July 29, 2008

Global Market Comments for July 29, 2008

1) As crude dies, stocks fly. Oil down to $120.50, a new two month low. Alert! Alert! Regular gas at a bargain $3.99/gallon seen in the East bay! For $1 I'll tell you where.

2) Merrill Lynch (MER) is raising a staggering $8.5 billion in new equity. The more they say they don't need capital the more they raise. Existing shareholders will be diluted by a hefty 20%, except for those recent private placement investors with anti dilution clauses. The money will go to help cover their loss incurred in selling $30 billion face value in mortgage backed obligations for a mere $6.7 billion. This sets a benchmark value for sub prime debt at 22 cents on the dollar. It makes you wonder how dire their capital position really was yesterday. The stock has imploded, from $90 to $22 in the past year. All eyes are now on Lehman (LEH), the next shoe to fall.

3) The S&P Case-Shiller real estate price index for June was down -15.8% YOY and is still falling. Las Vegas (-28.4%) and Miami (-28.3%) showed the biggest losses. San Francisco was down -22.9%. Charlotte, Dallas, and Denver all showed monthly gains. Prices are now at summer, 2004 levels.

4) US Steel (X) reported vastly better earnings than even the most optimistic forecasts as the steel shortage puts it in the driver's seat on pricing. Weakness in autos, which now accounts for only 15% of sales, is being more than offset by demand from China. 85% of the company's sales are in cold rolled steel. X is the winner here, because it alone among steel producers owns iron ore supplies. However, if commodity prices turn, look out belooooow!

5) The Conference Board's consumer confidence index for July rose from 51.0 to 51.9, the first rise since December. Given the huge decline seen in the previous month this is not much of a dead cat bounce. Job security is the main concern.

6) The SEC's short selling restrictions on banks expire tonight. If they don't renew them, or if there is any fiddling, waffling, or equivocation, expect the market to tank tomorrow.

QUOTE OF THE DAY

'Americans eventually do the right thing, after exhausting all other possibilities,' said Winston Churchill.