2009 Archive - Mad Hedge Fund Trader

March 6, 2009

Global Market Comments for March 6, 2009
Featured Trades: (GE), (C), (FXI),(BIDU), (SOHU), (NTES)

1) February nonfarm payroll came in at -651,000, taking the unemployment rate up to 8.1%, a 25 year high. The unemployment rate in California is now well over 10%. There were huge revisions up in the December and January figures. Remember when the market used to have a heart attack over a job loss of 100,000? Those were the days! More than 4.4 million workers have lost their jobs since December, 2007, taking the total unemployed to a record 12.5 million. It may be only a matter of months before we surpass the 1981 peak unemployment rate of 10.8%. These figures suggest that the current quarter GDP could be as low as -8%, the worst since the thirties.

2) Spreads on commercial real estate backed mortgage securities have absolutely blown out to the upside, with the lowest grade BBB- paper now yielding a staggering 45% over Treasuries. This is more than double the peak seen in the wake of the Lehman bankruptcy in September. It reflects just a few throw away bids by opportunistic hedge and vulture funds outside of a closed market, and equates to about 20 cents on the dollar. These are levels anticipating nothing less than a Great Depression II and the utter collapse of the commercial real estate market. The reasons, which you well know, have already been eloquently detailed in these pages: failing tenants, emptying malls, too much leverage, and no refinancing.?? This is one of the reasons why General Electric (GE), which has heavy exposure in the sector, is trading at the $5 handle, down from $38. This is all happening when some of the most expensive and luxurious commercial space ever built, which broke ground three years ago, is about to swamp the market.

3) It now takes only four shares of Citigroup (C) to buy a cup of coffee at Starbucks. The stock market has hit twelve year lows only three times in the last 109 years. Remember, bottoms are made when things look terrible and are getting worse. I am not a big market timer, but this certainly qualifies as one of those times. If you assume that we are seeing the worst economic conditions this quarter since the Depression, then we are setting up for improving conditions in Q2, and the market will start to discount that. The short interest out there is enormous, and the trade is getting too easy. Even my cleaning lady is running a leveraged short on the S&P 500. Could the short bubble be the next one to pop? Watch for another furious 10%-20% bear market rally ensue in the next few days or weeks.

4) There is more speculation that China may lead any upturn in the global capital markets. China's holdings of US government bonds leapt by $250 billion last year, through capital appreciation alone, taking their current market value to roughly $1.25 trillion. To finance a domestic reflationary program, China need only sell some Treasuries, not print money, as the US must. This would involve converting a sizeable chunk of the Middle Kingdom's productive capacity away from US oriented exports to domestic consumption, particularly accelerated much needed infrastructure spending. This would be painful in the short term, to say the least, but is necessary for the long term. This would enable the Chinese stock market to lead the world out of the current morass. Buy the iShares FTSE/Xinhua China 25 ETF (FXI).

5) Clever traders are keeping a sharp eye out for things to buy for the next recovery, whenever that is. Look at the industry of the future in the country of the future, Chinese Internet shares, which are growing 15%-30% a year with strong cash flows. Baidu (BIDU), which is often referred to as the Google of China, saw its shares sell off 75% last year, but have rallied 75% from the December lows. Internet use in China is expected to increase from 250 million to 900 million over the next 5-10 years. The majority will access the net via cell phones, where gaming is the dominant application. Expect huge growth at the four horsemen of the Chinese internet sector, which also includes Netease (NTES), Sina (SINA), and Sohu.com (SOHU).

6) A year ago GMAC financed 1,500 cars for Autonation, the country's biggest auto retailer.?? Last month they financed only nine, despite much higher demand. This tells you where the real problem is.

QUOTE OF THE DAY

?Pessimism is your friend, euphoria the enemy,? said Warren Buffett in his 2009 letter to shareholders.

March 5, 2009

Diary

Global Market Comments for March 5, 2009
Featured Trades: (GE), ($XEU), (GOOG)

1) Q4 European GDP came in at -1.5%. Consumer spending registered the sharpest fall on record, while exports fell off a cliff, the victim of a relentless shrinking of globalization. The euro ($XEU), down to $1.2450, is flirting with a new four year low. The continent continues to pay the price for the disastrous decisions and lack of experience of the EC central bank president, Jean-Claude Trichet, who raised interest rates last summer.

