April 14, 2009

Global Market Comments
April 14, 2009

Featured Trades: (WFC), (WB), (JPM, (BAC), (C), (GM)

1) So there is life after near death! Wells Fargo (WFC) stunned the street with a surprise $3 billion profit in Q1, vastly better than expectations. The shocker was that charge offs from loan losses amounted to only $3.3 billion, a shadow of forecasts that ranged as high as $8 billion. Analysts suspect that some creative accounting was involved in consolidating the losses from recently acquired Wachovia Bank (WB). Short sellers were seriously squeezed and no doubt are now speaking in voices several octaves higher, pushing the stock up an amazing 40%. The news triggered an all out assault on bank haters, there are still plenty out there, taking JP Morgan up 24% and Bank of America up 42%. A share of Citigroup at $3will now buy you a cup of coffee at Starbucks, but only if you get the cheap stuff. With the Fed raining money down on the sector and the Treasury changing the rule book almost daily to make this work, how else was this going to play out? This puts WFC first in line to repay TARP money and get the Feds out of their hair. It also underlines the argument that I have been making all along that if you put mark to market and asset valuation issues aside (no easy task), the banking business in now the most outrageously profitable in its long history.

2) The latest off to the General Motors (GM) bond holders: zero cash, zero debt, and a 20% ownership in GM stock, which may become worthless if GM files for bankruptcy within 60 days. This is down from 8% cash, 16.5% of new debt, and 90% on GM stock that was on the table just a few weeks ago. Whoa! Harsh.  Looks like the unions are going to take it on the nose too. I guess it's not a good idea to lend money to people who crank out crappy products to a disappearing market at higher prices than their competitors. If this isn't the Fat Lady clearing her throat and getting ready to sing, I don't know what is. The death watch continues.

3) Financial reporters are spending way too much time reporting about the pirate seizure of the American container ship Maersk Alabama off the Somali coast, despite the happy ending. CNBC has been playing pirate songs all week. One even referenced the Marine Corps. Hymn ('To the shores of Tripoli'). I guess you don't get to say 'arrrgh' too much in the floor of the New York Stock Exchange.

4) OK, enough is enough! Right here, at $3.60, is where you buy Natural Gas ($NATGAS)! After peaking at $13.50/btu last year, it has become the red headed step child of the energy complex, plunging a gut churning 74% to a low of $3.50. To see demand this weak coming out of a cold winter is nothing less than stunning. The credit crisis has forced US companies like Chesapeake Energy (CHK) and Devon Energy (DVN) to scale back exploration, so the US rig count has dropped by half. The price collapse is welcome news for consumers, as NG is an essential raw material for making naphtha, fertilizer, and plastics and accounts for 20% of US electric power generation. It also is a favored fuel of the green crowd, as the only products of its combustion are carbon dioxide and water. The industry was making the leap from a domestic industry to a global one just as the global recession punched it right between the eyes. The completion of six liquefaction plans in Qatar, Russia, Indonesia, and Yemen, costing $48 billion, is expected to boost global production by 25% this year, and more big plants are coming on stream in the near future. Below $3.50/btu the pick producers start shutting in supply, which will cause the glut to disappear rapidly. If I'm right, and those really are crocuses out there and not some florid hallucination, then it's time to load the boat with NG.

NATGAS-2.png picture by sbronte

5) San Francisco's Golden Gate Park had an Easter egg hunt for the blind. The event, organized by the Blind Babies Foundation, enabled vision impaired children to seek plastic eggs with beepers, which they could exchange for prizes. I love it.


'We are all going so fast, but where are we going?' said Larry Brilliant of Google's philanthropic arm, Google.org.