Global Market Comments for August 18, 2008

1) With the euro at $1.46 on its way to the $1.30's, and commodities in free fall, it is becoming screamingly obvious that the inflation trade is temporarily dead. Long bond yields are approaching new lows for the year, with the ten year at 3.80%.

2) Nine million jobs are expected to leave the US for China and India over the next ten years, manufacturing to China, and back office and support to India. China's GDP is expected to exceed that of the US by 2035. Hopefully I will be dead by then.

3) If China had not implemented its 'one family, one child' policy in 1979, the population would have shot up to 1.7 billion today instead of the current 1.3 billion. The 400 million difference equals the entire population of North America now.

4) If Michael Phelps were a country he would rank 5^th in the Olympic gold medal rankings. The cost of feeding him his 12,000 calories/day has risen from $19.95 a day to $38.57 over the last three years, according to his mother. That is $14,000/year just for food. But by earning an expected $5 million in endorsements this year, I think he can afford it. By comparison, Mark Spitz earned $1 million from his famous poster with him wearing all seven of his gold medals, but that was in 1972 dollars.

5) If the flap between the US and Russia worsens, it could be bad news for the bond market. Russia owns $216 billion in US debt, including $150 billion in Freddie Mac and Fannie Mae paper. If the Russians dump, bond yields would soar, at least temporarily.

6) MF Global (MF) at 15 times earnings at $7 bears some watching. The stock has been unfairly beaten down from its $30 high a year ago by rogue trader stories and tarred by the poor performance brush of other listed hedge funds. There is an easy double here.

7) Firewood prices in the Northeastern US have doubled over the last three years to $300/cord. Consumers are rushing to head off a 25% leap in home heating costs this winter. Sales of wood stoves are also booming. This is not good for global warming.

8) Q2 disclosures show that Warren Buffet has been adding to his positions in NRG Energy (NRG), Ingersoll Rand (IR), and drug company Sanofi-Aventis (SNY). The Gates Foundation has been buying ugly shoe company Crocs (CROX), AIG International (AIG), and Eastman Kodak (EK).

Global Market Comments for August 15, 2008

1) There is a nightmare scenario unfolding in the commodities markets where the meltdown is explained not by just a two week slowdown for the Olympics, but by an unfolding global recession. Four out of five of the world's largest economies are now at or in recessions. Natural Gas has plunged -41%, platinum -37%, silver -34%, gold -23%, and corn -19% from their June highs. Crude is down -23% and hit $111 this morning. The dry shipping index has collapsed a gut wrenching 40% from $110 to $65. Bad news for stocks, but great for the dollar, which hit $1.47 against the euro and $1.85 against the British pound this morning.

2) The National Association of Realtors says that Q2 prices were down 16.3% YOY and that sales volume was down 16.7%. The biggest drop in sales was in California, down -25% where foreclosures are still a major part of the market.

3) George Soros bought 1.35% of Lehman (LEH) in June according to disclosures out this morning. He probably paid $20-$30 for the stock against a July low of $10 and a current $17.

4) The University of Michigan consumer sentiment index for July rose from 61.2 to 61.7. Factory utilization dropped to 79.9%.

5) The credit markets don't believe in the current stock market rally one iota. Spreads are worsening, and are almost back to the March lows. The spread for 30 year mortgages over Fed fund has widened from 20 basis points a year ago to a record 460 basis points today, indicating that banks are accelerating their withdrawal from lending markets. The Treasury auction last week was a blow out success as banks sold mortgages and bought government paper. Speculation is rife over where the next shoe is to fall. The lead candidates: securitized credit card loans, car loans, and commercial real estate loans.

6) Multimedia handsets are rapidly taking over the Internet, and may own it by the end of 2010. By the end of this year, 50% of all internet access will be through smart phones like Apple's (AAPL) Iphone and Rim's (RIMM) Blackberry. In China, 400 million users already access the net solely through cell phones. Both Google (GOOG) and Microsoft (MSFT) are racing to reorient their strategies to take advantage of wireless applications which must be written with two inch screens and slower speeds in mind, but are ultimately more profitable than those sold for desktops and laptops. Desktops are expected to survive in offices, but laptops may become a dinosaur. The big beneficiaries of this new mega trend will be Qualcom (QCOM), Nokia (NOK), and the very cheap Motorola (MOT).

Global Market Comments for August 14, 2008

1) The momentum traders have definitively bailed from the crude/commodities trade, taking the fluff out of the market and equity valuations in the area down so much that even value players are starting to have a look see. Crude is not dead, it is just resting, and these names will fly again. My five year scenario for crude is that we go to the $50's then $200, then below $20. Hold on to your hat!

2) With the Obama boom now fading, McCain is rising in the polls. So Alliant Technology (ATK), one the largest suppliers of ammunition to the army, has jumped 17% to $112 in the past month. McCain has promised that we will stay in Iraq 100 years if necessary. I hope he doesn't draft 56 year olds. Ten hut!