2) Buy a house and pay no taxes for a year. That is what the government is saying with the most generous tax credits in history for first time buyers of new homes. Buyers in California with incomes under $75,000 can cash in on $18,000 in tax credits ($10k in state, $8k in federal) that were slipped into the stimulus program. This is on top of incredibly generous financing, free upgrades, and no fee loans offered by desperate sellers. The package also raised the FHA loan limit from $625,000 back up to $729,000, crucial in the high cost markets of California, New York, and Florida. The only catch is that you have to stay in the house for three years to reap the full benefit. Flippers need not apply.

3) Charlie Rose did an insightful interview with Marc Andreesen last week, who has one of the best high altitude views of the long term future of technology. This is the man who, at 22 co-authored Mosaic browser, which was used to create Netscape Navigator, and eventually Internet Explorer. He sees the recession creating a 'tragic opportunity' that accelerates the migration of dying industries to the Internet like, radio, TV, DVD's, music, newspapers, real estate, and banking. Every day the awesome power of the Internet to eat new industries grows, which is now populated by 1.5 billion users. His favorite game is the incredibly violent 'Gears of War 2' which you should keep out of the hands of your teenagers. Venture capital start ups are not in as bad of shape as people say because they are usually funded with five years of cash flow, enough to get through a downturn. Google, YouTube, and Facebook were all developed during the last recession. The Internet is creating a far better educated and connected consumer than ever seen before. Twitter, where Andreesen is a director, is becoming a real time electronic nervous system for the planet. The same is happening with the world's three billion video enabled cell phone users. He is also on the board of Facebook, with 175 million users, which is leaving at least a $1 billion a year in potential advertising revenues on the table. He is an angel investor in the social networking site LinkedIn, which now boasts 20 million resumes. All in all, it was a fascinating peak into the future.

4) One out of five stocks in the S&P 500 has a single digit price. General Electric (GE) hit the $5 handle. Amazing. This is a company that has $45 billion of cash, $60 billion in back up government financing, and has already rolled over 70% of its long term debt due this year. GE Capital will be profitable this year, because only 2% of its holdings are subject to market to market rules. CFO Keith Sherin says the only explanation for a share price that is a hat size is the rampant fear now sweeping the markets.

5) Google (GOOG) CEO Eric Schmidt says it is obvious that the news is bad and getting worse, that we are not at the bottom yet, and have some quarters to go. Watching traffic it is clear that advertisers are tightening budgets, but the numbers of online advertisers is increasing. The recovery will start first in the US and then spread overseas. However, the company does not expect any fall off in its own revenues. Does Google own the planet, or what?

QUOTE OF THE DAY

'If something can't go on forever, it won't,' said Herb Stein, Chairman of the Council of Economic Advisors under presidents Nixon and Ford.

March 4, 2009

Diary

Global Market Comments for March 4, 2009
Featured Trades: (SILVER), (GOLD)

1) The February ADP employment report showed a loss of 697,000 jobs. Since we are probably in a minus 6% GDP quarter, expect these numbers to remain grisly for months to come. Watch for the Labor Department's nonfarm payroll on Friday, which will be a blockbuster. Rumors of another China stimulus package caused stocks to pop, and took crude back up to $45. The bears have gotten complacent.

2) Simon Rubenstein, chief economist at the Royal Institute of Chartered Surveyors in London, sees global capital values and rents falling everywhere. The biggest hits are in formerly hot areas in China, Russia, and the Persian Gulf. Latin America has held up best so far, but now even it has started to crack. Falling exports and commodity prices are the villain, which is causing a reversal of a decades long globalization trend. The shortage of financing means only a few deals are getting done now, and we have some ways to go before we see a turn. Yields/cap rates have to rise 100 basis points before we draw in substantial investors.

3) I met my paperboy at 5:00 a.m. this morning, who is actually a Vietnamese girl driving a minivan. She delivered all five at once, which means the newspapers have outsourced local delivery to save money, who then aggregate customers to improve efficiency. Phuong took the rubber bands off of the papers when she saw that I was about to pick them up. Now that is cost cutting!

4) Now that we are at the 6,000 handle in the Dow and investors are jumping out of windows, it's time to put things in perspective. My old friend and global economist David Hale dug up some historical data for me. The maximum drawdown in real GDP from the 1929 high to the 1933 low was 26%. The decline nominal GDP was a steeper 46%. David's forecast for this recession is for a mere 3% drawdown. OK, what if?? this is optimistic, and it goes to 4%, or even 5%? We are not even in the ballpark of the numbers seen in the darkest days of the thirties. I know it makes for great, sensationalist headlines, but enough of this talk about another Great Depression already! Get a grip!

