August 6, 2008

Global Market Comments for August 6, 2008

1) Yesterday's 300 point pop in the stock market is proof that we are still in a bear market. It is the sixth such move in the past year. These gaps are caused by ferocious short covering rallies which then burn out. In the 2000-2002 bear market there were twelve 300 plus point moves up. Bull markets are characterized by continuous slow grinds up.

2) US paper money was found to have the highest cocaine contamination of any currency in the world. In some neighborhoods up to 50% of all bills tested positive for the South American drug, and therefore the people who handle them. This is the best strong dollar argument I have heard this year.

3) There are over 400,000 millionaires in China, the most of any country.

4) There is a new home mortgage wrinkle on the market. Hovnanian Enterprises (HOV) is having success moving is backlog of houses by offering financing packages with 3%-2%-1% three year buy downs that enable prospective buyers to deal with high interest rates. After three years these convert into conventional fixed rate mortgages.

5) Even Toyota is getting hammered by the depression in the car market. It just announced the layoff of 800 workers as they shut down a Lexus SUV factory in Japan. In July Lexus sales were down 25% YOY, the sharpest fall on record. The stock has fallen from ¥6,500 to ¥4,500 this year. Today is the 63rd anniversary of the dropping of the atomic bomb on Hiroshima.

6) Weekly crude inventories jumped by a surprise 1.6 million barrels, driving the price down to $117.10 and triggering stops, a new low in the move.

7) The dollar has been on a tear lately, hitting a seven month high today of $1.5360 against the euro. The greenback is benefiting from the fall in commodities which will enable the euro zone to ditch its high interest rate anti inflation policies. Falling crude prices also cut the outflow of dollars from the US. See my earlier recommendation to short the euro at $1.60.

8) Hedge funds are limiting their transactions with Lehman (LEH) to 30 day maturities and boycotting long dated transactions for fear that the firm will default. The loss of these customers is pushing LEH towards a sale. The company still has to sell $30-$50 billion of securities at a discount before it can pass a smell test. By the way, the symbol for their junk bond fund is (JNK).

9) Paris Hilton announced her presidential campaign today. Her energy policy sounds more practical those that offered by either McCain or Obama.