July 15, 2008

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.

Euro3year.png picture by sbronte

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.


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.