5) Howard Ruff is the irascible Mormon publisher of Ruff?? Times (http://www.cyrusfirst.com/guests/rufftimes3/index.php), which after 32 years is one of the oldest investment letters in the business, and one of the original worshipers of hard assets. He says that any investment denominated in dollars is a mistake, which is in a long term down trend. Silver is his first choice, which will outperform gold, and eventually top $50 from the current $12.50. Equities may never come back from their current slide. Don't buy ETF's because they may not actually buy the gold or silver they claim. The government is laying the foundation for a massive inflation which will begin in 6-12 months. You can't say this guy isn't entertaining.

QUOTE OF THE DAY

?Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway,? said Warren Buffett, the Sage of Omaha.

March 3, 2009

Diary

Global Market Comments for March 3, 2009
Featured Trades: (WFC), (JPM), (C), (BAC), (GOLD)

1) We're going to 6,000 in the Dow, then maybe 4,000. So argues Louise Yamada, one of the most respected long term technical analysts on Wall Street. The targets for the S&P 500 are 600 and 400. Let me reprint a comment I made on January 27, when the Dow was at 8,250, some 1,500 points, or 22% higher. 'There is a hulking great 800 pound gorilla sitting on the floor of the New York Stock Exchange right now. Past stock market crashes in the thirties and the seventies produced market price earnings multiples of seven. Today it is 11. Does this mean that the Dow has one last 40% down leg left in it before we bottom out? That would take us to a 5,500 Dow, or a 570 S&P 500. Maybe the old PE benchmarks have been rendered meaningless by zero interest rates. Maybe so many single digit stock prices and trough earnings are skewing the numbers. Or, maybe nothing makes any difference anymore, and everything is just driven by the sentiments of attention deprived traders on steroids. But if I am right, look for a few more weeks of Obamaphoria supported stock prices, followed by a long, frightening plunge in the down elevator.' Looks like investors found the gorilla.

2) There is some fascinating action going on in the options market right now. There is some massive buying of short dated puts in Wells Fargo (WFC) and JP Morgan (JPM), while buying of longer dated puts has weirdly almost vaporized.?? These are the only two high priced big bank stocks left. It is not happening in Citibank (C) or Bank of America (BAC), where there is so little meat left on the bone that buyers don't want to feel like they are the last man at an all you can eat buffet. Brace yourself. This is good news. It means that traders expect to see some short term volatility in these names. After that, Obama's bank bailout, stimulus program, and new budget will start to kick in and come to the rescue of the sector. Call me the 'options whisperer.' I stroke these things and they speak to me.

3) I went to the Marines' Memorial Club in San Francisco for a meeting last week and discovered the entire floor taken over by the Veterans Administration for bereavement counseling. More than 100 widows and parents tended to photographic shrines to loved ones in the ball rooms, and grief counselors met with small groups in the library. When I mentioned to some participants that we had nothing like this when I came back from Cambodia and Desert Storm, they held my hand and looked at me with pained expressions, tears streaming down cheeks. I told them their loved ones died doing what they wanted, and that they would live as long as they were remembered. What else could I say? I realized they were looking to me as one who made it back, and wished their loved ones had been able to do the same. When we leave Iraq next year, as Obama is promising, what are we going to tell these people? Was it all for nothing? What a waste.

4) Panic buying of gold coins continues to overwhelm coin dealers around the world. According to the Financial Times, the US Mint sold 193,500 American eagles in the first seven weeks of this year, more than it sold in all of 2007 at prices 40% lower. Retail investors fleeing paper assets, like plummeting stocks and bonds, are paying 5% premiums over face values. The same phenomena are appearing in other countries where gold coins are available to the public. Now that gold has backed off from $1,007 to $905, is it time to double up?

QUOTE OF THE DAY

'Insanity is doing the same thing over and over and expecting a different result,' said Albert Einstein.

