January 16, 2009

Global Market Comments for January 16, 2009
Featured Trades: ($GOLD), (GM)

1) Captain 'Sully' Sullenberger of US Air's flight 1549 did an unbelievable job landing his Airbus 320 on the Hudson River yesterday. As a pilot who had flown across the Atlantic and across the English Channel hundreds of times, I have spent a lot of time contemplating ditching. In flight school you get to practice ditching on a simulator, watch FAA movies of staged ditches, and endlessly memorize pre ditch checklists. But you never get to practice them. It is all just theory. You can count the number of double engine failures of jets in all of aviation history on just one hand, and the rest happened when planes ran out of gas. To keep your cool and pull one of these off in frigid waters, and not lose anyone, is a miracle. It's like trying to land an aluminum beer can at 125 mph without denting it.

2) I attended a lecture by New Yorker Magazine columnist Malcolm Gladwell last night, author of The Tipping Point, Blink, and Outliers, and probably the most prolific publisher of original, consensus challenging ideas today. Half English and half Jamaican, the preeminent challenger of clichés and stereotypes was himself a cliché and a stereotype, wearing the standard issue New York intellectual's blazer, pressed shirt, blue jeans, and loafers, to compliment his gaunt face and conspicuous afro. His latest book challenges the myth of meritocracy, that luck is a bigger factor in success than privilege or education, that in fact all meritocracies are rigged. Bill Gates built Microsoft not by being brilliant, but by having the good fortune to be raised by a family who could send him to one of the few Seattle high schools that then had a computer program. The Beatles made it only because they practiced probably more than any other group in history. The falling crime rate since the seventies was not the result of a series of get tough measures, but the removal of lead from gasoline in 1973. Successful hockey players are almost exclusively born during the first three months of the year, enabling them to beat the crap out of younger, smaller competitors in their junior years. It is cheaper to deal with the homeless than ignore them, because of the massive drain they create on the public health system. He cited the infamous example of the drunk 'Million dollar Murray' who single handedly drained Reno's emergency rooms. All in all, a night well invested.

3) 2008 was a frustrating year for gold bugs, who waited a half century for the financial system to collapse, only to see the barbaric relic's price drop 30% when it finally came. Ironically, it turned out that the yellow metal was just as dependent on the financial system as everything else. You take away credit and leverage from gold owners, and the metal falls just as fast as copper, aluminum, lead, coal, crude, real estate, stocks, corporate bonds, and your beanie baby collection. Gold has a particular problem in that the dozen central banks that were dissolved to create the ECB still have 500 tons a year of the metal to liquidate, and they are behind their allowed schedule on these sales. There haven't been enough Indian weddings, Middle East investors, coin collectors, new technological applications, and cavity ridden teeth to soak up this excess supply. The $800 low we hit this week suggests we may go lower first, before taking a run at the highs again.


4) General Motors is so desperate to raise cash that they are selling a large part of their vintage car collection through auctioneer Barrett-Jackson. On offer are a 1918 Cadillac for $60,000, a 1960 Impala for $85,000, and a 1969 Pontiac GTO for $200,000. They may have trouble getting rid of the 2001 Pontiac Aztec for $40,000, cited by many as the ugliest car ever designed.

5) Oil sands producer BA Energy of Edmonton, Alberta filed for bankruptcy. Oil sands are the most expensive energy alternative out there, needing crude prices of $80-$90/barrel to stay competitive. The technology required the burning of the equivalent of 100 barrels of tar sands to create one barrel of oil. Expect more to follow.