March 3, 2009

Global Market Comments for March 3, 2009
Featured Trades: (WFC), (JPM), (C), (BAC), (GOLD)

1) We're going to 6,000 in the Dow, then maybe 4,000. So argues Louise Yamada, one of the most respected long term technical analysts on Wall Street. The targets for the S&P 500 are 600 and 400. Let me reprint a comment I made on January 27, when the Dow was at 8,250, some 1,500 points, or 22% higher. 'There is a hulking great 800 pound gorilla sitting on the floor of the New York Stock Exchange right now. Past stock market crashes in the thirties and the seventies produced market price earnings multiples of seven. Today it is 11. Does this mean that the Dow has one last 40% down leg left in it before we bottom out? That would take us to a 5,500 Dow, or a 570 S&P 500. Maybe the old PE benchmarks have been rendered meaningless by zero interest rates. Maybe so many single digit stock prices and trough earnings are skewing the numbers. Or, maybe nothing makes any difference anymore, and everything is just driven by the sentiments of attention deprived traders on steroids. But if I am right, look for a few more weeks of Obamaphoria supported stock prices, followed by a long, frightening plunge in the down elevator.' Looks like investors found the gorilla.

SP.png picture by sbronte

2) There is some fascinating action going on in the options market right now. There is some massive buying of short dated puts in Wells Fargo (WFC) and JP Morgan (JPM), while buying of longer dated puts has weirdly almost vaporized.  These are the only two high priced big bank stocks left. It is not happening in Citibank (C) or Bank of America (BAC), where there is so little meat left on the bone that buyers don't want to feel like they are the last man at an all you can eat buffet. Brace yourself. This is good news. It means that traders expect to see some short term volatility in these names. After that, Obama's bank bailout, stimulus program, and new budget will start to kick in and come to the rescue of the sector. Call me the 'options whisperer.' I stroke these things and they speak to me.

3) I went to the Marines' Memorial Club in San Francisco for a meeting last week and discovered the entire floor taken over by the Veterans Administration for bereavement counseling. More than 100 widows and parents tended to photographic shrines to loved ones in the ball rooms, and grief counselors met with small groups in the library. When I mentioned to some participants that we had nothing like this when I came back from Cambodia and Desert Storm, they held my hand and looked at me with pained expressions, tears streaming down cheeks. I told them their loved ones died doing what they wanted, and that they would live as long as they were remembered. What else could I say? I realized they were looking to me as one who made it back, and wished their loved ones had been able to do the same. When we leave Iraq next year, as Obama is promising, what are we going to tell these people? Was it all for nothing? What a waste.

4) Panic buying of gold coins continues to overwhelm coin dealers around the world. According to the Financial Times, the US Mint sold 193,500 American eagles in the first seven weeks of this year, more than it sold in all of 2007 at prices 40% lower. Retail investors fleeing paper assets, like plummeting stocks and bonds, are paying 5% premiums over face values. The same phenomena are appearing in other countries where gold coins are available to the public. Now that gold has backed off from $1,007 to $905, is it time to double up?


'Insanity is doing the same thing over and over and expecting a different result,' said Albert Einstein.