March 20, 2009

Global Market Comments for March 20, 2009
Featured Trades: (GE)

1) I thought President Obama did a pretty good job with comedian Jay Leno last night. With some pundits already pronouncing his administration a failure, he has the moxie to appear on a late night talk show. For the last eight years, presidential visits to California have been about as frequent as Bigfoot sightings. You can diss all those rumors about Treasury secretary Tim Geithner resigning anytime soon. After 59 days in the White House his bowling score is up to 129. All of his favorite picks for the Final Four basketball championships were in politically sensitive swing states (North Carolina, Indiana, Iowa). While playing basketball, he doesn't get knocked down as much while the secret service is watching, guns at hand. Obama still has the magic touch, speaking with the deliberateness of a trial lawyer, but with the folksy charm of your local barber. One thing is for sure though. Your taxes are going up, baby.

2) There have been 14 bear markets in the postwar period with an average 25% decline. This bear market is down 58%, and it still may have farther to go. No wonder everyone's risk models are blowing up. This time it really is different. Over the last 100 years the average return on stocks has been 10% a year, with 40% of that coming from dividends. Today there are dozens of prime industrial companies offering dividends rates in the mid teens. Why investors are not loading the boat with General Electric (GE) stock yielding 12% at $9/share is beyond me. Take systemic risk out of the equation, and investors will leap at these.

GE.png picture by sbronte

3) Since you do 50% of your business while driving your car, you'll love this new product from the Canadian company Ilane. A combination of a small dashboard box, Blackberry, and blue tooth earpiece permit verbal commands to open your email and have it read to you by a seductive female voice. You can respond with canned answers like 'in transit'. You can also have a short verbal response recorded and then sent as an attached MP3 file. You can have all of this for $600 and an $8 a month subscription fee. It works great as long as your various talking mobile devices don't get in an argument with each other.

4) Private equity funds bemoaning the disappearance of the once lucrative LBO market are migrating en masse to distressed debt as their new raison de etre. Yields of 25% are now common, but this is no market for dilatants. The 4.6% default rate seen at the end of 2008 is expected to soar to 13%-18% by the end of this year. Players are going to need industrial strength research departments, abundant bankruptcy law capability, and expert trading desks just to find this illiquid paper. But with a modicum of leverage their may be able to attain returns for investors that restore them to their former glory.

5) The median home price in the San Francisco Bay Area has fallen to $295,000, a ten year low. This is down 56% from the $665,000 peak seen in July, 2007 (it seems like only yesterday). Sales are up 25% YOY, fueled by a tidal wave of foreclosures and cheap FHA financing. If prices fall further this place might even become affordable. Too bad you can't live off of the sunshine here.


'Stocks are not bought on Wall Street, they're sold', say seasoned brokers.