January 12, 2009
Global Market Comments for January 12, 2009 Featured Trades: (FLS) 1) If you had any doubt where the next equity play is going to be, take a look at the chart below, which I lifted from The Economist. It shows that by the end of this year, 80% of GDP growth will be generated by emerging economies, while only 20% will come from developed ones. Time to brush up on your Portuguese, Russian, Hindi, Mandarin or Cantonese, and for good measure, Korean. Forgetting you know where Wall Street is might also help.
2) Hennessee Group says that hedge funds lost an average 18.9% in 2008, the worst year ever. Despite all of the moaning, I think this is pretty good for a year when all known asset classes, except Treasuries, dropped by half. And the jungle telegraph tells me that there are thousands of disciplined, risk controlled, low leveraged traders out there who used the volatility to generate great years, but are keeping a low profile. Making tons of money has suddenly gone out of fashion. 3) War sure has changed in the Internet age. Israelis are coming home from work, setting up lawn chairs outside, and making videos of incoming missiles. They then post these on YouTube to be viewed by cheering supporter in the US. The closest explosions are getting the most views. 4) Many economists believe that the Great Depression?? was only ended by the massive spending brought on by WWII, which cost $4 trillion in today's dollars. So when Obama says that we are looking at trillion dollar deficits as far as the eye can see, he is not kidding. 5) I continue to like buying key oil infrastructure stocks here at throw away prices, as cheap undated calls on the future resurgence of crude prices. Flowserve (FLS) is a global supplier of pumps, valves, seals, automation, and services to the power, oil, gas, and chemical industries. After a 75% drop in the stock, it now sells at a PE multiple of 7 X, giving you a return on equity of 33%. It's a perfect case of a baby being thrown out with the bath water. Remember my call eight months ago to buy airline stocks as cheap puts on crude before their 400% rise? Same thing. You are getting free leverage on multiple fronts with no expiration date. 
4) Some 23% of the population of California does not speak English, compared to 14.5% for the entire US. These numbers have gone up since Homeland Security closed the border with Mexico.