March 2, 2009

Diary

Global Market Comments

March 2, 2009

Featured Trades: (BAC), (GOLD), (POLAND), (CEE), (MSFT), (INTC), (ORCL), (CSCO), (BRK/A), (COP), (JNJ), (GS), (GE)

1) The US is turning into Europe. Think high taxes, high unemployment, more government involvement in everything, and much lower growth. That is the message the markets are telling us by retreating to the 6,000 handle, levels not seen since 1996, and down 54% from the peak only 17 months ago. Equity prices are shrinking to multiples, in line with a permanently lower long term growth rate of maybe 2%, a shadow of the 5% rate seen for much of this decade. Maybe this is what mature economies are supposed to look like. If you do buy American stocks, only buy the ones that are really foreign stocks with American sounding names. Microsoft (MSFT), Intel (INTC), Oracle, (ORCL), Cisco (CSCO) all get 60%-70% of their profits from overseas where high growth rates have migrated. I think I'll move to Tahiti and live off of coconuts and freshly speared fish, wearing only a loin cloth.

2) Bank of America's (BAC) Ken Lewis says that he won't resign until he pays back the $45 billion in TARP money he owes the government. So paying $50 billion for something that is really worth a negative $170 billion is a bad career move? That's a revelation! I can see that secrecy is a concept that is forever banished from the investment community. CEO's won't be able to make an acquisition, nor fund managers raise a single nickel from here on, without a complete undressing, and a full proctologic exam!

3) Warren Buffet and his managers feel like 'hungry mosquitoes in a nudist camp.' So he revealed in his annual letter to investors in Berkshire Hathaway (BRK/A). I love it! This gem is an absolute must read for anyone in the markets. Although Buffet massively outperformed the indices, book value fell 9.6%, the worst performance since he took the helm in 1965. He admitted he did some 'dumb things', like adding to his holding in Conoco Phillips (COP) at the absolute top in the oil market, at the expense of safer stocks like Johnson & Johnson (JNJ). If you analyze his balance sheet and income statement, you can see the method to his madness. He only increased his net equity exposure by $1.3 billion. Much of his new investment went into high guaranteed return instruments, like 10% preferred in Goldman Sachs (GS) and General Electric (GE). He has greatly improved the long term cash flow of BRK/A at the expense of a short term hit to book value. Moves like this justify his 'Sage' appellation.

4) Panic buying of gold coins continues to overwhelm coin dealers around the world. According to the Financial Times, the US Mint sold 193,500 American eagles in the first seven weeks of this year, more than it sold in all of 2007 at prices 40% lower. Retail investors fleeing paper assets, like plummeting stocks and bonds, are paying 5% premiums over face values. The same phenomena is appearing in other countries where gold coins are available to the public. Does this have a toppy feel to it?

5) I met my paperboy at 5:00 a.m. this morning, who is actually a Vietnamese girl driving a minivan. She delivered all five at once, which means the newspapers have outsourced local delivery to save money, who then aggregate customers to improve efficiency. Phuong took the rubber bands off of the papers when she saw that I was about to pick them up. Now that is cost cutting!

6) While American banks have their subprime crisis, European banks are being dragged under by their lending to emerging economies in Eastern Europe. Led by UniCredit in Italy, Austria's Erste Group Bank and Raiffeisen International, France's Societe Generale, Belgium's KBC, and Hungary's OTP, banks have lent $1.6 trillion to companies in these formerly communist countries at cheap rates, with minimal documentation, and few questions asked. The easily available credit caused local money supplies to explode, and sparked bull markets in both stocks and currencies. Emerging Europe grew at double and triple rates in the West, as local companies pumped up on steroids became the master of leverage. Now $400-$600 billion is due for rollovers this year from nonexistent credit markets, and the chickens'?.make that vultures, have come home to roost. Economic growth has fallen off a cliff, with Poland's seasonally adjusted industrial output down in December a precipitous 7.4% YOY. The Polish stock market fell 48% last year and the zloty is off 40% against the dollar from its June peak. The Central European Equity Fund (CEE) has crashed 80% in eight months. The crisis is so severe, it may postpone Poland's entry into the Euro block, which had been scheduled for 2011. Home mortgage borrowers are in especially bad shape. Up to 50% of their loans were denominated in Swiss francs, so the collapsing Polish currency has caused a near doubling of borrowers' monthly payments and principals since last year. Austria really has its knickers in a twist, as these heavily syndicated loans account for 80% of GDP. A 10% default rate could wipe out the entire banking system there. Germany has the smallest loan exposure, but has the most to lose, with 25% of its exports headed east. It is now in negotiation with its partners in the EC to cobble together a bailout with the help of the IMF to provide bridge financing for these loans, and hopefully ward off a further economic collapse. It looks like the headlines in Europe are about to get uncharacteristically sensational.

