.

#30 The retirement crisis in the United States just continues to get worse.  According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.

#33 Today, the “too big to fail” banks are larger than ever.  The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011.

#34 The six heirs of Wal-Mart founder Sam Walton have a net worth that is roughly equal to the bottom 30 percent of all Americans combined.

#40 Sadly, child poverty is absolutely exploding all over America.  According to the National Center for Children in Poverty, 36.4% of all children that live in Philadelphia are living in poverty, 40.1% of all children that live in Atlanta are living in poverty, 52.6% of all children that live in Cleveland are living in poverty and 53.6% of all children that live in Detroit are living in poverty.

#42 In 1980, government transfer payments accounted for just 11.7% of all income.  Today, government transfer payments account for more than 18 percent of all income.

#43 A staggering 48.5% of all Americans live in a household that receives some form of government benefits.  Back in 1983, that number was below 30 percent.

Click here for the full article.

Source: The Economic Collapse, December 16, 2011.

Tags: 30 Million, 5 Million, 6 Million, Adults, Age Group, Amount Of Time, Author Paul, Bureau Of Labor, Bureau Of Labor Statistics, Economic Collapse, Economic Numbers, Gallup Poll, inflation, Median Household Income, Paul Osterman, Payroll Jobs, Poverty Level Wages, Small Businesses, Survey Found That, Unemployment Rate
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Gary Shilling: 20% Drop in Housing to Cause Recession in 2012

Thursday, July 14th, 2011

Gary Shilling, author of the Age of Deleveraging, and President of Gary Shilling & Company, says there is another recession looming on the horizon, and at this point, it will be irrelevant what the Fed does next.

“Economic growth here and abroad is slipping, making a 2012 recession a distinct possibility,” writes Shilling, in his July newsletter. And, “when you have slow growth it doesn’t take much of a shock to throw you in negative territory.”

‘Another leg down in housing,’ will be the shock that precipitates the next economic decline, as the Fed has been unable to recessitate this asset class. Shilling’s forecasts are known for being generally bearish, but much to his credit, he was among a very small number of economists who foresaw and correctly predicted the jeopardy of the subprime mortgage market, and the destructive effect it would have on the broader U.S. economy.

Shilling’s research highlights that a huge excess inventory is the ‘achilles heal’ in the real estate market. His estimates show there are 2 million to 2.5 million excess homes in the country – roughly 4-5 years worth of slack. In the end, he predicts housing prices will fall another 20% and the proportion of underwater mortgages will rise to 40%, from a current level of 23%.

On that basis, Shilling says a recession is “coming to a town near you.”

Source: Yahoo Tech Ticker, July 14, 2011

Tags: 5 Million, Achilles, asset class, Destructive Effect, Distinct Possibility, Economic Decline, Economic Growth, Economists, Estimates, Excess Inventory, Gary Shilling, Horizon, Jeopardy, July 14, Negative Territory, Proportion, Recession, Shock, Slack, Subprime Mortgage Market
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Be Ready for Rebound in Platinum – BUY!

Tuesday, May 17th, 2011

The platinum price took a heavy beating when the Great Tohoku Earthquake struck Japan on March 11 and seemed to recover afterwards before retreating recently.

Sources: I-Net Bridge; Plexus Asset Management.

The recovery and subsequent recent decline was more a reflection of cross-rate movements of the US dollar than anything else as the platinum price in terms of euro has remained in a very narrow range since the end of March.

Sources: I-Net Bridge; Plexus Asset Management.

The weakness of the platinum price is more apparent if it is compared to gold. Since Japan’s twin disasters, platinum’s premium to gold has been in a downtrend, falling from $366 to $270 or by 26.2% at Friday’s close.

Sources: I-Net Bridge; Plexus Asset Management.

In terms of euro the premium fell to 191 from 234 or 18.4%.

Sources: I-Net Bridge; Plexus Asset Management.

But why the massive hit on platinum?

