November 20, 2008

Global Market Comments for November 20, 2008
Featured trades: (VNO), (MSW), (SPG), (GM)

1) Weekly jobless claims soared by 27,000 to 542,000, the highest since 1992. Unemployment appears to be going parabolic. It is clear that the consumer rolled over and died in October, and talk is now rife of deflation. All Treasury instruments exploded to the upside, and are at maximum crisis levels. The ten year Treasury yield hit a 50 year low of 3.11%, and the 30 year yield melted to 3.60%. Now that congress has taken an auto industry bail out off the table, the bankruptcy of GM appears imminent. When we broke through the 2002 low, trap door, stop loss selling ensued. Citicorp plunged 25%. The Dow got off cheap, only down 444. Next stop, 7,000 very quickly. You can always tell when the stock market hits a new low because the CNBC anchormen look like they have just been kicked in the balls. Think of GE stock cratering. Brace yourself for tomorrow!

2) Yesterday, they really took the REIT's behind the woodshed and beat them senseless with the ugly stick. Two commercial real estate CDO's defaulted, and credit spreads blew out on all fronts. Vornado Realty Trust (VNO) dropped from $55 to $45, Mission West Properties (MSW) slid from $7.50 to $6.20, and Simon Property Group (SPG) tumbled from $50 to $40. The fear is that if GM goes under, there will be massive dumping of commercial real estate on the market by the dealer network. There is more pain expected in this sector, which until now has been largely spared. New lows were set today.

3) Everyone is now a Keynesian, with supply siders in total disarray. Congressmen are competing with each other to see how much they can spend to cure the economy. To see where this can lead, look at Zimbabwe, which currently has the highest inflation rate in history, and where prices are doubling every 1.3 days. Weimar Germany only saw prices double every 3.7 days during the early 1920s. Most shops in the capital, Harare, will only accept US dollars or South African rands, spurning Zimbabwean dollars.

4) I attended a book signing for Ted Turner yesterday, which was an absolute riot. To describe him as a larger than life figure is an understatement. The secrets to business success are to 'rise early, work like hell, and always advertise', and 'he who has the most friends, wins'. He quit taking his anti anxiety drugs because his psychiatrist was a 'quack'. The AOL-Time Warner merger was the worst in history, and personally cost him $8 billion. I sent him a resume in 1980 when he was setting up CNN and never got a response because  I 'didn't try hard enough.' I met him as a Morgan Stanley client a few years later when he was fresh from his America's Cup win. Some 25 years later he has mellowed, but not by much. His chief passions now are his new buffalo restaurant chain, and chasing his three girlfriends.

5) The Bay Area Council says that 40% of local companies plan to lay off staff, while only 13% plan to hire. Two thirds of companies say that the credit crisis is affecting their business. The little hiring that is going on is in the health care and alternative energy areas.

6) Wholesale gasoline futures crashed to $1.03/gallon today, meaning that the local retail price could fall under $1.50/gallon by early next year!

7) If the auto industry does get a bail out, the first $60,000 will cover the cost of the private jets the CEO's chartered to go to Washington to beg, wearing their custom made suits, tin cups in hand. What dodos! Later we learn that the GM retirees health care organization is the world's largest buyer of Viagra.

8) PC Magazine, which I have been reading for 20 years, will stop publishing its print edition in February. This is just the latest example of a business wholly migrating its business entirely to online.


'There is no asset class that too much money can't spoil', said Barton Biggs of Traxis Partners, a global hedge fund.