September 3, 2008

Global Market Comments for September 3, 2008

1) The dollar spiked up to the $1.43 handle against the euro as billions poured out of the soon to be lower yielding euro and pound and into the soon to be higher yielding greenback. Since we have had no significant pull backs from the major break of $1.55, this is increasingly taking on the character of a multi year trend reversal. Trillions of dollars of commercial hedges are going to have to be unwound. Parity, or $1 to €1 is not out of the question. But the buck has got to cool when it hits the $1.30s.

2) British Chancellor of the Exchequer Alistair Darling says the UK economy is in the worst shape in 60 years. The German business climate index is at a three year low and consumer sentiment shrunk to a five year low. Sell Poland, which is to Germany as Canada is to the US.

3) There is a real estate melt down of Biblical proportions going on in Incline Village, Nevada, a major West Coast hedge fund center (and also where Michael Corleone had his half  brother Fredo dispatched in Godfather III.)The toney hamlet nestled on the shores of Lake Tahoe has 550 homes for sale out of a population of 10,000, 70% of which are priced at over $1 million. Palatial spec homes on Lakeshore Blvd., the local millionaire's row, have every imaginable amenity (radiant floor heating in the driveway?) and are still being marked down $1 million a quarter. If you think we are anywhere close to a bottom in the housing market, talk to one of the shell shocked agents there, that is if you can talk one back from the ledge.

4) 75% of Americans own computers compared to 9% of Chinese and 5% of Indians. Guess where the future growth in profits will be. Buy Lenovo (LNVGY) and Acer (ACID), along with Intel (INTC), Dell (DELL), and Hewlett Packard (HPQ) for their global sales presence.

5) Foreclosures on US commercial loans are taking off at an unprecedented rate. Expect the securities backing these loans to tank further. Banks will pare back new lending to the sector in typical 'closing the barn door after the horses have bolted' fashion.

6) Natural gas (NG) hit a new low for the move of $7.00, and the crude ratio hit a shocking 15.5 times versus the historical 9-10 times. When NG recovers you want to watch Golar LNG Ltd. (GLNG), which has been unfairly knocked down 40% because of an inaccurate association with natural gas, even though it is only involved in the long distance transportation of LNG.

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