November 25, 2008

Global Market Comments for November 25, 2008
Featured trades: (GE), (FSLR), (SPWRA), (CCC)

1) The Fed announced the bail out package du jour, $200 billion for Asset Banked Securities for car loans, credit cards and student loans. They are using a ten to one debt to equity formula, which is absolutely the most efficient use of federal funds. The US government is rapidly turning into the world's largest hedge fund.

2) I am only writing this so I can tell you 'I told you so' in three years. The spike in gold since last week from $685 to $830, and the sell off in the dollar from $1.22 to $1.30, is telling us that the enormous liquidity being creating by the Fed and the Treasury now, are going to be a really BIG problem down the road. One estimate puts the total cost of the many bail outs announced so far at $4.3 trillion, and there are much higher estimates out there. To give you an idea of how much money this is, Hoover Dam, the Panama Canal, the Marshall Plan, the Louisiana Purchase, the New Deal, the S & L crisis, and the space program only cost $2.1 trillion in inflation adjusted dollars. The government's budget deficit could hit a staggering $2 trillion next year. Obama has made it clear that he is not afraid to borrow his way out of the current crisis. Go short 30 year Treasury bond futures, now at 127, down from 130 last week.

3) Treasury Inflation Protection Securities (TIPS) are now trading at levels implying that we will have negative inflation for the next ten years. Another example of a broken market.

4) Q3 GDP was revised down from -0.3% to -0.5%. Given the economic data we have seen in the last two weeks, you can pretty much count on negative      -4%-5% for Q4. This is the worst since 1980, when we saw a -8% quarter in the wake of the Iranian revolution caused second oil crisis.

5) With crude at $50, threatening $40, alternative energy plans are in tatters, again. Boone Pickens, who will not receive a single one of his giant wind turbines from General Electric until 2010, is slowing down his natural gas based program. Bill Gates has written off his research on the Athabasca tar sands. But this time I don't think renewable energy will become the government subsidized orphan it became after past crude crashes. This year's near death experience with $148 crude was too close for everyone.

5) Total job losses in the financial community world wide may soar from 170,000 this year to 320,000 by 2009, about 20% of the total work force. Expect to start getting free stock tips from your male nurse, taxi driver, moving specialist, prison guard, and roto rooter man.

6) That must mean that sifting through the wreckage of this year's alternative energy plays must be a profitable enterprise. One area to focus on is the integrated solar names that have the ability to cut upstream and downstream costs, like First Solar (FSLR), down from $320 to $85, and Sun Power (SPWRA), which vaporized from $160 to $18. Another would be environmental clean up carbon recapture plays like Calgon Carbon (CCC).

7) On October 10, 404 stocks in the S&P 500 hit new lows for the year. Last Friday, only 303 hit new lows. Back in the days when technical models actually worked, this would have told you that the October 10 bottom held.