The Japanese auto industry was hit particularly hard by the earthquake and tsunami that followed. Japan’s production of cars and trucks fell by 535,000 units or 57.3% in March compared to March last year. Toyota was scheduled to resume production in the second half of April, but only to 50% of normal production. If I assume that only 50% of cars and trucks were produced in April compared to last year, this will mean a loss of another 313,000 vehicles. If production in May returns to 75% of the same month last year, another 180,000 vehicles would have been lost compared to last year’s total production of 9.5 million cars and trucks. Those production losses add up to a staggering 1,028 million vehicles or nearly 11% of 2010 production! The impact of the Kobe disaster in January 1995 was miniscule compared to that of the twin disaster in March. I estimate that the production of only approximately 40,000 units were lost in January that year while production returned to normal in February.

Japan consumed a gross 535,000 ounces of platinum for auto-catalysts in 2010. It therefore means that Japan’s auto industry uses on average 0.054 ounces of platinum per vehicle. It therefore transpires that since March platinum demand from the Japanese auto industry alone has dropped by approximately 58,000 ounces. That excludes the ripple effect of supply disruptions in other countries such as Malaysia that saw auto production in that country slipping by 24.7% in April. I will not be surprised if the loss of the total demand for platinum in the global auto industry this year could add up to in excess of 100,000 ounces or 1.7% of last year’s total supply. While it seems small, the 100,000 ounces should be compared to the average investment demand of approximately 55,000 ounces (2008–2010). That is huge!

The big question is when the platinum price will start to recover. I think it is generally accepted that this time the damage to Japan’s economy and infrastructure is significantly worse than after the Kobe disaster. The main difference between now and then is that the yen has not been allowed to weaken against the US dollar to the same extent as in 1995 when Japan’s exports to the US were seriously hampered.

Sources: I-Net Bridge; Plexus Asset Management.

Immediately after the twin disaster Japan’s export markets were also supported by the weakening of the yen against the euro.

Sources: I-Net Bridge; Plexus Asset Management.

I think it is only a question of time before platinum’s premium to gold will be restored. In 1995 it took approximately 53 working days after the disaster before the premium started to open up. We are now on the 45th day!

Sources: I-Net Bridge; Plexus Asset Management.

In 1995 we saw a jump of more than 10% in the platinum price when the market realized the underlying value of the metal compared to other precious metals. Will we see it again? Well, take a look at what the professionals are saying!

Sources: CFTC; Plexus Asset Management.

Where the net long futures position of non-commercial traders on NYMEX tumbled in the week of the twin disaster, net positions have increased by 8,489 contracts or 424,450 ounces from a low of 18,503 contracts in the second half of March and are currently approaching the pre-disaster levels.

I am adding platinum to my portfolio!

Tags: 5 Million, Asset Management, Auto Industry, Catalysts, Cross Rate, Decline, Disaster, Disasters, Earthquake, Infrastructure, Japanese Auto, Kobe, March 11, Million Cars, Million Vehicles, Platinum Price, Production Losses, Rebound, Reflection, Second Half, Tohoku
Posted in Infrastructure, Markets | Comments Off

Potash (POT) Beats by 12 Cents, Guides 2011 a Bit Higher but Excites Crowd with 3-1 Split

Friday, January 28th, 2011

by Trader Mark, Fund My Mutual Fund

It is always bemusing to watch stocks jump on stock splits which are nothing but an accounting change.  2x more stock at half the price.  Nothing changes but back in 1999 you’d see stocks jump 15-20% on a stock split as long as it was on the NASDAQ.  Some of that behavior still lives.  Potash (POT) reported a solid quarter, with not that exciting guidance, but the 3-1 stock split has helped to stoke excitement.

For the quarter $1.77 v $1.65 expectation, revenues up 65% to $1.81B.  For 2011 the company guides to $8.40 to $9.60, vs current $8.89.  Based on how poorly these fertilizer companies guided in 2008 and 2009 versus a quickly changing market, take everything with a grain of salt. Even assuming Potash hits $10 EPS in 2011, this is a forward PE of 17.5 (forward, not trailing) for an extremely cyclical company.  But increasingly valuation is becoming moot across the market as it was in 1999 – all the central banker liquidity has to go somewhere.  Indeed we shall see that same dilemma in Amazon.com (AMZN) in a few hours.

