Global Market Comments for August 11, 2008

1) The magnitude and the volume seen on Friday suggests that the euro has had it. Trillions of dollars worth of hedges by banks and multinationals are being simultaneously unwound. Look to sell rallies from here. This means that the commodity trade, including crude, will be broken for the rest of the year. These will fall until all of the late long side entrants, of which there were many, get wiped out. Crude hit the $112 handle this morning before rallying on the Russia/Georgia conflict, down a spectacular $36 in six weeks. Emerging market equities will also get hurt big time.

2) Couples are expected to spend more evenings together over the next two weeks staying home watching those young hard bodies at the Olympics. Anticipating this, the stock for Church & Dwight (CHD), maker of Trojan condoms, soared 13% on Friday.

3) Farmers plan to plant more crops next year that use less fertilizing as a way of dealing with escalating input costs. This means growing less wheat and more soybeans. Although grains are more than 30% off their 2008 tops, fertilizer prices have yet to drop, squeezing farming margins. To add insult to injury, fertilizer companies like Mosaic (MOS) and Potash (POT) are insisting on payment in full one year in advance to guarantee deliveries.

4) There is no doubt that the Olympics are having an impact on the markets. The news flow has shrunk and volumes are off. Practically every Fortune 500 CEO and hedge fund managing partner are at the games. Even a lot of the financial journalists are gone to report on the 'Chinese economic miracle' story. No doubt part of last week's impressive move up in the dollar and US stocks sprang from position flattening and book squaring ahead of the games.

5) 90% of the 165,000 gas stations in the US are individually owned and are losing money at current prices. So there is absolutely no point in flipping the bird as you drive buy if you don't like the price.

TRADE OF THE DAY

Two of the four BRIC's, Brazil and Russia, depended on rising energy prices as a major leg of their bull cases. In the past six weeks crude has plummeted $34. With Russia (RSX) down 32% and the Bovespa ($BVSP) down 27%, investors are looking at a rare opportunity to get into these high growth markets over the next few months at much cheaper levels.

Global Market Comments for August 8, 2008

1) The dollar had its largest one day move up against the euro in seven years to $1.49, not because things are getting better here, but because things are getting worse at an alarming rate in Europe. Stocks celebrated by soaring 320 points and crude fell to a new low in the move to below $115. Airlines were the best sector, with United Airlines (UAUA) up 440% to $11 from its July low. Please see my earlier recommendations to buy airlines, sell crude, and sell the euro. Watch gold roll over and die.

2) China has spent a total of $70 billion preparing for the Olympics. They have priced tickets at a very reasonable $12 to enable the masses to attend. A record 6.5 million have been sold so far. The opening ceremony tickets only cost $29, but were scalped for $2,000. 500,000 visitors have descended on the city to watch 202 countries compete. The Shanghai market plunged 4.6% to a 19 month low of 2,600 as locals cashed out to watch the games. A UK based website sold $40 million worth of opening ceremony tickets.?? The unfortunate buyers didn't find out they were fake until after they arrived in Beijing.

3) The Dry Shipping (DRYS), an incredibly volatile, highly sensitive and usually accurate leading indicator of international economic activity, has dropped from 120 to 70 since May. DRYS is a measure of spot ship charter rates.

4) Energy stocks are getting so beat up, with many having given up all of this year's gains, that the time to take another look is fast approaching. The coal stocks have to be a top choice and may lead the next leg up. Consol Coal (CNX) has halved from $120 to $60 in only six weeks, while Peabody Energy (BTU) is down from $90 to $55.

5) A one cent drop in the retail price of gasoline adds $1 billion in consumer spending power.

THOUGHT OF THE DAY

Did the Olympics put the top in oil? Every time one heard mention of the Beijing games this year the next phase uttered was always 'insatiable demand for oil and commodities'. The laser like focus on the Olympics had the unintended byproduct of drawing extra attention to global materials shortages. The collapse of commodity markets that started six weeks ago may have been triggered by traders discounting the expiration of this support factor.

Global Market Comments for August 7, 2008

1) Today was the day of the AIG shock, which reported an H1 loss of $13.6 billion. All of the credit default swaps they wrote are coming back to roost. The news took the Dow down 220.

2) Whole Foods (WFMI) is suspending its dividend, canceling new store openings, and offering more low cost food in the wake of a 31% decline in earnings. The Texas based food retailer, also known as 'whole paycheck' by its long suffering clientele, has seen its stock plunge 74% from $70 to $18 in the past two years.

3) If the predictions of Chinese Olympic prowess prove correct, China will have invested $7 million per medal in training costs.

4) Last year PG&E obtained 47% of its energy from natural gas, 11.7% from renewable sources like hydro, solar, and biomass, and 4% from coal. The company is gearing up for a big increase in demand for electricity from plug in cars over the next decade.

