SEA Of RED - 2008 Markets Year In Review

It would be a MASSive understatement to describe 2008 as just a 'tough' year for the GLOBAL Financial Markets and Financial Services Industry. Many are going further than that and are already referring to 2008 as the most difficult and trying U.S. market environment since The Great Depression of the 1930's. Rigorous academic discourse and hyperbole aside, here are some eye-opening STATS courtesy of Bloomberg to tie a ribbon on things + put the 2008 GLOBAL financial FALLout in some perspective :


* Global stock markets lost about 1/2 of their value in 2008, or $30.1 TRILLION !


* In the U.S., $7.2 TRILLION of shareholder value was wiped off the books, as the Standard & Poor’s 500 Index fell 39% through Dec. 30 and the Nasdaq dropped 42%


* The Amex Securities Brokers/Dealers Index (fyi, the Broker/Dealer Index is comprised of 12 of the most widely known firms in the brokerage sector...the ticker is XBD) hit a high of 267.69 on June 1, 2007...as of Dec. 30, 2008, the index stood at 74.26 (down 72%!)


* The wave of writedowns and losses that swamped financial institutions around the world reached $720 Billion this year.


* During 2008, the global financial-services industry announced 220,360 JOB CUTS.


* According to the FDIC, there were 25 Bank FAILURES in 2008, the most in 15 years.


* Lehman Brothers (the artist formerly known as LEH)., with assets of $639 Billion, filed the LARGEST bankruptcy in U.S. history on September 15th, 2008...its creditors may have lost as much as $75 Billion, the firm’s chief restructuring officer said.


* In the Largest U.S. bank failure in history, Seattle-based Washington Mutual (the artist formerly known as WM) collapsed in September with approx $307 Billion in assets.


* New York-based Citigroup Inc. (C), whose shares lost 78% of their value this year, needed $20 Billion in U.S. bailout funds in November on top of an earlier $25 Billion infusion of capital. The government was also forced to guarantee $306 Billion of the bank’s troubled assets.


* The U.S. government was forced to rescue the WORLD's LARGEST insurance company, American International Group (AIG), with a $152.5 Billion package of investments, loans and capital infusions

* General Motors (GM) and Chrysler LLC will get $13.4 Billion in federal loans to stay afloat until President-elect Barack Obama’s administration can devise a rescue plan of its own.


* Overall, the U.S. Federal Government has committed $8.5 TRILLION of stimulus in 2008 in order to jumpstart the U.S. economy


* Global merger activity fell to $2.5 TRILLION in deals announced in 2008 vs. the record 4.1 TRILLION worth of deals announced in 2007 (down 39%)


* Hedge funds lost 18% of their value for the year through November, the worst year since record-keeping began in 1990, according to Chicago-based Hedge Fund Research Inc. Morgan Stanley estimated that, by year end, at least 620 hedge funds will have closed.


* According to Investment Company Institute, a Washington-based firm, individual investors pulled $215.7 Billion from stock market mutual funds during the first 11 months of 2008...this compares to a net inflow of $91 Billion during the same period in 2007



bloomberg.com/apps/news?pid=20601109&sid=ataVotdLreS0



Data Courtesy: Bloomberg

The OMINOUS November 2008 JOBS Report

According to the U.S. Labor Dept's monthly November 2008 JOBS Report:

* The U.S. economy lost 537,000 jobs in November (vs. the consensus forecast for a loss of 'only' 335,000 jobs)...537K represents the country's largest single month JOBS decline in 34 years (December 1974)

* Since the beginning of 2008, the U.S. economy has lost a total of 1.91 million jobs...the 1.9 million jobs lost in the current Housing Bubble-induced RECESSION, which officially began back in December 2007, now exceeds the total amount of job losses that resulted from the 2001 Dot Com RECESSION (1.6 million)

* The current unemployment rate is 6.7%...this is the country's highest unemployment rate since October 1993

* The country's 'under-employment' rate (includes part time workers and those who are without jobs who have been discouraged + stopped looking for work) rose to 12.5% from 11.8%...12.5% is the all-time high for this measure since records began in January 1994

* The average employee's work week shrunk to 33.5 hours...this is the shortest avg work week since records started back in 1964

* In addition to the U.S. economy's ridiculously large loss of 537K jobs in November, the labor department also revised higher its unemployment figures for both September and October. The revisions brought the 3-month job loss total to 1.3 million...this is roughly equal to 2/3 of this year's total job losses and is the 3rd Highest Three-Month Job Loss Total since World War 2

- September: Job losses were revised higher to 403K from 284K (up 119K or 42%)

- October: Job losses were revised higher to 320K from 240K (up 80K or 33%)

Data Courtesy: Bloomberg and CNN Money

Will President Obama Rescue Chrysler ?