QUOTE OF THE DAY

'If you have been playing poker for a half an hour, and you don't know who the patsy is, it's you,' said Warren Buffet.

February 27, 2009

Diary

Global Market Comments for February 27, 2009
Featured Trades: (SILVER),

1) Welcome to the worst case scenario, with Q4 GDP revised down from -3.8% to -6.2%. Q4 will be just as bad, if not worse, then we will find a bottom. Technical analysts were ringing their hands as the Dow hit a new 12 year low and the S&P 500 broke key support at 740. Thank God I don't believe in that mumbo jumbo. Natural gas hit a new six year low at $3.90, and even gold backed off to $928. Citigroup (C) is now so cheap at $1.40 that you could launch a hostile takeover with your American Express card. It really had the flavor of a 'throw up your hands and sell everything' day.

2) I met with Thomas Ricks, author of the best selling The Gamble: General David Petraeus and the American Military Adventure in Iraq, 2006-2008, who says that we are only half way through the war, and our unfortunate involvement there could run as long as another 16 years. The surge has failed, our casualties are rising, and US credibility with Iraqis is zero. Bush blew a cozy set up that worked for a decade where Saddam was contained at minimal cost. Talking is more valuable than fighting, and it is cheaper to hire someone than to kill them. General Petraeus figured this out, so we now have 100,000 enemy fighters on the payroll costing $30 million a month. It was easy to walk away from Vietnam and leave a few million locals in re-education camps. Iraq won't be so easy, because it sits atop, or adjacent to the world's largest oil supply. Eventually, Iraq will evolve into another Lebanon where you have multiple competing armed groups. The big winner in all of this is Iran, which has seen its prestige grow in the Middle East at our expense. Iraq will continue to be a huge financial drain on the US for decades, no matter what Obama says. All very sobering thoughts, with big implications for the markets.

3) With gold bugs, survivalists, and garden variety hedge funds running victory laps over the yellow metal's recent breach of $1,000, it is easy to miss the move in silver that has been twice as impressive. Silver has run 30% this year to $14.60 an ounce, despite the steady deterioration in industrial demand. Silver ETF buying has exploded by 1,676 tonnes to bring their total to 9,929 tonnes. Sales of silver American eagle coins have doubled to four million ounces so far this year. The metal may have more to run. Hedge fund longs, which peaked last year at 50,000 futures contracts, have so far reached only 23,100 contracts in this round. But risk managers are going to have to keep an extra sharp eye on silver positions. A turnaround by the Dow or the yen against the dollar could suddenly take the air out of this bubble.

4) Anyone who has any illusions about the Canadian tar sands business should take a look at the March issue of National Geographic, not normally a prime source of financial and economic news for me. I'm not normally a big time environmentalist, but just looking at the glossy, eye opening pictures tells you that this is this an ecodisaster of Biblical proportions. A $50 billion investment by several firms over the last decade is now producing 750,000 barrels/day, and another $100 billion was headed north before prices crashed last year. You have to cut down a whole forest, remove two tons of peat, then another two tons of sand, and burn 100 barrels of oil equivalent to heat rivers of water to steam, just to produce a single barrel of oil. This gives you the world's highest production cost, thought to be $80-$100/barrel. There are now 50 square miles of sludge ponds in Northern Alberta leaching a witch's brew of poisons into the water supply, which has caused the local cancer rate to explode tenfold. We're not just talking about a few sick ducks and fish here. Canada is the largest foreign supplier of oil to the US, accounting for 19% of the total, and half of that is coming from tar sands.

One can only assume that the whole industry was built as a hedge against some Third World War, Armageddon type total cut off of all foreign crude supplies that would drive prices to $500/barrel, making all of this hugely profitable. Maybe the owners think they can get away with this because it is in the middle of nowhere. An army of lawyers about to hit these projects with a tidal wave of litigation think otherwise. After looking at these pictures and analyzing the numbers, you have to ask if it is really worth it, just so I can drive my Hummer to Walmart.

QUOTE OF THE DAY

?You cannot motivate the best people with money. Money is just a way to keep score. The best people in any field are motivated by passion,? said open source advocate Eric S. Raymond.

