Global Market Comments for July 29, 2008

1) As crude dies, stocks fly. Oil down to $120.50, a new two month low. Alert! Alert! Regular gas at a bargain $3.99/gallon seen in the East bay! For $1 I'll tell you where.

2) Merrill Lynch (MER) is raising a staggering $8.5 billion in new equity. The more they say they don't need capital the more they raise. Existing shareholders will be diluted by a hefty 20%, except for those recent private placement investors with anti dilution clauses. The money will go to help cover their loss incurred in selling $30 billion face value in mortgage backed obligations for a mere $6.7 billion. This sets a benchmark value for sub prime debt at 22 cents on the dollar. It makes you wonder how dire their capital position really was yesterday. The stock has imploded, from $90 to $22 in the past year. All eyes are now on Lehman (LEH), the next shoe to fall.

3) The S&P Case-Shiller real estate price index for June was down -15.8% YOY and is still falling. Las Vegas (-28.4%) and Miami (-28.3%) showed the biggest losses. San Francisco was down -22.9%. Charlotte, Dallas, and Denver all showed monthly gains. Prices are now at summer, 2004 levels.

4) US Steel (X) reported vastly better earnings than even the most optimistic forecasts as the steel shortage puts it in the driver's seat on pricing. Weakness in autos, which now accounts for only 15% of sales, is being more than offset by demand from China. 85% of the company's sales are in cold rolled steel. X is the winner here, because it alone among steel producers owns iron ore supplies. However, if commodity prices turn, look out belooooow!

5) The Conference Board's consumer confidence index for July rose from 51.0 to 51.9, the first rise since December. Given the huge decline seen in the previous month this is not much of a dead cat bounce. Job security is the main concern.

6) The SEC's short selling restrictions on banks expire tonight. If they don't renew them, or if there is any fiddling, waffling, or equivocation, expect the market to tank tomorrow.

QUOTE OF THE DAY

'Americans eventually do the right thing, after exhausting all other possibilities,' said Winston Churchill.

Global Market Comments for July 25, 2008

1) A new low for the move on crude, down to $122. All of the economic releases today came in better than expected. Stocks shrugged, bonds hated it.

2) June durable goods came in at +0.8%. The market had been expecting Armageddon. This is a great example of how noisy these monthly data releases can be. So is everyone running out and buying new refrigerators and washing machines while new home construction is at a multi decade low?

3) American Express is worth a watch. They have no sub prime exposure, no balance sheet risk, and are clearly the baby that is being thrown out with the bath water. The stock has fallen from $64 to $35, and is selling at a ten year multiple low of 13 times. There is an easy three year double here.

4) The University of Michigan consumer sentiment index came in at 61.2 vs. an expected 56.3.

5) Europe, on the other hand, is painting a completely different story. The eurozone purchasing managers index showed its second consecutive fall in July. German business confidence plunged to a six year low. Expect EC economic data to be diabolical from here on, thanks to Trichet's punishing anti inflationary high interest rate policy.

6) June new home sales were less awful than expected, -0.6% vs. -1.4%. More importantly, the inventory of unsold houses shrank marginally for the first time in many months, from 10.5 months to 10 months.

7) There are rumors that Lehman (LEH) is trying to sell Neuberger Berman, its highly profitable asset management unit. By selling its crown jewels analysts are wondering if LEH is trying to fund some yet to be disclosed major sub prime write offs.

8) Chrysler Financial is withdrawing from the car leasing business because they are getting stuck with too many early lease returns of gas guzzling SUV's with subterranean residual values. This will be devastating for the dealers, and is tantamount to Chrysler cutting its own throat.

TRADE OF THE MONTH

August bond futures expired today at 114. All of my short bond strategies from the 120 level on down came in hugely profitable. With a leverage factor of five times, you can do the math (+30%).

Global Market Comments for July 25, 2008

1) A new low for the move on crude, down to $122. All of the economic releases today came in better than expected. Stocks shrugged, bonds hated it.

2) June durable goods came in at +0.8%. The market had been expecting Armageddon. This is a great example of how noisy these monthly data releases can be. So is everyone running out and buying new refrigerators and washing machines while new home construction is at a multi decade low?

3) American Express is worth a watch. They have no sub prime exposure, no balance sheet risk, and are clearly the baby that is being thrown out with the bath water. The stock has fallen from $64 to $35, and is selling at a ten year multiple low of 13 times. There is an easy three year double here.

4) The University of Michigan consumer sentiment index came in at 61.2 vs. an expected 56.3.

5) Europe, on the other hand, is painting a completely different story. The eurozone purchasing managers index showed its second consecutive fall in July. German business confidence plunged to a six year low. Expect EC economic data to be diabolical from here on, thanks to Trichet's punishing anti inflationary high interest rate policy.

6) June new home sales were less awful than expected, -0.6% vs. -1.4%. More importantly, the inventory of unsold houses shrank marginally for the first time in many months, from 10.5 months to 10 months.