• The company said it expects global shipments of potash to reach 55 million metric tons to 60 million metric tons in 2011, up from 52 million tons in 2010.
• Potash Corp now expects 2011 potash shipments of 9.5 million to 10 million tonnes. It had earlier forecast sales shipments of 9.3 million tonnes.
• The company has earmarked $2.0 billion for capital expenditures in 2011, with $1.4 billion going to potash expansion projects.
• The company will pay out the stock split to shareholders in the form of a stock dividend, with each receiving two additional shares for each one owned on the record date of Feb. 16.

No position

Copyright (c) Trader Mark, Fund My Mutual Fund

Tags: 5 Million, 60 Million, Amazon Com Amzn, Capital Expenditures, Dilemma, Eps, Expectation, Fertilizer Companies, Global Shipments, Grain Of Salt, liquidity, Million Metric Tons, Mutual Fund, Nasdaq, Potash Corp, Potash Pot, Shareholders, Stock Dividend, Stock Splits
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Bill Ackman adds Citi, ADP, Sells Yum in Q2

Wednesday, August 18th, 2010

Pershing Square’s Q2 13F is out and it seems that Bill Ackman’s fund has had a few notable changes in its holdings, most notable of which is the addition of 146.5 million shares of Citi. Alas, it may be too little to late to jump on the John Paulson Recovery fund (we are waiting for that particular 13F to be released any minute). At least the white haired manager did not get into Bank of America, which has been in gradual freefall mode for the past 2 months. Pershing also added a new position in ADP, which amounts to 8.3 million shares, added a little in Kraft, while selling nearly his entire Yum position, as well as offloading a token amount of Target. GGP was flat at 24 million shares.

Copyright (c) ZeroHedge.com

Tags: 13f, 5 Million, Adp, Bank Of America, Bill Ackman, Citi, Freefall, Ggp, John Paulson, Kraft, New Position, Pershing Square, Q2, Shares, Target, Yum
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Oil Spill: Belgians Shouldn’t Feel Too Bad, The U.S. Wouldn’t Go Dutch Either

Monday, June 21st, 2010

There has been some new information since June 8, when I quoted a Belgian newspaper–De Standarrd–that the Jones Act may have caused a delay in the oil spill rescue by forbidding foreign vessels and personnel to work in the U.S. Gulf.

As it has turned out, the Belgian companies shouldn’t feel too bad, the U.S. government also turned down an official offer by the Dutch government as well.

According to Houston Chronicle–quoting Geert Visser, consul general for the Netherlands in Houston–three days after the explosion of the Deepwater Horizon, the Dutch government offered to help by providing ships outfitted with oil-skimming booms, and proposed a plan for building sand barriers.

The [Dutch] embassy got a nice letter from the administration that said, ‘Thanks, but no thanks,’” Visser said

However, almost seven weeks later, our government has reconsidered.  As Houston Chronicle reports, “U.S. ships” were being outfitted earlier this month with four pairs of skimming booms airlifted from the Netherlands and should be deployed “within days.”

Each pair of booms supposedly can process 5 million gallons of water a day, removing 20,000 tons of oil and sludge.  (Math Q of The Day: Multiply these numbers by 50 days.)

The sand barrier proposal by the Dutch was initially rebuffed as well, but later accepted by the U.S. government. BP has begun paying about $360 million to cover the costs.

Now, Christian Science Monitor says today that

The Coast Guard Friday “redoubled” efforts…by calling in more skimming boats and equipment from the Netherlands, Norway, France, and Spain after previously telling one Dutch official “Thanks, but no thanks,” to an offer of help.  That revelation comes as Florida lawmakers beg for more skimmers….Meanwhile, US marine interests complain that up to 1,500 US-flagged skimmers sit idle, and should be used first.

Tags: 5 Million, Adm, Belgian Companies, Belgians, Booms, Christian Science Monitor, Consul General, Dutch Embassy, Dutch Government, Florida Lawmakers, Houston Chronicle, Jones Act, Marine Interests, Netherlands Norway, Offer Of Help, Oil Spill, Seven Weeks, Skimmers, Skimming, Sludge
Posted in Energy & Natural Resources, Markets, Oil and Gas | Comments Off

Where China Buys Oil

Monday, May 10th, 2010

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This article is a guest contribution by Frank Holmes, CEO, U.S. Global Investors

May 9, 2010

China is thirsty for oil and has a fat wallet.

