Global Market Comments for January 8, 2009
Featured Trades: (TRN), (JEC), (WTIC)
1) It is still possible to buy stocks on the cheap that will benefit greatly from the massive public works projects Obama is about to unleash. Trinity Industries (TRN), a major provider of concrete and aggregates with a presence in construction and rail cars, recently dropped 80%. It is now selling at 4 X earnings, 70% of book, and has a juicy 7% dividend yield. Another one to peek at is Jacobs Engineering (JEC), a leader in construction consulting and services.
2) Yesterday, Morgan Stanley led a jumbo 30 year, 7% bond issue for GE credit which was oversubscribed. This is 400 basis points through Treasuries, and is good news for all corporate borrowers. The credit thaw continues, even though stock traders can't see it.
3) The real estate disaster once known as Las Vegas, where 27,000 homes are for sale, continues to probe new lows. Hotel vacancy rates have hit 18%, and you can now get a four day weekend at a top hotel there, including flights from San Francisco, for $200! Construction has halted on the $5 billion Echelon Resorts for lack of financing, leaving a major eyesore on the city's skyline. MGM Mirage's massive City Center complex continues, only because of credit from Dubai. Sitting pretty is the Palms, which is just being completed, but sold out all of its condos two years ago when the market fever was still alive. While 10% of the buyers have walked away from their deposits, the owners are converting these to luxury hotel rooms.
4) The crude market continues to reel after yesterday's stunning inventory figures, with prices down another 5% to $40. The US should buy the fleet of tankers at sea storing crude, and add it to the Strategic Petroleum Reserve at these prices. With unlimited financing, the government is the only entity which can exploit the incredible 40% contango now present in the crude market. While this opportunity is screaming out to every junior trader in the energy pits, it is oblivious to Washington, where, in any case, we are leaderless. It was government buying for the SPR at $140 which put the top in for the crude market.
5) Most economists view the ECB's continued reluctance to further cut interest rates as nothing less than insanity. Trichet is living in a bubble. It can't last much longer. One out of seven German jobs depends on the car industry, and there is now excess global capacity of 20 million units/year. At least someone in the UK has some sense, where the Bank of England cut interest rates today by 0.5% to 1.5%, the lowest since the institution was created in 1694.
6) While weekly jobless claims fell, total unemployment hit a 27 year high of 4.6 million.
AMAZING FACT OF THE DAY
Investigators found $143 million in signed bonus checks for favored employees in Bernie Madoff's desk. I have pretty much seen everything after 35 years in the financial world, but the revelations in this case continue to floor me.
QUOTE OF THE DAY
Someone once asked the late Chinese premier Zhou Enlai what was the international impact of the 1789 French Revolution. He answered, 'It's still too early to tell.'