3) Germany and France posted negative GDP growth in Q2 when a weak dollar allowed the US to skirt an actual recession. I have been expecting this weakness for months, which has been a major factor behind the current collapse of the euro, which hit a new low today of $1.4750. Real estate in Europe is in free fall.

4) Weekly natural gas inventories rose by 50 billion cubic feet, triggering a rally off of an $8.05 bottom. Gas, down from $13.50 in June, may have put in a bottom for the time being.

5) Erik Prince, CEO of?? the San Diego based private mercenary firm Blackwater Worldwide, says that he is billing the US government $550/ day each for the 1,000 men it has in Iraq and the 500 men in Afghanistan. He says that Blackwater is expanding its training and air support operations and cutting back on politically sensitive 'security' services because of the PR problems it creates. Prince complains that his company is 'misunderstood'.

6) 50%-75% of all trading on the NYSE is now driven by mathematical algorithms. This along with the ending of the uptick rule is the cause of this year's vastly increased market volatility.

Global Market Comments for August 13, 2008

1) Panic buying of the dollar spilled over from the euro into the British pound, which soared overnight from $1.91 to $1.87. Britain's economic data is now looking as dire as those in the US.

2) Gasoline inventories fell a surprising 6.4 million barrels as the summer driving season draws to a close. Wholesalers are trying to keep stocks to a minimum to avoid the hit from falling prices. Crude jumped $5 to $117.50.

3) Demand destruction for gasoline is accelerating. According to the Federal Highway Administration, Americans drove 12.2 billion fewer miles in June than a year earlier, saving 635 million gallons of gasoline, which equates to 1 million barrels/day of crude oil consumption. This is 5% of our 20 million barrels/day total. High gas prices have spurred advocates to pack the November ballot with transit bills, including the long awaited funding of a BART extension from Fremont to San Jose and a $40 billion high speed bullet train from San Diego to San Francisco.

4) Honda launched the first hydrogen hybrid car, the FCX Clarity. The innovative vehicle gets 220 miles per $20 top up and recharges batteries while running on hydrogen, giving it an equivalent fuel economy of 77 miles/gallon. Only water vapor comes out of the tail pipe. The car can be leased for $600/month in California only. But you have to be a movie star to get one now.

5) July retail sales came in at -0.1%, slamming the stock market. Zero wage growth is the main problem. It is the worst time in 35 years to launch a new consumer luxury brand.

6) Yesterday's US Dept. of Agriculture report caused Corn prices to crash to a new low for the year of $4.85, down from its $7.65 peak in only June. The agency jacked up its crop forecast for 2008-2009 from 11.7 to 12.3 million bushels and goosed expected yields from 148 to 155 bushels/acre. Ethanol producer BioFuel Energy (BIOF) saw its stock plunge 60% after it announced enormous losses from over hedging of Corn around the market peak. The stock has fallen from $5 to 75 cents since June. Play with fire and you get burned. The economic rationale behind ethanol, from the start entirely politically based, was always dubious at best.

Global Market Comments for August 12, 2008

1) Oil pipelines are exploding in Georgia and Turkey, new wars are breaking out, and crude still goes down. The suddenly unloved commodity is clearly gunning for the 200 day moving average at $107, and broader support kicks in at $100. Texas tea has suddenly become the red headed step child of the market.

2) The Olympic coverage has given a huge boost to McDonald's (MCD), a major sponsor. The stock has jumped to an all time high of $67.

3) With the Beijing games underway, efforts are accelerating to complete construction of the 2012 London Olympic Park. The one square mile site in the east London slums of Lower Lea Valley have seen cost overruns push the budget from $6.8 billion to $18.6 billion.?? The neighborhood is so bad that 'when you take the tube out there, life expectancy declines with every stop,' said one staffer. A profusion of undiscovered WWII bombs, a stone aged cemetery, and a toxic waste dump have also caused delays. The collapse of the UK real estate market has frustrated plans to resell the Olympic Village as a condo development. The last time the British attempted a major project like this, the 2000 Millennium Park, multi billion dollar losses resulted.

4) Gold medal winning Michael Phelps eats 12,000 calories/day in order to swim five hours/day. If he eats any less than that he starts to lose weight. By comparison, a Marine in combat needs 5,000 calories, you and I get by on 3,000 calories, and your typical vegetarian eats maybe 1,500 calories. Warnaco Group (WRC), inventor of the revolutionary Speedo LZR Racer swim suit worn by Phelps, which it developed with NASA, has seen its stock rocket 42% from $38 to $54 in the past month. Speedo has promised Phelps a $1 million bonus if he breaks the Mark Spitz gold medal record. Speedo is offering the $550 stitchless swimsuit free to all Olympic athletes, and has flown in 3,000 to Beijing to meet demand.

5) Gold collapsed by $36 yesterday to $810 as margin calls force speculators to unwind longs. See my earlier comment that gold will 'roll over and die'.

6) Two thirds of all US companies paid no income tax from 1998 to 2005.

7) GE owned NBC Universal has earned over $1 billion in advertising from 3,600 hours of Olympic coverage . The company paid $894 million for exclusive broadcast and online rights to the games. Over two billion people are believed to have watched the opening ceremony.