Global Market Comments for July 15, 2008

1) Crude fell a breathtaking $10 to $136 on the Bush announcement lifting the ban on offshore drilling. Options expirations this week helped.

2) Apple sold one million new 3G IPhones in the first three days, more than double the most optimistic forecast.

3) Christopher Cox, chairman of the SEC, announced restrictions on the short selling the shares of primary dealers, Fannie Mae (FNM) and Freddie Mac (FRE). Lehman (LEH) shares rocketed 20% and the Dow rose 250 points. The CFTC did something similar in 1980 to put the Hunt Brothers out of business in their silver cornering. Talk about closing the gate after the horses have bolted.

4) At today's low of $12 Lehman had a market capitalization of less than $9 billion, down from $60 billion a year ago. Its days are numbered. It doesn't have enough money left to play in the big league anymore. All of the outside money they raised this year has been wiped out by the fall in the share price. You can bet that Dick Fuld is working the phones feverishly now trying to find a buyer.

5) General Motors (GM) announced its umpteenth restructuring plan for the year. The company will sell its foreign operations, the only part of the company that is making money, cut its dividend, slow down assembly lines to reduce truck and SUV production, and cancel executive bonuses. The stock has dropped from $42 to $8.50 since October. These measures will raise $15 billion in cash, only temporarily allaying bankruptcy fears.

6) The Producer Price Index in June, the real inflation rate, rocketed a stunning 1.8% MOM and 9.9% YOY as fuel price increases surged through the system. Put on your platform shoes, gold chains and white disco suit, the seventies are back!

7) Fears of health of the US financial system have driven the euro to an all time high of $1.6022. The euro is double topping a seven year cycle on the charts and is an extreme short here.

8) According to Eurostat, the EC's statistical office, industrial production in the Euro zone in May fell 1.9%, the sharpest fall in 16 years.

TRADE OF THE DAY

Some of the algorithms I follow are starting to flash 'buy' signals for the stock market. The volatility index (VIX) has risen from 17 to above 30 and the number of stocks at 52 weeks lows is above 20%. What we really need to finish off this down move is a cathartic, capitulation day of down 500 points on huge volume. The market has to throw up on its shoes. Until then we will just have a slow bleed.

Global Market Comments for July 14, 2008

1) The government announced an impressive support package for Fannie and Freddie which includes direct access to the Fed window and Fed buying of their paper. The bad news is that they needed a bail out package. Fannie is launching a $3 billion private debt issue this week. The Treasury ordered the main brokers to buy the whole issue and then exchange it for T-bills. What a fig leaf!?? The package provided about one nanosecond of support for the stock market.

2) Indymac bank failed on Friday after a depression style bank run. All of the 'not too big to fail' banks like WAMU (WM), Wachovia (WB) and National City (NCC) got slaughtered. Deposits over the FDIC insurance ceiling of $100,000 are receiving only 50 cents on the dollar. Funny how all real estate lending crisis always come back to the LA area, as did the S & L crisis in the nineties. What are the lenders smoking down there?

3) In 1998, 20% of S&P 500 earnings were from abroad. Now the figure is 50%. This is one of the explanations for our non recessionary recession.

4) Lehman is acting like a stock that is going to zero. It hit a new multi decade low today of $12.25, down from its one year high of $80. The July $10 puts, which expire on Friday, are trading at a staggering 250% implied volatility.

Global Market Comments for July 11, 2008

1) Crude lept to a new high, $147.50, even though one of the Iranian missiles fired yesterday was found to be a Photoshop creation. It then closed at $144.30.

2) Bernanke saved the day today, announcing that Fannie Mae (FNM) and Freddie Mac (FRE) would have access to the emergency discount window. The two were down 40% at their lows. FNM closed down only 23%. Without the Fed move, the Dow was headed for a down 500 point day.

3) American Airlines is stripping the paint off of its aircraft. At 400 pounds per plane the troubled airline hopes the weight saving will cut $12 million/year in fuel costs across the fleet. Ultra lightweight decals will show the company logo. Look for US airlines to be mostly metallic colored from here on, until carbon fiber takes over.

4) The University of Michigan consumer sentiment index for June came in at 56.6 vs. 56.4 in May. This is surprisingly stable, given how sour the mood is out there.

