July 7, 2008

Global Market Comments for July 7, 2008

1) Crude fell $5.50 to $139.50 and the stock market fell. A great example of  heightened fears amplified by summer illiquidity where things don't make sense. Oil is now the holy grail of trading. The trader who calls the top on this one will make his year, decade, and century.

2) Janet Yellen of the San Francisco Fed said that interest rates are unusually low. Hint: the next move in rates is up. The bond market went up two points. See above.

3) There is a new term circulating in the bond market: 'return free risk.' With the 30 year Treasury bond yielding 4.5% and the official inflation rate officially at 4.5% (although it is really 7%), if everything goes perfect you make zero. If it doesn't, you could lose half your capital in five years. This is what the flight to safety has driven treasury prices to. Sell long dated treasuries.

4) Steve Silverman, owner of the World trade Center, says there is a large scale movement of families to downtown Manhattan to take advantage of lower rents. A classic example of talking your own book.

5) There is a new ETF that gives you a balanced and equal play on both soybeans and corn at the same time which could be interesting. The symbol is (JJB). These instruments are becoming increasingly complicated and focused on very narrow plays.

6) Although the Dow is now at a two year low, only 6% of outstanding stocks have sell recommendations. Some firms like Morgan Stanley have a quota limiting sell recommendations to 20% of the total. What a joke. Proof that the system is geared to selling securities, not buying them.

7) According to my former journalism colleague, Steve Ratner of Quadrangle, private equity transactions are down 80% YTD. Steve, who now manages $6 billion, says that many of the transactions of the past two years were 'aberrations' dependent of excessive leverage. There are so few transactions, that major firm Cerebrus has told its staff to take a two week vacation with pay.

8) At Mammoth Lakes, one of the most remote areas of California, I saw six buses filled with Chinese tourists, passing though from Las Vegas to San Francisco. Local tourists were unhappily introduced to the Chinese practice of public urination. The hotel had 60 better behaved Italian guests, who later went apoplectic when they watched a ranger fire shots at a huge black bear to scare him away. The manager said that any drop off in domestic guests is being more than offset by foreign guests, because of the weak dollar.