December 2, 2008

Global Market Comments for December 2, 2008
Featured trades: (POT), (MOS), (AGU), ($NIKKEI), (GM)

1) It’s official. We are in a recession. And the great news is that we have been in a recession since December, 2007, as I suspected all along. This means that we are 13 months into a postwar recession that averages 14 months. To match the longest postwar recession we would have to go 24 months, or until November, 2009. Proof that we are closer to the end than the beginning. This was all worth 270 points for the Dow.

2) Renee Haugerud of Galtere International Funds, one of the top performing hedge funds this year, says that commodities are only resting now, and will lead the charge in any recovery. The world is now seeing a tectonic shift away from paper assets towards hard assets that has only just started, and has at least six more years to go. Equities peaked last year and bonds are peaking now. Long commodities/short equities should be a core strategy for every hedge fund manager going forward. A tip off for this was the massive rally in commodities linked equities we saw last week. I think she is dead on right. Watch the Ags, energies, and metals, as well as the Ag names Potash (POT), Mosaic (MOS), and Agrium (AGU).

3) By 1982, after a vicious 15 year bear market, equities had become the most hated asset class. Households had cut stocks to only 4% of assets. By 2000, equities were loved passionately, rebounding to 60%. We have now had eight years of subpar stock markets, and analysts are wondering how sparse the allocation will go this time.

4) Nobody knows better how to deal with a prolonged depression than the Japanese. After 18 years of restructuring, companies there may be in the best position to withstand the current deflationary onslaught. Land is carried on the books at ancient acquisition costs, and securities holdings are severely depressed, but all market to market. Since there has been little new investment for a decade, plant and equipment has been largely written off. With the Nikkei 225 at ??7,883, down 80% from its 1990 peak of ??39,000, this adds up to a market selling at a severe discount to book value. You effectively get the management, R&D, distribution, and brands of these companies for free. When cash accounts for half of your market cap, you are in great shape to withstand a downturn.

5) General Motors (GM) reported November car sales down a mind numbing 41%, far worse than even the most draconian forecasts. Even Toyota was down 33%. This, on the day when GM goes back to Washington to panhandle for more money. The saddest thing is, they will probably get it. A more productive use of this money would be for congress to disburse it only in one dollar bills, then pile it up in Detroit and set fire to it. That way the frozen city would at least get some free heating.

QUOTE OF THE DAY

‘The limit should not be the amount of money we commit to a recovery, but the number of ideas we come up with.’ Paul Krugman, winner of the 2008 Nobel Prize for economics. Among Krugman’s ideas for how to spend immediately: $350 billion for national infrastructure, extended jobless claims, and direct aid to the states on the edge of bankruptcy in order to provide services.

December 2, 2008

Global Market Comments for December 2, 2008
Featured trades: (POT), (MOS), (AGU), ($NIKKEI), (GM)

1) It’s official. We are in a recession. And the great news is that we have been in a recession since December, 2007, as I suspected all along. This means that we are 13 months into a postwar recession that averages 14 months. To match the longest postwar recession we would have to go 24 months, or until November, 2009. Proof that we are closer to the end than the beginning. This was all worth 270 points for the Dow.

2) Renee Haugerud of Galtere International Funds, one of the top performing hedge funds this year, says that commodities are only resting now, and will lead the charge in any recovery. The world is now seeing a tectonic shift away from paper assets towards hard assets that has only just started, and has at least six more years to go. Equities peaked last year and bonds are peaking now. Long commodities/short equities should be a core strategy for every hedge fund manager going forward. A tip off for this was the massive rally in commodities linked equities we saw last week. I think she is dead on right. Watch the Ags, energies, and metals, as well as the Ag names Potash (POT), Mosaic (MOS), and Agrium (AGU).

3) By 1982, after a vicious 15 year bear market, equities had become the most hated asset class. Households had cut stocks to only 4% of assets. By 2000, equities were loved passionately, rebounding to 60%. We have now had eight years of subpar stock markets, and analysts are wondering how sparse the allocation will go this time.

