March 18, 2009

Global Market Comments for March 18, 2009
Featured Trades: (XLF), (XLY), (RLX), (HGX), (HD)

1) The quality of this rally is convincing some investors that this could be the big one. After financials (XLF), which are having an obvious dead cat bounce, the leaders of the past week have been the sectors that led into this recession, like consumer discretionaries (XLY), retailers (RLX), and home builders (HGX). The chart of Home Depot (HD) tells the whole story. These are exactly the sectors you would expect to move in a new bull market.

HD.png picture by sbronte

2) Consumer prices jumped by 0.4% in February, the largest increase since July, suggesting that we may not be plunging into a deflationary death spiral after all. Rising gasoline and clothing prices led the way. Expect contradictory economic data to increase from here.

3) Here is another mustard seed. Pfizer successfully floated a jumbo $15 billion multi tranche, multi maturity bond issue to finance its $65 billion takeover of Wyeth. The three year paper was priced at 305 pips over Treasuries, with the shorter term paper 195 basis points over three month LIBOR. These are not exactly bargain terms, but the fact that this deal got done at all is proof that life is certainly returning to the corporate lending market. Seeing investors show up tells you that some of the systemic risk is starting to ebb.

4) OPEC voted to keep quotas at their current reduced levels, spurring crude to top $50 yesterday, a two month high. At this point, helping revive near comatose importers with low prices is more important for members than squeezing out a few more dollars in revenues. The cartel has done a better job keeping cheaters in line than in the past, with Saudi Arabia doing the heavy lifting on production cuts. We are backing off a couple of bucks today because of a surprise 3.2 million barrel jump in gasoline inventories. But the enormous contango has started to shrink, suggesting that the $32 low we saw in December is looking safer by the day. Could crude's revival be another early hint at a recovery in the broader global economy?

WTIC-1.png picture by sbronte

5) I'm glad that I'm not counting on an AIG bonus check to clear the bank. CNBC has turned into the AIG channel. I can only imagine how that annual review conversation went down. 'The good news is that your bonus is $5 million. The bad news is that you will have to spend $25 million in legal fees defending it'. Thank goodness for small favors. What hath Obama wrought?


'To be right when a great power is wrong can be a dangerous thing,' said Benjamin Franklin. He should know.