July 30, 2008

Global Market Comments for July 30, 2008

1) Panic buying of crude is back. Weekly gasoline inventories showed a shocking decline of 3.5 million barrels, so crude soared $7 to $127. The $120 level was a perfect bear trap. Goldman Sachs put out a report that current demand destruction is temporary and that crude will hit $149 by year end. I don't buy it.

2) The credit crunch hit its one year anniversary today. Last July 30 was when the two Bear Stearns hedge funds were declared effectively worthless.

3) The SEC extended its short selling ban on 19 banks until August 12. It says that it needs time to evaluate the impact of the ban so it can propose broader short selling restrictions. A stay of execution. The Fed also extended the emergency discount window access until January 1, saying that the financial system is still 'too fragile'.

4) According to Malcolm Gladwell in 'Blink', only 2% of US males are over 6'2', but 30% of Fortune 500 CEO's surpass this height.

5) The market is still digesting the Merrill (MER) refi. By pricing their CDO's at 22 cents on the dollar it suggests that $220 billion in such securities were sold by the whole industry for $1 trillion. It was the grossest overpricing in history. What a selling job! This is why I distrust anything Wall Street is trying to sell.

6) The next giant rumored to fall is AIG Group (AIG), which after huge asset sales still has a scrotum tightening asset to equity leverage ratio. By this, I mean a highly dilutive distress recapitalization at ruinous terms. You can play these for a trade, but don't leave your screen to go to the bathroom.

7) Chesapeake Energy's (CHK) Aubrey McClendon argues that new technology has made possible enormous gas field discoveries over the last four years which will solve our energy crisis. These include gas shale fields in Barnet, TX (where I was active as a driller), Hainesville, AL, Fayetteville, AK, Marcellus, PA, and Woodford, OK.  McClendon (of 'Swift Boat Veterans for Truth' fame) has bought several hundred million dollars worth of his own stock, which soared from $30 to $80 earlier this year.

8) New mortgage applications fell 14.1% last week to the lowest level since December, 2001.