August 28, 2008

Global Market Comments for August 28, 2008

1) Hurricane Gustav wavered, so crude fell $6 and natural gas plunged a mind blowing 10%, or 80 cents. Other commodities collapsed across the board and stocks took off.

2) Q2 GDP came in at a blistering 3.2%, almost double some forecasts. While the stimulus checks provided a minor assist, it was really all about the enormous boost being given the economy by international trade. Unfortunately, if you don't sell routers in India, ship food or commodities to China, or sell crude products anywhere, you were toast. When this market does recover there is no doubt it will be lead by companies earning half or more of their income from overseas. Think big tech: Microsoft (MSFT), Intel (INTC), Oracle (ORCL), Hewlett Packard (HP), and Cisco (CSCO), or just buy a technology ETF.

3) If you want to minimize the impact your vehicle has on the environment, buy a used Hummer. Building a new hybrid consumes the energy equivalent of 1,000 gallons of gasoline. The purchase of any used car uses no energy at all because it is already built. By the way, General Motors (GM) is close to selling its Hummer subsidiary to one of two Middle Eastern buyers. It only makes sense that the parties interested in buying the maker of the most inefficient fuel consuming vehicle on the planet would have unlimited access to gas at 25 cents a gallon.

4) It has been a great year for kings and queens (not the San Francisco kind). The richest monarch in the world, Thailand's King Bhumibol of Thailand has seen his wealth grow to $35 billion, according to Forbes magazine. His family has owned most of downtown Bangkok for the last 226 years. He is followed by the sheik of Abu Dhabi, the King of Saudi Arabia, and the Sultan of Brunei (whose San Francisco home I bought cheap when crude was at $8). Queen Elizabeth came in at a relatively impoverished 12th on the list with only $650 million.

5) Put the home builders' ETF (XLB) on your watch list. The chart may be making a double bottom at $12, down 75% from its 2005 high. I don't care if they make widgets; double bottoms down 75% always pique my interest. Is the wisdom of crowds working here (see James Surowiecki)?

6) With the 'official' inflation rate now at 4.5% and the 30 year yield at 4.5% the long bond futures contract (US) has to be a screaming short here at 118.75. If everything goes perfectly and there is no inflation, you break even on an inflation adjusted basis. If not, then the contract will drop by half over the next three years. Take the seven point rally over the last month as a gift and fill your boots on the short side.