Friday, October 24, 2008
(Cont'd from above)...

Never did I think I'd do a show where I'd be thrilled that billions were wiped out in one of the largest banks in the country... Cleveland's National City Corporation (NCC), which I told you to avoid for many, many months now... simply because it got given away to another bank, PNC Financial Services Group Inc. (PNC)... which will now be stronger. A crushing, pile-driving blow to NCC shareholders, but we applaud the necessary confiscation with less of a selloff than Europe...

Never did I think I would be doing a show where I was grateful that we were down less than Japan's 9-point pulverizing, or Britain's 5% bruising... but that's what I'm doing tonight.

I have to tell you... if this is solace, I don't want it... and I only hear about how good things are, or how it's the opportunity of a lifetime, as I hear all day.

Now, let's speak candidly about what's really going on...

Everyday, hedge funds go bust... everyday, people are panicked by their 401k... and, yet, everyday, I hear people call the bottom...

On many days, we're grateful for the rallies like we were today, but the rallies are the one thing I hate the most about this market... I want the velocity of the decline to accelerate. We need to get where people just give up and we aren't there, because of these "wow, it was better-than-expected" days... Those days are actually quite bearish. We need to recognize, more importantly that, when people compare this market to others, we are on a parallel course with what happened in 1929 and 1939 to 1932, except for the fact that, in many cases, the incredibly ghastly declines have already happened.

Let's go to the source... my bible for this period... the unbelievable text that is The Great Crash by John Kenneth Galbraith... turn to page 141, class...

The legendary economist wrote about the huge recovery that occurred a few months after a difficult October slide from 1929... Let me quote some of it, so you know what I'm talking about...

"In January, February and March of 1930, the stock market showed a substantial recovery. Then in April of 1930, the recovery lost momentum and, in June, there was another large drop"... Now, listen to this... "Thereafter, with few exceptions, the market dropped week by week, month by month, and year by year, through June of 1932. The position, when it finally halted, made the worst level during the Crash seem memorable in contrast." Then Galbraith goes on to talk about the decline in the average... it was the New York Times average that we used to follow... then mentions specific stocks. Let's cut really to the action here, because this is really the only solace that I'm going to give you...

The real reason why that, as the market goes down, it's only going to be harder to be as bearish as I am... In many ways, the declines in this market already rival those in that book...

Consider this from Galbraith...

"U.S. Steel, on September 3rd of 1929, had sold as high as $262. On July 8th of 1932, it reached a low of $22." That's right, U.S. Steel plummeted from $262 before the crash, to $22 three years later... a 91% freefall.

Let's contrast that with none other than United States Steel Corp. (X), circa 2008...

On June 24th of 2008, X traded at $196. Today, it traded close to $30. That's a decline of 84%. Sound familiar?

It took U.S. Steel three years to travel from $262 to $22 during the Great Crash... It took only five months for X to trade from $196 to $30 during what, I don't know what you want to call it... the Great Selloff...

Put simply, we never uttered the term, "Crash" here, because a crash is what happened in '29 or '87, and we think of them as special one-time events. But I have now described what happened during the Great Crash, and we have almost exceeded it with a major American industrial that's profitable.

The velocity of this frightening move is the single-best thing it has going for it. Put simply, we only need to fall a handful of points for X's decline to equal the greatest crash in history. It's hard to believe that we aren't somewhere near a low already... and, to be certain, because a year after Steel hit $22, one out of four people in this country were unemployed... 22% unemployment in '33... It is 7% now. It can go to double-digit but, given the safeguards in place, I don't think 25% is possible...

From the time it took for U.S. Steel to fall from $262 to $22, the gross domestic product of this country declined by two-thirds. Now we're going nuts because we may have no growth in the GDP... maybe down a percent. Scary? Hardly...

Only the stock's down... and, while I think the economy will follow, I don't think it will be (like) 1932...

You have to understand that the deleveraging process... the unwinding and selling of so many stocks by hedge funds... has accelerated a "slow-mo" slide that took three years to happen back then... And, during that period by the way, steel mills fell to roughly 12% of their previous capacity... meaning 12% were working. Now they run full out... perhaps lower. Can orders fall off that much. I don't think so.

My point...

We have already crashed... for many stocks...

We have not crashed nearly as hard for the economy and, while I think the economy will be awful in 2009... am I a huge bear on... I am more negative than everyone else I talk to... I do not see 25% unemployment and a two-thirds cut in GDP...

It is entirely possible that X was overvalued vastly in June, at $196, as it was, obviously, in September of '29 at $262, but it's most definitely more undervalued at $30, where it traded earlier today, than when it visited $22 in '32...

And if, or when, it gets to $22... Call me a buyer, plain and simple of letter X, U.S. Steel...

Here's the bottom line...


The bottom line!:     The speed of the decline in U.S. Steel's stock has vastly outpaced the decline in its business... and the company's so much better than it was in The Great Crash... I think the analogous decline, without an analogous economic crash... and not the idea that we rallied from a limit-down open... is the only real solace I have to offer you on this Friday evening. You may not be able to take that to the bank, but you also can't dismiss it, as the beginning... as the getting close... to a genuine opportunity.

[verbatim recap]

Read Jim's next Segment here