2009 Archive - Mad Hedge Fund Trader

April 6, 2009

Global Market Comments
April 6, 2006
Featured Trades: (CHINA), (CRUDE), ($WTIC)

1) Deutsche Bank's former banking analyst Michael Mayo sucker punched the market today, putting out a report ominously entitled 'The Seven Deadly Sins of Banking' listing all 11 major banks as 'underperforms' or 'sells'.?? Talk about closing the gate after the horses have bolted. At one point the Dow was down 150. Mayo says that banks are carrying loans on their books at a wildly optimistic 98 cents on the dollar, and that real losses will exceed those seen in the Great Depression. We have only seen the tip of the iceberg of losses from credit cards, commercial real estate, and corporate loans. The report tells you how much the landscape has changed. New, independent research boutiques used to suck up to clients to garner fee business. Now they take them out behind the woodshed and beat them senseless. If true, you can forget about buying stocks. Instead you should be loading up on canned food, bottled water, and lots of ammo.

2) The Manhattan residential market is now in free fall, after holding up better than every major market in the country for years. Rents have fallen up to 25% since the Lehman bankruptcy in September, dragging down condominium and co-op prices almost as fast. Hardest hit have been units priced in the $1-$2 million range that appealed to up and coming Wall Street traders. This class of newly unemployed former owners is now fleeing the Big Apple en masse. The stratospheric end of the market, the mega mansions and penthouses with those fabulous Central Park views and live-in nanny suites in the $30 million on up range, are still holding up. With industry job losses this year expected to exceed 100,000, expect this downtrend to continue.

3) Will people pleeease stop incessantly talking about the possibility of China dropping the dollar as a reserve currency? What else are they going to use? Monopoly money? Taiwanese dollars? Collectable postage stamps? At nearly $2 trillion, the Middle Kingdom's reserves are so enormous that no other currency in the world could accommodate the switch, and no other security offers the necessary depth and liquidity but Treasury bills. Chinese attempts to buy anything in size causes its price to immediately skyrocket, such as we saw in the relatively Lilliputian commodity markets last year. And really, how like is it that China embarks on policies that quickly halve the earnings of?? the country's exporters, as well as its 30 year hoard of accumulated savings? The demise of the dollar has been predicted more often than the ditching of Microsoft's Windows as the global PC operating system, and is just as likely.?? Hate the greenback as much as you like, but there just isn't any other alternative. I have been hearing these arguments ever since the US went off the gold standard in 1973. First there was a perennial Arab threat to price crude in a basket of currencies. Gee, they never seem to complain when the buck is going up. Then there was the speculated emergence of the 'Yen Block', in the eighties, back when Japan was dominating international trade and the yen was bumping up against ??80 to the dollar. Remember the book 'Japan as Number One? Ha! Double Ha! Then we got all that European whining after the launch of the euro when the weak dollar was everyone's one way trade. Let's face it, Europeans hate using someone else's currency as the primary reserve instrument. Before the dollar, sterling was in widespread use and was equally despised. So rather than waste time discussing this issue anymore, let's talk about something more important, like which of those two flies over there will jump off the wall first.

4) Daniel Yergin of Cambridge Energy Partners says that crude prices will stay in a $40 to $60 range for the foreseeable future. The author of the Pulitzer Prize winning 'The Prize', the best business book I have ever read, believes the recent 26% rally in the stock market is what dragged crude up from $35 to $54. Another downdraft in stocks, or a realization that the recession will be longer than expected, could take crude back to $40 in a heartbeat. Inventories are at a 16 year high, with possibly 80 million barrels at sea, as demand has shrunk from 86 to 83.5 million barrels a day over the last two years.?? Spare capacity is now huge. Don't expect to break out of this range until a recovering economy eats into these supplies, and inflation makes its inevitable return. Then all commodities will roar, not just crude.

QUOTE OF THE DAY

'You can observe a lot just by watching,' said baseball great Yogi Berra.

April 2, 2009

Diary

Global Market Comments for April 2, 2009
Featured Trades: (LITHIUM), (SQM), (AMTD), (SCHW), (SWIM)

1) See? All it takes was a little accounting rule change, and Great Depression II will go away. At least that's what the stock market thought today, surging 300 points and blasting through 8,000 in the Dow, up 26% from its March 9 low. The only problem with this is that it was an absence of market to market rules that allowed Japan to lose a decade of economic growth. Investors and auditors will always assume the worst about asset valuations, unless proven otherwise. That's what happened in Japan. Once the kneejerk short covering finishes, look out below, at least for the banks.

