New U.S. claims for unemployment benefits rose 9,000 to a seasonally adjusted 408,000. Economists expected 400,000.
The Philadelphia Federal Reserve's survey of regional manufacturing fell to negative 30.7 in August – the biggest drop in more than two years. A reading of less than zero means the sector is contracting.
And for the third time in four months, the number of people buying previously occupied homes dropped in July. Home sales fell 3.5% to a seasonally adjusted rate of 4.67 million homes (6 million homes is considered a healthy market). This year's sales pace is lagging behind last year's... the 4.91 million sales last year was the weakest figure in 13 years. With the news, mortgage rates fell to their lowest in 40 years... 30-year mortgages are now 4.15%, and 15-year notes are 3.36%.
I read a Yahoo headline this morning that said "Wall Street Tumbles on Economy, Bank Worries."
Has the economy worsened dramatically since Monday, when the S&P 500 rose 2%?
The market must be chock-full of world-class mathematical geniuses, all of them hourly divining the future path of the entire global economy, instantly calculating its effect on the intrinsic value of the 500 largest U.S. corporations, then buying and selling at just the right moment. I wish I could do that.
If someone asked me the secret to investing, I wouldn't tell them to learn to interpret reports based on numbers by a bunch of economists… who, after all, are just math students who made a bad career choice. Do you really think these numbers have any bearing on the value of equities or other investment choices? The S&P 500 went up 2% Monday. Was everybody stupid on Monday? But they're all geniuses getting it right today, as the S&P 500 falls 3%?
It seems hardly anyone involved in the stock market cares about investing. They mostly care about the utterances of so many anonymous economists. Shakespeare said first we shoot all the lawyers. I say make the economists stand in front of them.
Since the European debt crisis began, we told you it would take trillions of dollars to bolster the banks and sovereigns. And we also told you the majority of that cash was likely to come from the U.S. It seems we're getting closer...
According to the Wall Street Journal, the Federal Reserve Bank of New York "has been holding extensive meetings with [European banks] to gauge their vulnerability to escalating financial pressures." The New York Fed is requiring daily reports from the European banks operating on U.S. soil... It wants to know the banks' ability to access credit. It's even pushing the banks to restructure their U.S. subsidiaries. One senior executive at a European bank said the Fed is "very concerned" about the banks' ability to fund their operations.
In other words, the Fed wants to know how much money it's going to be on the hook for when Europe explodes. One unnamed bank already drew $500 million from the European Central Bank to survive.
Shares of the two European banks Porter has shorted – Deutsche Bank and Royal Bank of Scotland – are down 6.99% and 10.95%, respectively, since yesterday's close.
If you've heeded our warning to be overweight cash and gold, you're avoiding the destruction today. The Dow and S&P 500 are both down nearly 4% today. Meanwhile, gold hit a new high of $1,827.80 an ounce. And the yield on the 10-year Treasury fell to less than 2% for the first time in history.
If you didn't believe our calls of a bubble in U.S. Treasurys, perhaps sub-2% rates will convince you. Who in his right mind would lend money to the U.S. government, which is no longer triple-A, for 10 years at less than 2% a year? You'd lose at least 3% of your purchasing power each year.
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New 52-week highs (as of 8/17/11): Dominion Resources (D).
In today's mailbag… some folks write about Porter's appearance on Yahoo Finance. Send your e-mail to feedback@stansberryresearch.com.
"Porter, I just watched [your debate on Yahoo]. You were the only credible person in the room and the other guy needs a haircut! 20,000 DOW... Not!" – Paid-up subscriber Matt
"Well, now that I've seen Porter on video debating with J.A., I've got to say he looks quite different than I imagined – almost human!" – Paid-up subscriber Brant Gaede
"Just read today's comments in the Digest. Porter! You are the man! I'm still laughing and probably will for days straight and to the point. Love your convictions your inspiring keep giving it to us straight thanks for all you do." – Paid-up subscriber Quint
"In reference to today's Digest, in a world where people are afraid to make decisions and stand behind them, I like that Porter is bold. We are all right and wrong, I'm not buying a newsletter to not have someone voice their opinion and attack others ideas, debate is not a bad thing. If some people view Porter's attacks as juvenile or petty, well they at least make it entertaining for those of us who respect that he at least has an opinion and is willing to stand by it. I actually believe I saw Porter write that he was wrong a time or two.
"For some people it is the only way they will hear that someone is screaming B/S when what is being said is 'trust me I'm with the government and I'm here to help.' If you believe that line, there are two more great lies that I'm sure you believe as well.
"Just like adding 'in bed' to the end of your fortune cookie, the word 'myself' needs to be added to the phrase 'trust me I'm with the government and I'm here to help.'
"I watched the video of James v. Porter... I actually did listen, but I can't say I really heard James because of the hair and the big ear dig... Porter was really ballsy with the analogy he used in that debate. If Altucher isn't confident enough to pay for a haircut, how can he be so bullish on the economy? I guess I'm stooping to Porter's tactics now" – Paid-up subscriber Sean B.
Regards,
Sean Goldsmith and Dan Ferris
Baltimore, Maryland and Medford, Oregon
August 18, 2011
Unemployment up... Manufacturing down... Home sales down... A market full of geniuses... On shooting economists... The Fed checks its underpants... Porter's shorts drop... How Treasurys move markets...