March 16, 2009

Global Market Comments for March 16, 2009
Featured Trades: (CHINA), (BAC), (C)

1) Fed chairman Ben Bernanke did a great interview with CBS 60 Minutes last night. It's nice to know that the recession 'might' end this year. He ruled out the big banks going to zero, which is great news for Bank of America (BAC) and Citigroup (C). This should support global stock markets for at least another day, and every day helps! Who knew he missed only one question on his SAT test to score a 1590 and that his mother didn't want him to go to Harvard because he didn't have the right clothes? I bet it was a question in the verbal section. It was all a nice bit of hand holding while we may be enduring the worst quarter for the economy in a century. If we don't surpass the -8.1% seen in Q1, 1981, it will certainly be in the top three worst quarters of all time. Anyone going shopping, visiting a car dealer, or waiting in long lines for unemployment benefits will tell you this. By the way, BAC is now trading like a penny stock, up nearly triple from last week's low. A BAC triple? Pinch me!

BAC-3.png picture by sbronte

2) Ian Bremmer, President of the Eurasia Group, the world's preeminent independent risk control consultant, passed through town last week to promote his latest book, The Fat Tail: The Power of Political Knowledge for Strategic Investing. The book details how money managers must become cognizant of and deal with foreign laws, regulation, government turnovers, civil unrest, expropriation, terrorism, and war, in order to survive in this increasingly complex and interconnected world. Globalization has ground to a screeching halt. Governments are now more important than multinationals in influencing our economic future, and a new form of 'state capitalism' is emerging. We are shifting from a unipolar to a nonpolar world. Iraq is morphing from war into a peace keeping operation, while Afghanistan is rapidly moving in the opposite direction. Geopolitical risks are rising. With crude at $46 a barrel there is no Iran premium currently in the market, and $20-$30 could price in very quickly. China and Brazil are the long term winners in the new set up, and the dollar is the big loser. The greatest risk to the US is its overdependence on borrowing from China. This is a must read book for any hedge fund manager struggling with his global risk exposure and looking for some great long term plays.

3) In one of the worst market timing efforts ever, the Financial Times reports that China dramatically increased it weighting in equities and other risk assets for its $1.8 trillion in reserves in early 2007, just before the markets crashed.  The, unfortunately named, State Administration of Foreign Exchange (SAFE) boosted its holdings in US equities alone, from $4 billion to $100 billion, which have since dropped at least by half. It turns out the Middle Kingdom took its hard earned profits from US exports and used the money to buy, now worthless, American lottery tickets. I'm glad I'm not the guy who has to explain this decision to the country's senior leadership. At least poorly performing fund managers in the West don't face firing squads, or at least not yet.

4) The top Ten Messages Found on Bernie Madoff's answering machine, according to comedian David Letterman:

10) 'This is Barnes & Noble. I'm sorry we don't sell calendars for the year 2159.'
9) 'Hey Bernie, I've been out of the country-how are my investments doing?'
8) 'Blockbuster calling. Your copies of 'The Great Escape' and 'The Shawshank Redemption' are overdue.'
7) 'Do I have the correct number? Is this 1-800-F***-***?'
6) 'It's Ruth'”if you go out, remember to swindle some milk and eggs.'
5) 'If you're under house arrest why aren't you home?'
4) 'Sorry, I didn't mean to dial your number. I just sat on my phone.'
3) 'Hi Bernie, its A-Rod's cousin. You looking to bulk up for prison?'
2) 'It's Michael Phelps. Need something to help you relax?'
1) 'It's George W. Bush. Can I still get in?'


'How badly can you get hurt falling out of a basement window,' said Bob Brusca of Fact and Opinion Economics about current stock prices.