February 26, 2009

Diary

Global Market Comments for February 26, 2009
Featured Trades: (GM), (YEN),(YCS)

1) Weekly first time jobless claims soared from 631,000 to 677,000, taking total claims to 5.1 million, a new all time high. General Motors (GM) announced a Q4 loss, and a 6.2 billion cash burn, leaving them with a scant $14 billion left. The company will have to file for bankruptcy when this figure drops below $10 billion, or in about two months. Last year GM lost $84.7 million a day! How does a $2 stock lose $15.71/share? Apparently when people are afraid of losing their jobs, their house, and are maxed out on their credit cards, they don't run out and buy a new car. At least some fiscal responsibility is returning. Unsurprisingly, CEO rick Wagoner was back on Capitol Hill today panhandling for more money. The death watch has started.

2) Here is a novel plan put forth by a hedge fund in Florida, Derivatives Bridge, LLC. Securities backing performing mortgages worth 100% are being sold for 20% because there is no market for these securities. Have the government buy these securities for 60%, rescuing the banks, and then sell them back to the original homeowner. The homeowner then is able to refinance his home, see his mortgage principal drop by 40%, restoring his net worth and purchasing power. The cost to the taxpayer is zero. This is already possible in some countries like Denmark. If someone offered me a deal like this I'd take it in a heartbeat, even if I had to clean out the sofa cushions and raid my kids' piggy banks. They say necessity is the mother of invention.

3) There is a lot of talk today about the recent weakness of the yen, which along with gold, became the focus of the 'short America' trade. The Japanese currency has backed off from its ??88 peak a month ago to ??98, breaking several key technical levels, and seems poised to go lower. Other than flight to safety, there was never a reason to go long of this currency. The trade and current account surpluses are in free fall, as Toyotas, Lexus's, Hondas, and Infinitis pile up on west coast docks. The economy is even sicker than ours, and with zero interest rates for the past 14 years, this certainly is nobody's yield play. Clearly the yen became the global carry trade's cheap date, and the cross has emerged as a highly sensitive indicator of global risk taking appetite. Could this bout of weakness be a mustard seed of economic recovery, a light at the end of the tunnel? Watch the Proshares Ultra Short Yen ETF (YCS), which gives you a 200% short play, and is up 25% in a month.

4) The City of New York has repaid municipal bonds that were issued in 1868, thought to be one of the world's oldest paying securities. The 135 year, 7% bonds were issued by a small hamlet in modern day Bronx to finance a road to one of the nation's first racetracks. It was a bet that New York City would one day expand north and annex the village, which it finally did in 1895. The city is still paying interest on bonds with 250 year maturities, which were originally floated by Winston Churchill's American grandfather. This was an incredibly clever financing for 1868.

QUOTE OF THE DAY

In the business world, the rearview mirror is always clearer than the windshield,? said Warren Buffett, the Sage of Omaha.

February 25, 2009

Diary

Global Market Comments for February 25, 2009
Featured Trades: (C), (BAC)

1) So nationalize the banks already! Get it over with! Call it whatever you want: partial nationalization, temporary nationalization, socialization, liverwurst, or rutabaga. Just get it over with! This tortuous slow drip of on again, off again, stop gap measures is going to cost us more than if we executed the politically incorrect 'N' word. Of course, a government takeover is the worst nightmare for many Republicans. But now that former Fed governor Alan Greenspan and many fiscal conservatives are on board, this shouldn't amount to political suicide for Obama. The FDIC's Sheila Bair already does this on an almost daily basis with smaller regional banks, like Washington Mutual, but for some reason the top nine 'too big to fail' banks are sacrosanct. Their deposits have been effectively nationalized with government guarantees since last fall. The market is already selling us that many of these once hallowed institutions are now worthless. This is what Citigroup (C) at $1 and Bank of America (BAC) at $2 are telling us. Just wipe out the pitifully little the common shareholders have left, clean them up, and resell them in five years after the credit markets are restored. Every government that ever did this, like the UK in the eighties and Hong Kong in 1998, made a fortune. I was involved with both, and serious coin was made by the sellers and the buyers. Not to drive a stake through the hearts of these de facto 'zombie' banks really would risk a Great Depression II and an 'L' shaped lost decade. The markets would love decisive and surgical action like this and rocket.

