August 8, 2008

Global Market Comments for August 8, 2008

1) The dollar had its largest one day move up against the euro in seven years to $1.49, not because things are getting better here, but because things are getting worse at an alarming rate in Europe. Stocks celebrated by soaring 320 points and crude fell to a new low in the move to below $115. Airlines were the best sector, with United Airlines (UAUA) up 440% to $11 from its July low. Please see my earlier recommendations to buy airlines, sell crude, and sell the euro. Watch gold roll over and die.

2) China has spent a total of $70 billion preparing for the Olympics. They have priced tickets at a very reasonable $12 to enable the masses to attend. A record 6.5 million have been sold so far. The opening ceremony tickets only cost $29, but were scalped for $2,000. 500,000 visitors have descended on the city to watch 202 countries compete. The Shanghai market plunged 4.6% to a 19 month low of 2,600 as locals cashed out to watch the games. A UK based website sold $40 million worth of opening ceremony tickets.?? The unfortunate buyers didn't find out they were fake until after they arrived in Beijing.

3) The Dry Shipping (DRYS), an incredibly volatile, highly sensitive and usually accurate leading indicator of international economic activity, has dropped from 120 to 70 since May. DRYS is a measure of spot ship charter rates.

4) Energy stocks are getting so beat up, with many having given up all of this year's gains, that the time to take another look is fast approaching. The coal stocks have to be a top choice and may lead the next leg up. Consol Coal (CNX) has halved from $120 to $60 in only six weeks, while Peabody Energy (BTU) is down from $90 to $55.

5) A one cent drop in the retail price of gasoline adds $1 billion in consumer spending power.

THOUGHT OF THE DAY

Did the Olympics put the top in oil? Every time one heard mention of the Beijing games this year the next phase uttered was always 'insatiable demand for oil and commodities'. The laser like focus on the Olympics had the unintended byproduct of drawing extra attention to global materials shortages. The collapse of commodity markets that started six weeks ago may have been triggered by traders discounting the expiration of this support factor.

August 7, 2008

Global Market Comments for August 7, 2008

1) Today was the day of the AIG shock, which reported an H1 loss of $13.6 billion. All of the credit default swaps they wrote are coming back to roost. The news took the Dow down 220.

2) Whole Foods (WFMI) is suspending its dividend, canceling new store openings, and offering more low cost food in the wake of a 31% decline in earnings. The Texas based food retailer, also known as 'whole paycheck' by its long suffering clientele, has seen its stock plunge 74% from $70 to $18 in the past two years.

3) If the predictions of Chinese Olympic prowess prove correct, China will have invested $7 million per medal in training costs.

4) Last year PG&E obtained 47% of its energy from natural gas, 11.7% from renewable sources like hydro, solar, and biomass, and 4% from coal. The company is gearing up for a big increase in demand for electricity from plug in cars over the next decade.

5) Weekly jobless claims hit a 6 ?? year high of 455,000.

6) Citibank has agreed with the SEC to buy back $7 billion in auction rate securities. These short term municipal notes were sold as a quasi money market instruments to high net worth individuals, but ended up becoming totally illiquid when the credit crisis hit. C needs this like a hole in the head. The stock dropped 4%. The settlement is expected to hit other investment banks, like Lehman (LEH), with a tidal wave of litigation.

7) It is clear that the big three auto makers are about to become the big two. General Motors (GM) and privately owned Chrysler are in a race to go under. Ford (F) now appears to be the strongest, or least weakest of the trio.

8) Pending home sales for June were up a surprising +5.3%, but still down -12.3% YOY. Sales were strongest in markets like Sacramento and Las Vegas where the biggest price falls have occurred. More than 40% of are sales are still from foreclosures.

August 7, 2008

Global Market Comments for August 7, 2008

1) Today was the day of the AIG shock, which reported an H1 loss of $13.6 billion. All of the credit default swaps they wrote are coming back to roost. The news took the Dow down 220.

