Global Market Comments for December 23, 2008
Featured trades: (FXI), (BA), (CAT), (MSFT), (BIDU), (GM), (PLD), (BAC), (WFC)
1) Existing home sales plunged 8.6% in November to 4.49 million, according to the National Association of Realtors. The median sales price fell by the largest amount on record, plunging 13.2% in November to $181,300, from $208,000 a year ago. That was the lowest price since February 2004 and the biggest year-over-year drop since the index began in 1968. If anyone tells you the real estate market has bottomed, just turn around, and politely walk away. Santa flips the market the bird.
2) The French distributor of Bernie Madoff's funds, Rene De la Villehuchet, committed suicide in his New York office this morning, slashing both of his wrists with a box cutter while he was sitting at his desk. His Luxembourg based Luxalpha fund suffered a total loss of $1.4 billion, and the man had his entire net worth invested in the fund. The scandal is creating the Permanent Employment Act of 2008 for lawyers. Anyone who redeemed the Madoff funds in the last six years, and some have taken out up to $500 million, will be targeted by the bankruptcy trustee with a fraudulent conveyance suit and a claw back. This establishes a new performance benchmark for money managers. If you end the year breathing, you had a good year.
3) The Japanese markets were closed today for the emperor's 75th birthday. Some 34 years ago I was one of 10,000 in front of the Tokyo Imperial Palace, waving a little Japanese flag for his father's birthday. A hunched, aged Emperor Hirohito came out and gave a strained, arthritic wave, and smiled.
4)There is more speculation that China may lead any upturn in the global capital markets. China's holdings of US government bonds leapt by $250 billion last week alone through capital appreciation alone, taking their current market value to roughly $1.25 trillion. To finance a domestic reflationary program, China need only sell some Treasuries, not print money, as the US must. This would involve converting a chunk of the Middle Kingdom's productive capacity away from US oriented exports to domestic consumption, particularly accelerated much needed infrastructure spending. This would be painful in the short term, to say the least, but is necessary for the long term. This would enable the Chinese stock market to lead the world out of the current morass, something the chart below is more than hinting at. Buy the iShares FTSE/Xinhua China 25 ETF (FXI). If you want a high beta single name, go for Baidu (BIDU), the Google of China. This would also be good for major American exporters like Boeing (BA), Caterpillar (CAT), and Microsoft (MSFT).
5) The Belgian government fell on the back of the scandal the emanated from the Fortis Bank bankruptcy. Expect this crisis to claim more governments.
7) The troubled REIT Prologis (PLD) dumped its China holdings for a fire sale price of $1.3 billion. GIC Real Estate was the buyer. The stock jumped 15% to $10.50. Please see my November recommendation to buy the stock at $3.75.
JOKE OF THE DAY
'Recession-Plagued Nation Demands New Bubble to Invest In,' says The Onion in a headline, a satirical publication.