4) Nobody knows better how to deal with a prolonged depression than the Japanese. After 18 years of restructuring, companies there may be in the best position to withstand the current deflationary onslaught. Land is carried on the books at ancient acquisition costs, and securities holdings are severely depressed, but all market to market. Since there has been little new investment for a decade, plant and equipment has been largely written off. With the Nikkei 225 at ??7,883, down 80% from its 1990 peak of ??39,000, this adds up to a market selling at a severe discount to book value. You effectively get the management, R&D, distribution, and brands of these companies for free. When cash accounts for half of your market cap, you are in great shape to withstand a downturn.

5) General Motors (GM) reported November car sales down a mind numbing 41%, far worse than even the most draconian forecasts. Even Toyota was down 33%. This, on the day when GM goes back to Washington to panhandle for more money. The saddest thing is, they will probably get it. A more productive use of this money would be for congress to disburse it only in one dollar bills, then pile it up in Detroit and set fire to it. That way the frozen city would at least get some free heating.

QUOTE OF THE DAY

‘The limit should not be the amount of money we commit to a recovery, but the number of ideas we come up with.’ Paul Krugman, winner of the 2008 Nobel Prize for economics. Among Krugman’s ideas for how to spend immediately: $350 billion for national infrastructure, extended jobless claims, and direct aid to the states on the edge of bankruptcy in order to provide services.

December 1, 2008

Global Market Comments for December 1, 2008
Featured trades: (WTIC)

1) The good news is that the Black Friday retail sales figures came in better than expected, up 7% according to some surveys. The bad news is that designer goods were sold at flea market prices, jumbo flat screen TV’s were given away for half, and that all of the stores slashing prices were losing money big time. Friday offered the greatest sales promotions ever. What’s worse, it appears that many consumers finished their Christmas shopping on Friday. China’s purchasing managers index indicates that the economy there has ground to a complete halt. It didn’t help that Oppenheimer’s Meredith Whitney predicted that credit card companies would cut credit lines by $2 trillion over the next 18 months. With traders anticipating the worst non-farm payroll number in decades this Friday, more than minus -300,000, it was all enough to chop 700 of the Dow. Treasury bond yields tumbled to 50 year lows across the board.

2) Last week was the best for the stock market since 1932. Today was the worst December 1 since 1929, and I am afraid that this will not be the last comparison with 1929 we will make this month.

3) Obama’s appointment of former Fed governor Paul Volker as head of his special economic team tells you more than it says. It means that the president elect understands that the biggest challenge to his administration during the 2012 election will be reigning in double digit inflation triggered by today’s massive liquidity creation. Who better to do this than Volker, the last living Fed governor to break the back of high inflation in the US. Warning: He did this by wringing every last drop out of credit growth, and jacking up short interest rates to 18%.

4) The hotel industry is now facing a perfect storm.?? Occupancy rates have fallen by 14 consecutive months, while supply is up 2.4%, well above its long term trend growth rate. Business travelers are down 2-3%, leisure travelers are down 6-7%, and international travelers have been knocked out of the box by the suddenly stronger dollar. What corporate business remains is seeing prices beaten down by customers desperate to cut their own costs. Only the convention business remains healthy, because bookings were made one to three years ago, back in the boom days. Hotel managers are trying to stop the bleeding by adding the innocuous little fees that I always hate, such as for mini bar restocking, baggage storage, early check ins, and late check outs.

5) The market is rife with stories of distress in the global crude markets, and a break below $50 is a gimme. OPEC has proven politically unable to make sufficient production cuts. Virtually all storage facilities are now full, and China has become a net exporter of gasoline for the first time. Shell just chartered a 311,000 ton tanker, the Front Crown, for $60,000/day to store crude it is unable to deliver. Because of the credit freeze, it now costs 17%/per annum to carry a long position in the futures market. Lat week whole gasoline futures crashed below $1, meaning the Bay Area retail prices may fall to $1.29/gallon by early next year!

