A Melman Minute — January 7, 2008

Last Friday’s American labor report was a stunner. Not only were economists struck by the fact that new job creation for December came in at a pathetic 18,000 - versus an expected number many multiples higher - but the actual Unemployment Rate soared by three-tenths of a percent, a shockingly large one month increase.

What the report also accomplished was to cut the props out of those analysts and experts who had been minimizing the chance for any recession during 2008. With anemic job growth (or even perhaps future job losses!) now added to the growing list of problems facing that nation’s giant economic engine, even brokerage giant Bear Stearns acknowledged this morning that the likelihood of a recession this year was growing steadily.

And that, dear readers, was bad news for one company in particular, Ford Motor Company.

Every so often, a single chart tells an important story, one which has not yet caught the headlines, but one which indicates that the present situation might be immensely more ominous than is generally regarded. In our opinion, that chart is the one-decade picture representing the erosion of the value of Ford Motor Company common stock.

There are many illustrious names in the economic history of the Western World, but few have had the tremendous impact of Ford Motor Company, from the days of Henry Ford’s precedent-shattering assembly lines to its decades as either the primary or second motor company on earth. It is no exaggeration to state that hundreds of thousands of Ford retirees have much of their wealth in Ford stock. The company itself is responsible for the medical coverage of additional hundreds of thousands. Ford stock has been an important component of many mutual funds, particularly those of the conservative, responsible, fiduciary trust category.

And yet, one look at the chart tells us that in the past decade, the shares have plunged from a peak of near US$37.00 to this past Friday’s quote of a mere $6.13 - a loss of eighty-three percent of its value! Not only that, but the stock looks dormant, weak and appears to be headed lower. What is even more remarkable is that this tremendous decline has taken place during years of relatively strong world-wide economic performance. Should the economies of the world enter a period of diminished growth, or even outright recession, it is not inconceivable at all that Ford could go out of business.

If that single, realistic possibility doesn’t demonstrate the gravity of this period of growing economic difficulty, then we wonder exactly what it will take to finally arouse public attention.

One additional thought. It is not the normal policy of “The Melman Report” nor its editor to provide political commentary, but I cannot refrain from commenting that after having watched the televised debates among both Republicans and Democrats for these past many months, not one major candidate has offered any direct statement indicating they are aware of the threats now building to America’s economic well-being, nor have they proffered the slightest specific plan for alleviating that potential calamity.

Perhaps that is one reason why one of the most standard economic expectations for what should be taking place during 2008 appears to be failing so far. We are referring to the expectation that markets have a history of rallying during a Presidential Election year because of optimism that elections tend to bring about real and important discussions of public problems, along with potential solutions. This year, nothing of the sort is taking place. All we hear are nebulous incantations about ‘change’ without ever once identifying the specific nature of what is to be changed, why it needs to be changed and how these changes are to take place.

No, all we hear are endless declarations that (name of candidate) is for ‘change’ or they will bring about ‘real change.’ What empty drivel!

Financial markets this morning are following what is becoming a well-tread path. Whenever we see a massive sell-off, such as occurred this past Friday with the Dow Industrials down over 250 points, the next session tends to open higher as investors rush in to load up on ‘bargains’. However, the market fundamentals then take over and the gains quickly evaporate. That is precisely today’s pattern as both the Dow and the TSX opened up sharply, by about 85 and 50 points respectively, but after one hour of trading, they are both down significantly with the Dow off about 55 points and the TSX down by over 100.

Metals markets are quiet this morning, oil is off slightly and the currency markets are mostly unchanged.

One story growing steadily in intensity is that of looming food price inflation. We plan to look in that direction tomorrow and to offer our opinion of what effect this might have on our world of precious and base metals mining.

DISCLAIMER

The information presented above is based on data which we believe to be from reliable sources, but the accuracy of which cannot be guaranteed. Any opinions or predictions contained herein are those of the editor and are likewise offered also for information purposes only.

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