Category: Diary

 

1) The ?head and shoulders? is off the table, and now the S&P 500 is looking at a double top at 950. This is why I hate listening to technical analysts, and why they shop at Men?s Warehouse and drive Hyundai?s instead of Bentley?s (see my earlier piece ). Generally, technical analysts tell you to buy every rally, sell every dip, and in a market that?s going nowhere this is a perfect formula for losing money. Watch them tell you to load up if we hit 950. It is clear from the ferociousness of the 70 point, three day rally, that too many hedge funds were drinking the Kool Aid and the blood is flowing as a result. One meekly explained to me that ?head and shoulders? formations fail only 6% of the time. Well, welcome to the 6%. They are going to have to invent a new name to describe this formation (?head and shoulders with a hump back?). This is why I issued my now famous ?Sell in May and Go Away? piece, because the quality of the trades you usually get in the three months that follow is uncommonly low. Look at the chart that has ensued so far. It looks like a lot of nothing.

2) I will be the first to bemoan the abundance of frivolous law suits in the investment community. But no litigation was more richly deserved than the $1 billion action brought by the California Public Employees System against the three rating agencies, Moody?s, Standard & Poor?s, and Fitch?s. CALPERS is claiming that the triple A rating they gave subprime backed SIV?s were wildly inaccurate, causing it to suffer huge investment losses as a result. An airing out of the dirty laundry in this industry, which sells fig leaves to debt issuers for high prices, is long overdue. When I go to my grave, the one revelation I will always remember about this crisis is that the models rating agencies used could not accept negative numbers for future real estate price assumptions!

 

3) As a follow up on yesterday?s gold piece I?d like to pass on to you an article by Global Resource Alert?s Peter Krauth outlining the entire long term bull case for the yellow metal. The future for the dollar is dark, indeed. Central banks, led by China, are backing off from US Treasuries and the dollar, and are returning to gold as a reserve currency. China has in fact increased its gold holding by 450 metric tonnes over the past six years. Individuals are doing the same, doubling their purchases to 862 million tonnes last year. US budget deficits are already running at the greatest levels since WWII, and a second stimulus package will pour more fuel on the fire. It?s just a matter of time before gold breaks to a new high. To read Peter?s well thought out article in its entirety, please click here .

 

4) To celebrate Bastille Day I walked over to my favorite French restaurant, Left Bank, to book what is normally the busiest day of the year. Sadly, on the front door was a sign saying ?au revoir, that the chain was closing half its San Francisco Bay Area restaurants because of the ?severe recession.? So instead, I walked to the Meridian Hotel, normally a safe bet for a steak au poivre on France?s national day. I found the main dining room was only open for breakfast, and was closed for the rest of the day to cut costs. However, I could get a nice cheap rib eye in the bar with great wines at ?happy hour? prices. The deals out there are awesome and legion. I reserved a room at a high end Lake Tahoe resort a few weeks ago that normally goes for $300 a night. I paid $40, and was the only one in the building. It appears that hotels are engaging panic dumping of rooms online, and will take whatever they can get. So 85% off is the new 50% off. How do you say ?green shoots? in French?

QUOTE OF THE DAY

?Democracy must be something more than two wolves and one sheep voting on what to do for dinner,? said commentator James Bovard.

 

1) When I turned on my computer this morning and saw the S&P 500 futures up 40 from yesterday?s low, I knew it was time to fix the flat on my kid?s bicycle, trim the hedges, repair the torn screen window, and unclog the downstairs toilet. The worst thing you can do in these low volume, summer short covering rallies is sell too soon. Kudos to Goldman Sachs for bringing in a blowout quarter, which I had long expected. When junk yields move from 25% to 13% how hard is it to make money? It just shows you what a great business model they have, that of a ?portfolio? of traders, some of which are making money at all times. But what is great for GS is not so good for the rest of us. Much or their future will rely on the vast expansion of public debt from every quarter, from 30 year Treasuries to your local sewer works, all of which has to be traded where they have the Ax. The remaining?? financials and the economy as a whole are no Goldman Sachs. So you have to view the rally they sparked as a gift to sell into. There are no green shoots in the US, and only a few in Asia, as the Shanghai market?s doubling since November has been shouting at us at the top of its lungs. Call them bamboo shoots. Look at the chart below prepared by Price Headly at Big Trends at http://www.bigtrends.com/index.php, showing that we are still safely and solidly in a downtrend. Still, keep some buy stops up above as insurance, just in case traders really want to go nuts and squeeze the index above 930.

