April 17, 2009

Global Market Comments
April 17, 2009

Featured Trades: (PHM), (CTX), (POT), (MOS), (AGU), (WHEAT), (CORN), (SOYBEANS), (RICE)

1) March Housing Starts came in at 510,000, down 10.8% from February, and short of the 540,000 consensus. Permits fell 9% to 513,000. Completions were down 3.5% to 796,000.  The estimated five million houses for sale, in foreclosure, or sitting in bank portfolios waiting to be dumped are sitting on this industry like an 800 pound gorilla. Pulte Homes (PHM)-Centex (CTX) combination will have to swim upstream against Niagara Falls in order to survive. Will someone please fire the plunge protection team? They're doing a lousy job.

PHM.png picture by sbronte

Constructionthumbnail.png picture by sbronte

2) Pack your portfolios with agricultural plays like Potash (POT), Mosaic (MOS), and Agrium (AGU) if Dr. Paul Ehrlich is just partially right about the impending collapse in the world's food supply. You might even throw in long positions in wheat, corn, soybeans, and rice. The never dull, and often controversial Stanford biology professor told me he expects that global warming is leading to significant changes in world weather patterns that will cause droughts in some of the largest food producing areas, causing massive famines. Food prices will skyrocket, and billions could die. At greatest risk are the big rice producing areas in South Asia, which depend on glacial run off from the Himalayas. If the glaciers melt, this will be gone. California faces a similar problem if the Sierra snowpack disappears. Rising sea levels displacing 500 million people in low lying coastal areas is another big problem. One of the 77 year old professor's early books 'The Population Bomb' was required reading for me in college in 1970, and I used to drive up from Los Angeles to hear his lectures (followed by the obligatory side trip to the Haight-Ashbury). Other big risks to the economy are the threat of a third world nuclear war caused by population pressures, and global plagues facilitated by a widespread growth of intercontinental transportation and globalization. And I won't get into the threat of a giant solar flare frying our electrical grid. 'Super consumption' in the US needs to be reined in where the population is growing the fastest.  If the world adopts an American standard of living, we need four more Earths to supply the needed natural resources. We need to raise the price of all forms of carbon, preferably through taxes, but cap and trade will work too. Population control is the answer to all of these problems, which is best achieved by giving women an education, jobs, and rights, and has already worked well in Europe and Japan. All sobering food for thought.

3) Will someone please help me out here? Q1 is widely expected to be the quarter from hell, with earnings expected to plummet by 38%, and the market rockets 26%, the biggest hyperbolic move since 1930. Is there a disconnect here? I know I only got a magna cum laude in math in college, not the summa cum laude I deserved (my professor didn't understand his subject and hated me for it). But is it possible that the market has gotten ahead of itself? Just a tad? Is the economy really going to have the massive bungee cord type recovery that the market is discounting here? Could we be setting up for the perfect sell in May and go away scenario, like we saw last year? I don't get this. I await your comments in earnest.


'We will all starve to death in our SUV's' warned Professor Paul Ehrlich about the threat to the world's food supply posed by global warming.