2) If we do move from a carbon to a lithium based economy, what are the implications? Will we all become mellow? Politicians, industrialists, and environmentalists who see battery powered vehicles as the wave of the future are overlooking the fact that 50% of the world reserves of lithium are found in impoverished, landlocked Bolivia. This is a country that until now was best known for killing off famous foreigners (Che Guevara, Butch Cassidy and the Sundance Kid), and being the source of a new form a venereal disease. Lithium ion batteries are four times more efficient than the current generation of nickel cadmium batteries, and are essential for electric cars to finally become economically viable. But now that the country finally has something the world wants, nationalism is rearing its ugly head. Local politicians see their country as the Saudi Arabia of the highly corrosive, toxic, reactive metal, and are already discussing ways to restrict access. Will La Paz become the headquarters of OLEC, the Organization of Lithium Exporting Countries? The only other supplies are to be found in Chile, Argentina, Australia, China, and Nevada.?? Will American oil company executives be programming their cell phones with the 591 country code? Should the US invade to insure supplies? Iraq worked didn't it? The best way for opportunistic investors to play this is to buy Sociedad Quimica Y Minera (SQM), Chile?s largest producer of lithium.

3) The real estate disaster once known as Las Vegas, where 27,000 homes are for sale, continues to probe new lows. Hotel vacancy rates have hit 20%, and you can now get a four day weekend at a top hotel there, including flights from San Francisco, for $150! Construction has halted on the $5 billion Echelon Resorts for lack of financing, leaving a major eyesore on the city's skyline. MGM Mirage's massive City Center complex continues, butting is being sued by its partner Dubai, and is teetering on the edge of bankruptcy.?? Sitting pretty is the Palms, which is just being completed, and pre sold all of its condos two years ago when the market fever was still alive. While 10% of the buyers have walked away from their deposits, the owners are converting these to luxury hotel rooms.

4) Online brokerage houses are perfectly positioned to sift through the wreckage of their industry and pick up a bigger market share. One of the few safe havens in the financial sector, they dodged the bullet because they are pure fee collectors, don't have proprietary trading desks, don't take risk, and didn't use leverage to invest dubious high yield paper to artificially boost earnings. This approach is highlighted?? by TD Ameritrade's (AMTD) takeover of competitor Thinkorswim Group (SWIM) for $600 million. The move gives AMTD access to a first class online trading platform in options and an expanded customer base. Another good pick in this area is Charles Schwab (SCHW). Certainly the market thinks so, with the stock up 48% since March 9.

5) After last year's carnage, you can expect the remnants of the hedge fund industry to split in two. One group will inherit large, illiquid fixed income positions, like convertible bonds and subprime CDO's, and evolve into private equity funds, which they should have been all along. The rest will retreat to trading large liquid global positions that did well during the nineties, offering investors quarterly redemptions they now demand. Fees will fall across the board. This is how hedge funds will cope with a new world that is transitioning from excess capital to a capital shortage.

6) High economic growth rates and a soaring stock market during the eighties were driven by the enormous productivity gains made possible by the personal computer. The nineties boom was driven by the miracle of the Internet. A big chunk of the growth this decade sprang from artificial and ephemeral real estate gains, which have since gone, poof! There is nothing to replace it until we invent something new. Make energy a national defense issue. After all, the PC (or the microprocessor that drove it) and the Net (or Darpanet, as it was then known) were both the stepchildren of taxpayer funded defense research. Launching a Manhattan Project for alternative energy and transportation could well give us the next decade's economic driver we are searching for. The building of a cleantech industry and a smart transmission grid could deliver the millions of jobs the new president has been promising. That would move the engine of US growth out of poorly managed Detroit, foreign crude dependent Houston, and Heaven help us, bureaucratic and connection ridden Washington, to entrepreneurial Silicon Valley. It certainly would be a better use of money than rescuing bad stock and bond investments. Obama says that energy is a priority, but will he make it the top priority? He needs to take the great leap to make us a carbon free economy. I hope someone close is telling him this.