2) I have been a huge bull on gold this year, piling investors into the yellow metal at the $800 level in early January. But after an exciting couple of months, it has tiresomely become dead money. This is a commodity that has absolutely everything going for it; the Great Depression II, threats of nuclear war with North Korea, riots in Iran and China, a government borrowing binge of Weimar proportions, and money supply growth that is through the roof. In fact the US is doing everything imaginable to debase its own currency. Unfortunately,?? all I see on my screen right now is an ugly smudge at $910 an ounce. So what gives? Someone has been leaning heavily on gold every time it approached the magic $1,000 level, and they have now created a quadruple top on the charts. Gold has become the metal that everyone loves, but nobody wants to buy. There have been rumors of European Central Bank selling of gold reserves, Russian selling to cope with a lower oil price, and traders simply playing the range for lack of anything else better to do. The global risk reduction that began with a vengeance a few weeks ago is certainly having an impact. If demand from the famed Indian wedding season doesn?t come through, things could get worse. Gold bugs should expect to suffer more short term pain in this great long term core holding.

3) Who is holding the bag of rapidly rottening commercial real estate loans? Banks, led by Bank of America (BAC) and Wells Fargo (WFC), hold 50%, followed by collateralized mortgage backed securities 30%, life insurance companies 10%, and pension funds 10%. It is no accident that these two banks have the greatest exposure?? in the melt down states of California and Florida. The scary thing is that the banks with the biggest exposures are also suffering from a simultaneous assault on their balance sheets from defaulting residential home loans. As low as these stocks are, a rollover in global equity markets could send them right back into survival mode. Use the Goldman Sachs rally to sell into.

4) As a former research biochemist at UCLA, I have long viewed biofuel as a huge waste of time, because there are not enough hamburger stands in the whole world to generate the needed grease for recycling. Ethanol was never more than expensive pork for corn producing swing states, and it?s no surprise they are going bankrupt, even with large subsidies. That?s ignoring the fact that they were burning food to power our chrome wheeled Cadillac Escalades, driving up prices for the starving masses in emerging markets. But when Exxon (XOM) commits $600 million to move algae from the realm of science fiction to mass production, I have to sit up and pay attention. This is not a company that is interested in tree hugging or saving the world, but in the hardnosed business finding and selling energy for a profit. There is no law confining them to the oil business, and it is wise for them to find alternatives while they have the bucks to do it. Never underestimate the power of pond scum. Algae have been used for centuries to produce agar and additives for food, cosmetics, and medicines. You?re probably already eating more than you realize. According the Exxon (XOM), one acre of algae also has the ability to produce 2,000 gallons of fuel per year, compared to 650 gallons for palm trees, 450 gallons for sugar cane, and 250 gallons for corn. As any marine biologist will tell you, these simple organisms accomplish this by absorbing massive amounts of carbon dioxide and turning it into oxygen, killing two birds with one stone from an environmentalist?s point of view.?? The catch is that no one has ever tried to do this on an industrial scale, and the production problems are certain to be formidable, with enormous inputs of water and nutrients required. Of course, you probably wouldn?t want to live next door to where this is happening. But if we have to hold our nose to beat the next energy crisis, so be it.

QUOTE OF THE DAY

?The stronger dollar has no greater friend than China, and no greater enemy than Ben Bernanke??. A weak dollar is a wealth transfer from China to the US, and they?re not going to stand for it??.Bernanke wakes up in the morning and thinks ?How can I weaken the dollar today?? He?s got quantitative easy, zero interest rates, and junk of the Fed balance sheet. He?s a smart guy, so I think he?ll come up with other things,? said Jim Rickards, senior managing director for market intelligence at the applied research organization Omni

 

1) Yesterday, I showed you Arthur Hill?s elegant, technical, well thought out analysis of the S&P 500?s prospects. Below, please find my inelegant, non technical, graphical rending of a dead cat bounce. Any stocks dependent on the consumer feeling good about himself, like consumer discretionary and high end retail, you want to sell especially hard, because the consumer is about to feel a whole lot worse. If you don?t believe me, ask the shareholder of sharper Image and Linens and Things. There?s a Weed Whacker plowing through the green shoots. Keep in mind that there are not a small number of strategists out there who are expecting new lows for the S&P 500 below 666. Use the Meredith Whitney inspired short cover rally to sell into. Expect truck loads of towels to be thrown in when the big break finally occurs.

