July 17, 2008

Global Market Comments for July 17, 2008

1) Crude broke down to $129, down $6?? on the day and down $19 from a high a week ago. Stocks loved it, flying another 200 points.

2) Traders are still reeling from the explosiveness of yesterday's move in financials. Lehman (LEH) was up 37%, Bank of America (BAC) 24%, WAMU (WM) was up a mind boggling 54%. Short sellers rushed to cover naked shorts ahead of the Monday implementation of the tightened short selling rules. Can you believe that Bank of America got down to $18 on Tuesday? With a market cap of $123 JPM is now by far the largest bank in the US. In the land of the blind the one eyed man is king.

3) June housing starts came in at a surprisingly strong +9.1%, giving us a 1.09 million units annualized rate. New building permits were up 11.6% in June.

4) Coke (KO), JP Morgan (JPM), and United Technology (UTX) all announced better than expected Q2 earnings. The story is all the same. Domestic weakness is being more than offset by international income.

5) Looks like Mitsubishi Motors will win the race to bring the first all electric car to the market. It is introducing its MiEV ultra compact in Japan in 2009. Nissan will follow in 2010 with a car with a 100 mile range and a Lithium-Ion battery that can be 80% recharged in 20 minutes. Fuel cell technology is proving too expensive. Honda says that it will take ten years for the production cost of its FCX Clarity fuel cell car to drop from $950,000/unit to $100,000/unit. It looks like the current generation of Prius and Civic based hybrid technology has about a six year window before they are overtaken by competitive all electric cars.

6) A three year old Prius is now selling for 87% of the cost of a new one, compared to 55% for the typical used car the same age. If you drive 15,000 miles/year you need to drive your Prius three years to earn back this premium in gas savings. The waiting list at my local Toyota dealer is six weeks.

TRADE OF THE MONTH

August crude options expired today. Please note that all call short selling strategies that I have recommended saw their options expire worthless today. Crude went out today at $129, $21 away from my nearest strike. You could have made a dozen round trips this month using this strategy, which would have been immensely profitable.

July 17, 2008

Global Market Comments for July 17, 2008

1) Crude broke down to $129, down $6?? on the day and down $19 from a high a week ago. Stocks loved it, flying another 200 points.

2) Traders are still reeling from the explosiveness of yesterday's move in financials. Lehman (LEH) was up 37%, Bank of America (BAC) 24%, WAMU (WM) was up a mind boggling 54%. Short sellers rushed to cover naked shorts ahead of the Monday implementation of the tightened short selling rules. Can you believe that Bank of America got down to $18 on Tuesday? With a market cap of $123 JPM is now by far the largest bank in the US. In the land of the blind the one eyed man is king.

3) June housing starts came in at a surprisingly strong +9.1%, giving us a 1.09 million units annualized rate. New building permits were up 11.6% in June.

4) Coke (KO), JP Morgan (JPM), and United Technology (UTX) all announced better than expected Q2 earnings. The story is all the same. Domestic weakness is being more than offset by international income.

5) Looks like Mitsubishi Motors will win the race to bring the first all electric car to the market. It is introducing its MiEV ultra compact in Japan in 2009. Nissan will follow in 2010 with a car with a 100 mile range and a Lithium-Ion battery that can be 80% recharged in 20 minutes. Fuel cell technology is proving too expensive. Honda says that it will take ten years for the production cost of its FCX Clarity fuel cell car to drop from $950,000/unit to $100,000/unit. It looks like the current generation of Prius and Civic based hybrid technology has about a six year window before they are overtaken by competitive all electric cars.

6) A three year old Prius is now selling for 87% of the cost of a new one, compared to 55% for the typical used car the same age. If you drive 15,000 miles/year you need to drive your Prius three years to earn back this premium in gas savings. The waiting list at my local Toyota dealer is six weeks.

TRADE OF THE MONTH

August crude options expired today. Please note that all call short selling strategies that I have recommended saw their options expire worthless today. Crude went out today at $129, $21 away from my nearest strike. You could have made a dozen round trips this month using this strategy, which would have been immensely profitable.

July 16, 2008

Global Market Comments for July 16, 2008

1) Weekly Crude inventories jumped 3 million barrels on the back of rapid demand destruction, sending crude down $7 to $132. We have dropped $16 since last week's high. If we can break $129 look for another rapid $10 drop to $119. This bubble may have burst. The airline index had its largest up day ever. United Airlines (UAUA) was up 40%. See my earlier recommendation to buy UAUA. The Dow rose 276.

