March 13, 2009

Global Market Comments for March 13, 2009
Featured Trades: ($USD), (DOLLAR)

1) I ran into governor Arnold Schwarzenegger at the men's bathroom at San Francisco's Mark Hopkins yesterday, much to the distress of his posse of ex Marine bodyguards. He was there to take credit for hammering together a compromise solution to his state's $42 billion budget fiasco in front of 400 admiring members of the Commonwealth Club of California. After heavies physically dragged hecklers out of the ballroom, the retired Terminator confessed that enduring the tedious, and often contentious negotiations was worse than watching his first movie, 'Hercules in New York.' The shortfall was so gigantic, that even firing all 200,000 state workers would not have filled the gap. Well funded special interests from both the right and the left make it impossible to get anything done in Sacramento. Unrestrained gerrymandering means that extremists are rewarded at the polls, and moderates punished. Of course, the budget compromise still requires an amendment to the state constitution which must be approved by voters on May 19, not exactly a sure thing. I have never been a big fan of the 'governator,' but a lot of what he said made sense.

2) I once gave you the specs of your next car, the plug-in Prius. Now I can tell you what your kids will drive. Toyota is rumored to be working on a sub compact hybrid that will sell 20%-30% cheaper than its existing alternative vehicle. The Japanese giant is attempting to head off inroads being made by Honda's Insight model, and lay a greater claim to the world's car market.

3) Chinese president Hu Jintao has expressed 'concern' about the safety of his country's $696 billion investment in US Treasury bonds. What he is not telling you is that he is even more 'concerned' about the hundreds of billions of Fannie Mae, Freddie Mac, GMAC, and other agency debt, which are either now untradeable, or have gone into the toilet. And 'concerned' he should be. Not only is some of the paper China owns now worthless, there is a 50% devaluation of the dollar in the cards which is the guaranteed result of current US government printing press policies. One of the great luxuries of running a dictatorship is that you can skip mark-to-market accounting. The government entities that own this garbage are carrying it on their books at par, because they intend to hold it to maturity. If China used mark-to-market they would have plunged into another civil war by now. Expect to hear more 'concerns' from Japan, Singapore, and the sovereign wealth funds that are in the same boat.

DollarIndex.png picture by sbronte

4) The diamond market has crashed. Recession plagued wholesalers and retailers in the US, which account for half of world demand, are glutted with stagnant inventory, and have watched helplessly as prices dropped a third from the 2007 peak. De Beers has shuttered its Botswana mine, which supplied a quarter of the world's rough sparklers. Diamonds account for a third of the African country's GDP and 80% of its foreign exchange income, and now Standard and Poor's is threatening a sovereign ratings downgrade. Was there ever a better time to drop down on one knee and make that marriage proposal?


'Politics are like a road. The middle is drivable, but on the right and left you find the gutter,' said President Dwight D. Eisenhower.