2) Whole Foods (WFMI) is suspending its dividend, canceling new store openings, and offering more low cost food in the wake of a 31% decline in earnings. The Texas based food retailer, also known as 'whole paycheck' by its long suffering clientele, has seen its stock plunge 74% from $70 to $18 in the past two years.

3) If the predictions of Chinese Olympic prowess prove correct, China will have invested $7 million per medal in training costs.

4) Last year PG&E obtained 47% of its energy from natural gas, 11.7% from renewable sources like hydro, solar, and biomass, and 4% from coal. The company is gearing up for a big increase in demand for electricity from plug in cars over the next decade.

5) Weekly jobless claims hit a 6 ?? year high of 455,000.

6) Citibank has agreed with the SEC to buy back $7 billion in auction rate securities. These short term municipal notes were sold as a quasi money market instruments to high net worth individuals, but ended up becoming totally illiquid when the credit crisis hit. C needs this like a hole in the head. The stock dropped 4%. The settlement is expected to hit other investment banks, like Lehman (LEH), with a tidal wave of litigation.

7) It is clear that the big three auto makers are about to become the big two. General Motors (GM) and privately owned Chrysler are in a race to go under. Ford (F) now appears to be the strongest, or least weakest of the trio.

8) Pending home sales for June were up a surprising +5.3%, but still down -12.3% YOY. Sales were strongest in markets like Sacramento and Las Vegas where the biggest price falls have occurred. More than 40% of are sales are still from foreclosures.

August 6, 2008

Global Market Comments for August 6, 2008

1) Yesterday's 300 point pop in the stock market is proof that we are still in a bear market. It is the sixth such move in the past year. These gaps are caused by ferocious short covering rallies which then burn out. In the 2000-2002 bear market there were twelve 300 plus point moves up. Bull markets are characterized by continuous slow grinds up.

2) US paper money was found to have the highest cocaine contamination of any currency in the world. In some neighborhoods up to 50% of all bills tested positive for the South American drug, and therefore the people who handle them. This is the best strong dollar argument I have heard this year.

3) There are over 400,000 millionaires in China, the most of any country.

4) There is a new home mortgage wrinkle on the market. Hovnanian Enterprises (HOV) is having success moving is backlog of houses by offering financing packages with 3%-2%-1% three year buy downs that enable prospective buyers to deal with high interest rates. After three years these convert into conventional fixed rate mortgages.

5) Even Toyota is getting hammered by the depression in the car market. It just announced the layoff of 800 workers as they shut down a Lexus SUV factory in Japan. In July Lexus sales were down 25% YOY, the sharpest fall on record. The stock has fallen from ??6,500 to ??4,500 this year. Today is the 63rd anniversary of the dropping of the atomic bomb on Hiroshima.

6) Weekly crude inventories jumped by a surprise 1.6 million barrels, driving the price down to $117.10 and triggering stops, a new low in the move.

7) The dollar has been on a tear lately, hitting a seven month high today of $1.5360 against the euro. The greenback is benefiting from the fall in commodities which will enable the euro zone to ditch its high interest rate anti inflation policies. Falling crude prices also cut the outflow of dollars from the US. See my earlier recommendation to short the euro at $1.60.

8) Hedge funds are limiting their transactions with Lehman (LEH) to 30 day maturities and boycotting long dated transactions for fear that the firm will default. The loss of these customers is pushing LEH towards a sale. The company still has to sell $30-$50 billion of securities at a discount before it can pass a smell test. By the way, the symbol for their junk bond fund is (JNK).

9) Paris Hilton announced her presidential campaign today. Her energy policy sounds more practical those that offered by either McCain or Obama.

August 6, 2008

Global Market Comments for August 6, 2008

1) Yesterday's 300 point pop in the stock market is proof that we are still in a bear market. It is the sixth such move in the past year. These gaps are caused by ferocious short covering rallies which then burn out. In the 2000-2002 bear market there were twelve 300 plus point moves up. Bull markets are characterized by continuous slow grinds up.