5) Weekly jobless claims hit a 6 ?? year high of 455,000.

6) Citibank has agreed with the SEC to buy back $7 billion in auction rate securities. These short term municipal notes were sold as a quasi money market instruments to high net worth individuals, but ended up becoming totally illiquid when the credit crisis hit. C needs this like a hole in the head. The stock dropped 4%. The settlement is expected to hit other investment banks, like Lehman (LEH), with a tidal wave of litigation.

7) It is clear that the big three auto makers are about to become the big two. General Motors (GM) and privately owned Chrysler are in a race to go under. Ford (F) now appears to be the strongest, or least weakest of the trio.

8) Pending home sales for June were up a surprising +5.3%, but still down -12.3% YOY. Sales were strongest in markets like Sacramento and Las Vegas where the biggest price falls have occurred. More than 40% of are sales are still from foreclosures.

Global Market Comments for August 6, 2008

1) Yesterday's 300 point pop in the stock market is proof that we are still in a bear market. It is the sixth such move in the past year. These gaps are caused by ferocious short covering rallies which then burn out. In the 2000-2002 bear market there were twelve 300 plus point moves up. Bull markets are characterized by continuous slow grinds up.

2) US paper money was found to have the highest cocaine contamination of any currency in the world. In some neighborhoods up to 50% of all bills tested positive for the South American drug, and therefore the people who handle them. This is the best strong dollar argument I have heard this year.

3) There are over 400,000 millionaires in China, the most of any country.

4) There is a new home mortgage wrinkle on the market. Hovnanian Enterprises (HOV) is having success moving is backlog of houses by offering financing packages with 3%-2%-1% three year buy downs that enable prospective buyers to deal with high interest rates. After three years these convert into conventional fixed rate mortgages.

5) Even Toyota is getting hammered by the depression in the car market. It just announced the layoff of 800 workers as they shut down a Lexus SUV factory in Japan. In July Lexus sales were down 25% YOY, the sharpest fall on record. The stock has fallen from ??6,500 to ??4,500 this year. Today is the 63^rd anniversary of the dropping of the atomic bomb on Hiroshima.

6) Weekly crude inventories jumped by a surprise 1.6 million barrels, driving the price down to $117.10 and triggering stops, a new low in the move.

7) The dollar has been on a tear lately, hitting a seven month high today of $1.5360 against the euro. The greenback is benefiting from the fall in commodities which will enable the euro zone to ditch its high interest rate anti inflation policies. Falling crude prices also cut the outflow of dollars from the US. See my earlier recommendation to short the euro at $1.60.

8) Hedge funds are limiting their transactions with Lehman (LEH) to 30 day maturities and boycotting long dated transactions for fear that the firm will default. The loss of these customers is pushing LEH towards a sale. The company still has to sell $30-$50 billion of securities at a discount before it can pass a smell test. By the way, the symbol for their junk bond fund is (JNK).

9) Paris Hilton announced her presidential campaign today. Her energy policy sounds more practical those that offered by either McCain or Obama.

Global Market Comments for August 5, 2008

1) Stocks finally noticed that crude has fallen $30 in a month.

2) Pawn shops are now a booming business, which see 60% of their income from scrap gold. EZCorp (EZPW) is up 95% this year, Cash America International (CSH) is up 78%, and First Cash Financial Services (FCFH) is up an amazing 165%. However, some states are gunning for the sector, enforcing new 36% interest rate caps.

3) July was the worst month in the history of the commodities market and rumors are abounding that some hedge funds have gone under. As a result yesterday's stars have become today's dogs and have fallen all the way back to February levels. Cabot Oil and Gas (COG) is down -44%, Chesapeake Energy (CHK) is down 39% and Noble Energy (NE) is down 30%. The same kind of moves are also being seen in the lead agricultural names with Mosaic (MOS) down -32%, Monsanto (MON) down -26% and Potash (POT) down 24%. These are stocks that take the escalator up and the elevator down. Look to buy these sectors in a few months.

4) With sky high fuel prices and choked freeways, rail travel is undergoing something of a renaissance. The current interstate highway system was built when the country had 65 million fewer cars, and it has been going downhill ever since. The average American rides a train 20 miles/year compared to 1,267 miles for the average Swiss. Expect the US figure to rise dramatically. Since almost all passenger rail systems are publicly owned by entities like Amtrak, the only way to play this is to buy Canadian rail car maker Bombardier (BBD.B), which built the BART cars. Rail freight is also surging. Buy Burlington Northern (BNI), Union Pacific (UNP), and CSX (CSX).

5) Foreign tourists are expected to pour $2 billion into New York City's economy this year as they rush to take advantage of the favorable exchange rate.

QUOTE OF THE DAY

'Work eight hours and sleep eight hours, but make sure they are not the same eight hours.' Boone Pickens.