Featured Trades: (FCX), (CRUDE), (NG)
1)???? ??Call me an optimist, but I am starting to see crocuses of economic recovery busting out all over. Long side traders now have a spring in their step after a 23% rise in the Dow in three weeks, the best move since 1938. If it is true that the stock market anticipates moves in the real economy by six months, then a lot of managers are going to come back from their summer vacations in September to find a surprising batch of new orders. Commodities have been on an absolute tear this year, especially oil and copper, classic harbingers of future business activity. Just look at my favorite, Freeport McMoran (FCX), which soared 170% from the November lows. The downward momentum of a whole range of economic indicators is slowing. The durable goods number was actually up last week! The mother of all inventory adjustments is almost over. Retailers are still offering the deals of the century, but there is very little left in the back room. The Baltic Dry Shipping Index has tripled off of its November low, hinting that international trade may come out of its comatose condition. And they are no longer looking for organ recipients for the major airlines. Now I hear that semiconductor makers are expected to make their Q1 targets. Maybe it's because spring has arrived, and the girls on the Embarcadero have shed their overcoats for low cut tank tops. Or maybe the $4 trillion in global stimulus is starting to have its desired effect.
2) Reformed oil man, repenting sinner, and borne again environmentalist T. Boone Pickens says that 'when we turn the US green, it will have the best economy ever.' I met the spry, homespun billionaire at San Francisco's Mark Hopkins on a leg of his self financed national campaign to get America to kick its dangerous dependence on foreign oil imports. For the past 30 years, the US has had no energy policy because 'no one wanted to kick a sleeping dog.' Production at Mexico's main Cantarell field is collapsing, and will force that country to become a net importer in five years. Venezuela is shifting its exports of its sulfur laden crude to China for political reasons, once refineries in the Middle Kingdom are completed to handle it. Unfortunately, the collapse of energy prices since June and the disappearance of credit have put urgent alternative energy development on a back burner, with his preferred natural gas (NG) taking the biggest hit. If the US doesn't make the right investments now, our energy dependence will simply shift from one self interested foreign supplier (Saudi Arabia) to another (China). Wind and solar alone won't work on still nights, and can't power an 18 wheeler. Don't count on the help of the big oil companies because they get 81% of their earnings from selling imported oil. The answer is in a diverse blend of multiple alternative energy supplies from American only sources.?? Although Boone now has Obama's ear, it's a long learning process. Boone has donated $700 million to charity, and says the 20,000 trees has planted should offset the carbon footprint of his Gulfstream V. I worked with Boone to organize financing for a Mesa Petroleum Pac Man oil company takeover in the early eighties, when it was cheaper to drill for oil on the floor of the New York Stock Exchange than in the field. Now 80, he has not slowed down a nanosecond.
3) Natural gas ($NATGAS), which peaked at $13.50/btu last year, has become the red headed step child of the energy complex, plunging a gut churning 72% to a low of $3.75. To see demand this weak coming out of a cold winter is nothing less than stunning. The credit crisis has forced US companies like Chesapeake Energy (CHK) and Devon Energy (DVN) to scale back exploration, so the US rig count had dropped by half. The price collapse is welcome news for consumers, as NG is an essential raw material for making naphtha, fertilizer, and plastics and accounts for 20% of US electric power generation. It also is a favored fuel of the green crowd, as the only products of its combustion are carbon dioxide and water. The industry was making the leap from a domestic industry to a global one just the global recession punched it right between the eyes. The completion of six liquefaction plans in Qatar, Russia, Indonesia, and Yemen costing $48 billion is expected to boost global production by 25% this year, and more big plants are coming on stream in the near future. If I'm right, and those really are crocuses out there and not some florid hallucination, then it's time to load the boat with NG.
4) AIG has become such a despised company that the children's' TV program 'Sesame Street' has removed the letters. 'A,' 'I,' and 'G,' from the alphabet.
QUOTE OF THE DAY
'A fool with a plan can outsmart a genius with no plan,' said oil man turned environmentalist T. Boone Pickens.
