Global Market Comments for January 9, 2009
Featured Trades: (NUE), (WMT), (AMTD), (SWIM), (SCHW)

1) The December nonfarm payroll came in at 524,000, taking the unemployment rate up to a 26 year high of 7.2%. At least the Labor Dept. didn't post a job loss of a million, as the Cassandras had predicted. More than 11 million Americans are now out of work. Some 2.6 million lost jobs in 2008, including 1.9 million in just the last four months. That is almost a whole recession's worth. Seasonal hiring for Christmas by retailers never happened. Only education and health care are still hiring workers. If you throw in those workers who have given up looking for jobs, and those whose unemployment benefits have run out, the real unemployment rate is probably closer to 15%.

2)?? Dan Dimicco, CEO of Nucor (NUE), the best run steel company in the US, says that only $1 billion in infrastructure spending can create 35,000 jobs. We need seven million jobs to put the unemployed back to work, along with new workers joining the labor force from natural population growth and immigration. So only $200 billion of well placed public works projects should do the trick.?? The only question is, can you turn stock brokers and mortgage brokers into ditch diggers?

3) I can't resist showing you the chart for Greek Shipping giant Dry Shipping (DRYS), which I recommended in November at $3. It is up 500% off the back of a healthy recovery in the Baltic Dry Shipping market ($BDI). This is yet another indication that the world is not ending.

4) 'Abandon Hope All Ye Who Enter.'?? So says Dante in his description of the Gates of Hell. This is how retailers must feel after enduring their worst December on record. Yesterday, Walmart (WMT), viewed by many as the only safe hideout in the sector, announced a sales shortfall, taking the stock down 7%. It turns out that WMT has the highest percentage of sales to customers who are getting laid off, maxing out credit cards, and losing homes in foreclosure. It is also believed that the new Obama administration will make it easier for WMT's workers to finally unionize, never a good development for a listed company. Think GM.

5) One of the few safe havens in the financial sectors is online brokers, who dodged the bullet, because they are pure fee collectors, don't have proprietary trading desks, don't take risk, and didn't use leverage to invest dubious high yield paper to artificially boost earnings. This approach was highlighted yesterday by TD Ameritrade's (AMTD) takeover of competitor Thinkorswim Group (SWIM) for $600 million. The move gives AMTD access to a first class online trading platform in options and an expanded customer base. Another good pick in this area is Charles Schwab (SCHW).

5) Governor Blagojevich was impeached, the vote coming in at 114-1. Thank you, thank you, People of Illinois, for making California no longer appear as the worst run state in the country!

FACT OF THE DAY

If Elvis had lived, he would have been 74 yesterday. Perish the thought of what he would look like now! I have to tell you that I was once given a personal tour of Graceland by his last girlfriend, and was shown the exact toilet where the King expired. It's been a full life. ?.

Global Market Comments for January 8, 2009
Featured Trades: (TRN), (JEC), (WTIC)

1) It is still possible to buy stocks on the cheap that will benefit greatly from the massive public works projects Obama is about to unleash. Trinity Industries (TRN), a major provider of concrete and aggregates with a presence in construction and rail cars, recently dropped 80%. It is now selling at 4 X earnings, 70% of book, and has a juicy 7% dividend yield. Another one to peek at is Jacobs Engineering (JEC), a leader in construction consulting and services.

2) Yesterday, Morgan Stanley led a jumbo 30 year, 7% bond issue for GE credit which was oversubscribed. This is 400 basis points through Treasuries, and is good news for all corporate borrowers. The credit thaw continues, even though stock traders can't see it.

3) The real estate disaster once known as Las Vegas, where 27,000 homes are for sale, continues to probe new lows. Hotel vacancy rates have hit 18%, and you can now get a four day weekend at a top hotel there, including flights from San Francisco, for $200! Construction has halted on the $5 billion Echelon Resorts for lack of financing, leaving a major eyesore on the city's skyline. MGM Mirage's massive City Center complex continues, only because of credit from Dubai. Sitting pretty is the Palms, which is just being completed, but sold out all of its condos two years ago when the market fever was still alive. While 10% of the buyers have walked away from their deposits, the owners are converting these to luxury hotel rooms.

4) The crude market continues to reel after yesterday's stunning inventory figures, with prices down another 5% to $40. The US should buy the fleet of tankers at sea storing crude, and add it to the Strategic Petroleum Reserve at these prices. With unlimited financing, the government is the only entity which can exploit the incredible 40% contango now present in the crude market. While this opportunity is screaming out to every junior trader in the energy pits, it is oblivious to Washington, where, in any case, we are leaderless. It was government buying for the SPR at $140 which put the top in for the crude market.

5) Most economists view the ECB's continued reluctance to further cut interest rates as nothing less than insanity. Trichet is living in a bubble. It can't last much longer. One out of seven German jobs depends on the car industry, and there is now excess global capacity of 20 million units/year. At least someone in the UK has some sense, where the Bank of England cut interest rates today by 0.5% to 1.5%, the lowest since the institution was created in 1694.