Just last month, China signed a $20 billion deal with Venezuela to finance more exploration and production in the country’s Orinoco Belt. It’s a win-win deal – Venezuela badly needs the capital to restore its depleting fields and China badly needs the resource.

Counting this one, since 2005 China has made 27 international deals worth more than $60 billion involving 19 countries and every continent but Antarctica. The graphic below shows who China is dealing with and how much oil it is getting for its money.

China’s demand for oil already exceeds its domestic production, and the country’s rapid growth will only widen that gap. Over the past 20 years, China’s oil consumption has jumped more than 5 million barrels a day while production has only increased by a little more than 1 million.

This strong demand will likely withstand any economic slowdown. More than 1.2 million passenger cars were sold in China in March, up 63 percent from the previous year. The country is currently on pace to sell 14 million autos in 2010, which would be tops in the world for a second straight year.

The brisk pace of vehicle growth in China should ensure that the pace of oil deals also remains brisk.

Tags: 5 Million, Antarctica, Brisk Pace, Ceo, China, Continent, Economic Slowdown, Exploration And Production, Fat Wallet, Frank Holmes, Gap, International Deals, Oil Consumption, Oil Deals, Orinoco Belt, Passenger Cars, Previous Year, Rapid Growth, U S Global Investors, Venezuela
Posted in Energy & Natural Resources, Markets, Oil and Gas | Comments Off

Why are Silver Sales Soaring?

Saturday, April 10th, 2010

Submitted By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report, courtesy ZeroHedge.com.

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The U.S. Mint just reported another record, but this time it wasn’t for gold. The Mint sold more Silver Eagles in March and in the first quarter of the year than ever before. A total of 9,023,500 American Silver Eagles were purchased in Q110, the highest amount since the coin debuted in 1986.

While this is certainly bullish, there’s something potentially more potent developing in the background. Namely, how this matches up with U.S. silver production. Like gold, the U.S. Mint only manufactures Eagles from domestic production. And U.S. mine production for silver is about 40 million ounces. In other words, we just reached the point where virtually all U.S. silver production is going toward the manufacturing of Silver Eagles.

Yikes.

This is especially explosive when you consider that roughly 40% of all silver is used for industrial applications, 30% for jewelry, 20% for photography and other uses, and only 5% or so for coins and medals.

To be sure, mine production is not the only source of silver. In 2009, approximately 52.9 million ounces were recovered from various sources of scrap. Further, the U.S. imported a net of about 112.5 million ounces last year. (Dependence on foreign oil? How about dependence on foreign silver!) So it’s not like there’s a worry there won’t be enough silver to produce the Eagle you want next month.

Still, why so much buying? The silver price ended the quarter up 15.5% from its February 4 low – but it was basically flat for the quarter, up a measly 1.9%. We tend to see buyers clamoring for product when the price takes off, so the jump in demand wasn’t due to screaming headlines about soaring prices.

I have a theory.

For some time, silver has been known as the “poor man’s gold.” Meaning, silver demand tends to increase when gold gets too “expensive.” The gold price has stubbornly stayed above $1,000 for over six months now and spent much of that time above $1,100. You’d be lucky to pay less than $1,200 right now for a one-ounce coin (after premiums), an amount most workers can’t pluck out of their back pocket. But Joe Sixpack just might grab a “twelve-pack” of silver.

What would perhaps lend evidence to my theory is if gold sales were down in the face of these higher silver sales.
The U.S. Mint reported a decline in gold bullion sales of 20.8% this past quarter vs. the same quarter in 2009. Further, other world mints have seen sharp declines in gold bullion coin sales as well: the Austrian Mint reported an 80% drop in sales for the first two months of the year and the Royal British Mint a 50% decline in gold coin production for the first quarter.