QUOTE OF THE DAY

'It's tough to make predictions, especially about the future,' said former New York Yankees baseball coach Yogi Berra.

April 1, 2009

Diary

Global Market Comments for April 1, 2009
Featured Trades: (COPPER), (GOLD), (TM), (YEN)

1) The March ADP private sector employment report was diabolical once again, showing a loss of 742,000 jobs, the worst monthly showing in history. Boy, am I getting sick of saying 'worse than expected'. To add insult to injury, February was revised up from -675,000 to -702,000. Manufacturing has lost jobs for 37 consecutive months, while services have shed jobs for 27 months, but services are now losing at a faster rate. Some 1.15 million construction jobs have been lost in two years. There is no way to sugar coat these numbers. We will easily top a 10% unemployment rate in the next few months.?? Watch out for Friday's nonfarm payroll report, which will be a complete disaster. But I believe the numbers this month, or for April or May, will prove to be the absolute trough of this recession.

2) Yuba County, California, a semi rural area in the Sierra foothills commuting distance from Sacramento, has the highest underwater rate in the nation. There, 78% of all homes have larger mortgages than the houses are worth, and the numbers are rising. Four out of the five highest negative equity counties in the US are in the Golden State's Central Valley.

3) Japan's closely watched tankan report was released today, a quarterly report of business sentiment, showing its sharpest drop in history, cliff diving from -24 to?????????? -58. Japan is the one nation that has profited the most from globalization, and is therefore the most severely punished now that it is in retreat. Exports have dropped by half, industrial production plunged 9% in a month, and unemployment is soaring. Q4 GDP shrunk an unimaginable 3.2%, double the fall seen in the US. The last time the numbers were this bad, two atomic bombs had just been dropped on Japan and it lost WWII. Prime Minister Taro Aso's government is embroiled in multiple scandals, taking his approval rating down to 23%, so the ruling Liberal Democratic Party's half century long hold on power is in doubt. Elections are due in September. Perversely, a hurried unwind of a decade long accumulation of yen carry trades has pushed the yen up just short of a 20 year high of?? ??87 in January, making the country's essential exports even less competitive, and vaporizing the foreign earnings of Japanese companies. Toyota Motors (TM) has been reduced to begging for bail out money from the government, GM style. The government has passed four bailout packages in the past year totaling 13% of GPD, none of which have so far been spent. Japan has little choice but to wait for a US economic recovery, and then grab hold of its coat tails for dear life.

4) More than $19 billion has poured into commodity funds since January 1, $4 billion more than was seen during all of last year. This explains why my beloved copper soared 35%, while gold jumped 9%. Buy hard assets, sell paper ones.

5) If you want to finance any new business ventures in the San Francisco Bay Area, go to the Bank of Marin. They were one of the first four banks to repay TARP money to the Treasury today. Apparently they didn't want to undergo the full proctologic exam the Feds were threatening.

QUOTE OF THE DAY

'Chance favors the prepared,' said the great French chemist Louis Pasteur.

March 31, 2009

Diary

Global Market Comments for March 31, 2009
Featured Trades: (EBAY), (AAPL), (T), (VZ)

1) The migration of American business to online formats is accelerating, with over 1,000 new business being created every day. Internet advertising continues to go from strength to strength, and is one of the few growth sectors of the economy. The Interactive Advertising Bureau reported that online advertising grew 10.6% last year to $23.4 billion in a year when the total advertising market shrank from $132 billion to $125 billion. It now ranks as the third largest ad distributor in the US, after newspapers ($34.4 billion) and TV ($28.8 billion). Search advertising dominated, with 45% of the total. Video adverting was the fastest growing sector, up 123%. Display advertising managed 8% growth, even after the collapsing economy caused a very week fourth quarter.

2) 27 out of the 30 Dow stocks are currently profitable. The public perception is that all are losing money, and several are on the verge of bankruptcy.

3) Former Fed governor Alan Greenspan published some very sobering numbers in the Financial Times yesterday. Global stock market losses from the peak total $35 trillion. Half of that has occurred since the Lehman bankruptcy in September, effectively doubling corporate leverage in the last six months. No wonder banks are freaking out! Throw in real estate losses, and the world has lost a mind numbing $40 trillion in net asset value in two years. He opined that stock markets are close to turning, and that even a modest rally will have large positive effect on the economy. The only thing missing from the article was a mea culpa that the losses were all his fault.

