June 13, 2008

Global Market Comments for June 13, 2008

1) Saudi Arabia is considering a 'substantial' increase in oil production to 10 million barrels/day from the current 9.45 million in an attempt to prick the bubble. Crude fell $2 to $134.80. The Saudis are terrified of crude at these prices, fearing that the bigger the rise now, the bigger the crash later. If crude falls back to $20 the country's current spending will drive it into bankruptcy and the government could fall in a coupe. Former leaders in the Middle East are not sent out to retirement homes, they are taken out and shot, so stable crude prices are a life or death issue for the Saudi leadership.

2) The number one city nationwide for web searches for home foreclosures is San Francisco.

3) May CPI came in at 0.60%, 4.2% YOY. Inflation is now at a two year high and rising.

4) US Air disclosed that they are paying $299/person per round trip flight for just the fuel versus $151 in 2007 and only $70 in 2006. No wonder they are charging for peanuts and luggage.

5) May consumer sentiment readings came in at the worst level in 28 years. McCain is a strong short.

6) You probably don't want to hear this, but Lehman stock (LEH) is a short term buy here. The stock double bottomed yesterday at $20.25 on enormous volume. This is down from $82 a year ago. You don't have to marry the stock, but you could get a 25% trading rally from here, or back to where it was on Monday. If this makes you feel queasy you could protect your downside by buying a $15 put for $1, limiting your loss to $5.

7) Bank repossessions in April were up 49%, the highest on record.

THOUGHT OF THE DAY

With rising oil prices and interest rates the stock market appears to be headed towards another climactic sell off. This will cause volatility to spike again, allowing you to sell puts at prices so high that they are mathematically impossible to go into the money without a major geopolitical event. And there is only one of these on the horizon, a US invasion of Iran. I am thinking of shorting the July 1200 or 1100 puts, 12.5% and 23% out of the money for 5 weeks. Watch this space.

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