2) US paper money was found to have the highest cocaine contamination of any currency in the world. In some neighborhoods up to 50% of all bills tested positive for the South American drug, and therefore the people who handle them. This is the best strong dollar argument I have heard this year.

3) There are over 400,000 millionaires in China, the most of any country.

4) There is a new home mortgage wrinkle on the market. Hovnanian Enterprises (HOV) is having success moving is backlog of houses by offering financing packages with 3%-2%-1% three year buy downs that enable prospective buyers to deal with high interest rates. After three years these convert into conventional fixed rate mortgages.

5) Even Toyota is getting hammered by the depression in the car market. It just announced the layoff of 800 workers as they shut down a Lexus SUV factory in Japan. In July Lexus sales were down 25% YOY, the sharpest fall on record. The stock has fallen from ??6,500 to ??4,500 this year. Today is the 63rd anniversary of the dropping of the atomic bomb on Hiroshima.

6) Weekly crude inventories jumped by a surprise 1.6 million barrels, driving the price down to $117.10 and triggering stops, a new low in the move.

7) The dollar has been on a tear lately, hitting a seven month high today of $1.5360 against the euro. The greenback is benefiting from the fall in commodities which will enable the euro zone to ditch its high interest rate anti inflation policies. Falling crude prices also cut the outflow of dollars from the US. See my earlier recommendation to short the euro at $1.60.

8) Hedge funds are limiting their transactions with Lehman (LEH) to 30 day maturities and boycotting long dated transactions for fear that the firm will default. The loss of these customers is pushing LEH towards a sale. The company still has to sell $30-$50 billion of securities at a discount before it can pass a smell test. By the way, the symbol for their junk bond fund is (JNK).

9) Paris Hilton announced her presidential campaign today. Her energy policy sounds more practical those that offered by either McCain or Obama.

August 5, 2008

Global Market Comments for August 5, 2008

1) Stocks finally noticed that crude has fallen $30 in a month.

2) Pawn shops are now a booming business, which see 60% of their income from scrap gold. EZCorp (EZPW) is up 95% this year, Cash America International (CSH) is up 78%, and First Cash Financial Services (FCFH) is up an amazing 165%. However, some states are gunning for the sector, enforcing new 36% interest rate caps.

3) July was the worst month in the history of the commodities market and rumors are abounding that some hedge funds have gone under. As a result yesterday's stars have become today's dogs and have fallen all the way back to February levels. Cabot Oil and Gas (COG) is down -44%, Chesapeake Energy (CHK) is down 39% and Noble Energy (NE) is down 30%. The same kind of moves are also being seen in the lead agricultural names with Mosaic (MOS) down -32%, Monsanto (MON) down -26% and Potash (POT) down 24%. These are stocks that take the escalator up and the elevator down. Look to buy these sectors in a few months.

4) With sky high fuel prices and choked freeways, rail travel is undergoing something of a renaissance. The current interstate highway system was built when the country had 65 million fewer cars, and it has been going downhill ever since. The average American rides a train 20 miles/year compared to 1,267 miles for the average Swiss. Expect the US figure to rise dramatically. Since almost all passenger rail systems are publicly owned by entities like Amtrak, the only way to play this is to buy Canadian rail car maker Bombardier (BBD.B), which built the BART cars. Rail freight is also surging. Buy Burlington Northern (BNI), Union Pacific (UNP), and CSX (CSX).

5) Foreign tourists are expected to pour $2 billion into New York City's economy this year as they rush to take advantage of the favorable exchange rate.

QUOTE OF THE DAY

'Work eight hours and sleep eight hours, but make sure they are not the same eight hours.' Boone Pickens.

August 5, 2008

Global Market Comments for August 5, 2008

1) Stocks finally noticed that crude has fallen $30 in a month.

