February 29, 2008

1) Consumer confidence for January came in at a 16 year low. The market tanked 300 points.

2) MF Global incurred $141 million in unauthorized trading losses in wheat on Tuesday. On that day the market in wheat was limit down and limit up in the same day, producing an intra day range of 25%, the greatest in history for any commodity. The inside story was that the trader involved suffered a computer systems crash in the middle of all this and didn't know his positions while all of this was going on. To MF Global's credit they announced the loss the next day. This is why you never use a cheap computer for a trading platform.

3) Copper could be the next metal to move. It is at the top of a two year trading range at $3.60. You could get a big rotational move into copper as traders move out of gold,?? which is rapidly approach $1,000 an oz, the target for many for the year. The inflation adjusted all time high for gold is $1,200 which is now a chip shot, and the two year target for many is $1,500.

4) Pimco's legendary bond investor Bill Gross says the next big problem market will be commercial real estate. He is prone to extreme forecasts to suit his own book. He predicted the Dow would drop to 5,000 in 2002 and missed by 2,500. He also said that muni bonds now offer 'historic' opportunities.

5) Recession prospects are driving consumers to eat out less and at home more. Sell Morton's and Red Lobster and buy Heinz, Hormel (Spam) and Del Monte (canned beans).

STRATEGY IDEA OF THE DAY

Commodities are now red hot and will probably keep running for a while. The main reason they are the flavor of the day is that hedge funds can't trade bonds because the markets have vaporized, and think it is way too early to buy stocks. So there is no where else for them to go. A great way to play commodities is to buy Brazil. The Bovespa stock index ($BVSP) is at 65,000, close to an all time high. Among things going right: the country is now 100% self sufficient in energy thanks to a high reliance on domestically produced ethanol. Its major commodities like sugar and iron ore, have risen 50% since the summer. Petrobras Energia (PZE) ($11.5) has made a major offshore oil discovery and is itself a strong buy. It is debt free and is in fact a net lender now to the US. No sub prime or real estate crisis. Warren Buffet is playing this by going long the Brazilian currency, the real. Having covered as a journalist the big Brazilian debt default crisis in the seventies this is all amazing to me.