2) The great opportunity presented by market conditions like this is that the best companies are being tossed out with the worst. Cisco (CSCO) has a 50% share of the router market, has $19 billion in cash, and at $21/share is selling at a 12.5 multiple, the lowest since it went public in 1990. This is the closest you can get to a legal monopoly. Just the interest that the company is earning on its cash is more than many companies are making right now.

3) The lack of leadership from Washington now is so palpable that you could say that Bush is imitating Nero, playing the fiddle while Rome burns. Except that Bush doesn't know how to play the fiddle. Maybe a mouth harp.

4) Fannie Mae (FNM) and Freddie Mac (FRE) supply liquidity to about 75% of the mortgages in the country. Bank of America, Wells Fargo and a few others supply the rest. This is not a small problem.

5) Look at http://sendables.jibjab.com/ and click the green play arrow on Election 2008. It is hilarious.

6) Wells Fargo (WFC) earnings for Q2 came in at 53 cents/share vs. an expected 50 cents/share. This is one of the few solid banks out there and along with US Bank is a favorite of Warren Buffet. The stock soared 38% to $27.50. Rare good news from a financial. The bank index had its largest up day in history.

7) The Wall Street Journal is raising its newsstand price from $1.50 to $2.00. Inflation is here. Apparently Rupert Murdoch needs some help with the fuel bill on his Gulfstream.

July 16, 2008

Global Market Comments for July 16, 2008

1) Weekly Crude inventories jumped 3 million barrels on the back of rapid demand destruction, sending crude down $7 to $132. We have dropped $16 since last week's high. If we can break $129 look for another rapid $10 drop to $119. This bubble may have burst. The airline index had its largest up day ever. United Airlines (UAUA) was up 40%. See my earlier recommendation to buy UAUA. The Dow rose 276.

2) The great opportunity presented by market conditions like this is that the best companies are being tossed out with the worst. Cisco (CSCO) has a 50% share of the router market, has $19 billion in cash, and at $21/share is selling at a 12.5 multiple, the lowest since it went public in 1990. This is the closest you can get to a legal monopoly. Just the interest that the company is earning on its cash is more than many companies are making right now.

3) The lack of leadership from Washington now is so palpable that you could say that Bush is imitating Nero, playing the fiddle while Rome burns. Except that Bush doesn't know how to play the fiddle. Maybe a mouth harp.

4) Fannie Mae (FNM) and Freddie Mac (FRE) supply liquidity to about 75% of the mortgages in the country. Bank of America, Wells Fargo and a few others supply the rest. This is not a small problem.

5) Look at http://sendables.jibjab.com/ and click the green play arrow on Election 2008. It is hilarious.

6) Wells Fargo (WFC) earnings for Q2 came in at 53 cents/share vs. an expected 50 cents/share. This is one of the few solid banks out there and along with US Bank is a favorite of Warren Buffet. The stock soared 38% to $27.50. Rare good news from a financial. The bank index had its largest up day in history.

7) The Wall Street Journal is raising its newsstand price from $1.50 to $2.00. Inflation is here. Apparently Rupert Murdoch needs some help with the fuel bill on his Gulfstream.

July 15, 2008

Global Market Comments for July 15, 2008

1) Crude fell a breathtaking $10 to $136 on the Bush announcement lifting the ban on offshore drilling. Options expirations this week helped.

2) Apple sold one million new 3G IPhones in the first three days, more than double the most optimistic forecast.

3) Christopher Cox, chairman of the SEC, announced restrictions on the short selling the shares of primary dealers, Fannie Mae (FNM) and Freddie Mac (FRE). Lehman (LEH) shares rocketed 20% and the Dow rose 250 points. The CFTC did something similar in 1980 to put the Hunt Brothers out of business in their silver cornering. Talk about closing the gate after the horses have bolted.

4) At today's low of $12 Lehman had a market capitalization of less than $9 billion, down from $60 billion a year ago. Its days are numbered. It doesn't have enough money left to play in the big league anymore. All of the outside money they raised this year has been wiped out by the fall in the share price. You can bet that Dick Fuld is working the phones feverishly now trying to find a buyer.