4) All of the high grade paper used by the US Treasury to print money is bought by one firm, Crane & Co., which has been in the same family for seven generations. Last year the Feds printed 38 million banknotes worth $639 million. Although they have seen the recession cause the velocity of money to decline, recent reflationary efforts have spurred a big increase in demand for paper for $100 dollar bills. The US first issued paper money in 1861 to finance the Civil War, and Crane has been supplying them since 1879. The average life of a dollar bill is 21 months. Who said no one was doing well in this recession? M1, or notes and coins in circulation, is already exploding. Is this a warning of an imminent jump in inflation?

5) Symantec says that 15,000 to 20,000 new viruses are being created every day, forcing it to upgrade its software every five minutes. Google admits that one out of every 100 searches connects with a virus infected website. There is no prominent website that has not been affected, including www.obama.com, the President's grass roots organizing website. Many of these are created by Russian cyber gangs, where boys as young as 14 can earn up to $30,000 a year. There is no local enforcement in the former Soviet Union as the victims are predominantly 'rich' Americans. Software security experts are now warning of a coordinated global attack on the Internet on April 1.

6) Skype (EBAY) plans to release a version of its internet phone software for the iPhone (AAPL). The move, which will be announced tomorrow, brings Skype more directly into competition with AT&T (T) and Verizon Wireless (VZ). The software is free and allows iPhone users to call Skype users for free if they are in a Wi-Fi hot spot. Alternately, the user can call a landline for a small fee, usually 2.1 cents per minute. Skype COO Scott Durchslag said the move is part of a strategic push into the cell phone market.

QUOTE OF THE DAY

'The stock market has predicted six out of the last zero recoveries,' says ultra bear professor Nouriel Roubini of New York University. He is forecasting a retest of the 666 level in the S&P 500, another 15%-20% in real estate, and a lot more foreclosures.

March 30, 2009

Diary

Global Market Comments for March 30, 2009
Featured Trades: (FCX), (CRUDE), (NG)

1)???? ??Call me an optimist, but I am starting to see crocuses of economic recovery busting out all over. Long side traders now have a spring in their step after a 23% rise in the Dow in three weeks, the best move since 1938. If it is true that the stock market anticipates moves in the real economy by six months, then a lot of managers are going to come back from their summer vacations in September to find a surprising batch of new orders. Commodities have been on an absolute tear this year, especially oil and copper, classic harbingers of future business activity. Just look at my favorite, Freeport McMoran (FCX), which soared 170% from the November lows. The downward momentum of a whole range of economic indicators is slowing. The durable goods number was actually up last week! The mother of all inventory adjustments is almost over. Retailers are still offering the deals of the century, but there is very little left in the back room. The Baltic Dry Shipping Index has tripled off of its November low, hinting that international trade may come out of its comatose condition. And they are no longer looking for organ recipients for the major airlines. Now I hear that semiconductor makers are expected to make their Q1 targets. Maybe it's because spring has arrived, and the girls on the Embarcadero have shed their overcoats for low cut tank tops. Or maybe the $4 trillion in global stimulus is starting to have its desired effect.

2) Reformed oil man, repenting sinner, and borne again environmentalist T. Boone Pickens says that 'when we turn the US green, it will have the best economy ever.' I met the spry, homespun billionaire at San Francisco's Mark Hopkins on a leg of his self financed national campaign to get America to kick its dangerous dependence on foreign oil imports. For the past 30 years, the US has had no energy policy because 'no one wanted to kick a sleeping dog.' Production at Mexico's main Cantarell field is collapsing, and will force that country to become a net importer in five years. Venezuela is shifting its exports of its sulfur laden crude to China for political reasons, once refineries in the Middle Kingdom are completed to handle it. Unfortunately, the collapse of energy prices since June and the disappearance of credit have put urgent alternative energy development on a back burner, with his preferred natural gas (NG) taking the biggest hit. If the US doesn't make the right investments now, our energy dependence will simply shift from one self interested foreign supplier (Saudi Arabia) to another (China). Wind and solar alone won't work on still nights, and can't power an 18 wheeler. Don't count on the help of the big oil companies because they get 81% of their earnings from selling imported oil. The answer is in a diverse blend of multiple alternative energy supplies from American only sources.?? Although Boone now has Obama's ear, it's a long learning process. Boone has donated $700 million to charity, and says the 20,000 trees has planted should offset the carbon footprint of his Gulfstream V. I worked with Boone to organize financing for a Mesa Petroleum Pac Man oil company takeover in the early eighties, when it was cheaper to drill for oil on the floor of the New York Stock Exchange than in the field. Now 80, he has not slowed down a nanosecond.

