Global Market Comments for December 10, 2008
Featured trades: (GM), (F), (NYT)
1) The global financial crisis is evolving into a global consumer spending crisis, which is much more difficult to fix. In 2007, 85% of home mortgages were securitized in markets that ar closed. Now just five banks are extending two thirds of new mortgages, and their originations are down 50% YOY. Oppenheimer & Company’s banking firebrand Meredith Whitney predicts that housing has another 20% to fall. Banks will cut credit lines to consumers by $2 trillion to protect their capital. One in five US homes are now underwater on their mortgages, and in Michigan it is one out of two.
2) It looks like the Big Three is going to get their $15 billion. This will enable them to last about four more months. My read on this is that the Democrats are throwing the industry a bone to placate constituents like the United Auto Workers, and that when Detroit comes back for more money in the Spring, they will let them go into bankruptcy. That way they can say, ‘We tried to save them.’ General Motors (GM) and Ford (F) were unchanged.
3) My friends from Illinois are mortified by the revelations about indicted Illinois governor Mark Blagojevich. Apparently, the word ‘bleep’ is in common usage in Chicago. What does ‘bleep’ mean?
4) Cantor Fitzgerald has filed an application with the Commodity Futures Trading Commission to launch markets for six month futures contracts on individual Hollywood movies. The contract would enable producers to hedge their risks, and allow investors to bet on the success or failure of upcoming releases. I don’t think this will work, because the temptations for insider trading would be rife. Could this be a new way to go long Bonds?
5) The euro finally noticed that US interest rates are at zero and broke $1.30, a one month low.
6) The New York Times (NYT) hocked its Times Square building the same day that the Chicago Tribune and Los Angeles Times parent filed for bankruptcy. Print newspapers will become extinct within ten years. Bad for professional, fact oriented journalists and accuracy, good for trees.
QUOTE OF THE DAY
‘I am all in favor of a bail out of the big three, because over the years, I have made a fortune repairing their cars.’ Ray Magliozzi, one of the Tappet Brothers, of Car Talk fame.