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Beginning on the first line of his
classic poem, The Waste Land, T. S. Eliot
(1888-1965) wrote “April is the Cruelest
Month.”
Although I often found much of Mr.
Eliot’s poetry difficult to understand, I did
enjoy that which I was able to understand.
But now I have discovered a pardonable
error on T. S. Elliot’s part, despite his having
been educated at Harvard, the Sorbonne and
Oxford.
April, in fact, is not the “Cruellest
Month.” Simply stated in American-English
and spelling: “October, 2008 was the Cruelest
Month.”
Markets: Those of you who have been
reading our Commentaries and Clients’
Reports over the years know that we have
anticipated the events which have so
devastated the financial markets over the last
many months which history will probably
credit the beginning date with the 85-year-old
investment banking firm Bear Stearns’
collapse on March 14, 2008 when J P Morgan
bought the company for $2 a share. The stock
had traded over $150 within the previous
twelve months.
For example, for the year-to-date the
Dow Jones Industrial Averages are down
almost 35%, the S&P 500 almost 39% and
the Nasdaq down almost 40%.
While our forecasts, unfortunately,
have proven to be accurate, it has been
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impossible to
predict the timing and degree of the problems that have been created
first by the Credit Crisis that was then followed by
the Economic Crisis.
The problems have largely been
caused by what people refer to as “Wall
Street,” and “Wall Street,” as you know, has
been hurting mightily as a result! “Wall
Street” includes many more people than just
bankers, lawyers, brokers, accountants,
consultants, and buyers and sellers of every
imaginable financial instrument, the total
value of which cannot be calculated --- but is
known to amount to trillions and trillions of
dollars. “Wall Street’s” personnel and
products are global.
What is perhaps most disturbing is
the fact that many of those responsible for the Crisis have
literally gotten away with
financial murder. On the other hand, millions
have suffered financial losses in their
investment portfolios, pension plans and
401Ks. Include university endowments and
retirement funds. Hundreds of thousands of
decent people in the investment industry have also suffered and a
great number are out of jobs through little or no fault of their
own.
The ripple effect cannot be calculated
and ultimately will affect everyone. We are
seeing this in the Housing Crisis and with the collapse of the
American automobile industry if it does not receive US government
financial aid immediately.
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The Big 3: GM, Ford and Chrysler
are likely to declare bankruptcy if they do not
receive additional government assistance in
the very near future. Their figures are awful
and show no signs of improvement. GM alone
has lost over $50 billion in the last three
years. At its current “cash burn rate” the
company is “burning” cash at the rate of $2
billion a month to keep operating. To repeat,
GM will have to declare bankruptcy in a few
months unless a miracle happens. The
moment of reckoning has come as on
November 7th GM reported a $2.5 billion loss
for the quarter on a drop in revenue of 13%.
These conditions are expected to continue as
the company (and industry) looks to a
significant worsening in the first half of 2009.
The company’s total value in the market
place is under $2 billion.
For the first time in my life I have
seen a price target on a stock of zero this
morning, November 10, 2008 when a
Deutsche Bank analyst put a price target of
$0 on General Motors’ common stock. It now
trades at $3.02 per share while Ford sells at
$1.90 per share.
Not only are the automobile
companies’ workers, who belong to the UAW
– the United Auto Workers, going to be out of
work if they do not get $50 or so billion from
the U.S. government, but their families’
medical benefits and retirement funds will
also evaporate. Note that the “Big 3”
automobile companies got a $25 billion U.S.
government loan only several weeks ago. The
ripple effect of their bankruptcies will
produce the same results for all of their
suppliers and for the suppliers of their
suppliers.
Meanwhile this is an issue verging on
socialism --- the government “saving”
individual privately owned corporations with
taxpayer money. Should the government
bailout these companies that have been
poorly managed by very highly paid
executives and very highly paid unions with
our money? Rick Wagoner, GM’s Chief
Executive Officer, takes home $20 million a
year. We do not have the current figures for
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the head of the United Auto Workers,
but a safe bet is that it is a very substantial figure.