What’s even more dramatic is the difference in the dollar value of the sales. Gold Eagle sales in the U.S. dropped $10,263,500 from a year earlier – but silver sales increased by $61,855,290. So, not only did silver sales make up the drop in gold sales, they exceeded them by $51,591,790.

Is the rush into “poor man’s gold” underway?

Why the answer to that question is significant is that a shift toward silver for this reason could signal we’re inching closer to the greater masses getting involved in the precious metals arena. And that – for those of us who’ve been invested for awhile now – would be music to the ears. Because when they start getting involved, the mania will be underway, and from that point forward, it’s game on.

I’m not saying the mania is starting, and I actually think we could see another sell-off before things take off for good. Gold could dip to $1,000 and maybe even $950, with silver going to the $14-$15 range. But as clues like these begin to build up, we’ll know we’re getting closer. (And any drop to those ranges would clearly be a major buying opportunity.)

Everyone talks about gold, myself included, but a meaningful portion of one’s precious metals portfolio should be devoted to silver. The market is tiny, making the price potentially explosive. Remember that in the ‘70s bull market gold advanced over 700%, but silver soared over 1,400%.

Don’t be a “poor man” by ignoring gold’s shiny cousin.

Tags: 5 Million, American Eagles, American Silver Eagles, Casey, Coins, Dependence On Foreign Oil, First Quarter, Gold, Gold Bullion, Gold Price, Gold Silver, Headlines, Industrial Applications, Jewelry, Medals, Poor Man, Resource Report, Silver, Silver Price, Silver Production, U S Mint, Worry
Posted in Energy & Natural Resources, Markets, Silver | 1 Comment »

Following up on Nordic American Tankers (NAT) one year later

Wednesday, March 10th, 2010

One year ago, yesterday, I shared the transcript of the CNBC interview with Herbjorn Hannson, CEO of  Nordic American Tankers, an oil shipping company whose business fundamentals were profoundly good, particularly given the backdrop the market bottom, when things appeared most dire. This is but one company, and it captured my attention 12 months ago.

On March 9, 2009, Nordic Shares closed around $23.43. Subsequently they closed at a high of 36.22, two months later on May 7, 2009. Currently, the shares are trading around 31.

NAT has no debt.

Here is the company’s dividend record:

NAT has made the following dividend payments to its shareholders:

Amount per share (USD)

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
2010	0.25
2009	0.87	0.88	0.50	0.10
2008	0.50	1.18	1.60	1.61
2007	1.00	1.24	1.17	0.40
2006	1.88	1.58	1.07	1.32
2005	1.62	1.15	0.84	0.60
2004	1.15	1.70	0.88	1.11
2003	0.63	1.27	0.78	0.37
2002	0.36	0.34	0.33	0.32
2001	1.41	1.19	0.72	0.55
2000	0.34	0.45	0.67	1.10
1999	0.32	0.35	0.35	0.36
1998	0.40	0.41	0.32	0.30
1997				0.30

The table illustrates the dividend declared by quarter in which the dividend was paid and is based on the earnings of the previous quarter.

Here is Hannson’s March 8, 2010 letter to shareholders.

Dear Shareholder,

As Chairman and CEO I strive to keep all our shareholders well informed about key aspects of the development of our Company. It is therefore now time for me to send you another letter.

Since my letter of September 29, 2009 to you, the Company has acquired two more suezmax vessels, of which one was delivered to us on November 17, 2009 and the other was delivered to us on March 2, 2010. We paid $51.5 million for each of these 2002 built suezmax tankers. Including the two newbuildings expected to be delivered to us later this year, the fleet of our Company consists of 18 suezmax vessels. The acquisitions are accretive and the dividend potential of the Company has increased.

Accretive growth is a key element in our strategy. Over time the fleet must grow faster than the share count in order to create value for shareholders. In January 2010 we priced a follow-on offering from which the proceeds to the Company were $137 million before cash offering costs. The Company currently has the resources to acquire 4 more vessels without tapping the equity market. An increase of the fleet from 18 to 22 vessels would represent a 22% increase of our fleet whereas the share count was increased by about 10% in connection with the follow-on offering. This is an example of accretion while recognizing that net debt is expected to be slightly higher after such prospective acquisitions.

