Global Market Comments for March 9, 2009
Featured Trades: (COPPER), (XLF), (FCX), (WTIC), (JPM), (WFC), (GS), (BAC), (C)
1) Traders looking for the Next Big Play are keeping a laser like focus on two key commodities. Chinese stockpiling prompted copper to break out of its recent trading range to the upside to $1.70, taking lead producer Freeport McMoran (FCX) up 30% on the week. Crude rose 15% to a high of $46. These impressive moves happened during a week when global equity markets were in complete freefall. This suggests that the bulk of the world's growth will be in emerging economies, and that the next round of commodity buying will be even more ferocious than the last. Since I believe that the future is all about the ascent of hard assets over paper ones, this is music to my ears.
2) To say the market has gone mad is an understatement. The Dow has lost 24% since January 1, giving up $2.6 trillion in value. Other than that Mrs. Lincoln, how was the play? Credit default swap risk premiums now tell you that it is much riskier to invest in Warren Buffet's Berkshire Hathaway (BRK/A) than Vietnam, and that Russia is a safer bet than General Electric (GE). The Dow is headed for the 4,000, according to ultra bear Felix Zulauf of Zulauf Asset Management in Zug, Switzerland. The rock star fund manager believes that we entered a 10-15 year bear market in 2000. He argues that analysts are smoking something with S&P consensus earnings forecasts at $60, down from $100 a year ago, and that the real number will come in at zero to $40. We may see one more bear market rally to 9,000 in the next few months led by financials, mining stocks, and consumer discretionaries. After that the Dow will drop by half. Day traders only need apply.
3) The markets continue to behave like a spoiled child throwing a tantrum because the global response to date has been too little, too late. China did the right thing with a stimulus package amounting to 16% of GDP over two years. But the US has so far come up with a package worth 6% of GDP over three years, which is clearly not enough. $881 billion sounds like a lot of money, but in this world it is only the down payment. Treasury Secretary Hank Paulson promised to ring fence toxic assets but never delivered, buying into the banks instead. Policy makers are not equipped to deal with the globally synchronized nature of this melt down. In 1988 world trade accounted for only 5% of GDP. Last year it was 33%, but is going to hell in a hand basket with stunning speed. More global coordination is necessary, no matter how distasteful that may be.
4) Looks like there is a massive short covering play setting up in the financial sector. There was big hedge fund buying of calls and call spreads in the Financials Select Sector SPDR ETF (XLF) at the end of last week. The healthy components of this basket, like JP Morgan (JPM) (12%), Goldman Sachs (GS) (7%), and Wells Fargo (WFC) (6%), are at record low valuations. The sick ones like Citigroup (C) and Bank of America (BAC) are essentially at zero. This makes your downside risk very low. Watch this space.
5) If you want to see the most vicious roast of a TV network of all time, paste the link to the Huffington Post below to your browser and watch comedian John Stewart demolish CNBC on the Daily Show. It is five minutes of their esteemed commentators telling investors to buy the market at the top, and praising financial heavyweights for their investing acumen just before they were found to have stolen all the money. Their recommendations to load up on Bear Stearns and Lehman brothers are particularly entertaining. It will make your day. Go to:
QUOTE OF THE DAY
'When we declared war in 1941 there were not 8,000 earmarks attached,' said Warren buffet in chiding congress in its handling of the economic crisis.
'We must all hang together, or surely we will hang separately', said Benjamin Franklin.