6) While weekly jobless claims fell, total unemployment hit a 27 year high of 4.6 million.

AMAZING FACT OF THE DAY

Investigators found $143 million in signed bonus checks for favored employees in Bernie Madoff's desk. I have pretty much seen everything after 35 years in the financial world, but the revelations in this case continue to floor me.

QUOTE OF THE DAY

Someone once asked the late Chinese premier Zhou Enlai what was the international impact of the 1789 French Revolution. He answered, 'It's still too early to tell.'

Global Market Comments for January 7, 2009
Featured Trades: (AA), (FSLR)

1) The market came back to Earth today, the Dow suffering the first down day of 2009. The guilty characters could populate one of those Agatha Christie mysteries where everyone did it except the butler. Take your pick: an ADP report showing 693,000 job losses, stunning crude inventory figures, bad Alcoa (AA) earnings, or spectacular budget deficit forecasts for this year. And on Friday economists are predicting Armageddon for the nonfarm payroll announcement. Of course, we knew all this was coming, but reality is still a bitch!

2) While the crash in global commodity prices, including crude, has been catastrophic for expensive alternative energy plans, it does have a silver lining. Spot prices for the polysilicon used in photovoltaic solar panels has dove from $500/lb to$50/lb since June, taking the cost of solar produced electricity down from $5/watt to $3/watt. This nearly makes solar competitive in high power cost states like California and Hawaii. Obama's yet to be announced solar initiative is expected to grow global solar power production from 3 gigawatts to 15 gigawatts by 2012. Buy Phoenix, AZ based First Solar (FSLR) at current distressed prices, after its 75% plunge.

3) President Bush had lunch with Obama and former presidents Clinton and Bush senior today. Wish I were a fly on the wall at that repast.

4) The Dept. of Energy's weekly inventory figures showed gigantic increases in every product, with crude up 6.7 million barrels and gasoline up 3.3 million barrels, causing crude to fall 15% to $42.90 at one point. To see these kinds of numbers in the dead of winter, when demand is normally strong, shows you the true extent of demand destruction. The financial crisis is spreading among oil producing countries, especially in the Middle East, and this will soon escalate into a political crisis. Heads will roll, literally. The real estate crash in Dubai is starting to rival our own. It couldn't happen to a nicer bunch of people.

5) Last week in Chicago I stopped by Obama's house on Greenwood Avenue and 50th street in up and coming Hyde Park to say hello. I was thwarted by two concrete crash barriers, 16 cop cars, and army of police happily pulling overtime. And this was the week he was in Hawaii! Every neighborhood bird nest, flagpole, and chimney sported video cameras, and Google Earth has wiped the block off the map. Instead, I settled for a visit to the delicious Valois Cafeteria, the president elect's favorite local diner, and his preferred bookstore at 57th Street Books. I managed to run into someone, who knew someone, who once babysitted Obama's kids. Need TARP money, a presidential pardon, a cushy ambassadorial appointment, or a juicy government contract? I'm now your 'go to' guy!

Global Market Comments for January 6, 2009
Featured Trades: ($TYX), (X), (NUE), (WMT), (MCD)

1) The markets are signaling that the credit crisis is over, and that it is now safe to come out of your bunker. The 30 year Treasury has collapsed ten points in the last week, taking yields from 2.60% back over 3.15%. Corporate bonds of every grade and maturity have rallied hard, narrowing spreads across the board. Other risk taking indicators are dramatically improving, with the yen backing off from ??88 to ??94, euro yen moving from ??118 to ??126, and the VIX breaking below 40% and staying there, down from 89%.?? Crude is signaling a short recession, making it all the way back up to $50 today, 40% up from the lows. Now that we are in the New Year, the dynamic in the credit markets will flip from bankers not willing to lend, to borrowers not willing to borrow. This should greatly ease terms for those few hardy souls willing to play at the deep end of the recession. Expect your banker to pick up the check the next time you go out to lunch.

2) The Warren Buffet of Germany, Adolph Merkle, committed suicide today by jumping in front of a train. He had suffered massive losses from the Porsche induced short squeeze of Volkswagen, which I outlined in detail a few months ago, and which made VW the world's most valuable company for a day. Expect this crisis to trigger more high profile suicides.

3) Upstream and downstream integrated US Steel (X) has been the whipping- boy-in-chief in the global commodity bust, its shares vaporizing from $200 to $20 in a mere four months. US steel production has plummeted from two million tons/week to only one million tons, and prices have more than halved, chopping revenues by 80%. But it is about to become a major beneficiary of the Obama reflationary program, in which the US joins China and India in the global infrastructure build out story. Congress is expected to add a 'Buy America' clause to any public works projects the new president hopes to target. In any case, X now produces the best quality steel in the world at the lowest prices. Another play here is more expensive mini mill operator Nucor (NUE), which can pull off a quicker restart with electric arc furnaces than a blast furnace operation like X. In the meantime, expect a continuing rapid industry consolidation until the government checks start hitting the bank.

4) Traders are bracing themselves for the December nonfarm payroll, which is to be announced at 5:30 AM West Coast time. The number is expected to be in the 600,000-700,000 range, one of the worst numbers in history, and the unemployment rate is expected to leap above 7%.

