November 13, 2008

Global Market Comments for November 13, 2008

1) Weekly jobless claims came in at 516,000, a new seven year high. Oil imports have dropped from 11 million barrels/day to 8.8 million b/d. Because of the huge price drop the cost of these imports has fallen from $1 billion/day to only $500 million/day since July, causing the US trade deficit to shrink at a dramatic rate. This has been a big factor behind the strength of the dollar. While the average price of crude for 2008 is now at $108, the average for the past eight years is only $50. All we are doing now is reverting to the mean.

2) The Chinese economy is decelerating at a rate not seen since the Tiananmen Square massacre of 1989. China watchers are now talking about a Q4 growth rate of only 5.8%, down from 8% last quarter. Imports are down 5.7%, which is why copper has collapsed to a new three year low of $1.65, and exports are off a worrying 2.3%. As far as US retailers are concerned, kids never went back to school in September, and Santa Claus and the elves are going on strike in December. The Aluminum Corporation of China has just cut capacity by 38%, while China Eastern Airlines has grounded 10% of its fleet. There has been widespread defaulting on contracts for metals and bulk commodities by Chinese importers, which have halved in price. China has become the canary in the coal mine for the global economy. See the chart for the iShares FTSE/Xinhua China 25 ETF (FXI), down from $70 to $19.

3) There are now 400 commercial aircraft parked in the desert near Palmdale, California gathering dust and waiting out the recession. Most of these are older fuel inefficient aircraft from the large airlines.

4) If you are worried about obtaining credit, this is the most important chart in your life right now. It shows the Treasury/Eurodollar spread which has been improving continuously for the past month, thanks to treasury's flooding of the global financial system with cash, and is now at 180. This is a vast improvement from 500 basis points a month ago, but is still well above the 70 bp that prevailed before the Lehman bankruptcy.

5) The German government has confirmed it is now in recession for the first time in five years. Bad for Poland.

6) The Economist magazine conducted a global online presidential election for the US. Out of 53,000 voters, Obama won 83%. Only three countries went for McCain: Algeria, Zaire, and of course Iraq. Foreigners have long complained to me that they can't vote in our elections, even when they are more affected than we are by the outcome, especially when they live on one of our bull's-eyes.

7) Global equity markets have lost $18 trillion in value in six weeks. At 8,300 the Dow is at the lowest level since 1996. The average price/sales ratio for stocks since then has been $1.18. Today it is at 76 cents, meaning that you need a 55% rise in share prices just to get back up to a ten year average.


Here was another chance today to buy equity index calls again at the bottom of the 815-1000 in the S&P 500. There has got to be a short squeeze ahead of the G-20 meeting. Today you could buy the S&P 500 mini December 850 calls at $40, which don't expire until December 19. 100 of these puppies will cost you $200,000. If we keep this range, these calls will explode to the upside shortly. If we break down, a subsequent dead cat bounce will get you out at cost.


The Treasury's TARP program should be renamed the BARF program: 'Bad Advice for Ruining Finance.'

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