Featured Trades: (SCHW), (AMTD), (IYR), (BPO)
1) Once thought an extinct species, the retail stock investor is back with a vengeance. It only took a 23% rally, the best since 1938, to do it. Trading volumes are up 15%-20%. It's time to take a look at the online brokerage stocks, which have been on a tear. These are pure brokerage firms, not de facto mega hedge funds like the big boys. So there are no hidden trading losses, mark to market issues, compensation scandals, or TARP money. These boys are poised to pick up the pieces left behind by the implosion of Lehman Brothers, Bear Stearns, and Merrill Lynch. Look at Charles Schwab (SCHW) with a mutual fund family that makes it a more sensitive to a rising market, or TD Ameritrade (AMTD) which is a better volume play.
2) George Soros says that it is 'inevitable' that commercial real estate falls another 30%. Rents are falling, tenant bankruptcies are rising, there is tons of debt to be refinanced for which there is no market, so cap rates are rocketing and 'ghost mall' has joined the recessionary lexicon. This all adds up to lower prices. Some credit default swaps are trading at levels suggesting that a major REIT bankruptcy is imminent. I know George is sometimes prone to extreme statements, but this time he may be on to something. If you want a short play, or if you have an existing long position in commercial real estate which you can't get out of and want to hedge, try a short position in the (IYR), although it has already dropped from $85 to $21. You can also play one of the sicker REIT names like Brookfield Properties (BPO).
3) Having trouble raising capital for your new hedge fund? Just list Warren Buffet as your 'Honorary Chairman'. That's what California prison guard Ottoniel Medrano did. To help his marketing efforts he also claimed that he had $4.8 billion in assets under management as well as massive real estate holdings in Asia. Medrano's International Realty Holdings managed to raise $700,000 with this scam, which he promptly shipped to offshore bank accounts before the Feds shut him down. When you think you've heard everything, something like this pops up. Unbelievable.
4) The recent 69% leap in crude prices from $32 to $54 may mean that the next spike has already begun. We have been sowing the seeds for the last nine months. The US drilling rig counts has dropped by half to 1000, and it could go as low as 900. Credit squeezed companies have chopped exploration budgets to the bone. The few new wells that are being drilled are becoming increasingly expensive to bring on line. Mexico is the second largest foreign supplier of crude to the US, delivering 1.2 million barrels a day. But production at its main Cantarell field in offshore Yucatan is falling off a cliff, and the country will soon become a net importer. Buy that Prius while the lots are still full.
QUOTE OF THE DAY
'The funny thing is, in your twenties you try and look serious, and after your twenties, you just try and look hot,' said Meredith Whitney, rock star Oppenheimer banking analyst, who recently left to start her own firm.
March 26, 2009
Featured Trades: (EEM)
1) There is an easier, cheaper, and faster way to solve the banking crisis which no one is talking about on Capitol Hill.?? If collateralized debt obligations (CDO's) are the problem, just get rid of them! Desecuritize them! Just convert them back into the underlying loans. There are $1.4 trillion in CDO's outstanding backed by Alt-A and subprime loans in the form of 3,700 individual securitizations of perhaps 3.7 million loans. Over 68% of the loans backing these bonds are current.?? Mark to market rules are forcing the banks to carry this paper on their balance sheets at 50%-80% discounts. The problem is that mark to market is a meaningless accounting fiction when there is no market. If you break up these securities and place the underlying loans back on the banks' balance sheets, the good mortgages can be valued at 100% of face, and those behind in their payments or in default can be discounted to maybe 70% because they are still secured by the value of the homes. This would boost the value of the entire asset class from the current 20-50 cents up to 90 cents on the dollar. Restored balance sheets would enable banks to resume lending. Of course it would be a massive admin job unwinding the rats' nests behind some of these securities, but Heaven knows there is abundant subprime and Alt-A expertise available for hire these days. Just sift through the ashes of Lehman Brothers and Bear Stearns. It is a workable plan, and therefore is unlikely to ever see the light of day.
2) For Woody Allen's take on the Madoff scandal, look at the Shouts and Murmurs column on page 29 of the March 30 issue of The New Yorker magazine. On learning of the total loss of their life savings, two of his elderly investors die of heart attacks and are reincarnated as two pound lobsters. While sitting in a tank in a Third Avenue restaurant bemoaning their imminent fate with a light butter sauce who walks in for dinner, but Bernie! I'll leave it to you to see how this ends with tears at http://www.newyorker.com/.
