June 17, 2008

Global Market Comments for June 17, 2008

1) Natural Gas hit a new high of $13.15. The Persian Gulf is now full of tankers carrying sour heavy crude that no one wants to buy. Deep water drilling rigs are now commanding $600,000/day, up from $100,000/day a year ago. The Saudis are arguing within OPEC for a long term crude price of $50, a price high enough for them to meet their development needs but low enough to discourage the exploration of new fields and alternative energy sources.

2) The New York Mercantile Exchange is introducing a steel contract at the end of the year. I covered steel for five years for the Australian Financial Review, so I should have a real advantage here.

3) More bashing of speculators by congress. The word 'speculator' comes from the Latin 'speculare' which means 'to look forward', something congress is unable to do.

4) Goldman Sachs' earnings came in at $4.58/share vs. an expected $3.42 on Q2 revenues of $9.4 billion. GS should continue to be at the core of any portfolio of US stocks. They continue to do everything perfectly.

5) According to the Labor Dept. the May Producer Price Index came in at 1.4%, or 7.2% YOY, the highest since November. This is probably the true inflation rate that most people are facing.

6) May housing starts came in at -3.3%, -36.3% YOY, a 17 year low. The market is 'worse than dead in the water' according to one industry leader.

7) 3 million acres of corn were lost in last week's flood. Prices soared to $7.98/bushel. See my earlier recommendation to buy corn at $5.80.

8) United Airlines' fuel bill this year will be $9.5 billion, up 58% from 2007.


It turns out that the US did not invade Iran after all, so the July crude $150 calls I recommended shorting Thursday for $500, expired worthless, generating a four day profit of $300,000 on capital of $3,000,000. This was my third recommendation to short these calls in three weeks, on  May 20, June 2, and June 11 and the total profit was $624,000, or 21% of capital. In fact you could have made six round trips on these calls during this time, and they never got within $10 of going into the money. When volatility reaches these extremes, professionals are granted a license to print money.