2) I drove over the Benicia Bridge today, passing over ships unloading Toyotas from Japan. The company?s entire product line was there, from Lexus to Prius to Corolla, baking in the sun, still wrapped in plastic, and unsold by the thousands, the victims of a 40% YOY sales drop. So it was no surprise when the Bank of Japan informed us that wholesale prices in June fell a gob smacking 6.6% YOY, confirming?? the most dire forecasts that the country is still in the grips of a nearly 20 year economic ice age. This is why the US is not headed for the same big freeze, as many Cassandras are predicting.?? Japan?s bail out of its banks was a slow motion affair stretched out over eight years. Treasury Secretary Hank Paulson pulled the trigger on a much bigger bazooka with the TARP, a month after Lehman went bust, and Secretary Tim Geithner and the Fed?s Ben Bernanke followed up with their 155 mm howitzer. Tokyo?s insiders made sure well connected ?zombie? borrowers have stayed alive to this day. The truly great strength of the US is that creative destruction is a constant, unrelenting, and unstoppable force, enabling the economy to bury its mistakes quickly and move on to the next game. Look at GM. Japan?s fiscal stimulus was an impotent, irregular drip of inadequate packages financing bridges to nowhere. Obama?s hurricane of a $2 trillion budget in his first month provided more stimulus than Japan did in ten years in GDP terms, and now there is the threat of a second package. The bottom line is that Japan never understood the true debacle they were into until it was too late to do anything about it. The US realized in September we were on the precipice of a Great Depression II, and have thrown in everything, including the kitchen sink, to stop it. The US recession may be long and brutal, and the recovery subpar, but we are definitely not looking at Japan?s two lost decades.

3) Armed with a pass from Chevron (CVX) CEO, Dave O?Reilly, I drove out to the company?s Richmond, California refinery to see how bad the crude storage situation really is. This is where tankers unload crude from Alaska?s Aleyaska Pipeline for refining into gasoline and other products. What do I find, but mile upon mile of full tank cars, the firm?s storage facilities already loaded to the gills. The industry?s central delivery facility at Cushing, Oklahoma is full, the Strategic Petroleum Reserve is full, and if any more crude is imported, it will have to be stored in left over milk bottles. The filling of the last bit of storage in the US is what?s behind the two week, $15 drop in oil, now that contango driven traders can no longer profitably buy spot, sell forward, and store in the interim. Owners are choking on the stuff. Investor buying of crude as the new reserve currency is what caused it to double this year, not demand by end users. I?m sorry, but I?m an old school hedge fund manager. If a company tells me something, I have to go out to the storage facility, mine, well, pit, warehouse, and see it for myself.

4) I met with General David Petraeus, commanding general of the US Army?s Central Command, after yesterday?s briefing in San Francisco (see yesterday?s Newsletter ). He is on a US tour selling his new Iraq strategy, having spent the previous day with the Microsoft crowd in Redmond, Washington. He told me his staff prepared an itinerary for his day off, which included yoga, aromatherapy, a seminar on website construction, and a visit to the farmer?s market to buy organic bean sprouts. He decided to pass, and instead went for a long run along our waterfront Embarcadero, drinking in the brisk, cool air, an unavailable pleasure in Baghdad. Do you think our foggy city has some sort of a reputation, or what? I asked him to look out for my nephews, young men in their early twenties who are fluent Arabic speakers, who are joining his cyber warfare group. If anyone is speaking in Arabic on a phone call in the Middle East in the near future, please say Uncle John said hello.

QUOTE OF THE DAY

?Buyers are looking for great bargains, and sellers are looking to get what they might have gotten a year ago, so no deals are getting done,? said NBC Universal CEO Jeff Zucker.