5) The latest industrial production figures show that Germany's economy is about to fall off a cliff. There is no way the Polish economy will be immune from such a slowdown. Europe's economy could be lagging a US entry into a recession by 12-18 months.

QUOTE OF THE DAY

A gem from Berkshire Hathaway's (BRK/B) Warren Buffet about big banks' involvement in sub prime derivatives: 'It's poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end.' By the way, Buffet's much vaunted stock is down 25% from its October high, worse than an index fund for the same period.

Global Market Comments for July 10, 2008

1) Walmart reported better than expected earnings as the rebate checks worked their way through the system, taking the stock market up 150. Also helping was Dow Chemical's (DOW) takeover of Rohm & Haas (ROH) for $15 billion, a massive 73% premium.

2) Lehman Brothers (LEH) continued its free fall today, down another 17% to $16.30. The rumors of insolvency are flying. If true it would define the next bottom in the market. Pimco's Bill Gross, the largest bond manager in the world, said that he continued to trade with Lehman as a counter party and hold Lehman debt. The stock rallied. Government backed Freddie Mac (FRE) fell a breathtaking 32% to $6.80, down from $65 a year ago.

2) According to the National Insurance Crime Bureau, the most stolen car in the US last year was the 1995 Honda Civic, followed by the 1991 Honda Accord and the 1989 Toyota Camry. An American vehicle could only reach the number four slot with the Ford F-150 pickup. Apparently the quality of American cars is so poor that nobody wants to steal them.

3) Bearish sentiment in the stock market has hit a nine year high.

4) Russia has surpassed Germany as the largest car market in Europe. Who knew? The best way to play this? Indian auto maker Tata (TTM), the largest mass producer of low priced cars in the region.

5) Another good way to play Brazil is to buy small business jet manufacturer Embraer Empressa (EMJ). The stock has dropped from $50 to $25 while its order backlog has leapt from 34 to 52. And you have the long play on the Brazilian real.

6) 50% of the world's economies now are seeing double digit inflation.

7) Crude jumped $7 to $142 in the last 30 minutes of trading on essentially no news, quickly dispatching a 150 point rally in the stock market. The cheapest gas in my neighborhood is now $4.49.

8) Marriott (MAR) reported poor earnings for the US and great earnings for overseas. Looks like Q2 earnings are setting up for the same pattern we saw in Q1. It's all about foreign earnings.

Global Market Comments for July 9, 2008

1) Iran fired nine medium and long range missiles and crude did nothing. That says a lot. Last week this would have taken crude to $150. What a difference a week makes! Oil is now enjoying what economist call 'perverse elasticity'. The higher the price goes, the more people want to buy it, until demand collapses completely.

2) The stock market got hammered today, led downward by financials over fears of further write offs and further dilution. Lehman set a new low for the move, down 11% to $19.85 and is well into takeover territory.

2) My old friend John Templeton died at 95. He graciously invited my wife and I to spend a weekend at his reproduction 18 column antebellum Southern style mansion at Lyford Cay in the Bahamas, complete with black servants with livery that matched the tablecloth and upholstery. John was one of the very first foreign investors in Japan in the fifties when it was the first postwar emerging market, buying companies like Hitachi and Toyota at PE multiples of one and two.

3) The 3G IPhone goes on sale on Friday for $200, with higher service charges. Sales in 2008 are expected to reach 12 million globally, and 45 million in 2009. Apple expects to sell more than 350,000 on the first day and the lines started forming yesterday. The new phone has better sound, a GPS chip, and allows web page downloads four times faster than the previous generation. The phone has an 'Ap store' that for the first time allows thousands of third party providers to sell specialized programs. Expect the media to go bananas.

4) 50% of all corporate capital spending is now on technology.

5) Cargill has finally commercially developed the Brazilian plant stevia. Until now leaves of this exotic plant, which are 200 times sweeter than sugar, was found only in health food stores as a sugar substitute. Cargill's Rebana product will be sold as a healthy, natural alternative to Splenda and Equal.

6) Treasury Secretary Hank Poulson predicts that home foreclosures will hit an all time high of 2.5 million this year. Bad for McCain.

7) CNBC voted Texas as the most business friendly state in the country, followed by Virginia. The state has a booming economy, thanks to the oil industry, which also makes it the country's largest exporter. The Lone Star state is home to 58 of the Fortune 500 and has the best state transportation system. It has no state income tax and a pro business legal system.