October 1, 2008

Global Market Comments for October 1, 2008

1) The democrats are going to get the bail out bill through by turning it into a Christmas tree with presents for all of the wavering members. So far on the list: subsidies for mental health, alternative energy, makers of US based wooden arrows, and a tax cut for small businesses for Republicans. Poulson's original three page bill is now up to 400 pages. Rumors of a proposed €300 billion bail out of European banks by the ECB was later denied by France, who else?

2) Since 1990, October has been the top performing month of the year for the Dow, followed by November and December. Since 1950, five out of nine bear markets ended in October. The 1929 and 1987 stock market crashes also happened in October.

3) Emerging markets account for just 11% of the world's stock market capitalization, but will deliver 70% of global growth over the next two decades, according to the Capital Group. The iShares MSCI Emerging Markets Index Fund (EEM) is a strong buy here, which has fallen from 45% from $55 to $30 over the past year. Look for an easy double over the next two years and a tenfold return over ten years.

4) The high school drop out rate in California is 25%, ranking it 43rd in the nation. In the Los Angeles School District, the state's largest, the rate is 50%. Appalling. And you wonder why things are going to hell in a hand basket here. Ebay's Meg Whitman says finding qualified staff is now the biggest impediment to doing business in California.

5) The average compensation of a Goldman Sachs employee last year was $600,000, and that includes the janitors and the secretaries. CEO Lloyd Blankfein earned $70 million, making him the eighth high paid executive in the US. This year it will be less.

6) We are about to see huge buying of JP Morgan (JPM) and Citibank (C) by index funds. With the disappearance of so many of banks, JPM and C now account for a much larger percentage of the banking industry, and index funds must buy their shares to maintain market weightings. The concentration of the banking system is accelerating at an amazing rate. These two banks alone now account for one third of all US bank deposits.

8) Investors withdrew $74.5 billion from equity mutual funds in September, an all time record. As a result the S&P 500 Index had its worst month in history. This is historically a great buy signal.