7) There are rumors that Lehman (LEH) is trying to sell Neuberger Berman, its highly profitable asset management unit. By selling its crown jewels analysts are wondering if LEH is trying to fund some yet to be disclosed major sub prime write offs.

8) Chrysler Financial is withdrawing from the car leasing business because they are getting stuck with too many early lease returns of gas guzzling SUV's with subterranean residual values. This will be devastating for the dealers, and is tantamount to Chrysler cutting its own throat.

TRADE OF THE MONTH

August bond futures expired today at 114. All of my short bond strategies from the 120 level on down came in hugely profitable. With a leverage factor of five times, you can do the math (+30%).

Global Market Comments for July 24, 2008

1) A $3 pop in crude sent stocks down 200 points and bonds up a point. We are not out of the woods yet.

2) Want to get rid of that barbed wire around your bicep, or your ex wife?s nickname? The tattoo removal business is booming, where laser treatments can run into the thousands of dollars. More than 50 million Americans have tattoos and 20% of them regret it. The Google of tattoo removal is Cynosure (CYNO), which has jumped from $19 to $23 in the past month. Also in this space is Palomar Medical Technologies (PMTI), up from $9 to $13. This is great news for that guy at Lompoc who had F*** tattooed across his forehead in Germanic script. What an interview killer!

3) Existing housing sales for June came in at -2.6%, or a 4.86 million annual rate, a ten year low. An amazing 40% of all sales came from foreclosures.

4) At the peak of the housing market in 2005 credit creation was $1.2 trillion. This year it is running at a $400 billion rate. Mortgage rates are at a five year high, and are higher now than when the Fed first started cutting interest rates a year ago. That is called a credit crunch. Something you don't hear about in the media is that new banking business is now the most profitable in its history. The good news is that credit creation during recessions historically bottoms out at the $400 billion level. Conventional 30 year mortgages are now at 7% and jumbos 8%.

5) Weekly jobless claims skyrocketed to 406,000, up 34,000, the highest figure in three years.

6) The Hurricane Dolly miss has hammered natural gas again, from $13.50 to $8.90, down a gob smacking 35% in two weeks. This unwind is happening so fast that we are only $1 away from entering 'buy' territory. This is how gas trades. This extreme volatility makes it the best contract to be right about, and the worst one to be wrong about. Traders will tell you that it always takes the stairs up, but the elevator down.

7) What is the difference between an actuary in England and one in Sicily? The actuary in England can tell you how many people die over the next three years. The one in Sicily can tell you how many will die in the next three years and who they are!

8) Facebook has seen subscribers grow from 40 million to 90 million in the past year. Now that the company is offering Spanish language pages it is growing at one million new subscribers a week. In interviews, founder Mark Zukerberg looks like a kid who loves the technology, but is overwhelmed by the business side of things.

Global Market Comments for July 23, 2008

1) Gasoline inventories fell a surprisingly large 2.8 million barrels as cancelled summer vacations leave the system awash in excess product. Crude fell $4 to $124. Prices at the pump could fall 20 to 30 cents/gallon in the next week. If you believe crude has finally peaked, buy the refiners which have been hammered this year because of crushed margins. Valero Energy (VLO) has plummeted from $76 to $30, while Tesoro Petroleum (TSO) has vaporized from $65 to $15.

2) Roche Holdings has made an $89/share offer to buy the remaining shares of Genentech (DNA). The Swiss pharmaceutical giant, which already has majority control of the company, sees this as a natural long dollar play with the euro at $1.59. Roche plans to integrate DNA's marketing, manufacturing and back office, while leaving its option incentivised research division alone. The stock shot up 12% to $93 as traders believe Roche may raise its offer. I toured DNA's principal manufacturing facility a few years ago, and since they used the eschericia coli bacteria as their principal biosynthesis media, the whole place smelled like a pile of shit.

3) During Q1 Verizon customers sent 58 billion text messages. That works out to 1,000/customer, or 11/day. I bet my kids account for at least half of that. 80% of the US population now uses cell phones.

4) Here are more China plays. VisionChina Media (VISN) has 45,000 display ad locations and is down from $22 to $14. ATA Inc. (ATAI) processed 123 million online licensing and college entrance examinations last year, and is down from $18 to $12. It caters to the Chinese desire to upgrade standards of living through improved education and professional qualifications. Oriental Education (EDU) offers the prep courses for these exams, and it has fallen from $82 to $53. All trade on NASDAQ.

5) United Airlines (UAUA) is up 50% to $7.50 on the successful roll over of its short term debt and falling crude prices. See my earlier recommendation to buy the stock at $5 as a cheap undated put on crude.

6) The new symbol for the Bombay Sensex is ($BSE), which at 12,500 is down 45% from its January high of 21,500. This eventually will be a strong buy when the BRIC?s come back into fashion.

7) VMWare (VMW) lowered guidance and got slaughtered, the stock plunging 10%. The Palo Alto based business virtualization software company had a nice little niche until Microsoft, IBM, and Hewlett Packard piled in and ate their lunch. The stock has fallen 70% from $115 to $34 since October and the CEO got fired.