Geithner disappoints Ron Nathan Philippine Daily Inquirer
February 19, 2009
I went into Olaf Pederson’s Chinese Laundry. Behind the counter sat an old man, obviously Chinese. I asked him how he managed to have a Scandinavian name. He said, “When I came to the US many years ago, I had to pass through Immigration. The man in front of me was at 6-foot-3, blond Norwegian and he gave his name as Olaf Pederson. When it came to my turn, I said, SEM TING.”
I saw a woman with a sweatshirt with GUESS on it. So I said, Implants? And she hit me.
An economist advised putting money into safe instruments. So I put mine into a violin case.
Madonna’s nude photograph sold for $37,500. Mine sells for P500.
My wife asked me for a Valentine stimulus package. I bought her a vibrator.
I was unable to write last week because of an eye infection. The eye-drops made everything blurred. Years ago, my teacher used eye-drops and could not keep control of her pupils.
Every month, the previous statistics on job losses are revised upwards, usually by 50,000 to 100,000. This time they broke all records when revising the jobs lost in 2008 from 2.6 million to 3.0 million. Including 600,000 lost in January, this brings the total to 3.6 million; by Easter, it will comfortably exceed 4.0 million. Before the stimulus plan can kick in by yearend, it will reach 4.5 million, especially if the auto industry is forced into bankruptcy. I remain bearish and just bought a solid gold Buddha.
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US Treasury Secretary Timothy Geithner was introduced as the greatest mind since Einstein and his speeches were written in a hypermarket. So it was with profound excitement that people all over the world listened to his speech. He spoke eloquently and came over as a highly intelligent, dedicated head of the Treasury. But while his speech was wide-ranging, it was woefully short on details and the Dow index dropped nearly 400 points on disappointment.
Clearly, the plan is so complex that more time is needed to think it through and finalize the details.
Geithner warned that there might be mistakes and that recovery should be measured in years, not months. This warning was repeated last Saturday by President Barack Obama.
The number of people claiming unemployment benefits is close to a 26-year high and another large number can be expected for February. More and more companies are laying workers off and running their inventories down. The price of oil is down from $147 a barrel last July to a mere $37. Russia and Iran are suffering and Russia has devalued the ruble by 22 percent in seven months.
Even if the last quarter of 2008 and the first quarter of 2009 represent the peak of the layoffs, unemployment will keep rising because nobody is going to be hiring this year. Results for the last quarter of 2008 were well below analysts’ estimates and the next two quarters are going to be worse so I don’t see any hurry to return to the market. There will always be bear rallies because volatility remains high.
The stimulus package was delayed and eventually just passed with 60 votes. The bill will be passed into law today but nobody thinks it will create 3 to 4 million jobs or provide much short-term relief: 39 percent will be spent on infrastructure and energy-related projects, 34 percent on direct spending including increased unemployment benefits and 27 percent for tax breaks, mainly for individuals. But when each individual receives $400, he or she is likely to use it to pay off credit cards or put it into the bank.
Meanwhile, nothing has been done to stop foreclosures, which are expected to reach 2 million this year. There are plans being drawn up allocating $50 billion from the TARP but it will take time to implement. Meanwhile, house prices continue to decline and the number of houses on the market far exceeds the number of new buyers. The plans may be summed up as too little-too late. There is also a scheme to form an alligator bank, which will open its jaws and swallow all the toxic mortgages. The only suggestion I agree with is to let the private sector join in. The hedge funds still have trillions and are keen to join wealth funds and large private investors in determining the price of these toxic assets. Eventually, it will get sorted out but not in the near term.
China’s initial stimulus package of $584 billion is considerably larger than the US relative to GDP. Since then, there have been additional stimulus packages for the heavy industry sector, textiles, electronics and telecommunications. The banks lent $237 billion of new local currency loans and the money supply has risen 18.8 percent, the fastest pace in more than a year. Merrill Lynch predicts that China will be the first to emerge from the current crisis and will grow 6.6 percent this quarter. China does not have to worry about exports as it has a huge domestic market to satisfy. There will be further rate cuts and a release of more bank deposits to spur the recovery. Shanghai is the best performing marker this year, up 29 percent.
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Dear Readers, it is exactly five years since I joined the Philippine Daily Inquirer, and at 79 I think it is time to give way to someone younger. It has been a happy period and I have made many friends. I hope that you have benefited from my investment advice and been amused by my British humor.
If any reader wishes to contact me, my email is RNbearbull6@gmail.com.