 

1) Every once in a while I stumble across a chart which is so clear, so vivid, so unequivocal in its implications, that it lifts the investment fog. This is that chart. Drawn up by stockchart.com?s Arthur Hill, it shows that we are going to spend the rest of our summer probing for the bottom right hand shoulder in a screamingly obvious ?head and shoulders? pattern. It gives a range of possible bottoms from 850 all the way down to 666 by the end of August. The chart fits my own fundamental scenario like a hand in Michael Jackson?s glove (see ?The Worm Has Finally Turned? . Soaring unemployment, terrible earnings reports, collapsing commodity prices, a catatonic consumer, real estate of every flavor in free fall, and tidal waves of government spending are not what bull markets are made of. Did I mention the weather is terrible? Every feeble, half hearted, low volume rally we saw this week pushed us closer to the cliff. The charts of every stock and commodity market in the world rolling over in lockstep, like a thirties Busby Berkeley musical, gives you all the smoking gun confirmation you need.?? Hold on to those shorts as if your life depended on it.

 

2) When I put out my sell recommendation on natural gas at $4.30, the virtual trucks backed up to dump abuse on me from technical analysts, day traders, and wannabe pundits who were convinced that CH4 was the buy of the century. I also received a ton of e-mails from geologists, wildcaters, and gas men from all over the country with stories of even more, vast, unreported, shale discoveries. One in British Columbia I didn?t even know about. When it comes on betting my own money, I much prefer listening to engineers who spend countless hours driving pickups down dusty, potholed, washboard roads to get their data, than the online diletants, any day of the week. Best to watch the pain and suffering in the natural gas space from afar.

3) OK, I?m going to have to come down hard on this one. The administration is proposing banning smoking in the military. About time! The Pentagon spends $846 million a year on cigarettes, and another $6 billion treating smoking related diseases. I became a cigarette addict myself when the military gave me all the free ?coffin nails? I wanted in Southeast Asia 35 years ago, and it took me ten years to kick the nasty habit. Some 59,000 men died in Vietnam, and I?m sure many more than that died from the lung cancer that followed. Few people know that the Bureau of Prisons banned smoking three years ago, precisely to reduce spiraling health care costs. The riots that followed went unreported. The military in fact banned obesity 30 years ago. If a soldier is over his benchmark weight, his pay gets docked, and if he doesn?t go on a diet, he gets kicked out on a medical. While they?re at it, they should stop giving combat soldiers and pilots amphetamines. Is it any coincidence that the meth disaster that is unfolding in the Midwest coincided with the return from Iraq of thousands of troops? Not good for Altria (MO).

 

4) I have not been called a war criminal for at least 35 years. But that?s what was screamed at me when I muscled my way through a crowd of chanting anti war protesters on my way to a briefing from General David Petraeus, Commander of the US Central command. Every senior military officer in the San Francisco Bay Area could be found in the packed, steamy hall, including at least 20 generals and admirals. Petraeus, a four star with a PhD in international affairs from Princeton?s Woodrow Wilson School, ran through a thoroughly researched PowerPoint presentation that laid out how he was going to get our 130,000 troops out of Iraq by 2011. Only a caretaking force providing close air support from remote bases will be left behind to back a large civilian presence. A dramatic change in counterinsurgency strategies has brought the daily number of attacks from 160 down to 10, and monthly suicide bombings from 130 to 10. The goal is to ?Iraqrotize? the country so it can stand on its own feet, both politically and militarily. Iraq now has a reliable military of 550,000 men, but last year?s collapse in oil prices is creating budgetary problems. Afghanistan will be a much harder nut to crack, requiring more troops, money, and time. Priority one is to wipe out the poppy fields in the South from which the Taliban derives its financing and local support. Rising wheat prices will help this effort. Some 70% of the violence is in 10% of the country in the mountains that border Pakistan. The good news is that Pakistan is fighting its own war, not our war, for its own interests. Their nukes are secure and safe. Petraeus is bringing to bear incredibly sophisticated technology, including sensors mounted on the ground, in towers, balloons, drones, aircraft, and satellites, many of which are controlled remotely in the US and Europe. Bandwidth is his most valuable weapon. I follow the war in Iraq closely, not only because of the family I have in harm?s way, but also because of the $1 trillion in immediate costs and $2 trillion in long term costs we have already run up, on top of the 4,200 American and 100,000 plus Iraqi lives lost.?? I hope Petraeus is able to achieve his ambitious goals.