3) The one screaming buy out there now are the emerging markets. The US, Europe, and Japan are now committed to spending trillions of dollars to shock the global economy back to life. This is costing the emerging economies nothing, and gives them a free ride back to prosperity. IT turns out that the smaller economies are financially better off than the big ones, with a decade long export boom blessing them with massive foreign exchange reserves and little debt. China, Russia, India, Brazil, and Turkey will be the big beneficiaries. You can buy the specific ETF's for these countries, or go with the generic iShares MSCI Emerging Market ETF (EEM), which has already started to outperform US markets in a big way. It's a once in a century opportunity to buy the highest growth corners of the world's economy at severely knocked down prices.
QUOTE OF THE DAY
'I'd rather consult a trader than a mathematician,' said former Fed chairman Alan Greenspan when considering the best way to assess risk.
Global Market Comments for March 25, 2009
Featured Trades: (TM), (EBAY), (FUJI TV), (GS)
1) Now that traders are partying again on Wall Street, we have to ask, what will take the punch bowl away? The unemployment rate shooting over 10%, which could happen in April or May, would be my first pick. Losses on option ARM loans could accelerate, taking out a few dozen more regional banks, WAMU style. Another, until now apparently healthy corner of the financial market taking huge undisclosed positions in securities we've never heard of, could suddenly blow up. A giant hedge fund could close at any time, freezing existing investors in place, and dumping gigantic positions on the market. Defaults on some big, high profile commercial real estate projects could also pull the rug out from under the market. Given the magnitude of the move up over the past two weeks, we might even see a short seller bite the dust. And of course, if any of the administration's $3 trillion in bailouts/ reliquifying/stimulus hit a wall that would trigger a sell signal. Party on ebullient traders, but do so close to the exit.
2) Fuji TV, one of Japan's leading television and film producers, will soon premier a Japanese language remake of the cult wine snob film 'Sideways'. The Asian version will be released under the name 'Kami no Shizuku', or 'The Drops of God'. The merlot hating 2005 buddy film, which cost $16 million to make and earned $110 million,?? won five Oscar nominations and caused pinot noir sales to soar. One big change from the original is that the new film is set in Napa Valley, not Santa Barbara's Santa Ynez Valley, enabling local producers like Frog's Leap, Berringer, and Chandon to pile on to the product placement bandwagon. Wines sales in Japan have been steadily improving the past decade, and the film's producers are targeting an affluent, sophisticated, and presumably wine drinking audience.
3) Ralph Amendolaro won the New York lottery by playing the last three digits of Bernie Madoff's prisoner ID number, 054. This is the first real money Madoff has probably ever made someone.
4) Toyota launched its Prius 2010 model today, to much fanfare. The 3G model, which boosts gas mileage from 46 to 50 mpg, carries solar panels on the roof, and offers more elegant styling, will cost around $23,000, stripped down. To date, the Japanese car maker has sold one million of the snub nosed, high backed vehicles, which account for 50% of the global hybrid market. Toyota hopes this 3G model will fight off competition from Honda's Insight and the Ford Fusion, but it won't be easy. Hybrid sales fell 31% in 2008, and the US car market is now thought to be running at an 8.8 million run rate, down precipitously from the 19 million peak. This will be the last Prius model before Toyota brings out its plug in version next year, which will run on batteries only for the first 40 miles of every trip. A 3G win would give Toyota's US traded ADR's, which have recently plunged from $138 to $58, some much needed life support.
5)?? Desperate for new sources of revenue, Skype (EBAY) is pushing into the corporate market. Today it announced ?Skype for SIP,? that connects to corporate phone systems, and will begin beta testing the program with a limited number of companies. Skype will initially charge around 2.1 cents per minute for calls to cell phones and fixed lines, while calls from computers to phone systems will remain free. Ebay has long been dissatisfied with its Skype acquisition, and is thought to be shopping this subsidiary on the market.
