April 21, 2009

1) Those who followed my recommendation to buy copper on January 5 are the happy participants in the first bubble of the year. The red metal has rocketed from $1.28 to $2.26, while producer Freeport McMoran (FCX) soared 88% from $25 to $47. Heavy and secretive stockpiling of the red metal by China, which accounted for a third of the world's 18 million tons of consumption last year, has been a main driver. Heavy buying by commodities based ETF's provided the turbocharger. It is time to take some money off the table. Asset markets everywhere have suddenly gotten way too healthy, with global equity markets alone tacking on $7 trillion in value in six weeks. No one ever got fired for taking a profit, especially in this angst ridden environment. Of course, longer term, I expect copper to rise past its all time high of $4.10, and for FCX to vault above its old high of $122, as we make the irresistible shift from a paper to a hard asset backed world.?? But it's going to take more than a short covering rally in financial markets to get back up there. Better to buy it back lower.

2) Last year was truly the annus horriblus for the Fortune 500, which saw profits plunge from $645 billion to $99 billion, the worst performance in the tabulation's 55 year history. AIG alone lost $99.3 billion, taking it from number 13 on the list to no. 294, made possible I'm sure only through some spectacular accounting fiction. Many once mighty names were struck from the venerable list, including Lehman Brothers (LEH), Bear Stearns (BS), and Anheuser Busch (BUD), to be replaced my new risers and IPO's like Polo-Ralph Lauren (RL), Master Card (MA), and Visa (V). Only three companies have shared the number one spot since 1955: Exxon Mobile (XOM), Walmart (WMT), and General Motors (GM). Guess which one made the top this year? It is clear that this Depression is causing a great winnowing out of the US economy. The strong are getting stronger and the weak are getting wiped out.

3) Japan will soon hit its bond market with a near record $110 billion of new paper to finance its emergency economic stimulus program. Anticipation of the program has already pushed yields on the JGB to 1.46%, a high for the year, up from 1.21% in January. With short term interest rates at zero and the world's lowest long bond yields, there is little doubt the government will pull this off, according to Sean Maloney, interest rate strategist at Nomura Securities. Nearly twenty years of weak domestic growth and a decently growing money supply have created a structural oversupply of capital in Japan, an endless cash glut, and a shortage of high grade, low risk investments. The bigger question is whether this splurge will make any difference. After building 1,000 'bridges to nowhere' during the nineties to cope with a 'lost decade', no country has more conclusively proven the futility of government stimulus spending on public works than Japan. Is Obama about to make the same mistakes in the US?

4) Lehman Brother's (LEH) $200 billion worth of unsecured creditors should be careful what they wish for. Their payoff might be radioactive. The bankrupt former investment bank is holding 500,000 pounds of yellow cake, a form of refined?? uranium used to make fuel rods for nuclear power plants. Lehman took delivery of the uranium oxide as the result of an expiring futures contract. The price of yellow cake recently plunged from $140 to $40 as part of the general rout in the prices of all energy supplies, and the postponement of the construction on new power nuclear plants in China and India.?? Fears the creditors would force the Lehman position to be dumped on the market also aren't helping prices.

5) China has surpassed the US for the first time as the largest buyer of cars from Japan. Nissan reported a leap in sales in March to the Middle Kingdom of 29% YOY. The cause is a $550 billion Chinese emergency economic stimulus package that among other things cut taxes on new car purchases by 50%. China is facing the same dilemma as the US in its recovery efforts. When you spend this much money, the beneficial effects spill outside your own borders, inundating the world.

QUOTE OF THE DAY

'Trading is now the new asset choice,' said Scott Jacobson of Capstone Sales Advisors.