2) Pawn shops are now a booming business, which see 60% of their income from scrap gold. EZCorp (EZPW) is up 95% this year, Cash America International (CSH) is up 78%, and First Cash Financial Services (FCFH) is up an amazing 165%. However, some states are gunning for the sector, enforcing new 36% interest rate caps.

3) July was the worst month in the history of the commodities market and rumors are abounding that some hedge funds have gone under. As a result yesterday's stars have become today's dogs and have fallen all the way back to February levels. Cabot Oil and Gas (COG) is down -44%, Chesapeake Energy (CHK) is down 39% and Noble Energy (NE) is down 30%. The same kind of moves are also being seen in the lead agricultural names with Mosaic (MOS) down -32%, Monsanto (MON) down -26% and Potash (POT) down 24%. These are stocks that take the escalator up and the elevator down. Look to buy these sectors in a few months.

4) With sky high fuel prices and choked freeways, rail travel is undergoing something of a renaissance. The current interstate highway system was built when the country had 65 million fewer cars, and it has been going downhill ever since. The average American rides a train 20 miles/year compared to 1,267 miles for the average Swiss. Expect the US figure to rise dramatically. Since almost all passenger rail systems are publicly owned by entities like Amtrak, the only way to play this is to buy Canadian rail car maker Bombardier (BBD.B), which built the BART cars. Rail freight is also surging. Buy Burlington Northern (BNI), Union Pacific (UNP), and CSX (CSX).

5) Foreign tourists are expected to pour $2 billion into New York City's economy this year as they rush to take advantage of the favorable exchange rate.

QUOTE OF THE DAY

'Work eight hours and sleep eight hours, but make sure they are not the same eight hours.' Boone Pickens.

August 4, 2008

Global Market Comments for August 4, 2008

1) Hurricane Edward showed up and the US threatened to close the Straights of Hormuz, but crude didn't go up. Therefore, it had to go down, crashing $7 to $119. But the only way to make oil seem cheap at $119 is to start out at $148. Natural gas hit $8.60. Wow!

2) Florida based luxury homebuilder WCI Communities (WCI) filed for chapter 11 because of its inability to roll over $1.8 billion in debt. Carl Icahn tried to take over this company a year ago at $22/share after it had fallen from $40, but failed. Sometimes your best trades are the ones you don't do. Expect more homebuilders to fail. Read the 'ghost towns' article in the Saturday WSJ.

3) The Fed meets tomorrow, so it can do nothing on interest rates.

4) June factory orders are up 1.7%, much better than expected

5) The storage business is booming as a tidal wave of foreclosures and evictions force people out of homes. Even renters are being tossed out as foreclosed owners fail to renew leases. There are now waiting lists at many locations. San Francisco facilities often have to evict individuals who try to live cheaply in their units with their furniture.

6) A group called 'Recreate 68', the same group that organized the Seattle World Trade Organization protests in 1999, is stockpiling feces in a Denver warehouse to throw at the Democratic convention. Police and health authorities are looking for the warehouse. No kidding.

7) The next credit crunch to occur will be in consumer finance. To protect against falling real estate prices, banks this year will cut existing consumer credit lines from $4.7 trillion to $2 trillion. The legendary spending habits of the American consumer will be cut off at the knees.

8) All of the new equity raised by banks and brokers this year is being used to plug holes, not fund new lending. When new equity is finally used to create new profits, the bottom will be put in financial stocks. This is a ways off. The new floor in expected write offs by the financial industry is increasingly being seen at $1 trillion, with the new ceiling at $2 trillion. This is $2 trillion that is no longer available to buy real estate. This drastic reduction in bank lending now virtually assures that the real estate sell off with be the worst since the great depression. Market declines of 40%-50% in Florida, California, and Nevada are increasingly being discussed.