Having a fleet consisting solely of suezmax vessels, we experience cost benefits and in today’s environment we also pursue possibilities of further reductions in our costs. The Company also has low general and administrative costs which together with our low debt contribute to a very low cash breakeven.

So far into the first quarter of 2010, at the time of this writing, we observe a spot suezmax tanker market which on average is well above the level of the fourth quarter of 2009. Based on the market so far in 2010 we therefore expect the dividend of the Company for the first quarter of 2010 to be substantially higher than the dividend for the fourth quarter of 2009, which was $0.25 per share.

Our primary objective is to maximize total return to our shareholders, including maximizing our quarterly cash dividend. Over time we have in the past produced a very competitive total return for our shareholders and we believe that we are in an excellent position to achieve such results also going forward.

With our proven model and strong balance sheet we aim to be in a position to reap the benefits in the markets as they develop, be they soft or strong from time to time.

I would like to finalize my letter to you by stressing a key dimension in our model: the alignment of interests between our shareholders and our management. If our shareholders do well, so do management and vice versa. We do not believe in special, supermajority shares, for our management. In our Company, all shares have one vote, plain and simple.

As you understand, I am optimistic about the future of our Company.

All the best!

Sincerely,
Herbjørn Hansson
Chairman & CEO

This is by no means a recommendation, I’m not promoting it, nor is not intended to be. What I believe is that this company and others like it are very attractive in a world where credit is difficult to come by.

Disclosure: No positions

Tags: 4th Quarter, 5 Million, Acquisitions, Backdrop, Business Fundamentals, Ceo, Cnbc, Cnbc Interview, Dividend Payments, Dividend Record, Earnings, Element, Fleet, Letter To Shareholders, Market Bottom, Newbuildings, Nordic American Tankers, September 29, Share Count, Shareholder, Shipping Company, Suezmax Vessels
Posted in Commodities, Energy & Natural Resources, Markets, Oil and Gas | Comments Off

El-Erian – Investors Be Wary of Stocks, Treasuries

Sunday, April 12th, 2009

“Investors can still lose a lot of money in the stock market, but US government bonds aren’t the solution either for those seeking safe havens, Pimco’s co-CEO and co-chief investment officer Mohammed El-Erian told CNBC. ‘Certain bonds aren’t worth owning, like government bonds for instance,’ El-Erian said, adding that gaping deficits will force governments issue more debt.

“I am very underweight equities,” he said, adding that he has cut his exposure to stocks to 30% compared with around 60% in normal market conditions. Pimco is the world’s biggest bond fund.

“‘Fundamentally we are in a volatile journey to what we call the new normal, the new destination. The world is changing,’ El-Erian said.

“People have to adjust to the fact that wealth has been destroyed, and the fact that there are more than 5 million unemployed in the US shows how serious the situation is, he added.

“‘The American consumer will return but will be a saner consumer … worried about their savings, worried about their retirement. That is a good adjustment. The problem is that it doesn’t happen overnight,’ El-Erian said.

“Asked whether he believed the stock market can re-test the March lows, he said: ‘The intellectually honest answer is we don’t know. I have a fear right now that people are sucked into the equities market … go in as long as you can afford to lose that money,’ he added.

“Two out of four conditions need to be met for an economic recovery to begin, according to El-Erian: house prices need to stabilize, banks must start lending again, the consumer must start spending again and the rest of the world must pick up.

“For the moment, only the fourth condition is partly fulfilled, with timid signs of recovery in China emerging, he said.

“Asked about attractive areas of investment, El-Erian listed mortgages, municipal bonds and corporate bonds, especially instead of stocks.

Source: CNBC, April 7, 2009.

Hat tip: Investment Postcards

Tags: 5 Million, Attractive Areas, Bond Fund, Chief Investment Officer, Cnbc, Corporate Bonds, Economic Recovery, Erian, Government Bonds, Hat Tip, Honest Answer, House Prices, Investment Mortgages, Lows, Mohammed, Municipal Bonds, New Destination, Safe Havens, Stock Market, Treasuries, Treasurys
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