QUOTE OF THE DAY
'There hasn't been a recession yet that hasn't ended,' said Abbey Joseph Cohen, chief strategists at Goldman Sachs (GS).
Featured Trades: (COPPER)
1) 'I said a few months ago that Washington was all in. We are now all in squared. The FDIC, Fed, and the Treasury are making a concerted effort to turn deflationary swamp water in inflationary wine.'?? Ah, Paul McCulley, man of Virginia, you have such a way with words. PIMCO must love you. I agree.
2) If you want to get an inkling of Obama's new out of the box foreign policy weapon, listen to President Obama extended to Iran in an unprecedented YouTube New Year's greeting beamed directly to the people of Iran. Check out the link at http://www.youtube.com/watch?v=yft9ZCe3VCw. He said that Iran was a 'great nation that should join its rightful place in the community of nations', and that 'It's great and celebrated culture has made the world a better place'. The US is committed to diplomacy with the Islamic Republic of Iran, which should not pursue terrorism.?? He signed off with a Persian salutation, which was nothing less than stunning. One can't imagine a more radical departure from the Bush doctrine, which got the US nowhere for eight years. No one has benefited more from tragic American missteps in the Middle East than Iranian extremists. This now puts the spotlight on Secretary of State Hillary Clinton's carrot and stick approach to get Iran to dump its nuclear program. If it fails, she can use our new found moderation to recruit European allies to impose sanctions if the Islamic republic goes all the way. The only reason I care about this is that fresh troubles with Iran could trigger an instant $30 spike in crude prices on a bad day. This would send global markets tumbling, send gold through the roof, and snuff out any prayer of a recovery from this ghastly recession.
3) Satanists, occultists, and Tarot cards readers who follow the market closely (yes, there are some), called the S&P market bottom one point above the sign of the devil at 666. Does this mean my performance will improve if I draw a pentagram on my front door and engage in ritual chanting?
4) On of the stellar performers in the commodity space this year has been copper, up 50% to $1.87 since December. Heavy and secretive stockpiling of the red metal by Chinese, which accounted for a third of the world's 18 million tonnes of consumption last year, has been a main driver. Of course, we are still less than half the $4.10 peak seen last year. But copper is the only commodity that has a PhD in economics, and when it flies, prudent hedge fund managers have to pay attention. As a predictor of future economic activity, it can't be beat.
5) I'll tell you what GM's problem is. My dad was a lifetime GM customer, religiously?? buying a new Oldsmobile every five years. Once he even flew to Detroit for a factory tour and drove his new prize home. Thirty years ago I told him he was doing GM no favors by buying their cars, and the only way to force them to improve a tragically deteriorating product was to buy better made German and Japanese vehicles. This was right after the State of California forced auto makers to install seatbelts on new cars. Airbags and ABS brake systems were still years away. His response, 'I didn't fight the Japanese for four years so I could buy their cars.' (He was a Marine). GM's problem is that my Dad passed away seven years ago. Of the original 17 million WWII veterans, 1,500 a day are dying, and there are only 1.5 million left. All of them loved Detroit because it built great Jeeps, Sherman tanks, and half tracks that brought them home from harm's way. Their kids prefer German, Japanese, Italian, Korean, and soon, Chinese and Indian vehicles. It is no coincidence that GM's problems really accelerated with the passing of the 'greatest generation.' During the last 35 years, when Japan's share of the US car market climbed from 1% to 40%, I begged GM to mend their ways and build a quality, price competitive product that Americans wanted to buy. They answer was always the same: 'Nobody can tell GM how to build cars.' Maybe someone should tell them.
QUOTE OF THE DAY
'The children of Adam are limbs to each other, having been created of one essence,' said President Obama, quoting a famous Persian Poet in his Internet New Years greeting to Iran. Whoa! Heavy!
