July 8, 2008

Global Market Comments for July 8, 2008

1) Crude fell another $6 to $135, taking it down $10 in two days. The sell off spread across the entire commodities sector, taking corn -8%, soybeans -8%, wheat -7%, and copper -4%. All frothy, market top type price action. Producing stocks, like Mosaic and US Steel, fell more. The long awaited commodities correction may finally be at hand. One of the explanations for this is that the Chinese are gearing down their economy in preparation for the Olympics, temporarily halting all commodity purchases. The Dow rose 150.

2) Boone Pickens rolled out his personally financed national campaign for a new energy policy. Foreign oil imports have soared from 24% of US requirements in 1970, to 42% in 1991, and 70% in 2008, and now cost $700 billion/year. Natural gas now accounts for 22% of the 987,000 Megawatt/year in power generation. Boone advocates diverting this to cars and replacing that power generation with wind. This would cut US foreign oil purchases to $400 billion/year and would cause the price of oil to collapse. It would take 5-10 years to implement his plan. This would cause fuel costs to fall dramatically. One million BTU of natural gas costing $13 has the same energy equivalent as 8 gallons of gas costing $40. It costs $2,000 to convert a convention gasoline engine to natural gas. I think this would work, and is one of the reasons I spent 2000-2004 exploring for natural gas in Texas. US natural gas reserves have doubled in the past five years due to improved extraction technology. The whole plan would give us a 30 year window to develop alternative energy technologies. For details go to www.pickensplan.com.

3) According to the National Association of Realtors, pending home sales in May were -4.7% and -14% YOY. The West fell only 1.3% in May.

4) The price of donkeys in Turkey has increased seven fold in a year as people switch from cars. Regular gas costs $10.60/gallon there.

5) Great quote from Jamie Diamond, CEO of JP Morgan, in reference to his Bear Stearns purchase: 'The price of a house for sale is not the same as the price of a house on fire for sale.'

6) The spread between stock dividend yields and bond yields is the narrowest since 1981.

7) The VIX hit 27%, creating put selling opportunities on the S&P 500.

8) Siemens announced a layoff of 16,750 employees worldwide. The recession is spreading to Europe.

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