December 1, 2008

Global Market Comments for December 1, 2008
Featured trades: (WTIC)

1) The good news is that the Black Friday retail sales figures came in better than expected, up 7% according to some surveys. The bad news is that designer goods were sold at flea market prices, jumbo flat screen TV’s were given away for half, and that all of the stores slashing prices were losing money big time. Friday offered the greatest sales promotions ever. What’s worse, it appears that many consumers finished their Christmas shopping on Friday. China’s purchasing managers index indicates that the economy there has ground to a complete halt. It didn’t help that Oppenheimer’s Meredith Whitney predicted that credit card companies would cut credit lines by $2 trillion over the next 18 months. With traders anticipating the worst non-farm payroll number in decades this Friday, more than minus -300,000, it was all enough to chop 700 of the Dow. Treasury bond yields tumbled to 50 year lows across the board.

2) Last week was the best for the stock market since 1932. Today was the worst December 1 since 1929, and I am afraid that this will not be the last comparison with 1929 we will make this month.

3) Obama’s appointment of former Fed governor Paul Volker as head of his special economic team tells you more than it says. It means that the president elect understands that the biggest challenge to his administration during the 2012 election will be reigning in double digit inflation triggered by today’s massive liquidity creation. Who better to do this than Volker, the last living Fed governor to break the back of high inflation in the US. Warning: He did this by wringing every last drop out of credit growth, and jacking up short interest rates to 18%.

4) The hotel industry is now facing a perfect storm.?? Occupancy rates have fallen by 14 consecutive months, while supply is up 2.4%, well above its long term trend growth rate. Business travelers are down 2-3%, leisure travelers are down 6-7%, and international travelers have been knocked out of the box by the suddenly stronger dollar. What corporate business remains is seeing prices beaten down by customers desperate to cut their own costs. Only the convention business remains healthy, because bookings were made one to three years ago, back in the boom days. Hotel managers are trying to stop the bleeding by adding the innocuous little fees that I always hate, such as for mini bar restocking, baggage storage, early check ins, and late check outs.

5) The market is rife with stories of distress in the global crude markets, and a break below $50 is a gimme. OPEC has proven politically unable to make sufficient production cuts. Virtually all storage facilities are now full, and China has become a net exporter of gasoline for the first time. Shell just chartered a 311,000 ton tanker, the Front Crown, for $60,000/day to store crude it is unable to deliver. Because of the credit freeze, it now costs 17%/per annum to carry a long position in the futures market. Lat week whole gasoline futures crashed below $1, meaning the Bay Area retail prices may fall to $1.29/gallon by early next year!

November 26, 2008

Global Market Comments for November 26, 2008
Featured trades: (HCBK), (BRK/A), (WB)

1) The relentless drumbeat of dire economic data continues. October consumer spending was down 1%. Durable goods shrank by 6.2%, the lowest since 9/11. Sales of single family homes?? collapsed, -5.3%, a 17 year low. Will the last person leaving the stock market please turn the lights out?

2) Tom Barrack, CEO of Colony Capital, with $39 billion in assets, dumped most of his commercial real estate portfolio at the market top in 2005. He sees the next big financial disaster occurring at the regional and community banks, which so far have been too small to attract the attention of regulators. The problem with real estate is that you usually don’t know you have a default until a year after it started, because the information flow from tenant, to mall owner, to lender, is so slow. He now sees the best investment opportunities in The US, Europe, and Russia.

3) The only financial in the S&P 500 that has gone up this year has been New Jersey based Hudson City Bancorp.?? (HCBK). The bank only lends money to local people it knows, and then keeps the loans on its books, neatly side stepping the valuation crisis plaguing the industry. It figures that you had to go to a museum of banking practices to find an institution that was prospering in this environment.