Global Market Comments for March 23, 2009
Featured Trades: (BAC), (JAVA), (MSFT), (IBM), (NTAP), (SNDK), (EMC), (CTXS), (CRUDE), (GOLD), (TM), (HONDA)
1) I'm sorry I'm late getting my comments out today, but I had to get my application in to manage the Treasury's latest $1 trillion bailout program. They're due April 10, and I wanted to get mine in ahead of Black Rock's.?? I only have to show $10 billion in assets under management and the ability to raise $500 million. For this, the FDIC will effectively lend me interest free long term loans to buy all of the toxic assets I want at deep discount prices with 6:1 leverage. I'm sorry, but I can't resist those 'heads I win tails, you lose' trades the Feds are offering, hence the rush. This certainly takes nationalization of the banks off of the table, and makes those buyers of Bank of America (BAC) two weeks ago at $2.50 look pretty smart. The government has now shot its wad, and there is really nothing else they can do now but sit back and pray until the $3 trillion in stimulus/bailout/reliquifying they have committed to starts to work.
2) Has anyone noticed that the economies with the biggest infrastructure stimulus packages, the US and China, are having the biggest bounces in their stock markets? Those with a 'deer caught in the headlights' policy response, like in Europe, are seeing a much less impressive move in their markets. Gee, do you think there is a connection?
3) When Citigroup (C) fell below $1 two weeks ago it became the first Dow stock to be offered on McDonald's dollar menu.
4) IBM's $8 billion takeover bid for Sun Microsystems (JAVA) at double the previous market price has sparked an explosion in call option buying by hedge funds betting the industry consolidation trend will accelerate. The big buyers in this sector, IBM (IBM) and Microsoft (MSFT) have cash coming out of their ears, and things certainly are cheap enough. Traders loaded the boat with perennial takeover targets like Network Appliance (NTAP), SanDisk (SNDK), EMC Corp. (EMC), and Citrix Systems (CTXS). A flurry of takeover activity is a classic sign of a market bottom. The best way to play this is to buy call spreads on all of them, and hoped you picked a lottery ticket
4) Last week traders were confused and disoriented when they saw something for the first time this year. Green arrows! It's getting so I can't tell the difference between the fake financial news on Saturday Night Live and John Stewart, and the real thing.
6) Honda has triggered a price war among Japan's hybrid car makers with the launch of its new $19,000 Insight model. The price undercuts a stripped down version of the leading marquee Toyota Prius by a good 10%. Honda was able to beat the competition by using a smaller lightweight gasoline?? engine, slashing weight, smaller batteries, and sharing parts with its existing Civic model. The Japanese carmaker accomplished this at the cost of a mileage drop from 46 to 43 miles per gallon compared to the Prius. These are not small stakes Honda is playing for. In October, JP Morgan predicted that global annual sales of hybrid cars will grow exponentially from 500,000 to 9.6 million by 2018. The vehicles are expected to go a long ways towards helping both the US and Japan wean themselves from unreliable foreign oil imports.
QUOTE OF THE DAY
'Cash bonuses on Wall Street are going to become a dinosaur,' said Jon Corzine, governor of New Jersey, and former chairman of Goldman Sachs.
Featured Trades: (GE)
1) I thought President Obama did a pretty good job with comedian Jay Leno last night. With some pundits already pronouncing his administration a failure, he has the moxie to appear on a late night talk show. For the last eight years, presidential visits to California have been about as frequent as Bigfoot sightings. You can diss all those rumors about Treasury secretary Tim Geithner resigning anytime soon. After 59 days in the White House his bowling score is up to 129. All of his favorite picks for the Final Four basketball championships were in politically sensitive swing states (North Carolina, Indiana, Iowa). While playing basketball, he doesn't get knocked down as much while the secret service is watching, guns at hand. Obama still has the magic touch, speaking with the deliberateness of a trial lawyer, but with the folksy charm of your local barber. One thing is for sure though. Your taxes are going up, baby.
2) There have been 14 bear markets in the postwar period with an average 25% decline. This bear market is down 58%, and it still may have farther to go. No wonder everyone's risk models are blowing up. This time it really is different. Over the last 100 years the average return on stocks has been 10% a year, with 40% of that coming from dividends. Today there are dozens of prime industrial companies offering dividends rates in the mid teens. Why investors are not loading the boat with General Electric (GE) stock yielding 12% at $9/share is beyond me. Take systemic risk out of the equation, and investors will leap at these.