 

QUOTE OF THE DAY

Seen on a Marine commanding officer?s door in Baghdad: ?In my absence, figure out what your orders should have been, and then go out and execute them,? according to General David Petraeus.

 

1) The incredible melt up in Treasuries yesterday tells you that traders are dumping the global reflation trade like a hot potato. The ten year yield spiked up to a high of 3.28%, down from 4% only a month ago. Yesterday?s auction of ten year Treasury notes saw an amazing bid to cover ratio of 3.28, the highest in 15 years. When traders don?t want to play, they flee to government paper. The music has stopped playing, so it?s time to sit down. It looks like the deflationistas are going to have the upper hand over the inflationistas for the next couple of months. See my interview with Janet Yellen . This certainly puts my TBT trade on hold (see ?Sell in May and Go Away? and ?The Viagra is Wearing Off?. It?s best to read the writing on the wall, especially when it is in ten foot high, in fluorescent block letters, like this.

 

2) CNBC held a dynamite interview with David Rosenberg, former Merrill Lynch chief economist and current strategist at Gluskin Sheff, who offered the kind of big picture, 30,000 foot view that I love. We are well into an epic post bubble credit collapse. Deleveraging in the private sector is dramatically overwhelming any fiscal stimulus Obama can throw at it. The $50 trillion US household balance sheet is shrinking at an unprecedented rate. The unemployment rate will easily sail through 10.8% to a new high and spill over to a higher foreclosure rate. We?ve had two decades of baby boomers living beyond their means, and it is now time to revert to the mean. The stock market has already priced in an earnings recovery which we won?t see until 2012 at the earliest. Bull markets move in perfect 18 year cycles, and we are only half way through a generational washout in equity ownership that started in 2000. ?Buy and Hold? is dead. An S&P 500 trading around a 13 multiple means will be stuck in a 650-950 range for years, and that?s being generous. Rent, don?t own stocks. The one place to be is commodities, because they will be underpinned by the undeniable demand coming from Asia, and have benefited greatly from consolidation. The big ?Tell? here is that in last year?s huge sell off , they all bottomed at the previous cycle?s peak prices. It?s nice to hear someone reading from the same sheet of music as I. Too bad Merrill Lynch didn?t listen to David. Wow, do you think I should be selling rallies here at 886?

3) I was somewhat tickled to see the New York Times piece on the collapse of the Nantucket Island real estate market, which says there are 600 homes for sale on the tiny, windswept island, about 6% of the total housing stock. My family was the first western owner of the island, one Thomas Mayhew having bought it from the Wamponoag tribe for three ax heads and a cow in the 1600s. A great, great, great, great, great uncle, Owen Coffin, was a cabin boy on the Essex, which was rammed by a giant whale and sunk in the Pacific in 1820 (read In the Heart of the Sea by Nathaniel Philbrick). He spent 99 days in a tiny whaleboat, and then, after drawing straws,?? was eaten by his shipmates. The story became the basis for Herman Melville?s Moby Dick, written 31 years later, whose pages mention the Coffin name?? in seven places. The Times estimates that the value of property on the island has dropped from $20 billion to $14 billion since last year. Gee, do you think we sold too soon?

4) Here?s another great Chart of the Day from Clusterstock showing that we have fallen back to 2000 levels of total employment. Only one out of 2.4 Americans now has a job. Stocks, real estate, and many other asset classes have also given up the decade?s gains. In the meantime, the US population has grown by 26 million to 307 million. Has the 21st century happen yet?