3) Natural gas ($NATGAS), which peaked at $13.50/btu last year, has become the red headed step child of the energy complex, plunging a gut churning 72% to a low of $3.75. To see demand this weak coming out of a cold winter is nothing less than stunning. The credit crisis has forced US companies like Chesapeake Energy (CHK) and Devon Energy (DVN) to scale back exploration, so the US rig count had dropped by half. The price collapse is welcome news for consumers, as NG is an essential raw material for making naphtha, fertilizer, and plastics and accounts for 20% of US electric power generation. It also is a favored fuel of the green crowd, as the only products of its combustion are carbon dioxide and water. The industry was making the leap from a domestic industry to a global one just the global recession punched it right between the eyes. The completion of six liquefaction plans in Qatar, Russia, Indonesia, and Yemen costing $48 billion is expected to boost global production by 25% this year, and more big plants are coming on stream in the near future. If I'm right, and those really are crocuses out there and not some florid hallucination, then it's time to load the boat with NG.

4) AIG has become such a despised company that the children's' TV program 'Sesame Street' has removed the letters. 'A,' 'I,' and 'G,' from the alphabet.

QUOTE OF THE DAY

'A fool with a plan can outsmart a genius with no plan,' said oil man turned environmentalist T. Boone Pickens.

March 27, 2009

Diary

Global Market Comments for March 27, 2009
Featured Trades: (SCHW), (AMTD), (IYR), (BPO)

1) Once thought an extinct species, the retail stock investor is back with a vengeance. It only took a 23% rally, the best since 1938, to do it. Trading volumes are up 15%-20%. It's time to take a look at the online brokerage stocks, which have been on a tear. These are pure brokerage firms, not de facto mega hedge funds like the big boys. So there are no hidden trading losses, mark to market issues, compensation scandals, or TARP money. These boys are poised to pick up the pieces left behind by the implosion of Lehman Brothers, Bear Stearns, and Merrill Lynch. Look at Charles Schwab (SCHW) with a mutual fund family that makes it a more sensitive to a rising market, or TD Ameritrade (AMTD) which is a better volume play.

2) George Soros says that it is 'inevitable' that commercial real estate falls another 30%. Rents are falling, tenant bankruptcies are rising, there is tons of debt to be refinanced for which there is no market, so cap rates are rocketing and 'ghost mall' has joined the recessionary lexicon. This all adds up to lower prices. Some credit default swaps are trading at levels suggesting that a major REIT bankruptcy is imminent. I know George is sometimes prone to extreme statements, but this time he may be on to something. If you want a short play, or if you have an existing long position in commercial real estate which you can't get out of and want to hedge, try a short position in the (IYR), although it has already dropped from $85 to $21. You can also play one of the sicker REIT names like Brookfield Properties (BPO).

3) Having trouble raising capital for your new hedge fund? Just list Warren Buffet as your 'Honorary Chairman'. That's what California prison guard Ottoniel Medrano did. To help his marketing efforts he also claimed that he had $4.8 billion in assets under management as well as massive real estate holdings in Asia. Medrano's International Realty Holdings managed to raise $700,000 with this scam, which he promptly shipped to offshore bank accounts before the Feds shut him down. When you think you've heard everything, something like this pops up. Unbelievable.

4) The recent 69% leap in crude prices from $32 to $54 may mean that the next spike has already begun. We have been sowing the seeds for the last nine months. The US drilling rig counts has dropped by half to 1000, and it could go as low as 900. Credit squeezed companies have chopped exploration budgets to the bone. The few new wells that are being drilled are becoming increasingly expensive to bring on line. Mexico is the second largest foreign supplier of crude to the US, delivering 1.2 million barrels a day. But production at its main Cantarell field in offshore Yucatan is falling off a cliff, and the country will soon become a net importer. Buy that Prius while the lots are still full.