In a recent decision that will surely carry heavy implications for the entire U.S. automobile industry, the Bush administration will NOT be providing additional taxpayer funds (in the tune of approx $8-$10 Billion) to back a Chrysler-General Motors (GM) merger. With that said, it'll be interesting to see in January '09 if a Barack Obama White House administration chooses to reverse stance on this issue and in effect, rescue the smaller Chrysler from insolvency.

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Per the below Yahoo Finance article, some interesting Auto Industry related EMPLOYMENT figures that deserve attention:

* 355,000 Americans are directly employed by GM, Chrysler, and Ford

* 4.5 million Americans work in sectors supported by the auto industry

* Over 2 million Americans received healthcare benefits from the "Big 3" (GM, Ford and Chrysler)

* 775,000 retirees and their survivors receive pension payments from the industry

yahoo.com/tech-ticker/article/104817/Paulson-to-GM-Chrysler


Data Courtesy: Yahoo Finance

Big 3 EMPLOYMENT - Ford, GM and Chrysler

Given the country's ongoing recession, I decided to look into how much of a RISK to overall EMPLOYMENT numbers (payrolls) it'd be if any or all of the U.S.'s 'Big 3' Auto Manufacturers were to go under/declare BANKRUPTCY. While I have trouble envisioning a scenario in which ALL 3 U.S. major automobile manufacturing companies are 'allowed' to FAIL (I believe the government will step in at some point and most likely arrange/force a merger of at least 2 of the 3 companies to prevent a massive loss of JOBS), I do believe there's a solid chance of seeing AT LEAST one company go under before the current recession runs its course.

Regardless of WHO goes under, given the amount of JOBS each of these companies are directly responsible for (and don't forget about each of their major auto parts supplier relationships...job losses will unfortunately be felt 'indirectly' on that end as well if any of the Big 3 fail), when one of these entities eventually collapses, the ramifications to the U.S. (and of course Michigan as all 3 of these companies are headquartered in Michigan) economy will most certainly be negative (I think I just set THE record for most commas in a run-on sentence).

* According to Hoovers and year end 2007 data :

1.) General Motors (GM)
2007 Employees: 266,000
2007 Sales: $181 Billion
2007 Profit (Loss): negative $39 Billion

2.) Ford Motor (F)
2007 Employees: 246,000
2007 Sales: $173 Billion
2007 Profit (Loss): negative $3 Billion

3.) Chrysler (private company)
2007 Employees: 72,000
2007 Sales: $49 Billion
2007 Profit (Loss): N/A




Data Courtesy: Hoovers

Keeping Y-T-D Tabs On The DOW 30

Check out the below 2008 Year To Date (YTD) Performance Chart of the 30 companies comprising the U.S.'s Dow Jones Industrial Average (Market Index) :

* Year To Date 2008 (through 7/24/08), the Dow is down 14% or 1,900 points...Year over year (Jul 25, 2007 - Jul 24, 2008), the Dow is down 17% or 2,400 points

* Only 5 out of the 30 DOW companies (less than 17% of the index) are 'net gainers' on the year - Dupont (DD), IBM, Walmart (WMT), McDonald's (MCD) and Johnson & Johnson (JNJ)

* Only 2 of these 5 'gainers' have convincing gains - Walmart (+22%) and IBM (+20%)

* In terms of DOGS of the DOW, 3 companies have lost over 40% of their marketcap during 2008 - AIG (-48%), Merk (-45%) and General Motors (-41%)

* Interesting to note the right-most performance column (performance since 7/15/08)...Bank of America (BAC) is up 80% in less than 10 days ! Don't get too excited though..their still down almost 20% on the year.

http://seekingalpha.com/article/86776-dow-30-performance-since-7-15

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FYI, Track the value and performance of the U.S.'s Dow Jones Industrial Average using stock ticker .DJI

Data Courtesy: SeekingAlpha.com
Full Disclosure: I own shares of IBM.

The Revolutionary Pickens Plan

Just for the record, I am a fan of T. Boone Pickens' Alternative Energy Plan.