4) The Treasury’s cash tsunami finally hit the mortgage market. The interest rate for 30 year, fixed rate mortgages has fallen from 5.62% to 5.30% in a week. You can count on them to drop a lot further.

5) Warren Buffet’s Berkshire Hathaway (BRK/A) shares have dropped by 49%, from $148,000 to $76,000, in the past month. Investors fear that his fund will blow up because of a massive, ultra long dated, short put position he wrote, covering $37 billion of underlying stock index exposure. He made a bet that indexes would not fall more than 50% for 20 years. But the sage of Omaha was able to dictate terms that none of us could ever see. He is not required to put up any collateral as the put approaches the strike, even if Berkshire is downgraded. The put is European style, meaning that there is a one time only exercise date in 20 years. The S&P 500 has never fallen even 1% over any 20 year period. All the buyer, probably a large life insurance company, really got here was bragging rights. This has all driven BRK/A’s stock price down to an enormous discount to underlying high grade assets, and makes the stock a screaming buy. A rare chance to tap into the Oracle of Omaha’s mind on the cheap.

6) One novel theory I heard last week about stock market bottoms was that the Dow would drop to the value of one once of gold. It last traded there during the late 1970s, when the Dow and gold were both trading at $700. By 2000, the Dow was trading at 45 times an ounce of gold. If the Dow plunges to 5,000, and hyperinflation causes gold to rocket to $5,000/ounce, we might see parity again. But as much as I am a bull on inflation, I think this is a stretch, at best.

7) The number of people receiving food stamps surpassed 30 million for the first time. This is our modern equivalent to soup lines. Expect the numbers to rise dramatically.

8) The top ten executives at Wachovia Bank (WB) ran their bank into the ground, wiped out the shareholders, and then paid themselves $100 million in bonuses. I would have done it only for $50 million, and saved the shareholders $50 million. Really.

November 26, 2008

Global Market Comments for November 26, 2008
Featured trades: (HCBK), (BRK/A), (WB)

1) The relentless drumbeat of dire economic data continues. October consumer spending was down 1%. Durable goods shrank by 6.2%, the lowest since 9/11. Sales of single family homes?? collapsed, -5.3%, a 17 year low. Will the last person leaving the stock market please turn the lights out?

2) Tom Barrack, CEO of Colony Capital, with $39 billion in assets, dumped most of his commercial real estate portfolio at the market top in 2005. He sees the next big financial disaster occurring at the regional and community banks, which so far have been too small to attract the attention of regulators. The problem with real estate is that you usually don’t know you have a default until a year after it started, because the information flow from tenant, to mall owner, to lender, is so slow. He now sees the best investment opportunities in The US, Europe, and Russia.

3) The only financial in the S&P 500 that has gone up this year has been New Jersey based Hudson City Bancorp.?? (HCBK). The bank only lends money to local people it knows, and then keeps the loans on its books, neatly side stepping the valuation crisis plaguing the industry. It figures that you had to go to a museum of banking practices to find an institution that was prospering in this environment.

4) The Treasury’s cash tsunami finally hit the mortgage market. The interest rate for 30 year, fixed rate mortgages has fallen from 5.62% to 5.30% in a week. You can count on them to drop a lot further.

5) Warren Buffet’s Berkshire Hathaway (BRK/A) shares have dropped by 49%, from $148,000 to $76,000, in the past month. Investors fear that his fund will blow up because of a massive, ultra long dated, short put position he wrote, covering $37 billion of underlying stock index exposure. He made a bet that indexes would not fall more than 50% for 20 years. But the sage of Omaha was able to dictate terms that none of us could ever see. He is not required to put up any collateral as the put approaches the strike, even if Berkshire is downgraded. The put is European style, meaning that there is a one time only exercise date in 20 years. The S&P 500 has never fallen even 1% over any 20 year period. All the buyer, probably a large life insurance company, really got here was bragging rights. This has all driven BRK/A’s stock price down to an enormous discount to underlying high grade assets, and makes the stock a screaming buy. A rare chance to tap into the Oracle of Omaha’s mind on the cheap.