August 4, 2008

Global Market Comments for August 4, 2008

1) Hurricane Edward showed up and the US threatened to close the Straights of Hormuz, but crude didn't go up. Therefore, it had to go down, crashing $7 to $119. But the only way to make oil seem cheap at $119 is to start out at $148. Natural gas hit $8.60. Wow!

2) Florida based luxury homebuilder WCI Communities (WCI) filed for chapter 11 because of its inability to roll over $1.8 billion in debt. Carl Icahn tried to take over this company a year ago at $22/share after it had fallen from $40, but failed. Sometimes your best trades are the ones you don't do. Expect more homebuilders to fail. Read the 'ghost towns' article in the Saturday WSJ.

3) The Fed meets tomorrow, so it can do nothing on interest rates.

4) June factory orders are up 1.7%, much better than expected

5) The storage business is booming as a tidal wave of foreclosures and evictions force people out of homes. Even renters are being tossed out as foreclosed owners fail to renew leases. There are now waiting lists at many locations. San Francisco facilities often have to evict individuals who try to live cheaply in their units with their furniture.

6) A group called 'Recreate 68', the same group that organized the Seattle World Trade Organization protests in 1999, is stockpiling feces in a Denver warehouse to throw at the Democratic convention. Police and health authorities are looking for the warehouse. No kidding.

7) The next credit crunch to occur will be in consumer finance. To protect against falling real estate prices, banks this year will cut existing consumer credit lines from $4.7 trillion to $2 trillion. The legendary spending habits of the American consumer will be cut off at the knees.

8) All of the new equity raised by banks and brokers this year is being used to plug holes, not fund new lending. When new equity is finally used to create new profits, the bottom will be put in financial stocks. This is a ways off. The new floor in expected write offs by the financial industry is increasingly being seen at $1 trillion, with the new ceiling at $2 trillion. This is $2 trillion that is no longer available to buy real estate. This drastic reduction in bank lending now virtually assures that the real estate sell off with be the worst since the great depression. Market declines of 40%-50% in Florida, California, and Nevada are increasingly being discussed.

August 1, 2008

Global Market Comments for August 1, 2008

1) The July non farm payroll came in at -51,000 and the unemployment rate shot up to 5.7%, a four year high. Short McCain.

2) The mortgage crisis will eventually be solved by the hedge fund industry, which, with $2 trillion in preserved capital, is taking over many functions until now performed by investment banks. The bigger houses are hiring entire 50-100 man teams from dying investment banks to take over this function. Hedge funds are also moving aggressively into private equity and M&A financing. At 22 cents on the dollar, the yields of some of this paper must be approaching 30%. As a result, hedge fund returns will soar. The investment banking industry will shrink to a shadow of its former self. Only Goldman Sachs and Morgan Stanley will remain whole.

3) Exxon Mobile (XOM) reported the most profitable quarter in the history of any US company at $11.7 billion. General Motors (GM) reported a $15.5 billion loss. It is flabbergasting to see an $11 stock report a $27/share loss. Its senior debt is now trading at 46 cents on the dollar. These two companies show perfectly how bifurcated the US economy has become. In the meantime Starbucks (SBUX) reported its first quarterly loss.

4) Irony upon irony. Bristol Meyers Squibb launched a takeover bid for Imclone at $30/share. Next week former CEO Sam Waksal gets out of jail for insider trading for dumping the stock at a much lower price seven years ago. Collecteral cancer drug Erbatux, which Waksal feared would not get approval, turned out to be a blockbuster. Martha Stewart must be stewing.

5) Word is finally leaking into the mainstream media about the Haynesville shale, the largest natural gas discovery in US history. The Louisiana/Alabama find, which is being exploited by Chesapeake Energy (CHK), may yield 13 trillion cubic feet. Mineral rights which sold for $200/acre a year ago are now going for $30,000. This has got to take natural gas prices a lot lower.

6) Walmart (WMT) put out a memo essentially ordering its employees to vote Republican in order to head off pro unionizing legislation. What are they thinking?

7) China now has 400,000 millionaires, more than any other country.