The Mission Statement - "The Plan calls for building new WIND generation facilities that will produce 20% of our nation's electricity and allow us to use NATURAL GAS as a transportation fuel. The combination of these domestic energies can replace more than 1/3 of our Foreign Oil Imports. And we can do it all in 10 years."

http://www.pickensplan.com/theplan/

BP on Crude Oil (The Crisis):
* In 1970 the U.S. imported 24% of its CRUDE Oil needs..now this number is about 70%
* At current oil prices ($130 a barrell), we spend about $700 billion dollars a year importing crude oil into the U.S. — this is 4 times the annual cost of the Iraq war
* The U.S., 4% of the world's population, accounts for about 25% of the world's oil demand (every day 85 million barrels of oil are produced around the world and 21 million of those are used here in the United States.)
* World oil production peaked in 2005 (TB is a believer in 'Peak Oil'). Despite growing demand and an unprecedented increase in prices, oil production has fallen over the last three years.

BP on Wind Power (solution for electricity):
* The U.S. is the Saudi Arabia of Wind power as studies from around the world show that the Great Plains states (Kansas, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and Wyoming) are home to the greatest wind energy potential in the world.

* Wind power currently accounts for 48 billion kWh of electricity a year in the United States — enough to serve more than 4.5 million households. That is still only about 1% of current demand, but the potential of wind is much greater.
* Building wind facilities in the corridor that stretches from the Texas panhandle to North Dakota could produce 20% of the electricity for the United States at a cost of $1 trillion. It would take another $200 billion to build the capacity to transmit that energy to cities and towns.

BP on Natural Gas (solution for transportation fuel):
* Natural Gas is the cleanest transportation (autos) fuel available today...According to the California Energy Commission, critical greenhouse gas emissions from natural gas are 23% lower than diesel and 30% lower than gasoline.
* Natural gas vehicles (NGV) are already available and combine top performance with low emissions...there are more than 7 million NGVs in use worldwide, but only 150,000 of those are in the United States (2%).
* Natural gas is our country's 2nd largest energy resource (COAL is #1) and a vital component of our energy supply. 98% of the natural gas used in the United States is from North America. But 70% of our oil is purchased from foreign nations.
* Domestic natural gas reserves are twice that of petroleum. And new discoveries of natural gas and ongoing development of renewable biogas are continually adding to existing reserves.
* We currently use natural gas to produce 22% of our Electricity. Harnessing the power of wind to generate electricity will give us the flexibility to shift natural gas away from electricity generation and put it to use as a transportation fuel — reducing our dependence on foreign oil by more than one-third.



Data Courtesy: PickensPlan.com

ArcelorMittal's Voracious STEEL Appetite

ArcelorMittal (MT), the WORLD's LARGEST steel company, outlined the following Long Term Production Goals during an investor conference on Tuesday, 6/17/08:


* STEEL PRODUCTION --> ArcelorMittal expects its steel shipments to total 153 million tons in 2012 vs. 116 million in 2007 (30% production growth in 5 years...this seems enormous considering the current assets + size of the company - $150 Billion marketcap)

* IRON ORE PRODUCTION --> MT expects its iron ore production to reach 110 million tons by 2012 (iron ore is a raw material required for steel production)

http://www.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUSL1754904620080617

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NOTE some of the recent GLOBAL growth actions/steps taken by ArcelorMittal to keep up with its aggressive steel production goals + Ultimately RULE the WW STEEL markets ! (ps: they are a very intelligent + BUSY company) :


* 25% Stake in Turkey's Erdemir --> On 6/16/08, MT announced they spent $869 million to raise their ownership stake in Turkey's Erdemir (Turkey's largest steel producer) to 24.99%...Per Bloomberg, "Erdemir, which has plants on Turkey's Black Sea and Mediterranean coasts and another in Romania, produced 5.4 million metric tons of steel last year and plans to invest $4.2 billion by 2012 to increase capacity. Ordu Yardimlasma Kurumu, or Oyak, an army pension fund, controls Erdemir after buying a 49 percent stake in the steelmaker from the government for $3 billion in 2005. Oyak Chief Executive Officer Coskun Ulusoy said June 14 that the fund subsequently increased its stake in Erdemir to more than 50 percent, without giving an exact figure...Turkey's biggest steelmaker earlier this month posted a 57 percent gain in first-quarter profit."