2) Looks like the San Francisco Chronicle may be about to join the dustbin of history. The industry rag, Editor and Publisher, says that the privately owned Hearst Corporation has given the venerable paper an ultimatum to cut costs or close. The 150 year old Chronicle lost $50 million last year. Of course, this may all be a ploy just to beat up one of the last surviving unions, but they have made a similar threat to their paper in Seattle. Ironically, Hearst acquired the Chronicle and dumped the San Francisco Examiner in 2,000, which was then put on a crash diet and made profitable by its new owners. If the Chronicle goes it will join the Philadelphia Enquirer which went under last week, and the soon to be shut Christian Science Monitor. Google has been eating their lunch for years, and classified ads have migrated to Craig?s List. It is tough to chop down a forest to make paper, get a union to print it, and manually distribute your product, and then compete against a one man email blast on costs. If the Chronicle goes it will be survived by a much smaller SFGate.com, one of the most successful web based newspaper portals out there. There could be a ninth earning save by a surprise buyer. But moguls willing to hemorrhage ?? ?? money just to promote a political view are a dying breed. Rupert Murdoch has been the only recent buyer of newspapers, and something tells me that a match with the Chronicle would not exactly be one made in Heaven. In five years there will probably be only two mass circulation papers left, The New York Times and the Wall Street Journal, with the Washington Post as an outlyer. Thousands of small, local, niche publications will take up the slack. As a long time print journalist dating back to the typewriter days myself, I am sad to see newspapers go. But you can't exactly sit like Denmark's old King Canute and order the tide to stop rising. Journalism is degrading into an army of guys banging away at the computers at 3:00 AM in their boxer shorts. Trust, accuracy, objectivity, style, and taste will be the victims.

3) I thought Joe Biden's chief economist Jared Bernstein made an interesting comment today. He inferred that Obama had a tough time crafting a stimulus and recovery plan because so many government data releases last year were massaged, distorted, obfuscated and misrepresented to hide how serious the unfolding economic crisis really was.

4) Expatriates have been bailing on Dubai so fast that there are now 3,000 abandoned luxury cars parked at the airport. Those with multiyear leases who don't want to pay early return penalties are just abandoning their vehicles with the keys left in the ignition, some with apology notes taped to the windshield. Failure to pay debts can get one locked up in a local prison.

QUOTE OF THE DAY

'Do not allow our newspapers to degenerate into propagandist organs,' said the late press baron, William Randolph Hearst.

February 24, 2009

Diary

Global Market Comments for February 24, 2009
Featured Trades: (GOLD), (GLD), (SPG)

1) The Senate Banking Committee holds hearings while Rome burns. The S&P Case-Shiller Home Price Index showed a Q4 fall of -18.2%, the sharpest decline in its 21 year history. Prices in San Francisco fell by 31.2%. We got within 100 points of a 6,000 handle on the Dow this morning, and a print there would have sparked a global stampede to the restroom. But Bernanke managed to assuage fears today, prompting a 234 point rally in the Dow. All ears are on Obama tonight.

2) Gold finally hit a wall just above $1,000, and instantly melted $50. For many traders who got in just above $700 three months ago, it's time to say thank you very much to Mr. Market and either wait for a substantial pull back, or go on to the next trade. It was taking increasingly larger purchases of physical gold by ETF's and coins by individuals to push the price up. CME statistics showed the speculators' position soared to a net long of 215,661 contracts ($21.5 billion). The SPDR Gold Trust ETF (GLD) added five tonnes of the barbaric relic to 1,029 tonnes in just one day. The turnaround neatly sets up a double top on the long term charts with the high set last year. It may take a couple of more runs, and more bad news, which seems in abundant supply, to get the yellow metal to a true new high.

3) The forecasting firm Macroeconomic Advisors says that we are going through the 'epicenter' of the recession right now. They see Q4 GDP being revised down from -3.8% to -6.0%, and that Q1 will come in at -5%. These numbers fall somewhere in between the 1974 recession and the Great Depression in terms of their severity, and are double the worst case scenario offered only three months ago. A tsunami of infrastructure spending, stimulus, and newly recapitalized bank lending will bring positive growth of 2% in the second half. Lower interest rates are slowing down the home foreclosure rate. Many states and municipalities, like Denver, started shovel ready projects the very second that Obama signed the stimulus bill, but it will take months to see the impact on the data. In layman's terms, thing are about to get a lot worse, then a lot better pretty quickly, giving us a classic 'V' type bottom for the economy.

