December 11, 2008

Global Market Comments for December 11, 2008
Featured trades: (BA), ($WTIC), ($GOLD), ($XEU)

1) Weekly jobless claims soared by 58,000 to 573,000, a 26 year high. A lot of workers came back from their Thanksgiving turkey only to get fired. According to UCLA's Anderson report, unemployment in California will peak at 8.7% next year. This may be conservative.

2) The euro ($XEU) broke out to the upside, moving to $1.3280, a two month high. Gold ($GOLD) also moved up $20 to $827. If the dollar continues to weaken, it could jeopardize Treasury efforts to sell bonds to finance reflation, half of which are bought by foreigners. The weak dollar could also be the trigger for a long overdue trading rally in commodities. Crude ($WTIC) has already rocketed from $40.50 to $48.50 this week. I think commodities will be the big play next year, and some hedge funds are already starting to do some early toe dipping in the waters at these incredibly oversold levels.

3) Real Estate investor Sam Zell says that it took a 'tsunami' of  unforecastable developments to drive the Chicago Tribune into a preemptive bankruptcy. The Chicago Cubs won't be affected by the proceedings. Zell bought the company a year ago when revenues were falling at an annualized 3%, at a price assuming a 6% annualized drop. Instead he got a 20% plunge in revenues, death for any leveraged deal. Complicating matters is an FBI interrogation of Zell related to the governor Blagojevich case.

4) The International Energy Agency predicts that total crude demand will fall this year for the first time in 25 years. This has created an unexpected  window of opportunity to move to alternatives before the next up spike, which will probably start in 2010.

6) Boeing (BA) announced that it was delaying delivery of its fuel efficient 787 Dreamliner by another six months to Q1, 2010. Some airlines have decided that with fuel prices down 75% in five months, and with a deep recession staring them in the face, their rusty, worn out, gas guzzler aircraft don't look so bad after all. Some 2,444 planes, or 11.5% of the global fleet is now parked in mothballs, with the bulk coming from Europe.

7) Jamie Diamond, CEO of JP Morgan (JPM), believes that US home prices could drop another 20%. Oops.

8) Goldman Sachs (GS) put out an important report on China, predicting that its growth rate will drop from  9% in 2008, to 6% next year. It will then bounce back  to a 9% rate in 2010. While I believe this is still optimistic, it is more evidence pointing towards the 'V' type recession scenario I have been expecting, rather than the 'U' type scenario anticipated by most.  Last month, exports fell 2.2%, the sharpest drop in nine years. A big problem here is that modern China has never had a recession, just a growth rate that varied from hot, to red hot, so the country's companies have no experience in managing real downturns.


' This recession will be so deep and so prolonged, that 0% interest rates will be reached even by the most anal retentive, gradualist central bank before the middle of 2009.' Willem Buiter, a former member of the Bank of England's monetary policy committee. Imagine, global zero interest rates.