September 9, 2008

Global Market Comments for September 9, 2008

1) The biggest financial bail out in US history, and the nationalization of the majority of American home mortgages and we only get a one day rally. Hank Paulson must be slitting his own wrists. All this at the price of doubling the national debt, from $9 trillion to $18 trillion. Investors have figured out that shrinking these two behemoths means that less money is going to be available to buy real estate, especially in expensive places like California and Florida. Stocks fell 260 and bonds soared, with the 30 year hitting an unimaginable 4.31%.

2) Pending home sales for July dropped 3.2% and 6.8% YOY according to the National Association of Realtors. Sales in the West fell 10.6%.

3) The US housing market has lost $6 trillion in value in three years, and may lose another $6 trillion before it hits bottom. That is a big hit to consumer spending power. The home ATM is busted.

4) The grape harvest in Livermore Valley will be smaller than usual, according to Jim Ryan of Concanon Vineyards. Frost, a dry winter and spring, wind damage at bloom time, and a scorching summer are to blame. Statewide yields will be down 15-20%, which should help prices.

5) $1.2 trillion in mortgage resets are due in the next year which will trigger 40%-80% increases in monthly payments.  Not good for housing, and you can kiss WAMU (WM), Wachovia Bank (WB), and Suntrust (STI) goodbye.

6) Apple had a conference in San Francisco today to announce a new family of IPODS, and people could care less. Instead they had a laser like focus on how much weight Steve Jobs had gained since he made his last public appearance. His jeans hung on him like a scarecrow. 'The reports of my death are greatly exaggerated," said Jobs.

7) Counter parties continued to deal with Lehman in the money markets today because of the near certainty that it will imminently be taken over. Potential candidates are Nomura Securities, HSBC, Blackstone, Black Rock, Lazard, Greenhill & Co., or a Japanese bank. Although Lehman, with 26,000 employees and 50% of its revenues coming from overseas, is considered a steal at the current market value of $7 billion, private equity firms currently have a $5 billion cap on all financings.  Lehman has raised $12 billion in equity capital this year. Lehman's big mistake has been to demand a substantial premium on a complete bail out, all the way down from $30/share.