QUOTE OF THE DAY

'The funny thing is, in your twenties you try and look serious, and after your twenties, you just try and look hot,' said Meredith Whitney, rock star Oppenheimer banking analyst, who recently left to start her own firm.

March 26, 2009

Diary

Global Market Comments
March 26, 2009
Featured Trades: (EEM)

1) There is an easier, cheaper, and faster way to solve the banking crisis which no one is talking about on Capitol Hill.?? If collateralized debt obligations (CDO's) are the problem, just get rid of them! Desecuritize them! Just convert them back into the underlying loans. There are $1.4 trillion in CDO's outstanding backed by Alt-A and subprime loans in the form of 3,700 individual securitizations of perhaps 3.7 million loans. Over 68% of the loans backing these bonds are current.?? Mark to market rules are forcing the banks to carry this paper on their balance sheets at 50%-80% discounts. The problem is that mark to market is a meaningless accounting fiction when there is no market. If you break up these securities and place the underlying loans back on the banks' balance sheets, the good mortgages can be valued at 100% of face, and those behind in their payments or in default can be discounted to maybe 70% because they are still secured by the value of the homes. This would boost the value of the entire asset class from the current 20-50 cents up to 90 cents on the dollar. Restored balance sheets would enable banks to resume lending. Of course it would be a massive admin job unwinding the rats' nests behind some of these securities, but Heaven knows there is abundant subprime and Alt-A expertise available for hire these days. Just sift through the ashes of Lehman Brothers and Bear Stearns. It is a workable plan, and therefore is unlikely to ever see the light of day.

2) For Woody Allen's take on the Madoff scandal, look at the Shouts and Murmurs column on page 29 of the March 30 issue of The New Yorker magazine. On learning of the total loss of their life savings, two of his elderly investors die of heart attacks and are reincarnated as two pound lobsters. While sitting in a tank in a Third Avenue restaurant bemoaning their imminent fate with a light butter sauce who walks in for dinner, but Bernie! I'll leave it to you to see how this ends with tears at http://www.newyorker.com/.

3) The one screaming buy out there now are the emerging markets. The US, Europe, and Japan are now committed to spending trillions of dollars to shock the global economy back to life. This is costing the emerging economies nothing, and gives them a free ride back to prosperity. IT turns out that the smaller economies are financially better off than the big ones, with a decade long export boom blessing them with massive foreign exchange reserves and little debt. China, Russia, India, Brazil, and Turkey will be the big beneficiaries. You can buy the specific ETF's for these countries, or go with the generic iShares MSCI Emerging Market ETF (EEM), which has already started to outperform US markets in a big way. It's a once in a century opportunity to buy the highest growth corners of the world's economy at severely knocked down prices.

QUOTE OF THE DAY

'I'd rather consult a trader than a mathematician,' said former Fed chairman Alan Greenspan when considering the best way to assess risk.

March 25, 2009

Diary

Global Market Comments for March 25, 2009
Featured Trades: (TM), (EBAY), (FUJI TV), (GS)

1) Now that traders are partying again on Wall Street, we have to ask, what will take the punch bowl away? The unemployment rate shooting over 10%, which could happen in April or May, would be my first pick. Losses on option ARM loans could accelerate, taking out a few dozen more regional banks, WAMU style. Another, until now apparently healthy corner of the financial market taking huge undisclosed positions in securities we've never heard of, could suddenly blow up. A giant hedge fund could close at any time, freezing existing investors in place, and dumping gigantic positions on the market. Defaults on some big, high profile commercial real estate projects could also pull the rug out from under the market. Given the magnitude of the move up over the past two weeks, we might even see a short seller bite the dust. And of course, if any of the administration's $3 trillion in bailouts/ reliquifying/stimulus hit a wall that would trigger a sell signal. Party on ebullient traders, but do so close to the exit.

2) Fuji TV, one of Japan's leading television and film producers, will soon premier a Japanese language remake of the cult wine snob film 'Sideways'. The Asian version will be released under the name 'Kami no Shizuku', or 'The Drops of God'. The merlot hating 2005 buddy film, which cost $16 million to make and earned $110 million,?? won five Oscar nominations and caused pinot noir sales to soar. One big change from the original is that the new film is set in Napa Valley, not Santa Barbara's Santa Ynez Valley, enabling local producers like Frog's Leap, Berringer, and Chandon to pile on to the product placement bandwagon. Wines sales in Japan have been steadily improving the past decade, and the film's producers are targeting an affluent, sophisticated, and presumably wine drinking audience.