* Acquisition of U.S. Bayou Steel --> On 6/16/08, MT announced their acquisition of U.S. steel producer, Bayou Steel, for $475 million...Per Bloomberg, "Bayou operates from Louisiana and Tennessee. It produced about 510,000 tons of steel in 2007 and had sales of about $331 million. The company was acquired in June 2006 by Black Diamond Capital Management LLC for $180 million."


* Acquisition of Canada's Bakermet --> On 6/09/08, MT announced their acquisition of Canadian scrap metals recycler, Bakermet. Terms of the deal have not been disclosed...Per MT's press release, "Bakermet, which specializes in all types of ferrous and non-ferrous metal, processed approximately 130,000 short tons of ferrous and 40 million pounds of non-ferrous metals in 2007. The plant, located near Ottawa, will secure upstream self sufficiency in shredded metal for ArcelorMittal's Contrecoeur mill (ArcelorMittal Montreal)."


* 15% Stake in Australia's Macarthur Coal --> On 5/21/08, MT announced they owned a 14.9% stake in Australia's Macarthur Coal worth approx $605 million...Per Marketwatch, "The stake purchase spurred speculation ArcelorMittal may be making a takeover bid for the miner as part of strategy to secure raw-material supplies. Coking-coal prices have tripled in the past five months...Macarthur produces about 35% of the global pulverized coal used to make steel. Control of Macarthur would make ArcelorMittal self sufficient for about 10% to 15% of its coking coal needs, according to reports."...Clearly MT is looking to secure the raw materials it needs (coking coal) to produce steel and support its current long term production plan of record.


* 50% Stake in Gonvarri Brasil --> On 4/03/08, MT announced their 50% stake and joint venture with Gonvarri Brasil. Per MT's press release, "Gonvarri Brasil is one of the major players for servicing automotive, industry and distribution customers (in Brazil). ArcelorMittal and Gonvarri group have had a close relationship for many years - ArcelorMittal holding a significant stake in Gonvarri Holding and being a major supplier...With this acquisition, ArcelorMittal intends to build a strong presence in the Brazilian flat steel downstream segment, in line with the leadership of its Tubarão (Vitoria) and Vega do Sul plants. Synergies will also be realized with ArcelorMittal Belgo's existing distribution network in Brazil, active both in flat and long products...Today the company (Gonvarri Brasil) is one of the leaders of the flat steel processing in Brazil and its activities include pickling, slitting, blanking, cutting to length, with a total processing capacity of around 1.3 million tons of steel. The Company has 320 employees and owns more than 80,000 square meters of facilities."

http://www.bloomberg.com/apps/news?pid=20601085&sid=a32CMRQlNSMw&refer=europe

Data Courtesy: Reuters + Bloomberg + MT
Full Disclosure: I own shares of MT.

U.S. Crude Oil Usage By Sector

A picture says one thousand words...according to data compiled in 2005 by the Energy Information Administration (EIA), U.S. Oil Consumption by Sector:



Data Courtesy: EIA, Annual Energy Outlook 2005

IDKT - GM + Brazil

I Didn't
Know
That
...General Motors (GM) is BRAZIL's Automobile industry marketshare LEADER.

Marcin's State Of The Market

I am a paid subscriber and loyal reader of financial news website, RealMoney.com. The below quote is from one of Realmoney's key contributors, Robert Marcin. In my opinion, Mr. Marcin's done a good job (thus far) of investing/trading and helping navigate readers through this U.S. credit crisis/recession...below he shares some valueable insight on what his current economic assumptions are and how he's trading them:

"I continue to avoid or short the domestic consumer and its financier. I would avoid home builders, banks, brokers, autos, general retail, consumer durables, utilities, and REITs. Here, falling home prices, a slowing domestic economy, shrinking balance sheets, and bigger financial charges will depress sales and profits for most companies.
While the world economy is slowing, the US housing/financial/durable economy is IMPLODING. I don't get the desire of investors to try to catch bottoms in a collapsing sector of the economy. This bottom fishing attempt in the housing/finance mess reminds me of the same after the tech bubble implosion. Everyone was too early.
My formula has always been to buy stocks that are down and cheap with good fundamentals, NOT imploding ones. I am watching the economic data very closely to see if we get a SPILLOVER of the problems (if the U.S.'s recession affects + materially slows down GLOBAL growth in the BRIC + ROW countries). But so far, the real, global economy has continued to muddle through the US housing/finance bust. If things change, I will adjust my positions. But for now, things still look ok with the global infrastructure/commodity/energy technology theme."

Data Courtesy: RealMoney.com (subscription), snagged on 3/31/08.