 

1) I am about to do you a huge favor. You can clear all of the stock tickers and widgets off of your computer desktop. The only thing you need to watch now are the wild, gut wrenching moves in oil. Everything else will follow suit. So when it drops $10 in four trading days, as it has done since Tuesday, it sends a sell signal so obvious that even Stevie Wonder can see it. For confirmation, take a look at Euro/yen, which I earlier identified a great ?tell? for global risk taking . It has sold off sharply since the ?green shoot? killing, Thursday unemployment figures, and if it breaks below ??132, the sushi will really hit the fan. Also look at the long term chart of the volatility index (VIX), which shows that we hit major long term trend support at 25%, and is overdue for a rebound to a least the mid thirties. That means lower stocks. If I had time, I could go into a dozen additional indicators flashing red lights. If you can?t get the tea leaves to work, then slaughter a goat and examine the entrails.

2)?? Given the profusion of negative indicators, and moving averages rolling over like the Bismarck, I would be remiss in my public duties if I did not tell you to sell everything. Dump the reflation trade. The ?green shoots? are dead. Liquidate emerging markets (EEM), commodities (DBA), the metals (GLD), foreign currencies (XEU), and cover your shorts on safe haven pays, like Treasuries (TBT) and the yen (XJY). Real estate in all forms will continue to die its own private death. Batten down the hatches. Reduce your risk. If you can?t sell, then hedge your positions. If you can?t hedge, then sell calls against your positions. If you can?t sell calls, then find another line of work, because there are so many inverse ETF?s around these days, you no longer have an excuse to take a big downside hit. This is where your stops earn their pay. I begged you, pleaded with you, and beseeched you to dump your position on May 1 (see ?Sell and May and Go Away? and June 16 see ?The Worm has Finally Turned? , and now I am trying again. Please also revisit the short plays I offered earlier on the S&P 500 (SDS) and the Euro (DRR) . And don?t ever call me indecisive, waffling, or equivocating.

3) You may recall my advice to abandon natural gas at $4.30 in the face of giant new discoveries in shale formations (see ?Cash out here at $4.30) and ?Huge Discoveries . Since then, the Midwest has suffered its wettest spring since 1871. It rained 25 inches in Chicago the first half of the year, drowning golf courses, and sending the mosquito population exploding to Biblical plague proportions. Let me assure you, I have absolutely no ability to predict the weather, except that my combat scars itch when a storm is coming. Cold weather means no air conditioning, which means cratering natural gas demand and a new two month low of $3.37. But when you see a parallel contract like crude soar to new heights, and NG fail a half dozen times to get off a five year low, you know rough weather is coming. The crude/gas ratio players really got carried out in body bags on this one, as one record after another was shattered, taking it to a stunning 19.4:1. Natural gas has been the worst performing investment this year, the ETF (UNG) falling a mind blowing 54% since January.?? Best to wait for natural gas to find its new, lower, range before entertaining a position.

4) For indisputable proof that I am not infallible, please re-examine my call to watch wheat for a buy below $5.90 . It has since dropped 12%, falling almost every day.?? The weather that cut the legs from under natural gas has been great for grain supplies, but terrible for prices. The trigger was last week?s USDA report on corn acreage, which instead of delivering 1-2 million fewer acres because of late planting, announced a shocking increase of 1 million acres. The 3 million acre swing caused corn futures to go limit down, dragging the rest of the soft complex with them. On top of this, you can add the general flight from assets of all classes that has been unfolding over the last few weeks. This is yet again, another lesson about keeping stops on your ag positions at all times. You never know when a lightning bolt like this is literally going to come out of the blue. I still like the entire food play longer term, so for investors, as opposed to traders, this is a chance to build a core holding at lower prices. To quote Marine Corps. General Oliver Smith, at Korea?s Chosin Reservoir, ?Retreat, Hell,?? we?re attacking in a different direction.?

 

QUOTE OF THE DAY

?It has been a rude shock to see so many economists with good reputations recycling old fallacies,? says Paul Krugman, winner of the Nobel Prize for economics, and firebrand columnist for the New York Times. He is warning Obama of a replay of 1937, when an attempt to balance the budget triggered a second depression.