3) Since you do 50% of your business while driving your car, you'll love this new product from the Canadian company Ilane. A combination of a small dashboard box, Blackberry, and blue tooth earpiece permit verbal commands to open your email and have it read to you by a seductive female voice. You can respond with canned answers like 'in transit'. You can also have a short verbal response recorded and then sent as an attached MP3 file. You can have all of this for $600 and an $8 a month subscription fee. It works great as long as your various talking mobile devices don't get in an argument with each other.
4) Private equity funds bemoaning the disappearance of the once lucrative LBO market are migrating en masse to distressed debt as their new raison de etre. Yields of 25% are now common, but this is no market for dilatants. The 4.6% default rate seen at the end of 2008 is expected to soar to 13%-18% by the end of this year. Players are going to need industrial strength research departments, abundant bankruptcy law capability, and expert trading desks just to find this illiquid paper. But with a modicum of leverage their may be able to attain returns for investors that restore them to their former glory.
5) The median home price in the San Francisco Bay Area has fallen to $295,000, a ten year low. This is down 56% from the $665,000 peak seen in July, 2007 (it seems like only yesterday). Sales are up 25% YOY, fueled by a tidal wave of foreclosures and cheap FHA financing. If prices fall further this place might even become affordable. Too bad you can't live off of the sunshine here.
QUOTE OF THE DAY
'Stocks are not bought on Wall Street, they're sold', say seasoned brokers.
Global Market Comments for March 19, 2009
Featured Trades: (C), (GE), (USO), (TBT)
1) Way to go Ben! If pouring gasoline on the fire doesn't work, try nitroglycerine! Some $1.2 trillion in new agency and bond purchases, including previously untoucheable long term treasury bonds. Goodbye dollar, hello 4% home mortgage rates. Just tack on another 3% to the 2010 inflation rate. The bond market had its biggest up day in history, gold soared $50, the euro gapped up 4%, and commodity prices roared. Citigroup (C) has quadrupled from $1 to $4 since last week, while General Electric (GE) has doubled from $5 to $10! Just when you think this guy has thrown in the kitchen sink, he shows up another truckload of kitchen sinks. I guess this is what a 1590 SAT score gets you.
2) I have a question, Mr. Market.?? If General Electric (GE) got down to $5, Bank of America (BAC) to $2, and Citigroup (C) to $1, where were the share buybacks? Are these companies too broke to buy their own shares, or do they think a few bucks over zero is too much to pay? I'm not sure I like either answer, or even my own question.
3) Early data show that the economy was getting traction even before B-52 Ben launched his carpet bombing campaign. Some $45 billion poured out of near zero yielding money market funds last week. Fannie Mae financed $41 billion in new home loans, the most in a year. Bring on the 'V' recovery!
4) This could be the year of the Exchange Traded Fund (ETF), which was one of the few growth products in an otherwise disastrous year for the brokerage community. Asset allocators are attracted by the ability to make single sector bets, like in oil (USO), leveraged short plays that would otherwise be banned, like the 200% short long Treasuries fund (TBT), intraday trading, and low fees. The only thing missing is liquidity, which is still inadequate in all but a few of the biggest ETF's. There is now thought to be $400-$500 billion invested in these funds, compared to $4 trillion plus in mutual funds, and the rate of innovation is accelerating. The early entrants in the field, like Vanguard and Barclays Bank, are raking in the cash, leaving more conservative families of funds like Fidelity in the dust. Expect to start seeing more ETF's in your 401K's and pension holdings.
5) President Obama is getting 40,000 letters a day from individuals and small businesses complaining that their credit has been cut off. He reads a sampling.
6) There is now the equivalent of 60% of the US stock market capitalization sitting on the sidelines in minimally yielding money market funds. What else will Bernanke do to entice this money out of its bunker?
QUOTE OF THE DAY
'An investor has to guard against many things, and most of all against himself,' said Jessie Livermore, a legendary stock speculator of the twenties.
Global Market Comments for March 18, 2009
Featured Trades: (XLF), (XLY), (RLX), (HGX), (HD)
1) The quality of this rally is convincing some investors that this could be the big one. After financials (XLF), which are having an obvious dead cat bounce, the leaders of the past week have been the sectors that led into this recession, like consumer discretionaries (XLY), retailers (RLX), and home builders (HGX). The chart of Home Depot (HD) tells the whole story. These are exactly the sectors you would expect to move in a new bull market.
