April 9, 2009

Global Market Comments
April 9, 2009
Featured Trades: (GOLD), (ABX), (GM), (TM)


1) 'There is room for bulls and bears, but pigs get slaughtered,' said Peter Munk, the legendary founder and CEO of Barrick Gold, the world's largest gold producer. This is his admonition to worshipers of the barbaric relic hoping for a quick super spike to $2,000 or $5,000 an ounce. Since 2003 gold has tripled from $300 to $1,000, outperforming every asset class in every currency, and he has no problem with it backing and filling here in a long term uptrend. The fundamentals look great, as the world is running out of the yellow metal. The industry used to be run by demand from the Indian wedding season. The current economic stress has made the country a net exporter of gold for the first time. Global jewelry demand is at a 20 year low. With the help of satellites, the world is pretty well mapped out, so there will be no more surprise Californias or Klondikes found. The only untapped reserves are in the Andes at 13,000 feet, or in countries too dangerous to visit. The cost of extraction has also doubled in ten years to $400/ounce, driven by labor, fuel, trucks, and environmental mitigation. Gold will only go down when the US government turns off its printing presses. With record stimulus packages in place, there is a fat chance of that happening in this lifetime. Ultimately, the price of gold is a barometer of fear, which will not be in short supply in the new era we are facing.

GOLD-2.png picture by sbronte

2) General Motors (GM) has 6,500 dealers in the US and Toyota Motors (TM) has 2,000, but Toyota sells more cars than GM. And you want to save this company? Don't mention the fact that their cars fall apart, miss the market by a mile, guzzle gas, and have destroyed over $300 billion in shareholder equity in the last ten years.  The fact that this company still exists is a tribute to their advertising prowess with an older generation of buyers that is rapidly dying off.  The Volt doesn't have a snowball's chance in hell of competing against the Toyota Prius, especially the plug in version that is coming out next year at little more than half the Volt's projected price. Just as only Nixon could go to China, only Obama can dispatch GM. The launch yesterday of its Segway-GM hybrid, the Puma Pod, just highlights how pitiful their efforts have been. The sooner GM goes to corporate Heaven (or Hell), the better.

3) Many hotel investors not only lost their hearts in San Francisco, they lost their wallets too. The New York Times highlighted the dire condition of the city's hotel market. The occupancy rate in February plunged to 57.7%, the lowest since 9-11, with many luxury rooms going for less than $100 a night. The collapse in pricing has been exacerbated by the Internet, and first and foremost by the William Shatner inspired www.priceline.com, whose competitive offering system unleashes avalanches of cheap rooms on the market at the first sign of weakness. As a result, the average price of a room has dropped in a year from $156.16 to $127.59. Many hotels acquired at the market top in 2004 and 2005 have cash burn rates so severe that they are in imminent threat of defaulting on loans.

4) Michelle Obama was seen wearing a J. Crew outfit on her current European tour, which then immediately sold out. Now, if we could only get her to drive a Chrysler!

QUOTE OF THE DAY

'I'm not an actor playing a money manager. I'm a money manager, so my clients are listening to what I'm saying,' said Robert Weiner, CIO at RDM Financial Group, in an admonishment to a CNBC reporter.