July 25, 2008

Global Market Comments for July 25, 2008

1) A new low for the move on crude, down to $122. All of the economic releases today came in better than expected. Stocks shrugged, bonds hated it.

2) June durable goods came in at +0.8%. The market had been expecting Armageddon. This is a great example of how noisy these monthly data releases can be. So is everyone running out and buying new refrigerators and washing machines while new home construction is at a multi decade low?

3) American Express is worth a watch. They have no sub prime exposure, no balance sheet risk, and are clearly the baby that is being thrown out with the bath water. The stock has fallen from $64 to $35, and is selling at a ten year multiple low of 13 times. There is an easy three year double here.

4) The University of Michigan consumer sentiment index came in at 61.2 vs. an expected 56.3.

5) Europe, on the other hand, is painting a completely different story. The eurozone purchasing managers index showed its second consecutive fall in July. German business confidence plunged to a six year low. Expect EC economic data to be diabolical from here on, thanks to Trichet's punishing anti inflationary high interest rate policy.

6) June new home sales were less awful than expected, -0.6% vs. -1.4%. More importantly, the inventory of unsold houses shrank marginally for the first time in many months, from 10.5 months to 10 months.

7) There are rumors that Lehman (LEH) is trying to sell Neuberger Berman, its highly profitable asset management unit. By selling its crown jewels analysts are wondering if LEH is trying to fund some yet to be disclosed major sub prime write offs.

8) Chrysler Financial is withdrawing from the car leasing business because they are getting stuck with too many early lease returns of gas guzzling SUV's with subterranean residual values. This will be devastating for the dealers, and is tantamount to Chrysler cutting its own throat.

TRADE OF THE MONTH

August bond futures expired today at 114. All of my short bond strategies from the 120 level on down came in hugely profitable. With a leverage factor of five times, you can do the math (+30%).