September 22, 2008

Global Market Comments for September 22, 2008

1) Prices on 30 year T-bonds have plunged an unprecedented 8 points in two days, taking the yield up from 3.90% to 4.6%. Please see my comment last Thursday that bonds were a screaming short at 124. With all of the bail outs, the national debt has effectively risen from $9 trillion to $18 trillion in a month. Iraq and a national health care system don't fit anywhere in this scenario.

2) Since nobody knows what financial instruments are worth, money has been pouring back into the commodity trade with a vengeance since Wednesday. Gold is up from $750 to $900, the euro from $1.38 to $1.47, crude from $90 to $120, and wheat is limit up. The derivative equities are up 30% or more. The highly inflationary aspects of the bail out are coming home to roost.

3) The Short selling ban list has come in for a lot of abuse since it came out on Friday. It included four companies that don't trade, a Nigerian aviation finance company, and a biotech company, but did not include General Electric (GE), one of the biggest players out there. It just shows the desperate, slapdash way in which it was put together. The whole issue is bogus, because hedge funds, in fact, were net buyers of financial stocks this quarter, cutting their short positions by 20%. You don't get rich selling stocks already down 90%.

4) Current shareholders in Goldman Sachs may do alright. GS currently sells for 7 X earnings with a leverage of 24 X. By converting into a bank leverage will have to drop to only 12X, but more stable earnings will justify a 14X multiple.