February 9, 2009

Global Market Comments for February 9, 2009
Featured Trades: (IWM), ($COPPER), (DRYS)

1) This week it is all about Washington. CNBC has turned into CSPAN. Democrats coming off an eight year starvation diet are loading the stimulus plan with more pork than a bacon factory, and sending Obama the bill. There is also a personal element of payback going on here by the former minority party for eight years of administration abuse. The Republicans are retaliating by painting Nancy Pelosi as Karl Marx 2.0. It all makes for great theater. Apolitical traders are thankful for any rally to sell into.

2) More than $1 billion of the stimulus package will be spent in the San Francisco Bay Area, creating 27,000 jobs. The shovel ready projects include the reconstruction of Doyle Drive, the San Jose BART extension, a parking structure for the Oakland Airport, a terminal extension at the San Francisco International Airport, and a fourth tunnel through the mountains on Highway 24 from Oakland to Walnut Creek.

3) The American Securitization Forum is meeting in Las Vegas Today. How appropriate. I bet they got great deals on their rooms. I didn't know this, but there has never been a standardized definition for 'full documentation.' The hotter the market became the more dilutive the definition became, until a 'full doc' loan had minimal requirements. A classic example of 'definition creep.' There also has never been a requirement to notify a first mortgage holder about the extension of a second mortgage. What an eye opener! Until these questions are resolved there will be $2 trillion in lending capacity missing in the US.

4) One of the rock stars at Davos was Professor Nouriel Roubini, the firebrand uber bear who forecasted the current recession three years ago. He believes that if the government does everything perfectly we will have a 'U' shaped recession three times longer than usual, followed by only 1% growth in 2010. If they blow it, we will have a lost decade. The consumer is on the ropes. Credit losses will top out at $3.7 trillion. The 'bad bank' plan won't work because so many are insolvent zombie banks which will have to be nationalized Sweden style. The US economy that recovers will be substantially different, with less leverage, fewer MBA's, and more engineers. Medium term, Dr. Doom sees globalization driving a healthy economic growth rate. Only 5% of the world are Americans, and the other 95% want to live like US.

5) Early reflationary plays were flashing the green light today. Copper was limit up in Shanghai to a two month high at $1.61/pound. Also, take a look at the Greek shipping firm Dry Shipping Inc. (DRYS), which I recommended in November at $3. It soared 460% to $17, fell back to $5, and is now up to $6.30 on news that they successfully rolled over $800 million in debt. It is another great time to make a second visit to the trough for (DRYS), in case you missed it the first time. This shows you that successful refinancings are going to have a huge positive impact on stock prices as we bump along the bottom here, and will be a major market play for the rest of the year.

Dry2.png picture by sbronte