May 12, 2008

Market Comments for May 12, 2008

1) The US now accounts for 24% of world GDP and the emerging markets 30%. Expect the US to shrink and emerging markets to grow substantially from here.

2) The USDA put out a very negative crop report due to poor weather during the planting season. Next year's corn harvest will hit a 13 year low. Corn hit a new high for the year of $6.30 and is probably on its way to $7.50 in the next few months. In the meantime, major producer Argentina has held up exports with a new punitive export tax. Also, expect soybeans to climb from $13.50 back to the year's high of $16.50 and maybe beyond.

3) A lot of talk about RIM's announcement of its IPhone buster, the 'Bold 9000'. This 3G Blackberry has double the resolution of the old model, will cost $399, and will only be available through AT&T. Sign me up! Apple is expected to announce its 3G IPhone in the next few weeks.

4) According to the senior loan officer survey, a lagging indicator, credit continues to tighten. According to credit spreads, a leading indicator, it is easing.

5) Arson always goes up in recessions as people try to burn their way out of bad investments. This time there is a new wrinkle. People are torching their large SUV's because they can't afford the payments or gas and can't sell the vehicles. This is especially prevalent in California.

6) Fueling global oil demand is the fact that gas is still subsidized in many countries. Gas is $3.97/gal in India, $2.40/gal in China, and $0.19/gal in Venezuela. China's Sinopet alone lost $3 billion on the subsidy last year. This is why oil imports rose 16% in China last year, but fell 8% YOY in January in California. Last month, energy demand in China and India combined, exceeded that in the US for the first time.


With crude at $126 and the Bush administration having shot its wad with the stimulus package, we now have to consider a double dip or 'W' scenario for the economy. This is why the rally failed at substantial technical resistance at the 200 day moving average of 1,430 in the S&P 500, which was also the 50% retracement level from the fall high. This is why I recommended selling all of your global stocks last week, or at the very lieast aggressively writing covered calls. The choice here is to sell all your stocks and book your substantial profits from the March 17 low, or to soften the blow with options strategies, including more call writing and index options. Sell in May and go away is sounding better every day.