October 30, 2008

Global Market Comments for October 30, 2008

1) Q3 GDP came in at -0.3%, the lowest in seven years, indicating that we are solidly in recession. Residential investment fell a gut wrenching -19.1%, while consumer spending is -2.2%, the biggest drop since 1980. Further revisions downward are expected. They don't call this the dismal science for nothing. We've had 1929 already, and next year will be 1930. The big question is, can our great leaders keep us out of 1931 and 1932?

2) Buried amidst the tons of pork in the 400 page bail out bill was a huge increase in the tax credit for alternative energy, from $2,000 to 30% of the investment. Desperate home builders like Standard Pacific, Centex, Pulte, and Lennar are using this credit, which can be worth up to $7,500/unit, as a gimmick to help eat into their inventory glut by selling 'Solar Homes'. These green buildings offer two way electric meters that automatically sell excess power generated back to PG&E, and cut the net monthly power bills to only $30. Great for homebuilders in sun drenched places like, well'¦Stockton!

3) An amusing poll in Backpacker magazine says that Obama would provide the most support for national parks, but that McCain would be the most interesting person to wait out a storm in a tent with, and would certainly have the greatest chance of surviving being lost in the forest.

4) Exxon (XOM) Q3 profits came in at $14.8 billion, the largest in the history of any corporation. The stock has dropped from $96 to $55 since July. That was with crude peaking at $148. How will they do at $60?

5) The euro/yen cross has had an unbelievable move in the last two days, from ¥111 to ¥125, and was a major factor in the stock market rally. A year ago this cross was at ¥165. Euro/yen is a great bellwether of risk taking by hedge funds, since they all fund in yen at effective 0% interest rates. It is the first sign that global deleveraging is reaching an end.

6) The steady thaw in the overnight credit markets is accelerating and will soon spread to other asset classes. It's making last week's bottom in global markets look more solid.