August 11, 2008

Global Market Comments for August 11, 2008

1) The magnitude and the volume seen on Friday suggests that the euro has had it. Trillions of dollars worth of hedges by banks and multinationals are being simultaneously unwound. Look to sell rallies from here. This means that the commodity trade, including crude, will be broken for the rest of the year. These will fall until all of the late long side entrants, of which there were many, get wiped out. Crude hit the $112 handle this morning before rallying on the Russia/Georgia conflict, down a spectacular $36 in six weeks. Emerging market equities will also get hurt big time.

2) Couples are expected to spend more evenings together over the next two weeks staying home watching those young hard bodies at the Olympics. Anticipating this, the stock for Church & Dwight (CHD), maker of Trojan condoms, soared 13% on Friday.

3) Farmers plan to plant more crops next year that use less fertilizing as a way of dealing with escalating input costs. This means growing less wheat and more soybeans. Although grains are more than 30% off their 2008 tops, fertilizer prices have yet to drop, squeezing farming margins. To add insult to injury, fertilizer companies like Mosaic (MOS) and Potash (POT) are insisting on payment in full one year in advance to guarantee deliveries.

4) There is no doubt that the Olympics are having an impact on the markets. The news flow has shrunk and volumes are off. Practically every Fortune 500 CEO and hedge fund managing partner are at the games. Even a lot of the financial journalists are gone to report on the 'Chinese economic miracle' story. No doubt part of last week's impressive move up in the dollar and US stocks sprang from position flattening and book squaring ahead of the games.

5) 90% of the 165,000 gas stations in the US are individually owned and are losing money at current prices. So there is absolutely no point in flipping the bird as you drive buy if you don't like the price.

TRADE OF THE DAY

Two of the four BRIC's, Brazil and Russia, depended on rising energy prices as a major leg of their bull cases. In the past six weeks crude has plummeted $34. With Russia (RSX) down 32% and the Bovespa ($BVSP) down 27%, investors are looking at a rare opportunity to get into these high growth markets over the next few months at much cheaper levels.

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