August 8, 2008

Global Market Comments for August 8, 2008

1) The dollar had its largest one day move up against the euro in seven years to $1.49, not because things are getting better here, but because things are getting worse at an alarming rate in Europe. Stocks celebrated by soaring 320 points and crude fell to a new low in the move to below $115. Airlines were the best sector, with United Airlines (UAUA) up 440% to $11 from its July low. Please see my earlier recommendations to buy airlines, sell crude, and sell the euro. Watch gold roll over and die.

2) China has spent a total of $70 billion preparing for the Olympics. They have priced tickets at a very reasonable $12 to enable the masses to attend. A record 6.5 million have been sold so far. The opening ceremony tickets only cost $29, but were scalped for $2,000. 500,000 visitors have descended on the city to watch 202 countries compete. The Shanghai market plunged 4.6% to a 19 month low of 2,600 as locals cashed out to watch the games. A UK based website sold $40 million worth of opening ceremony tickets.  The unfortunate buyers didn't find out they were fake until after they arrived in Beijing.

3) The Dry Shipping (DRYS), an incredibly volatile, highly sensitive and usually accurate leading indicator of international economic activity, has dropped from 120 to 70 since May. DRYS is a measure of spot ship charter rates.

4) Energy stocks are getting so beat up, with many having given up all of this year's gains, that the time to take another look is fast approaching. The coal stocks have to be a top choice and may lead the next leg up. Consol Coal (CNX) has halved from $120 to $60 in only six weeks, while Peabody Energy (BTU) is down from $90 to $55.

5) A one cent drop in the retail price of gasoline adds $1 billion in consumer spending power.


Did the Olympics put the top in oil? Every time one heard mention of the Beijing games this year the next phase uttered was always 'insatiable demand for oil and commodities'. The laser like focus on the Olympics had the unintended byproduct of drawing extra attention to global materials shortages. The collapse of commodity markets that started six weeks ago may have been triggered by traders discounting the expiration of this support factor.