February 26, 2009

Global Market Comments for February 26, 2009
Featured Trades: (GM), (YEN),(YCS)

1) Weekly first time jobless claims soared from 631,000 to 677,000, taking total claims to 5.1 million, a new all time high. General Motors (GM) announced a Q4 loss, and a 6.2 billion cash burn, leaving them with a scant $14 billion left. The company will have to file for bankruptcy when this figure drops below $10 billion, or in about two months. Last year GM lost $84.7 million a day! How does a $2 stock lose $15.71/share? Apparently when people are afraid of losing their jobs, their house, and are maxed out on their credit cards, they don't run out and buy a new car. At least some fiscal responsibility is returning. Unsurprisingly, CEO rick Wagoner was back on Capitol Hill today panhandling for more money. The death watch has started.

2) Here is a novel plan put forth by a hedge fund in Florida, Derivatives Bridge, LLC. Securities backing performing mortgages worth 100% are being sold for 20% because there is no market for these securities. Have the government buy these securities for 60%, rescuing the banks, and then sell them back to the original homeowner. The homeowner then is able to refinance his home, see his mortgage principal drop by 40%, restoring his net worth and purchasing power. The cost to the taxpayer is zero. This is already possible in some countries like Denmark. If someone offered me a deal like this I'd take it in a heartbeat, even if I had to clean out the sofa cushions and raid my kids' piggy banks. They say necessity is the mother of invention.

3) There is a lot of talk today about the recent weakness of the yen, which along with gold, became the focus of the 'short America' trade. The Japanese currency has backed off from its ¥88 peak a month ago to ¥98, breaking several key technical levels, and seems poised to go lower. Other than flight to safety, there was never a reason to go long of this currency. The trade and current account surpluses are in free fall, as Toyotas, Lexus's, Hondas, and Infinitis pile up on west coast docks. The economy is even sicker than ours, and with zero interest rates for the past 14 years, this certainly is nobody's yield play. Clearly the yen became the global carry trade's cheap date, and the cross has emerged as a highly sensitive indicator of global risk taking appetite. Could this bout of weakness be a mustard seed of economic recovery, a light at the end of the tunnel? Watch the Proshares Ultra Short Yen ETF (YCS), which gives you a 200% short play, and is up 25% in a month.

Yen-1.png picture by sbronte

4) The City of New York has repaid municipal bonds that were issued in 1868, thought to be one of the world's oldest paying securities. The 135 year, 7% bonds were issued by a small hamlet in modern day Bronx to finance a road to one of the nation's first racetracks. It was a bet that New York City would one day expand north and annex the village, which it finally did in 1895. The city is still paying interest on bonds with 250 year maturities, which were originally floated by Winston Churchill's American grandfather. This was an incredibly clever financing for 1868.


In the business world, the rearview mirror is always clearer than the windshield," said Warren Buffett, the Sage of Omaha.