March 27, 2009

Global Market Comments for March 27, 2009
Featured Trades: (SCHW), (AMTD), (IYR), (BPO)

1) Once thought an extinct species, the retail stock investor is back with a vengeance. It only took a 23% rally, the best since 1938, to do it. Trading volumes are up 15%-20%. It's time to take a look at the online brokerage stocks, which have been on a tear. These are pure brokerage firms, not de facto mega hedge funds like the big boys. So there are no hidden trading losses, mark to market issues, compensation scandals, or TARP money. These boys are poised to pick up the pieces left behind by the implosion of Lehman Brothers, Bear Stearns, and Merrill Lynch. Look at Charles Schwab (SCHW) with a mutual fund family that makes it a more sensitive to a rising market, or TD Ameritrade (AMTD) which is a better volume play.

2) George Soros says that it is 'inevitable' that commercial real estate falls another 30%. Rents are falling, tenant bankruptcies are rising, there is tons of debt to be refinanced for which there is no market, so cap rates are rocketing and 'ghost mall' has joined the recessionary lexicon. This all adds up to lower prices. Some credit default swaps are trading at levels suggesting that a major REIT bankruptcy is imminent. I know George is sometimes prone to extreme statements, but this time he may be on to something. If you want a short play, or if you have an existing long position in commercial real estate which you can't get out of and want to hedge, try a short position in the (IYR), although it has already dropped from $85 to $21. You can also play one of the sicker REIT names like Brookfield Properties (BPO).

IYR.png picture by sbronte

3) Having trouble raising capital for your new hedge fund? Just list Warren Buffet as your 'Honorary Chairman'. That's what California prison guard Ottoniel Medrano did. To help his marketing efforts he also claimed that he had $4.8 billion in assets under management as well as massive real estate holdings in Asia. Medrano's International Realty Holdings managed to raise $700,000 with this scam, which he promptly shipped to offshore bank accounts before the Feds shut him down. When you think you've heard everything, something like this pops up. Unbelievable.

4) The recent 69% leap in crude prices from $32 to $54 may mean that the next spike has already begun. We have been sowing the seeds for the last nine months. The US drilling rig counts has dropped by half to 1000, and it could go as low as 900. Credit squeezed companies have chopped exploration budgets to the bone. The few new wells that are being drilled are becoming increasingly expensive to bring on line. Mexico is the second largest foreign supplier of crude to the US, delivering 1.2 million barrels a day. But production at its main Cantarell field in offshore Yucatan is falling off a cliff, and the country will soon become a net importer. Buy that Prius while the lots are still full.

OIL.png picture by sbronte


'The funny thing is, in your twenties you try and look serious, and after your twenties, you just try and look hot,' said Meredith Whitney, rock star Oppenheimer banking analyst, who recently left to start her own firm.