6) One novel theory I heard last week about stock market bottoms was that the Dow would drop to the value of one once of gold. It last traded there during the late 1970s, when the Dow and gold were both trading at $700. By 2000, the Dow was trading at 45 times an ounce of gold. If the Dow plunges to 5,000, and hyperinflation causes gold to rocket to $5,000/ounce, we might see parity again. But as much as I am a bull on inflation, I think this is a stretch, at best.

7) The number of people receiving food stamps surpassed 30 million for the first time. This is our modern equivalent to soup lines. Expect the numbers to rise dramatically.

8) The top ten executives at Wachovia Bank (WB) ran their bank into the ground, wiped out the shareholders, and then paid themselves $100 million in bonuses. I would have done it only for $50 million, and saved the shareholders $50 million. Really.

November 25, 2008

Global Market Comments for November 25, 2008
Featured trades: (GE), (FSLR), (SPWRA), (CCC)

1) The Fed announced the bail out package du jour, $200 billion for Asset Banked Securities for car loans, credit cards and student loans. They are using a ten to one debt to equity formula, which is absolutely the most efficient use of federal funds. The US government is rapidly turning into the world’s largest hedge fund.

2) I am only writing this so I can tell you ‘I told you so’ in three years. The spike in gold since last week from $685 to $830, and the sell off in the dollar from $1.22 to $1.30, is telling us that the enormous liquidity being creating by the Fed and the Treasury now, are going to be a really BIG problem down the road. One estimate puts the total cost of the many bail outs announced so far at $4.3 trillion, and there are much higher estimates out there. To give you an idea of how much money this is, Hoover Dam, the Panama Canal, the Marshall Plan, the Louisiana Purchase, the New Deal, the S & L crisis, and the space program only cost $2.1 trillion in inflation adjusted dollars. The government’s budget deficit could hit a staggering $2 trillion next year. Obama has made it clear that he is not afraid to borrow his way out of the current crisis. Go short 30 year Treasury bond futures, now at 127, down from 130 last week.

3) Treasury Inflation Protection Securities (TIPS) are now trading at levels implying that we will have negative inflation for the next ten years. Another example of a broken market.

4) Q3 GDP was revised down from -0.3% to -0.5%. Given the economic data we have seen in the last two weeks, you can pretty much count on negative?????????? -4%-5% for Q4. This is the worst since 1980, when we saw a -8% quarter in the wake of the Iranian revolution caused second oil crisis.

5) With crude at $50, threatening $40, alternative energy plans are in tatters, again. Boone Pickens, who will not receive a single one of his giant wind turbines from General Electric until 2010, is slowing down his natural gas based program. Bill Gates has written off his research on the Athabasca tar sands. But this time I don’t think renewable energy will become the government subsidized orphan it became after past crude crashes. This year’s near death experience with $148 crude was too close for everyone.

5) Total job losses in the financial community world wide may soar from 170,000 this year to 320,000 by 2009, about 20% of the total work force. Expect to start getting free stock tips from your male nurse, taxi driver, moving specialist, prison guard, and roto rooter man.

6) That must mean that sifting through the wreckage of this year’s alternative energy plays must be a profitable enterprise. One area to focus on is the integrated solar names that have the ability to cut upstream and downstream costs, like First Solar (FSLR), down from $320 to $85, and Sun Power (SPWRA), which vaporized from $160 to $18. Another would be environmental clean up carbon recapture plays like Calgon Carbon (CCC).

7) On October 10, 404 stocks in the S&P 500 hit new lows for the year. Last Friday, only 303 hit new lows. Back in the days when technical models actually worked, this would have told you that the October 10 bottom held.