5) General Motors (GM) announced its umpteenth restructuring plan for the year. The company will sell its foreign operations, the only part of the company that is making money, cut its dividend, slow down assembly lines to reduce truck and SUV production, and cancel executive bonuses. The stock has dropped from $42 to $8.50 since October. These measures will raise $15 billion in cash, only temporarily allaying bankruptcy fears.

6) The Producer Price Index in June, the real inflation rate, rocketed a stunning 1.8% MOM and 9.9% YOY as fuel price increases surged through the system. Put on your platform shoes, gold chains and white disco suit, the seventies are back!

7) Fears of health of the US financial system have driven the euro to an all time high of $1.6022. The euro is double topping a seven year cycle on the charts and is an extreme short here.

Euro3year.png picture by sbronte

8) According to Eurostat, the EC's statistical office, industrial production in the Euro zone in May fell 1.9%, the sharpest fall in 16 years.

TRADE OF THE DAY

Some of the algorithms I follow are starting to flash 'buy' signals for the stock market. The volatility index (VIX) has risen from 17 to above 30 and the number of stocks at 52 weeks lows is above 20%. What we really need to finish off this down move is a cathartic, capitulation day of down 500 points on huge volume. The market has to throw up on its shoes. Until then we will just have a slow bleed.

July 15, 2008

Global Market Comments for July 15, 2008

1) Crude fell a breathtaking $10 to $136 on the Bush announcement lifting the ban on offshore drilling. Options expirations this week helped.

2) Apple sold one million new 3G IPhones in the first three days, more than double the most optimistic forecast.

3) Christopher Cox, chairman of the SEC, announced restrictions on the short selling the shares of primary dealers, Fannie Mae (FNM) and Freddie Mac (FRE). Lehman (LEH) shares rocketed 20% and the Dow rose 250 points. The CFTC did something similar in 1980 to put the Hunt Brothers out of business in their silver cornering. Talk about closing the gate after the horses have bolted.

4) At today's low of $12 Lehman had a market capitalization of less than $9 billion, down from $60 billion a year ago. Its days are numbered. It doesn't have enough money left to play in the big league anymore. All of the outside money they raised this year has been wiped out by the fall in the share price. You can bet that Dick Fuld is working the phones feverishly now trying to find a buyer.

5) General Motors (GM) announced its umpteenth restructuring plan for the year. The company will sell its foreign operations, the only part of the company that is making money, cut its dividend, slow down assembly lines to reduce truck and SUV production, and cancel executive bonuses. The stock has dropped from $42 to $8.50 since October. These measures will raise $15 billion in cash, only temporarily allaying bankruptcy fears.

6) The Producer Price Index in June, the real inflation rate, rocketed a stunning 1.8% MOM and 9.9% YOY as fuel price increases surged through the system. Put on your platform shoes, gold chains and white disco suit, the seventies are back!

7) Fears of health of the US financial system have driven the euro to an all time high of $1.6022. The euro is double topping a seven year cycle on the charts and is an extreme short here.

Euro3year.png picture by sbronte

8) According to Eurostat, the EC's statistical office, industrial production in the Euro zone in May fell 1.9%, the sharpest fall in 16 years.

TRADE OF THE DAY

Some of the algorithms I follow are starting to flash 'buy' signals for the stock market. The volatility index (VIX) has risen from 17 to above 30 and the number of stocks at 52 weeks lows is above 20%. What we really need to finish off this down move is a cathartic, capitulation day of down 500 points on huge volume. The market has to throw up on its shoes. Until then we will just have a slow bleed.

July 14, 2008

Global Market Comments for July 14, 2008

1) The government announced an impressive support package for Fannie and Freddie which includes direct access to the Fed window and Fed buying of their paper. The bad news is that they needed a bail out package. Fannie is launching a $3 billion private debt issue this week. The Treasury ordered the main brokers to buy the whole issue and then exchange it for T-bills. What a fig leaf!?? The package provided about one nanosecond of support for the stock market.

2) Indymac bank failed on Friday after a depression style bank run. All of the 'not too big to fail' banks like WAMU (WM), Wachovia (WB) and National City (NCC) got slaughtered. Deposits over the FDIC insurance ceiling of $100,000 are receiving only 50 cents on the dollar. Funny how all real estate lending crisis always come back to the LA area, as did the S & L crisis in the nineties. What are the lenders smoking down there?