3) Ralph Amendolaro won the New York lottery by playing the last three digits of Bernie Madoff's prisoner ID number, 054. This is the first real money Madoff has probably ever made someone.

4) Toyota launched its Prius 2010 model today, to much fanfare. The 3G model, which boosts gas mileage from 46 to 50 mpg, carries solar panels on the roof, and offers more elegant styling, will cost around $23,000, stripped down. To date, the Japanese car maker has sold one million of the snub nosed, high backed vehicles, which account for 50% of the global hybrid market. Toyota hopes this 3G model will fight off competition from Honda's Insight and the Ford Fusion, but it won't be easy. Hybrid sales fell 31% in 2008, and the US car market is now thought to be running at an 8.8 million run rate, down precipitously from the 19 million peak. This will be the last Prius model before Toyota brings out its plug in version next year, which will run on batteries only for the first 40 miles of every trip. A 3G win would give Toyota's US traded ADR's, which have recently plunged from $138 to $58, some much needed life support.

5)?? Desperate for new sources of revenue, Skype (EBAY) is pushing into the corporate market. Today it announced ?Skype for SIP,? that connects to corporate phone systems, and will begin beta testing the program with a limited number of companies. Skype will initially charge around 2.1 cents per minute for calls to cell phones and fixed lines, while calls from computers to phone systems will remain free. Ebay has long been dissatisfied with its Skype acquisition, and is thought to be shopping this subsidiary on the market.

QUOTE OF THE DAY

'There hasn't been a recession yet that hasn't ended,' said Abbey Joseph Cohen, chief strategists at Goldman Sachs (GS).

March 24, 2009

Diary

Global Market Comments for March 24, 2009
Featured Trades: (COPPER)

1) 'I said a few months ago that Washington was all in. We are now all in squared. The FDIC, Fed, and the Treasury are making a concerted effort to turn deflationary swamp water in inflationary wine.'?? Ah, Paul McCulley, man of Virginia, you have such a way with words. PIMCO must love you. I agree.

2) If you want to get an inkling of Obama's new out of the box foreign policy weapon, listen to President Obama extended to Iran in an unprecedented YouTube New Year's greeting beamed directly to the people of Iran. Check out the link at http://www.youtube.com/watch?v=yft9ZCe3VCw. He said that Iran was a 'great nation that should join its rightful place in the community of nations', and that 'It's great and celebrated culture has made the world a better place'. The US is committed to diplomacy with the Islamic Republic of Iran, which should not pursue terrorism.?? He signed off with a Persian salutation, which was nothing less than stunning. One can't imagine a more radical departure from the Bush doctrine, which got the US nowhere for eight years. No one has benefited more from tragic American missteps in the Middle East than Iranian extremists. This now puts the spotlight on Secretary of State Hillary Clinton's carrot and stick approach to get Iran to dump its nuclear program. If it fails, she can use our new found moderation to recruit European allies to impose sanctions if the Islamic republic goes all the way. The only reason I care about this is that fresh troubles with Iran could trigger an instant $30 spike in crude prices on a bad day. This would send global markets tumbling, send gold through the roof, and snuff out any prayer of a recovery from this ghastly recession.

3) Satanists, occultists, and Tarot cards readers who follow the market closely (yes, there are some), called the S&P market bottom one point above the sign of the devil at 666. Does this mean my performance will improve if I draw a pentagram on my front door and engage in ritual chanting?

4) On of the stellar performers in the commodity space this year has been copper, up 50% to $1.87 since December. Heavy and secretive stockpiling of the red metal by Chinese, which accounted for a third of the world's 18 million tonnes of consumption last year, has been a main driver. Of course, we are still less than half the $4.10 peak seen last year. But copper is the only commodity that has a PhD in economics, and when it flies, prudent hedge fund managers have to pay attention. As a predictor of future economic activity, it can't be beat.