November 25, 2008

Global Market Comments for November 25, 2008
Featured trades: (GE), (FSLR), (SPWRA), (CCC)

1) The Fed announced the bail out package du jour, $200 billion for Asset Banked Securities for car loans, credit cards and student loans. They are using a ten to one debt to equity formula, which is absolutely the most efficient use of federal funds. The US government is rapidly turning into the world’s largest hedge fund.

2) I am only writing this so I can tell you ‘I told you so’ in three years. The spike in gold since last week from $685 to $830, and the sell off in the dollar from $1.22 to $1.30, is telling us that the enormous liquidity being creating by the Fed and the Treasury now, are going to be a really BIG problem down the road. One estimate puts the total cost of the many bail outs announced so far at $4.3 trillion, and there are much higher estimates out there. To give you an idea of how much money this is, Hoover Dam, the Panama Canal, the Marshall Plan, the Louisiana Purchase, the New Deal, the S & L crisis, and the space program only cost $2.1 trillion in inflation adjusted dollars. The government’s budget deficit could hit a staggering $2 trillion next year. Obama has made it clear that he is not afraid to borrow his way out of the current crisis. Go short 30 year Treasury bond futures, now at 127, down from 130 last week.

3) Treasury Inflation Protection Securities (TIPS) are now trading at levels implying that we will have negative inflation for the next ten years. Another example of a broken market.

4) Q3 GDP was revised down from -0.3% to -0.5%. Given the economic data we have seen in the last two weeks, you can pretty much count on negative?????????? -4%-5% for Q4. This is the worst since 1980, when we saw a -8% quarter in the wake of the Iranian revolution caused second oil crisis.

5) With crude at $50, threatening $40, alternative energy plans are in tatters, again. Boone Pickens, who will not receive a single one of his giant wind turbines from General Electric until 2010, is slowing down his natural gas based program. Bill Gates has written off his research on the Athabasca tar sands. But this time I don’t think renewable energy will become the government subsidized orphan it became after past crude crashes. This year’s near death experience with $148 crude was too close for everyone.

5) Total job losses in the financial community world wide may soar from 170,000 this year to 320,000 by 2009, about 20% of the total work force. Expect to start getting free stock tips from your male nurse, taxi driver, moving specialist, prison guard, and roto rooter man.

6) That must mean that sifting through the wreckage of this year’s alternative energy plays must be a profitable enterprise. One area to focus on is the integrated solar names that have the ability to cut upstream and downstream costs, like First Solar (FSLR), down from $320 to $85, and Sun Power (SPWRA), which vaporized from $160 to $18. Another would be environmental clean up carbon recapture plays like Calgon Carbon (CCC).

7) On October 10, 404 stocks in the S&P 500 hit new lows for the year. Last Friday, only 303 hit new lows. Back in the days when technical models actually worked, this would have told you that the October 10 bottom held.

November 24, 2008

Global Market Comments for November 24, 2008
Featured trades: (C), (GS), (MS), (NVDA), (GLW), (BRCM)

1) OK, so it was a tough week! Quit whining! Wipe you nose and get back out there and put some trades on! No one ever said this was going to be easy. If it was, your cleaning lady would be running a hedge fund for minimum wage, for cash payments only. After a Marine crashes, the first thing they do is stick him back into a plane (Semper Fi!). I tell investors that if you use limited risk options strategies along with stops you can make a living at this business being wrong 40% of the time. If you are wrong 30% of the time, you are considered talented. If you are wrong 20% of the time, you are promoted to the head of the proprietary book at Morgan Stanley. The people who are wrong 10% of the time, you only read about in the newspapers when they buy a piece of modern art for $100 million. Only God is never wrong, and even Him, you have to cut some slack once in a while.