3) In 1998, 20% of S&P 500 earnings were from abroad. Now the figure is 50%. This is one of the explanations for our non recessionary recession.

4) Lehman is acting like a stock that is going to zero. It hit a new multi decade low today of $12.25, down from its one year high of $80. The July $10 puts, which expire on Friday, are trading at a staggering 250% implied volatility.

July 14, 2008

Global Market Comments for July 14, 2008

1) The government announced an impressive support package for Fannie and Freddie which includes direct access to the Fed window and Fed buying of their paper. The bad news is that they needed a bail out package. Fannie is launching a $3 billion private debt issue this week. The Treasury ordered the main brokers to buy the whole issue and then exchange it for T-bills. What a fig leaf!?? The package provided about one nanosecond of support for the stock market.

2) Indymac bank failed on Friday after a depression style bank run. All of the 'not too big to fail' banks like WAMU (WM), Wachovia (WB) and National City (NCC) got slaughtered. Deposits over the FDIC insurance ceiling of $100,000 are receiving only 50 cents on the dollar. Funny how all real estate lending crisis always come back to the LA area, as did the S & L crisis in the nineties. What are the lenders smoking down there?

3) In 1998, 20% of S&P 500 earnings were from abroad. Now the figure is 50%. This is one of the explanations for our non recessionary recession.

4) Lehman is acting like a stock that is going to zero. It hit a new multi decade low today of $12.25, down from its one year high of $80. The July $10 puts, which expire on Friday, are trading at a staggering 250% implied volatility.

July 11, 2008

Global Market Comments for July 11, 2008

1) Crude lept to a new high, $147.50, even though one of the Iranian missiles fired yesterday was found to be a Photoshop creation. It then closed at $144.30.

2) Bernanke saved the day today, announcing that Fannie Mae (FNM) and Freddie Mac (FRE) would have access to the emergency discount window. The two were down 40% at their lows. FNM closed down only 23%. Without the Fed move, the Dow was headed for a down 500 point day.

3) American Airlines is stripping the paint off of its aircraft. At 400 pounds per plane the troubled airline hopes the weight saving will cut $12 million/year in fuel costs across the fleet. Ultra lightweight decals will show the company logo. Look for US airlines to be mostly metallic colored from here on, until carbon fiber takes over.

4) The University of Michigan consumer sentiment index for June came in at 56.6 vs. 56.4 in May. This is surprisingly stable, given how sour the mood is out there.

5) The latest industrial production figures show that Germany's economy is about to fall off a cliff. There is no way the Polish economy will be immune from such a slowdown. Europe's economy could be lagging a US entry into a recession by 12-18 months.


QUOTE OF THE DAY

A gem from Berkshire Hathaway's (BRK/B) Warren Buffet about big banks' involvement in sub prime derivatives: 'It's poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end.' By the way, Buffet's much vaunted stock is down 25% from its October high, worse than an index fund for the same period.

July 11, 2008

Global Market Comments for July 11, 2008

1) Crude lept to a new high, $147.50, even though one of the Iranian missiles fired yesterday was found to be a Photoshop creation. It then closed at $144.30.

2) Bernanke saved the day today, announcing that Fannie Mae (FNM) and Freddie Mac (FRE) would have access to the emergency discount window. The two were down 40% at their lows. FNM closed down only 23%. Without the Fed move, the Dow was headed for a down 500 point day.

3) American Airlines is stripping the paint off of its aircraft. At 400 pounds per plane the troubled airline hopes the weight saving will cut $12 million/year in fuel costs across the fleet. Ultra lightweight decals will show the company logo. Look for US airlines to be mostly metallic colored from here on, until carbon fiber takes over.

4) The University of Michigan consumer sentiment index for June came in at 56.6 vs. 56.4 in May. This is surprisingly stable, given how sour the mood is out there.

5) The latest industrial production figures show that Germany's economy is about to fall off a cliff. There is no way the Polish economy will be immune from such a slowdown. Europe's economy could be lagging a US entry into a recession by 12-18 months.


QUOTE OF THE DAY

A gem from Berkshire Hathaway's (BRK/B) Warren Buffet about big banks' involvement in sub prime derivatives: 'It's poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end.' By the way, Buffet's much vaunted stock is down 25% from its October high, worse than an index fund for the same period.