5) I'll tell you what GM's problem is. My dad was a lifetime GM customer, religiously?? buying a new Oldsmobile every five years. Once he even flew to Detroit for a factory tour and drove his new prize home. Thirty years ago I told him he was doing GM no favors by buying their cars, and the only way to force them to improve a tragically deteriorating product was to buy better made German and Japanese vehicles. This was right after the State of California forced auto makers to install seatbelts on new cars. Airbags and ABS brake systems were still years away. His response, 'I didn't fight the Japanese for four years so I could buy their cars.' (He was a Marine). GM's problem is that my Dad passed away seven years ago. Of the original 17 million WWII veterans, 1,500 a day are dying, and there are only 1.5 million left. All of them loved Detroit because it built great Jeeps, Sherman tanks, and half tracks that brought them home from harm's way. Their kids prefer German, Japanese, Italian, Korean, and soon, Chinese and Indian vehicles. It is no coincidence that GM's problems really accelerated with the passing of the 'greatest generation.' During the last 35 years, when Japan's share of the US car market climbed from 1% to 40%, I begged GM to mend their ways and build a quality, price competitive product that Americans wanted to buy. They answer was always the same: 'Nobody can tell GM how to build cars.' Maybe someone should tell them.

QUOTE OF THE DAY

'The children of Adam are limbs to each other, having been created of one essence,' said President Obama, quoting a famous Persian Poet in his Internet New Years greeting to Iran. Whoa! Heavy!

March 23, 2009

Diary

Global Market Comments for March 23, 2009
Featured Trades: (BAC), (JAVA), (MSFT), (IBM), (NTAP), (SNDK), (EMC), (CTXS), (CRUDE), (GOLD), (TM), (HONDA)

1) I'm sorry I'm late getting my comments out today, but I had to get my application in to manage the Treasury's latest $1 trillion bailout program. They're due April 10, and I wanted to get mine in ahead of Black Rock's.?? I only have to show $10 billion in assets under management and the ability to raise $500 million. For this, the FDIC will effectively lend me interest free long term loans to buy all of the toxic assets I want at deep discount prices with 6:1 leverage. I'm sorry, but I can't resist those 'heads I win tails, you lose' trades the Feds are offering, hence the rush. This certainly takes nationalization of the banks off of the table, and makes those buyers of Bank of America (BAC) two weeks ago at $2.50 look pretty smart. The government has now shot its wad, and there is really nothing else they can do now but sit back and pray until the $3 trillion in stimulus/bailout/reliquifying they have committed to starts to work.

2) Has anyone noticed that the economies with the biggest infrastructure stimulus packages, the US and China, are having the biggest bounces in their stock markets? Those with a 'deer caught in the headlights' policy response, like in Europe, are seeing a much less impressive move in their markets. Gee, do you think there is a connection?

3) When Citigroup (C) fell below $1 two weeks ago it became the first Dow stock to be offered on McDonald's dollar menu.

4) IBM's $8 billion takeover bid for Sun Microsystems (JAVA) at double the previous market price has sparked an explosion in call option buying by hedge funds betting the industry consolidation trend will accelerate. The big buyers in this sector, IBM (IBM) and Microsoft (MSFT) have cash coming out of their ears, and things certainly are cheap enough. Traders loaded the boat with perennial takeover targets like Network Appliance (NTAP), SanDisk (SNDK), EMC Corp. (EMC), and Citrix Systems (CTXS). A flurry of takeover activity is a classic sign of a market bottom. The best way to play this is to buy call spreads on all of them, and hoped you picked a lottery ticket

4) Last week traders were confused and disoriented when they saw something for the first time this year. Green arrows! It's getting so I can't tell the difference between the fake financial news on Saturday Night Live and John Stewart, and the real thing.

6) Honda has triggered a price war among Japan's hybrid car makers with the launch of its new $19,000 Insight model. The price undercuts a stripped down version of the leading marquee Toyota Prius by a good 10%. Honda was able to beat the competition by using a smaller lightweight gasoline?? engine, slashing weight, smaller batteries, and sharing parts with its existing Civic model. The Japanese carmaker accomplished this at the cost of a mileage drop from 46 to 43 miles per gallon compared to the Prius. These are not small stakes Honda is playing for. In October, JP Morgan predicted that global annual sales of hybrid cars will grow exponentially from 500,000 to 9.6 million by 2018. The vehicles are expected to go a long ways towards helping both the US and Japan wean themselves from unreliable foreign oil imports.

QUOTE OF THE DAY

'Cash bonuses on Wall Street are going to become a dinosaur,' said Jon Corzine, governor of New Jersey, and former chairman of Goldman Sachs.