November 10, 2008

Global Market Comments for November 10, 2008

1) Today it was all about China, which announced a massive $586 billion stimulus package. On a GDP adjusted basis, this is like the US spending $3.3 trillion. The scary thing is that China believes that it has to stimulate an economy with an official growth rate of 8%. Asian stock markets soared, and there was a huge move up in commodity prices and shares of producers worldwide. Gold was up $30 and crude made it all the way back up to $66. With $1.6 trillion in foreign currency reserves China can afford this while the US can't. There is no doubt this will shorten the global recession.

2) Today President elect Obama meets President Bush for the first time in the oval office. I would love to be a fly on the wall in that room. What is in Area 52? Who really killed John Kennedy? Where are the missing 18 minutes of the Nixon tapes? Were we visited by aliens in Roswell, New Mexico? Does Osama bin Laden really exist? The possibilities boggle the mind.

3) MacDonald's (MCD) knocked the cover off the ball again with a continuing sales surge overseas, led by Asia, up 10%. If the economy doesn't improve soon we will all not only be eating at Mickie D's, we will be working there too. The stock was up nearly 10% to $58.

4) On the other hand, Circuit City (CC) filed for Chapter 11 bankruptcy. This was a long time in coming. Great for Best Buy (BBY). DHL is shutting down its US operations, laying off 9,500.

5) Deutsche Bank downgraded General Motors (GM) with a share price target of zero. Clever. The stock fell 30% to new low of $3.00, the lowest since 1946.


The November S&P mini $830 puts I recommended you short on Friday at $20 you could buy back this morning at $5. You caught a double play. Not only did the S&P 500 move up 50 points in your favor, the VIX came in from 64% to 56%. Take the three day profit of $75,000 on 100 contracts. There are several lessons to be learned here. Investors these days are not only risk averse, they are risk intolerant. Those few brave souls who are willing are willing to commit capital are being paid extortionate amounts of money to do so. A 2.5% profit for holding a non leveraged position for just a weekend is pretty good. This is a trading market, so when it gives you a gift like this you take it. Make the volatility work for you. The market will always give you another chance to get back in. Also, use the volatility to keep positions small. Remember, pigs get slaughtered. Leave the last 10% of a trade for the next guy. Enough homilies?


Google, last year's darling of the market, has more than halved in four months. With a 70% market share in internet search, the company has basically become the toll taker for the internet. At $315 GOOG is now selling at a multiple well under 20 times while it is one of the few companies to continuously increase earnings this year. The company is a cash machine also most as efficient at the US Treasury, and has almost as many reserves as Fort Knox. Even though economic conditions are dire, it is still increasing sales as advertisers accelerate their epochal shift away from traditional print and broadcast media to the internet. Its only potential competitor is Microsoft (MSFT), which first ignored the internet, then was hobbled by the Justice Department, then finally stumbled over its own big feet with a series of small and meaningless acquisitions. Its latest attempt to break the Google monopoly with a takeover of Yahoo (YHOO) came to naught. Although Google is excessively wasteful on things outside its core business, like space travel, its still offers a rare chance to get into a best of breed company on the cheap.


Marjorie Deane, one of my early mentors at The Economist, passed away last week at 94. She was one of the first female financial journalists, joining the magazine as a statistician in 1947, and was eventually awarded and MBE by the Queen. Despite her fame, when she was only 62, she graciously invested her time and energy to nurture a scraggly, young, and nearly starving writer in Tokyo. When I worked in her office during the summers I noticed that her bottom desk drawer was always well stocked with gin, vodka, and white wine, even though she was a teetotaler. It was 'to keep my writers out of the pubs', she said. The writers said it was how she kept her sources loose lipped. The wine was always the perfect temperature because The Economist never bothered to heat its offices at 25 St. James's Street. Her estate went to a foundation to help young financial journalists. A giant of financial journalism passes.