Can anyone show that a government
bailout is simply not throwing good money
after bad? To repeat: The US Government
has recently provided American car
companies with $25 billion, and the auto
companies are now asking for another $50
billion. How long do you think that will last?
While we are sympathetic to this
enormous problem to a degree, we do not
want your or our taxes going to the auto
company fat cats and their highly paid, noncompetitive UAW workers.
These companies and their unions have been non-competitive for years.
The successes of foreign non-union auto companies having plants in
America must be compared with their American counterparts. Furthermore,
the Republican administration will not be replaced until January 20th,
and I do not recall a majority of union workers ever voting for a
Republican administration. The proposed bail-out is largely driven by
politics, i.e. Pelosi and Reid to name a few.
Employment: November 7th’s unemployment figures
were awful. Jobs were
down another 240,000, and the unemployment rate jumped from 6.1% to
6.5%. Adjusted job losses for last month were increased to 280,000 for
total job losses of 500,000 in the last two months and 1,200,000 since
the beginning of the year. At the moment there is no end in sight. The
remaining question is how long will this
recession last? Will the current problems
ultimately become a full-fledged depression?
Once again we need not be reminded that we
are operating in a global economy. Europe,
for example, is not far behind this country,
and many think things will ultimately be
worse there than here.
So much for the “good” news. And we
have not even mentioned AIG.
We have, however, learned over the
decades that things do change, and they often |
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change for the good in unimaginable ways
and/or for reasons that nobody can foresee. John
W. Hamilton
November 10, 2008
jwh@hamiltonadvisors.com
P.S. The Wall Street Journal’s November 7,
2008 article “Hedge Fund Selling Puts New
Stress on Market” provides valid insights into
what is taking place in today’s markets and
what is driving their often totally irrational
fluctuations. It is an important read.
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INFLATION AND GOLD – Some thoughts
from Brock Hamilton regarding what will be
the coming inflation fueled by the amount of
dollars and other countries’ paper money
that has been and will continue to be printed
in order “cure” this country’s and the
world’s financial and economic ills.
The very brief thesis below is why we
believe gold deserves serious consideration.
The timing is difficult as we are usually early
to the party, and we are in
deleverage/deflation mode right now.
“The trillions being spent today won't
show up in the economy immediately. Neither
will the current low Fed Funds rate of 1%. It
may take a year or two before today's
massive injection of dollars into the banking
and business system shows up in the
economy. But when it does surface, it will
reveal itself as raging inflation.
Before inflation resumes, the US
dollar is going to get the chills. The Fed has
covered the world with a blanket of Federal
Reserve Notes. These dollars are needed now, but in the period ahead
these dollars will set off a wave of inflation. When there's too
much of any item, that item loses value. When |
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the supply of anything
--- stocks, champagne, cars --- becomes excessive, the value of those items declines. Yes, it
can even happen to a currency. Too many dollars are now being created.
Somewhere ahead, the dollar is going to lose its value against other
currencies. Our overseas creditors won't accept a trillion more dollars,
and that's what gold is now beginning to take into account. The
intrinsic value of gold does not fluctuate in terms of dollars. The
number of dollars required at any given time to purchase an ounce of
gold fluctuates.”
J. Brock Hamilton
jbh@hamiltonadvisors.com
John W. Hamilton
jwh@hamiltonadvisors.com
Deborah J. Hamilton
djh@hamiltonadvisors.com
J. Brock Hamilton
jbh@hamiltonadvisors.com
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PRIVATE WEALTH MANAGEMENT SINCE 1980 |
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No part of this publication may be
reproduced in any form, or referred to in any other publication, without
express written permission. This article contains the current opinions
of Hamilton Advisors and does not represent a recommendation of any
particular security, strategy or investment product. Such opinions are
subject to change without notice. Information contained herein has been
obtained from sources believed to be reliable, but is not guaranteed.
This article is distributed for educational purposes and should not be
considered as investment advice or an offer of any security for sale. ©
2007 Hamilton Advisors, Inc. All rights reserved. Tel: 203 629 1112.
Fax: 203 629 1469
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