August 1, 2008

Global Market Comments for August 1, 2008

1) The July non farm payroll came in at -51,000 and the unemployment rate shot up to 5.7%, a four year high. Short McCain.

2) The mortgage crisis will eventually be solved by the hedge fund industry, which, with $2 trillion in preserved capital, is taking over many functions until now performed by investment banks. The bigger houses are hiring entire 50-100 man teams from dying investment banks to take over this function. Hedge funds are also moving aggressively into private equity and M&A financing. At 22 cents on the dollar, the yields of some of this paper must be approaching 30%. As a result, hedge fund returns will soar. The investment banking industry will shrink to a shadow of its former self. Only Goldman Sachs and Morgan Stanley will remain whole.

3) Exxon Mobile (XOM) reported the most profitable quarter in the history of any US company at $11.7 billion. General Motors (GM) reported a $15.5 billion loss. It is flabbergasting to see an $11 stock report a $27/share loss. Its senior debt is now trading at 46 cents on the dollar. These two companies show perfectly how bifurcated the US economy has become. In the meantime Starbucks (SBUX) reported its first quarterly loss.

4) Irony upon irony. Bristol Meyers Squibb launched a takeover bid for Imclone at $30/share. Next week former CEO Sam Waksal gets out of jail for insider trading for dumping the stock at a much lower price seven years ago. Collecteral cancer drug Erbatux, which Waksal feared would not get approval, turned out to be a blockbuster. Martha Stewart must be stewing.

5) Word is finally leaking into the mainstream media about the Haynesville shale, the largest natural gas discovery in US history. The Louisiana/Alabama find, which is being exploited by Chesapeake Energy (CHK), may yield 13 trillion cubic feet. Mineral rights which sold for $200/acre a year ago are now going for $30,000. This has got to take natural gas prices a lot lower.

6) Walmart (WMT) put out a memo essentially ordering its employees to vote Republican in order to head off pro unionizing legislation. What are they thinking?

7) China now has 400,000 millionaires, more than any other country.