4) With many analysts expecting commercial real estate to be the next shoe to fall in the financial crisis, there is already maneuvering to get a bail out in place before the sushi hits the fan. 'Ghost malls' now widespread around Michigan are spreading to the coasts like a highly contagious plague. Simon Properties (SPG) and Westfield have gone to the extremes of shortening hours to save money on staffing costs and electricity. The trigger will be impending failed rollovers of the debt of a couple of big REITs, of which over a $1 trillion are coming due. The Treasury's TALF program will be expanded from CDO's backed by student loans, car loans, and credit cards to include commercial real estate loans, giving the industry the safety net, and the breather it needs.

QUOTE OF THE DAY

?There is only one side to the stock market, and it is not the bull side or the bear side, but the right side,? said Jesse Livermore, the famed stock speculator of the 1920's.

February 23, 2010

Diary

Global Market Comments for February 23, 2009
Featured Trades: (C), (XOM), (GM), ($NIKK)

1) The Treasury moved to raise its stake in Citigroup (C) by up to 40% by converting preferred into common, yet another step down the road to creeping nationalism. With C trading as low as $1.20 on Friday, taking its market cap down to a mere $10 billion, does anyone care? The markets have already delivered their own judgment. Does this mean my ATM is going to start working with the same frustrating inefficiency of Amtrak, another poorly run government entity? The market cap for all 24 banks in the S&P 500 subsector has shrunk to $269 billion, less than the capitalization of Exxon (XOM) at $354 billion. The stock market hated all of this and fell 251 to a new 12 year low at 7,114.

2) On Friday General Motors (GM) hit a low of $1.60/share, taking its market cap below $1 billion. CEO Rick Wagoner says he 'doesn't know' if the company will need additional bail out money at the end of March if its $18 billion February request gets funded. The lowest market cap the company saw during the Great Depression was $4 billion. This company is toast.

3) My old friend, Stephen Roche, chairman of Morgan Stanley Asia, says that the current US bubble is four times larger than Japan's, whose market is still down 80% from its 1989 high (no typos here). The American consumer, who at the peak accounted for 72% of GDP, has been left for dead. Japan's bubble was caused by a collapse in capital spending, which never accounted for more than 17% of GDP. If we make China our whipping boy, as the Democratic Congress is historically inclined to do, they could come back to bite us in the hand. Treasury Secretary Geithner's recent comment that China is a 'currency manipulator' hasn't helped. Our financial markets are now desperately dependent on the Middle Kingdom recycling their trade surplus into our bond market. A Chinese boycott would trigger a collapse in the dollar, and send US interest rates sky high.

4) Which online businesses are currently booming??? According to the data firm ComScore, in a total online audience of 190 million in January, traffic to employment sites like CareerBuilder.com, Monster.com, and Yahoo's Hot Job Searches, leapt by 46% to 26.7 million, driven by the collapse of the job market. Visits to tax sites like IRS.gov, CA.gov, and H & R Block were up 176% MOM to 24.7 million, as weary taxpayers seek assistance on this unpleasant annual chore. Consumers looking for travel bargains for the spring triggered a stampede to sites like VacationstoGo.com, Disney Travel, and Expedia.com, which were up 46% to 13 million clicks. Concerns about salmonella poisoning drove a lot of traffic to a range of government websites. Facebook finally broke into the top ten, with 57.2 million visits.

5) I finally got my hug from the terrorist and ex-bomber who used to pal around with Obama during his reckless youth. Yesterday I donned my only tie died T-shirt and went to Berkeley to meet University of Illinois professor Bill Ayers, who was raising money for a Middle Eastern children's charity. It was fascinating to listen to this echo from the sixties, and to see political radicalism in its modern incarnation. It's no longer about mass demonstrations and civil disobedience (and bombing). It's about online networking and organization, which the Democratic campaign proved so effective at in the last election. Closet socialists on the left and hardliners on the right, who thought Obama was pretending to be a moderate just to win the votes, will be sorely disappointed. He really is a moderate! Ayers was joined by his wife, former Weather Underground activist Bernardine Dohrn, a former resident of the FBI's ten most wanted list. After having been told by the government that this was one of the most dangerous people in America, who should be hunted down at any cost, I was pleasantly surprised by the demure, but eloquent grey haired little old lady who appeared on stage. It occurred to me that Obama could be one of the greatest 'black swans' ever. Who gave odds that this guy would win a year ago? Now he is President, and his impact on the markets, and on history will be momentous.

QUOTE OF THE DAY

'You cannot multiply wealth by dividing it,? said the late Dr. Adrian Rogers, past president of the Southern Baptist Convention.