Global Market Comments for August 4, 2008

1) Hurricane Edward showed up and the US threatened to close the Straights of Hormuz, but crude didn't go up. Therefore, it had to go down, crashing $7 to $119. But the only way to make oil seem cheap at $119 is to start out at $148. Natural gas hit $8.60. Wow!

2) Florida based luxury homebuilder WCI Communities (WCI) filed for chapter 11 because of its inability to roll over $1.8 billion in debt. Carl Icahn tried to take over this company a year ago at $22/share after it had fallen from $40, but failed. Sometimes your best trades are the ones you don't do. Expect more homebuilders to fail. Read the 'ghost towns' article in the Saturday WSJ.

3) The Fed meets tomorrow, so it can do nothing on interest rates.

4) June factory orders are up 1.7%, much better than expected

5) The storage business is booming as a tidal wave of foreclosures and evictions force people out of homes. Even renters are being tossed out as foreclosed owners fail to renew leases. There are now waiting lists at many locations. San Francisco facilities often have to evict individuals who try to live cheaply in their units with their furniture.

6) A group called 'Recreate 68', the same group that organized the Seattle World Trade Organization protests in 1999, is stockpiling feces in a Denver warehouse to throw at the Democratic convention. Police and health authorities are looking for the warehouse. No kidding.

7) The next credit crunch to occur will be in consumer finance. To protect against falling real estate prices, banks this year will cut existing consumer credit lines from $4.7 trillion to $2 trillion. The legendary spending habits of the American consumer will be cut off at the knees.

8) All of the new equity raised by banks and brokers this year is being used to plug holes, not fund new lending. When new equity is finally used to create new profits, the bottom will be put in financial stocks. This is a ways off. The new floor in expected write offs by the financial industry is increasingly being seen at $1 trillion, with the new ceiling at $2 trillion. This is $2 trillion that is no longer available to buy real estate. This drastic reduction in bank lending now virtually assures that the real estate sell off with be the worst since the great depression. Market declines of 40%-50% in Florida, California, and Nevada are increasingly being discussed.

Global Market Comments for August 1, 2008

1) The July non farm payroll came in at -51,000 and the unemployment rate shot up to 5.7%, a four year high. Short McCain.

2) The mortgage crisis will eventually be solved by the hedge fund industry, which, with $2 trillion in preserved capital, is taking over many functions until now performed by investment banks. The bigger houses are hiring entire 50-100 man teams from dying investment banks to take over this function. Hedge funds are also moving aggressively into private equity and M&A financing. At 22 cents on the dollar, the yields of some of this paper must be approaching 30%. As a result, hedge fund returns will soar. The investment banking industry will shrink to a shadow of its former self. Only Goldman Sachs and Morgan Stanley will remain whole.

3) Exxon Mobile (XOM) reported the most profitable quarter in the history of any US company at $11.7 billion. General Motors (GM) reported a $15.5 billion loss. It is flabbergasting to see an $11 stock report a $27/share loss. Its senior debt is now trading at 46 cents on the dollar. These two companies show perfectly how bifurcated the US economy has become. In the meantime Starbucks (SBUX) reported its first quarterly loss.

4) Irony upon irony. Bristol Meyers Squibb launched a takeover bid for Imclone at $30/share. Next week former CEO Sam Waksal gets out of jail for insider trading for dumping the stock at a much lower price seven years ago. Collecteral cancer drug Erbatux, which Waksal feared would not get approval, turned out to be a blockbuster. Martha Stewart must be stewing.

5) Word is finally leaking into the mainstream media about the Haynesville shale, the largest natural gas discovery in US history. The Louisiana/Alabama find, which is being exploited by Chesapeake Energy (CHK), may yield 13 trillion cubic feet. Mineral rights which sold for $200/acre a year ago are now going for $30,000. This has got to take natural gas prices a lot lower.

6) Walmart (WMT) put out a memo essentially ordering its employees to vote Republican in order to head off pro unionizing legislation. What are they thinking?

7) China now has 400,000 millionaires, more than any other country.