December 29, 2008

Global Market Comments for December 29, 2008
Featured trades: (TM), (GM)

1) Employment consultants Challenger, Gray & Christmas see the worst jobs market since the Great Depression in 2009. We have lost 732,000 jobs since November, and another one million are to go during the first half of next year. There are now 2.2 million workers who have been looking for jobs for more than six months. Financial services, housing, construction, automotive, and retail have taken the biggest hits. The bright spots are to be found in health care, education, food, and agriculture. Your next male nurse may be a retrained GM worker with calluses on his hands and a big hairy back.

2) There are 100 million cows in the US, and each one emits 4 tons of methane gas a year, from both ends. Environmentalists want to impose a carbon tax of $175 per dairy cow to slow down the global warming this is causing. If they want to charge a carbon tax on my methane output I am in big trouble.

3) I thought you would like to have the specs on your next car. The current generation of hybrid cars uses a heavy nickel metal hydride battery to get them up to 20 mph, where the gasoline engine takes over, doubling gas mileage to the 40-50 miles/gallon range. The next generation plug in hybrids will use lighter, more powerful lithium ion batteries to power the car full time for the first 40 miles, where a small gasoline engine then takes over. Cars will obtain most of their power from an overnight plug in to a standard wall outlet, which will only cost $100-$200/year in extra electricity bills. Toyota (TM) estimates that 90% of drivers won't use gasoline at all! Notoriously secretive Toyota was supposed to bring out its plug in Prius in January, but that has no doubt been delayed by the economic crisis and the cheap price of gas. And General Motors (GM) has a pipedream of launching the Volt, using similar technology, in two years.

4) Investment banks saw a record 1,309 mergers and acquisitions transactions worth $911 billion cancelled in 2008, as financing became as rare as a Mc Cain bumper sticker on a Toyota Prius. This used to be a major profit center for the industry, but is expected to make a big comeback next year.

5) The volatility index (VIX) is at last climbing off its historic, lofty levels, down from 89% to 41% since November. In case you forgot your integral calculus, take the current VIX level, divide by 16, and that gives you're the anticipated move in the index for the next 30days. So a 41% VIX presages a 55 point move up or down in the S&P 500 in January. The big question in traders' minds is: will the slow bleed in volatility continue through the holidays, until the Obama inauguration, or through all of 2009? Nuclear winter anyone?

6) San Francisco is now the third largest banking center in the US, thanks to Wells Fargo's (WFC) acquisition of Wachovia Bank. Charlotte, North Carolina is number two, thanks to the strength of Bank of America (BAC), originally another San Francisco bank. New York is still number one, but is fading fast.

7) The S&P 500 index has brought in a zero return for the past 12 years. Very bad for index funds, like Vanguard, as investors get discouraged and give up on equities. Some $200 billion has left US equity funds this quarter.

8) With sterling at $1.48 and falling fast, and the euro at $1.38, the two are rapidly approaching 1:1 parity. His would be an ideal opportunity for the pound to enter the euro bloc seamlessly. But just as the UK may enter, Italy could leave, because it can't adhere to the debt ceilings imposed by the European Central Bank. In the meantime, Germany is still obsessed with inflation. Can you blame them, being the home of Weimar era hyperflation, where it took a wheelbarrow full of paper Reich marks to buy a loaf of bread. This is the euro's first real recession, and it may not survive.

9) Banks are trying to max out their Treasury bond holdings on their balance sheets at year end to prove to investors how conservative and well managed they are. The dam will break on January 5, when bankers rush to extend loans to better quality credits to beat the heat from Washington. I suspect the bulk of this will initially be refinancings.

10) Nine out of the last ten bull markets were lead by a sharp recovery in consumer discretionary stocks. Think Home Depot (HD), Comcast (CMCSA), Best Buy (BBY), Urban Outfitters (URBN),  American Eagle Outfitters (AEO), or for wimps, the Consumer Discretionary Select SPDR ETF (XLY).