 

1) The stage is now set for the dollar. With the US 20 months into a recession, it?s just a matter of time before the Feds pull us back from zero interest rates. With the ECB late to the funeral, European Central Bank president, Jean-Claude Trichet, last week reaffirmed his commitment to keep their benchmark rate at 1% to restore the economy. There?s your trade. The next move in the euro/dollar spread will be in favor of the greenback, as the US will be the first out of recession. On top of that, you can pile a fading US stock market and a back off in commodity prices, which are also dollar positive. You can expect the euro to trade down to the low $1.30s. Mind you, this is still a counter trend trade, which I generally try to avoid. It?s a one night stand, not a marriage. Anyone reading the National Enquirer knows the dollar is sick, and even my cleaning lady has a major position in the futures. Thus, the street is overdue for a spanking, the inevitable outcome when there are too many bets on one side of the table. I still think it will cost two BUCKS to buy a EURO sometime in the foreseeable future. For those hardy souls willing to scoop up some pennies in front of a steam roller, look at the 200% short euro ETF (DRR), which has backed off 34% from $63 to $42 since November.

 

2) When crude suddenly spiked $4 to make a new high for the year at $73.50 on June 30, many in the industry, myself included, smelled some three day old fish. So I was not surprised to learn that the move was caused by a rogue trader trying to artificially engineer a short squeeze. According to the Financial Times, the perpetrator was PVM Oil Associates broker, Steve Perkins, who entered bogus orders to buy 16 million barrels of oil in one hour, double the daily production of Saudi Arabia. This was on a day mysteriously devoid of the nerve rattling news that usually drives prices up, leaving us all scratching our heads. By the time the firm discovered and unwound the trades, it had lost $10 million. The scandal had the unfortunate side effect of creating a failed double top in the oil charts, paving the way for a broader sell off in crude and other commodities as well. With hedge funds dominating trading, a large portion of their purchases going into storage in tankers chartered on the cheap, and all of this acquisition going on in the face of a death spiral in the economy, I have been avoiding this space since the first time it ran up to $72 on June 9 (see ?Get me out of Oil? ). I think you?ll see a pull back in crude to the high fifties, bringing the price more into balance with the true supply/demand situation. Gee, I wonder if they?ll ever catch the rogue trader who ran it up to $148 last year?

 

3) For the latest news from the front trenches of the solar industry, listen in to the all day analyst meeting given in Las Vegas by First Solar (FSLR) by clicking here .?? If you don?t want to wade through six hours of data that could only arouse a bachelor engineer, here are the highlights. The headline is that the cost of solar is now down to ten cents per kilowatt hour, versus three cents for coal. But the Clean Energy Act of 2009 is certain to make solar cheaper and coal more expensive. The industry will face a completely new set of challenges gearing up from a few rooftop panels on environmentalist rooftops to becoming a major portion of the US power supply. For a start, solar energy is most abundant where there are no people, because these areas were uninhabitable until air conditioning came along. That means building a huge network of power lines from scratch, something that will require Federal Energy Regulatory Commission (FERC) shepherding. Unlike other power sources, solar is highly variable, hour by hour and even minute by minute. Not a problem when you are running a freeway sign, but a big problem when running a large regional network, so ?smart? grids will be the order of the day. The technology to do this on a large scale hasn?t even been invented yet. The ongoing credit crisis is a major problem, since one gigawatt of capacity will cost $800 million in capex. Nevertheless, this industry now has a huge global tailwind and should remain permanently on your radar. Consider FSLR on the next big dip. For more, see my earlier piece.

 

4) I thought you would be fascinated to read these headlines from the Wall Street Journal:

?Washington Officials Will Be Looking Carefully at Whether Record Low Interest Rates will Revive Business?

?Current Speculative Sentiment is Bearish?

?Market Observers See Hopeful Signs?

?Senator Glass Considers Changes in Banking Regulation?

This last one was the tip off, Glass, of Glass Steagle fame. A thoughtful blogger has started posting daily headlines from today?s date in the year 1930 (check out his site). Terms like ?over leverage? and ?green shoots? abound. Do any of these sound familiar? The famous Winston Churchill quote comes to mind ?the nation that forgets its past is doomed to repeat it.?

 

QUOTE OF THE DAY

?I think it?s almost inevitable that, with a billion people in China wide awake for the first time, and a billion people in India, there?s going to be some kind of a terrible run against the dollar. And I doubt it can stay orderly, because all of our own hedge funds will be right in the vanguard of the operation,? said Nobel Prize winning economist Paul Samuelson.