2) Consumer prices jumped by 0.4% in February, the largest increase since July, suggesting that we may not be plunging into a deflationary death spiral after all. Rising gasoline and clothing prices led the way. Expect contradictory economic data to increase from here.
3) Here is another mustard seed. Pfizer successfully floated a jumbo $15 billion multi tranche, multi maturity bond issue to finance its $65 billion takeover of Wyeth. The three year paper was priced at 305 pips over Treasuries, with the shorter term paper 195 basis points over three month LIBOR. These are not exactly bargain terms, but the fact that this deal got done at all is proof that life is certainly returning to the corporate lending market. Seeing investors show up tells you that some of the systemic risk is starting to ebb.
4) OPEC voted to keep quotas at their current reduced levels, spurring crude to top $50 yesterday, a two month high. At this point, helping revive near comatose importers with low prices is more important for members than squeezing out a few more dollars in revenues. The cartel has done a better job keeping cheaters in line than in the past, with Saudi Arabia doing the heavy lifting on production cuts. We are backing off a couple of bucks today because of a surprise 3.2 million barrel jump in gasoline inventories. But the enormous contango has started to shrink, suggesting that the $32 low we saw in December is looking safer by the day. Could crude's revival be another early hint at a recovery in the broader global economy?
5) I'm glad that I'm not counting on an AIG bonus check to clear the bank. CNBC has turned into the AIG channel. I can only imagine how that annual review conversation went down. 'The good news is that your bonus is $5 million. The bad news is that you will have to spend $25 million in legal fees defending it'. Thank goodness for small favors. What hath Obama wrought?
QUOTE OF THE DAY
'To be right when a great power is wrong can be a dangerous thing,' said Benjamin Franklin. He should know.
Global Market Comments for March 17, 2009
Featured Trades: (REAL ESTATE)
1) I am more convinced than ever that real estate has another 25% to fall, and best case, it is dead money for another five to ten years. The New York Times produced some insightful data on inflation adjusted home prices for the last 120 years, which baselines at a $100,000 for a single family home in 1890. Few people realize how superheated the recent real estate bubble really got. Past bubbles very consistently peaked at $125,000 in 1896, 1979, and 1989. This last one peaked at $205,000 in 2005, almost double the previous record highs. And while we have dropped 34% since then, to $135,000, we haven't even fallen to the past all time highs yet. If you look at historical lows, my call for a further 25% slump looks positively bullish. We saw lows consistently around $66,000 in 1920, 1932, and 1942. Postwar lows came in at $105,000 in 1976, 1983, and 1996. These figures suggest the best case low is down a further 28%, and the worst case is down another 51%. I think I'll go find something else to trade.
2) After a merciless torrent of budget cuts, California's public education system has been bled dry, and now ranks 50th in the US, down from number one when I attended classes here a half century ago (oops!). The golden state now spends more on its 170,000 prisoners that on educating the young. When I recently tried to get Fedex to send a package to Japan, the clerk thought it was a city on the east coast and refused to take it because she couldn't find the zip code. I ended up mailing it. Those trying to engineer an economic recovery in California don't understand that you can't become globally competitive with a dumbed down work force.
3) If you are wondering why it has gotten so hard to sell wine, look at this chart of personal consumption cuts which I fudged from Business Week. It says that Americans have chopped their purchases of alcoholic beverages by $11.2 billion YOY. Opening a restaurant is even a worse idea because spending there has dropped by $55.7 billion.
Change in personal consumption
billions of 2007 dollars
january08-january09
Cars, light trucks, SUV's???? ?????? ??-$115.2 billion
Food???? ??-$55.7 billion
Clothing, accessories, and jewelry???? ??-$18.1 billion
Household operation???? ?????? ?????? ??-$15.9 billion
Alcoholic beverages???? ?????? ?????? ??-$11.2 billion
QUOTE OF THE DAY
'The dark side of the moon is the hardest to see,' said Nassim Taleb, author of The Black Swan-The Impact of the Highly Improbable.'