July 17, 2008

Global Market Comments for July 17, 2008

1) Crude broke down to $129, down $6?? on the day and down $19 from a high a week ago. Stocks loved it, flying another 200 points.

2) Traders are still reeling from the explosiveness of yesterday’s move in financials. Lehman (LEH) was up 37%, Bank of America (BAC) 24%, WAMU (WM) was up a mind boggling 54%. Short sellers rushed to cover naked shorts ahead of the Monday implementation of the tightened short selling rules. Can you believe that Bank of America got down to $18 on Tuesday? With a market cap of $123 JPM is now by far the largest bank in the US. In the land of the blind the one eyed man is king.

3) June housing starts came in at a surprisingly strong +9.1%, giving us a 1.09 million units annualized rate. New building permits were up 11.6% in June.

4) Coke (KO), JP Morgan (JPM), and United Technology (UTX) all announced better than expected Q2 earnings. The story is all the same. Domestic weakness is being more than offset by international income.

5) Looks like Mitsubishi Motors will win the race to bring the first all electric car to the market. It is introducing its MiEV ultra compact in Japan in 2009. Nissan will follow in 2010 with a car with a 100 mile range and a Lithium-Ion battery that can be 80% recharged in 20 minutes. Fuel cell technology is proving too expensive. Honda says that it will take ten years for the production cost of its FCX Clarity fuel cell car to drop from $950,000/unit to $100,000/unit. It looks like the current generation of Prius and Civic based hybrid technology has about a six year window before they are overtaken by competitive all electric cars.

6) A three year old Prius is now selling for 87% of the cost of a new one, compared to 55% for the typical used car the same age. If you drive 15,000 miles/year you need to drive your Prius three years to earn back this premium in gas savings. The waiting list at my local Toyota dealer is six weeks.


August crude options expired today. Please note that all call short selling strategies that I have recommended saw their options expire worthless today. Crude went out today at $129, $21 away from my nearest strike. You could have made a dozen round trips this month using this strategy, which would have been immensely profitable.