November 3, 2008

Global Market Comments for November 3, 2008

1) First quiet day in the markets in two months. All is now on hold until after the election. An Obama win is already priced into the market, but the makeup of the House and Senate is not. McCain needs to pull an inside royal flush to win. LIBOR fell 45 bp last week and another 17 bp today down to 3.02%, meaning help is on the way. The spread still has 45 bp to go to hit the low for the year, which was 70 bp over Fed funds. Hang on!

2) With the election out of the way the next big date looming for the markets is November 15. The Bretton Woods II conference to reshape the international role of the dollar will be held. It is also the final day for notification for most hedge fund redemptions.

3) More than 20% of all US home mortgages are now under water. Goodbye to the home ATM! Conforming loans are now available at a 4.75% rate for 30 years, with 3% down, up to $720,000, with a FICO score of only 580!

4) The scariest costume I say on Halloween was a kid dressed up as a chart of the Down Jones Industrial Average. Amid the violence of October, it was easy to miss how momentous some of the moves were: the S&P 500 from 1,167 to 820, crude from $102 to $67, gold from $878 to $716, The euro from $1.42 to $1.22, Citibank (C) from $24 to $ 12, Hartford Insurance Group (HIG) from $45 to $10, and the emerging market ETF (EEM) from $36 to $ 18. Oh yes, the futures on a McCain win went from 45% to 15%.

5) If General Motors (GM) goes bankrupt, two million jobs will be lost by the time the ripple effects from suppliers and dealers are added in. If the merger with Chrysler goes through, only one million jobs will go. GM has become a giant HMO that makes cars as a sideline in its arts and crafts department. $8,000 of the cost of every GM car goes to health care costs. The equivalent figure at Toyota, which benefits from a national health care plan, is $180.

6) If you had any doubt that we are headed for a severe recession, look at the price of naphtha, cornerstone of the petrochemical industry, and the basic feedstock of plastics. The price has fallen 76% from $1,200 to $284/ton since July. Naphtha is now cheaper than crude for the first time ever, as panicky petrochemical companies dump inventories.

7) I stopped at an intersection on Sunday and found my car surrounded by an angry church group waving yellow 'Yes on 8' signs, the California anti gay marriage initiative. They screamed that if I voted 'no' on 8, I was raping my children. It's time for this election to end.