October 28, 2008

Global Market Comments for October 28, 2008

1) All the recent trends reversed today on imminent Fed and ECB rate cuts. The Dow soared 900, crude and commodities popped, while the dollar and Treasuries sold off. The yen short I strongly recommended yesterday at ¥92/$ fell back to ¥97/$. The VIX fell back from 80% to only 66%. Please see last Friday's 'strategy call of the decade' warning of an imminent sharp recovery in stocks. Looks like we will be in an 8,000 to 10,000 range in the Dow for a while, which will define the bottom of this bear market.

2) I was looking at homes in Stockton over the weekend, the foreclosure capital of the world. I was offered an FHA loan at a 30 year fixed rate, 3% down, requiring a credit score of only 650. That works out to a monthly payment of $2,000/month on a 3,500 square foot home brand new out of the box. The bad news is that it is in Stockton.

3) A disastrous unwind of a pairs trade gone wrong has inadvertently caused Volkswagen's market cap to shoot up to $303 billion, making it the world's largest company. Figuring the company was overvalued, hedge funds shorted Volkswagen and went long Porsche. The trade accounted for 12% of VW's float. A surprise increase in margin requirements forced everyone to come out of this trade ad once, creating a gigantic short squeeze that drove VW's stock from €200 to €665 in just two days. This is a perfect example of what happens when too many big hedge funds bunch up in a single stock, and is why I never do pairs trades.

4) Consumer confidence for September produced a record fall from 61% to 38%. We knew it was going to be bad, but this is off the charts bad. It was the largest month on month drop to the lowest absolute level in history.

5) After being suspended for a week, the Icelandic kroner opened for trading today and promptly fell 50%. Watch for great vacation packages to this fascinating but newly impoverished Nordic country. Great for girl watching, sardines, spa treatments and puffin watching.

6) You know times are tough when Howdy Doody dies. E. Roger Muir, the star behind the NBC fifties children's' show we all grew up on, was 89. The last four decades had been kind of slow for him. Howdy Doody ran for president against Truman in 1948. Buffalo Bob mourns.

QUOTE OF THE DAY

'Control everything. Own nothing', John D. Rockefeller, founder of the Standard Oil Company.