May 8, 2009
Featured Trades: (NS), $USB), (TBT)
1) The May nonfarm payroll came in at minus 539,000, better that the consensus of minus 650,000, taking the unemployment up to 8.9%. The improvement was caused by temporary hiring of government workers for the 2010 census. A peak above 10% now looks like a chip shot. Including discouraged workers, we are now at 15.8%, moving towards the great depression peak of 25%. In several industries, like autos, real estate, and construction, conditions are already worse than the thirties. It is clear that not a drop in stimulus money has led to any appreciable hiring yet. This may be the last really terrible number in this cycle, but you can expect continued hemorrhaging for a while.
2) The US Treasury's auction of 30 year bonds yesterday was a complete disaster. There were few takers of the $14 billion in paper on offer, spiking yields up 20 basis points to a six month high of 4.35%, and crushing the futures by two points.Â My beloved PowerShares US Lehman short bond fund (TBT) roared up 8%, breaking out to a new high for the year of $53.The failure is an early indication that fixed income investors are anticipating a resurgence of inflation down the road, as long dated bonds are the most sensitive to inflationary expectations. The the government hopes to sell $2 trillion in debt in the coming year, and so far the Fed has committed to buy $500 billion. Where will the rest of the money come from? China, Japan, and the UK, until now biggest buyers of our debt? Could they possibly be suffering from buyer's remorse, indigestion, new found prudence, or all three? The debacle is welcome news for commodity owners of all shades, the new hard assets of choice, especially of the gold and silver variety.Â I have been pounding the table about inflationary risks for months, and an accident like this was just waiting to happen.
3) Crude has been riding the reflationary wave, hitting a six month high of $58 yesterday. It is time to take another look at San Antonio, Texas based NuStar Energy (NS). A spinoff of Valero Energy's asphalt division, the company boasts 58.5 million barrels of storage facilities around the Gulf. The stock has already doubled since crude prices collapsed big time in October. The company has also been buying up asphalt production from other companies like CITCO, and may offer an additional infrastructure play, once Obama's $30 billion road rebuilding program starts in earnest. Since my recommendation on January 29 (seeÂ Â http://www.madhedgefundtrader.com/January_29__2009.html) the stock has risen 15%. Given that one of the few certainties in life is that crude prices are going up, I would add to this position on any substantial dips.
4)Â The dinosaur bone market has crunched. Once a favorite collectable of high flying hedge fund managers, the prices of everything from tyrannosaurus rex to brontosaurus fossils have skidded. A recent auction of a triceratops skeleton failed to reach its minimum bid of $1 million. Even prices for fossilized dinosaur excrement, a popular niche market, have gone down the toilet. The all time high for these specimens was hit ten years ago when a T-rex named Sue sold for $10 million , which after much litigation, ended up in the Field Museum in Chicago. You floor traders in the pits should go have a look at what a real predator looks like someday. Dealers are hoping that the upcoming sale of a rare three foot tall, 18,000 year old possible pre human hominid, homo floresienses,Â discovered in Indonesia, will help revive the market.
QUOTE OF THE DAY
'Put ears on it and call it Lassie,' said CNBC reporter Rick Santelli of yesterday's disastrous 30 year Treasury bond auction.