January 14, 2009

Global Market Comments for January 14, 2009
Featured Trades (C),

1) The financial supermarket is an idea whose time has clearly gone, as we learn that it was just a strategy to lose more money, in more exotic places, in more exciting ways. The sale of Citibank's (C) crown jewels at fire sale prices, like the deal with Morgan Stanley for Smith Barney, just to get enough cash to make it through the quarter, marks the beginning of the end. I believe that we are witnessing an effective voluntary dissolution of (C) to head off an involuntary chapter 11 filing. US bank earnings forecasts are still lost in Lala land. Expect more surprise shotgun marriages between banks, and dilution of existing bank common shareholders.


2) The Citibank developments, which have been unfolding since Monday, stuck a thumb in the eye of the stock market's fragile 2009 rally. The 857 level in the S&P 500 a make or break point for the market, and traders had no problem taking it through the key number like a hot knife through butter. Bank and railroad sub indexes have already broken through their November lows, and retest for the main indeces is now in the cards. The markets are now telling us that the 'end of the world' trade is back in play.

3) I attended a luncheon today for old college economics professor, former Labor Secretary Robert Reich. The bad news is that we will lose another three million jobs this year, taking unemployment easily into double digits. The good news is that we are not entering another Great Depression, or even a Japanese style lost decade. We are in the midst of a cyclical recession, albeit a very deep one, from which we will emerge in 2010. Part of the problem is that the share of earnings of the top 1% of American income earners has soared from 8% in 1980 to 23% in 2006. These people don't spend their money, they invest it, effectively removing it from the retail economy.

4) In July, when gas was at $4.49 a gallon, I told you to buy a Hummer. Now I'm telling you to go skiing. Friends tell me that despite the best snow in years, the slopes at Vail are deserted. According to my old CPA, who is now the CFO of Vail Resorts, visitors are down 5.8%, lift ticket sales are down 7.8%, and hotel bookings are down 14.8%. Parking for private jets at the airport is easily available for the first time in years. Indeed, Costco is now offering two for one discount lift passes for almost every ski resort at Lake Tahoe.

5) Crude dives. More than 325 million barrels of crude are now in storage worldwide, a new record. This is equivalent to four days of global consumption, 16 days of US consumption, and 32 days of US imports, and the world is running out of storage.

6) With the Big Three carmakers now in their final death throes, there is one car maker whose sales are still booming. Smart Cars saw December sales jump 24% MOM to a total for the year of 25,000 units. With gas prices low, dealers are still able to market the 30 mpg vehicles as a hedge against future gas price spikes. At $12,000 they are so cheap they don't need financing, are environmentally friendly, easy to park, a new fashion item, and are 'cute.'


'Ten billion, here, ten billion there, and pretty soon you're talking about real money,' said the late senator Everett Dirksen.