2) In the past year, the market cap of Citibank has dropped from $200 billion to $20 billion. This is what happens when the Treasury forces you to bring toxic, off balance sheet liabilities back on to your balance sheet. The Treasury’s TARP initially gave C $25 billion, then another $20 billion with today’s bail out, with $306 billion in loan guarantees. It really is too big to fail, so the question is, what form will it take in any restructuring? A merger with Goldman Sachs or Morgan Stanley, who could use C’s deposit base, is the most likely scenario. At $5/share the stock has essentially become a cheap, perpetually dated call, and is worth a gamble here.

3) There are now 105 companies in the S&P 500 with share prices under $10, the most in history. The 1987 record was 59 companies. The incredible thing is that several of these, like NVIDIA (NVDA), Corning Glass Works (GLW), and Broadcom (BRCM) are trading at 75% of cash on the balance sheet. I saw the same thing in Tokyo in the late nineties, and they all turned out to be huge buys.

4) William Safire believes that the new English language word of the year will be ‘frugalista’, defined as ‘a person who lives a frugal lifestyle, but stays fashionable and healthy’. Says a lot about our times. I’ve added it to my spell checker.

5) My old cleaning lady called me last night for a job. She said all of her employers had recently let her go because they couldn’t afford her anymore. Another sign of the times.

6) The National Association of Realtors says that October existing home sales fell by 3.1%, to 4.8 million. The median home price dropped by 11.3%, to $183,000, the sharpest plunge on record. Foreclosures accounted for 45%, a figure that in itself does not inspire conference. Expect the economic data for October and November, which will dribble out over the next few months, to be some of the worst in the economic history of the US.

November 24, 2008

Global Market Comments for November 24, 2008
Featured trades: (C), (GS), (MS), (NVDA), (GLW), (BRCM)

1) OK, so it was a tough week! Quit whining! Wipe you nose and get back out there and put some trades on! No one ever said this was going to be easy. If it was, your cleaning lady would be running a hedge fund for minimum wage, for cash payments only. After a Marine crashes, the first thing they do is stick him back into a plane (Semper Fi!). I tell investors that if you use limited risk options strategies along with stops you can make a living at this business being wrong 40% of the time. If you are wrong 30% of the time, you are considered talented. If you are wrong 20% of the time, you are promoted to the head of the proprietary book at Morgan Stanley. The people who are wrong 10% of the time, you only read about in the newspapers when they buy a piece of modern art for $100 million. Only God is never wrong, and even Him, you have to cut some slack once in a while.

2) In the past year, the market cap of Citibank has dropped from $200 billion to $20 billion. This is what happens when the Treasury forces you to bring toxic, off balance sheet liabilities back on to your balance sheet. The Treasury’s TARP initially gave C $25 billion, then another $20 billion with today’s bail out, with $306 billion in loan guarantees. It really is too big to fail, so the question is, what form will it take in any restructuring? A merger with Goldman Sachs or Morgan Stanley, who could use C’s deposit base, is the most likely scenario. At $5/share the stock has essentially become a cheap, perpetually dated call, and is worth a gamble here.

3) There are now 105 companies in the S&P 500 with share prices under $10, the most in history. The 1987 record was 59 companies. The incredible thing is that several of these, like NVIDIA (NVDA), Corning Glass Works (GLW), and Broadcom (BRCM) are trading at 75% of cash on the balance sheet. I saw the same thing in Tokyo in the late nineties, and they all turned out to be huge buys.

4) William Safire believes that the new English language word of the year will be ‘frugalista’, defined as ‘a person who lives a frugal lifestyle, but stays fashionable and healthy’. Says a lot about our times. I’ve added it to my spell checker.

5) My old cleaning lady called me last night for a job. She said all of her employers had recently let her go because they couldn’t afford her anymore. Another sign of the times.

6) The National Association of Realtors says that October existing home sales fell by 3.1%, to 4.8 million. The median home price dropped by 11.3%, to $183,000, the sharpest plunge on record. Foreclosures accounted for 45%, a figure that in itself does not inspire conference. Expect the economic data for October and November, which will dribble out over the next few months, to be some of the worst in the economic history of the US.