May 19, 2008

Market Comments for May 19, 2008

1) Crude futures are moving towards contango, indicating a near term easing of supply fears. Contango exists when the far dated futures contracts are selling for more than front month futures, the normal condition in commodity futures markets (because your have to pay interest to maintain a long position). Please see my earlier recommendation to sell out of the money crude calls. In the meantime the president of OPEC said there would be no meeting until September, and no increase in production quotas until then.

2) A sign of the rise of emerging markets: India's top paid cricket player has signed a three year contract for $40 million. India now has 53 billionaires. Economic growth came in at 9% in 2007 and will fall back to 8% this year. BUY.

3) Singapore Airlines has launched the world's longest flight, non stop from Newark to Singapore. The 10,371 mile flight takes 18 hours and costs $10,000 round trip.

4) 15 year old Jennifer Sharpe sold 17,300 boxes of Girl Scout cookies this year, a new record. And she sold them in Detroit no less! Hire that girl!

5) The index of leading economic indicators for April came in at +0.1%, in line with expectations. The Dow rose 41, and saw a new four month high.

6) Merrill Lynch put out a report predicting that natural gas will hit $13 due to increased demand for fertilizer and ethanol.

7) Brazil hits another new high. One good way to play this market is through the i Shares Brazil ETF, ticker symbol OWZ, which has soared from $72 to $102 since March 17.


There is a no brainer trade you can do here in the bond futures which closed today at 117, rallying from a 115 low on May 16. The June 118 calls, which expire this coming Friday, are trading at 32/64. If you sell two of these, your four day return on capital would be 1%. You would be profitable at all points up to 118.5. With the Fed having done so much to stabilize markets in the last few months, and inflation looming on the horizon, you are not going to get a 3 ½ point rally in Treasuries by Friday.