May 23, 2008

Market Comments for May 23, 2008

1) The markets are now totally fixated by oil. Every financial instrument, from equities, to bonds, to currencies, are now being driven by the price of crude. Every technical service I subscribe to are saying that all oil related investments are sells, including crude, oil major equities, oil services, ETF's, and energy index funds. Alarm bells are ringing everywhere. The Dow had its worst week since February, falling from 13,100 to 12,400.

2) A record number of independent gas stations are going out of business as margins are crushed to record lows. About 10 cents/gallon for the price of gas is now going to credit card charges. Buy Master Card.

3) More than 50% of US government debt is now held by foreigners. Non US residents are now taking down 75% of each new bond issue floated by the government. This is a major factor in the continued weakness of the dollar.

4) The government says that miles driven by travelers in March declined by 4.3% YOY. This is the first March decline since 1979.

5) There are rumors that Belgian brewer Inbev is about to make a hostile takeover bid for Anhauser-Busch (BUD).

6) Existing home sales for April came in at -17.3%, the worst showing on record. The inventory of unsold homes rose from 11 to 11.2 months. Prices on the West coast fell 16.7% YOY.

7) GM stock hit a new 26 year low at $17.50. Gee, I wonder why?

8) Taiwan, Malaysia, and Indonesia announced that they are cutting domestic fuel subsidies in order to bring their gasoline prices in line with the world market.

TRADE OF THE DAY

The no brainer trade I recommended on Monday paid off. I suggested selling two of the June 118 bond calls for 32/64, or 1% of your capital. This position would have been profitable with a June futures expiration at all points below 118.5. Today those options expired worthless with the futures going out at 116 17/32.