5) Walmart (WMT) and McDonalds (MCD) were the only two Dow stocks up in 2008. It tells you a lot about where consumer buying is going these days. Supersize that?

QUOTE OF THE DAY

'I think we're looking at a period of time going forward where the market will value simplicity,' says?? Ken Griffin, CEO of Chicago based hedge fund Citadel, which took a 50% hit last year.

Annual Asset Class Review

January 5, 2009
Featured Trades: (VIX), ($BVSP), (RSX), ($BSE), (FXI), ($KOSPI), (TBT), (JNK), (PHB), (HYG), (COPPER),(FCX), (CHK), ($XEU)

After the annus horriblus of 2008, I thought it would be a good time to review the major asset classes and suggest reallocations.

Equities: UP

The collapse of the volatility index (VIX) is telling us that the horrific, gut churning, 10% daily moves are over. But equities are no longer a US play. Extracting the insane leverage of the last decade means chopping the US growth rate down from a booming 5% to an anemic 2%. This is not a strong argument to buy American companies, which is why most analysts only see the indexes recovering 10%-20% this year. You might just get tedious range trading after the late 2008 dead cat bounce. The real action will be in the BRIC countries, which will see upside returns double what you will get with the S&P 500. Buy Brazil's Bovespa ($BVSP), Russia's RSX (RSX), India's Bombay Sensex ($BSE), and China's FXI (FXI) or Hang Seng. And it may be time to spell BRIC with a 'K' by throwing in the Korean Kospi ($KOSPI) as a sweetener.

Bonds: Treasuries Down, Private Debt Up.

As I have been vociferously arguing in these pages for months, US Treasury bonds are witnessing the final stages of an overinflated bubble, and you don't want to be anywhere near this asset class when it bursts. Take out the flight to quality and year end balance sheet window dressing bid from this market, and you have an accident begging to happen. Take in the long term inflationary impact of Obama's plans, and you have a 30 year contract which peaked at 142 last week that is really only worth 70. It's just a matter of time before massive government issuance buries largely foreign buyers. Throw in the 50:1 leverage offered by a long bond futures contract, and the profit potential of a short position is so enormous, there are not enough zeros on my calculator to total it up. Buy the Lehman 20 year plus ultrashort bond ETF (TBT). Unfreezing of the debt markets will move the prices for every other type of debt off of their current throw away levels. Buy corporates of every grade with a heavy weighting in junk, or fixed income securities backed by REIT's, emerging markets, credit cards, student loans, or subprime loans. A convenient way to do this is to buy the ETF's for the Lehman High Yield Bond Fund (JNK), the PS Corporate High Yield Bond Fund (PHB), and the iShares iBoxx Fund (HYG).

Commodities: UP

After giving up almost all of their 21st century gains, virtually all commodities, including grains, softs, energies, and metals, are due for a recovery. A good part of the sell off resulted from the disappearance of financing, which is now slowly working its way back into the market. Now that newbie investors who never should have been involved, like pension funds, have bailed on this asset class, conditions are set for some serious base building. Commodities will be the principal beneficiaries of an epochal trend away from paper assets towards hard assets that will be the dominant investment theme for the next decade. Chinese and Indians still want to raise their standard of living faster than these substances can be grown or ripped or pumped out of the ground. Now Obama is adding America to the infrastructure build out story. A safe way to play this is through beaten down, dividend yielding, producing equities like Freeport McMoran (FCX) for copper, Chesapeake Energy (CHK) for natural gas, and US Steel (X) for steel and iron ore.?? But don't expect huge gains until we see signs of a global economic recovery by the middle of the year. Then watch out.

Currencies: Dollar and Yen Down, Everything Else Up

Since we are smack dab in the middle of a six year trading range, I don't really have a handle on what the buck is going to do short term. Could we see $1.20 or $1.00 for the greenback in an event driven overshoot short term? You betcha! But longer term, the trend is still down. Obama's highly inflationary reflationary policies will eventually lead to an utter collapse in the dollar. If they are successful, the economy will recover, bringing Americans back to their old low saving, high consumption, high importing ways, adding fuel to the fire. Don't bet against the 45 year trend. Expect to pay $2.00 for a Euro in the years ahead. Take that European vacation now!

Real Estate: Down

With markets still deleveraging, and the son of subprime, the Alt-A loans, on our doorstep, real estate is dead money at best. Although the cost of carry for home ownership is rapidly approaching equivalent rental costs on an after tax basis, fewer and fewer buyers are qualifying for loans. Add 1.2 million unsold homes from builders to three million existing homes already on the market and you have a staggering 4.2 million homes for sale in the US. This is 7% of the total American housing stock. Probably 20% of US homeowners are underwater on their mortgages, and they're not buying anything anytime soon. We also have an impending crisis in commercial real estate generating lots of mall bankruptcies and empty retail space to deal with. Remember, 'debt' is a four letter word. I don't see a meaningful recovery in residential real estate for five years, and then it will be a slow claw back at best.