January 22, 2009

Global Market Comments for January 22, 2009
Featured Trades: (MSFT)

1) Today was the day of the Microsoft shock, with disappointing earnings and a layoff of 5,000. Too bad their principal product, Vista, never worked. There was a slew of economic data today, all bad. Weekly jobless claims exploded upward by 62,000 to 589,000, taking continuing claims up to 4.6 million, a 26 year high. Lagging indicator economists are relentlessly ratcheting up their worse case unemployment forecasts from 8% to 9%, 10%, and 11% on up. Housing starts collapsed to 550,000, half the replacement rate, while permits fell 50% YOY to 549,000.?? Massive inventories continue to plague homebuilders. The median San Francisco Bay Area home price fell 43% YOY. That great sucking sound you hear is your home equity disappearing.

2) Weekly crude inventories showed a build of six million barrels, vastly greater than expected. Demand is collapsing faster than suppliers can cut it off. All storage facilities at the delivery point for west Texas Intermediate Crude are full, and buyers are agitating to take delivery elsewhere. At least 50 vessels are thought to be storing crude at sea, and countless others are slow steaming from the Middle East, hoping for a spot price revival in the meantime. Crude is the bellwether price to watch right now, and will be the first to turn on any improvement in the economy.

3) Now that we are basking in the afterglow of Obama's inauguration, it is time to face some harsh realities. There is very little the new president can do that has any immediate impact. Public works is an inherently slow process that will take even longer in a new era of greater transparency. Competitive open bidding, design, contracting, permits, zoning, and the marshalling of equipment and materials can take a year, even on a fast track basis. Shovel ready projects won't start hiring for six months. The best Obama can do is to fund immediate and massive grants to states and municipalities to prevent them from shutting down local services, throwing more people out of work. He can also fund and extend soon to dry up unemployment benefits. In the meantime, he can only make inspirational, forward looking speeches, and watch as the economic data continues to worsen at a dramatic pace.

4) Eastern Europe has the world's worst performing stock markets so far this year. After a year when investors thought things couldn't get worse, they did, with shares in Poland, the Czech Republic, and Hungary down 15%. Soaring current account deficits have knocked their currencies down another 12%. Companies from the old East Bloc are more leveraged than most, and those that borrowed in dollars or Swiss Francs are in especially bad shape.

5) John Colson, CEO of Houston based Quanta Services (PWR), a leading builder of energy infrastructure, sees wind rising from 1.5% to 15% of our power supply during the Obama administration, but no more. Wind can beat clean coal, natural gas, solar, and new nuclear on cost, but never old nuclear, dirty coal, and most recently crude. Rapidly developing technology is pushing us towards a rare, level playing field for several different power sources at once.

HISTORICAL FACT OF THE DAY

Casting about for ways to end the Great Depression, FDR met with Nobel Prize winning economist John Maynard Keynes in 1932. Decades later historians studied the notes of the meeting by the two men, neither of whom was impressed with the other. Keynes wrote 'he doesn't understand a single word I said.' FDR penned 'you can't get something for nothing.'