Global Market Comments for February 25, 2009
Featured Trades: (C), (BAC)

1) So nationalize the banks already! Get it over with! Call it whatever you want: partial nationalization, temporary nationalization, socialization, liverwurst, or rutabaga. Just get it over with! This tortuous slow drip of on again, off again, stop gap measures is going to cost us more than if we executed the politically incorrect 'N' word. Of course, a government takeover is the worst nightmare for many Republicans. But now that former Fed governor Alan Greenspan and many fiscal conservatives are on board, this shouldn't amount to political suicide for Obama. The FDIC's Sheila Bair already does this on an almost daily basis with smaller regional banks, like Washington Mutual, but for some reason the top nine 'too big to fail' banks are sacrosanct. Their deposits have been effectively nationalized with government guarantees since last fall. The market is already selling us that many of these once hallowed institutions are now worthless. This is what Citigroup (C) at $1 and Bank of America (BAC) at $2 are telling us. Just wipe out the pitifully little the common shareholders have left, clean them up, and resell them in five years after the credit markets are restored. Every government that ever did this, like the UK in the eighties and Hong Kong in 1998, made a fortune. I was involved with both, and serious coin was made by the sellers and the buyers. Not to drive a stake through the hearts of these de facto 'zombie' banks really would risk a Great Depression II and an 'L' shaped lost decade. The markets would love decisive and surgical action like this and rocket.

2) Looks like the San Francisco Chronicle may be about to join the dustbin of history. The industry rag, Editor and Publisher, says that the privately owned Hearst Corporation has given the venerable paper an ultimatum to cut costs or close. The 150 year old Chronicle lost $50 million last year. Of course, this may all be a ploy just to beat up one of the last surviving unions, but they have made a similar threat to their paper in Seattle. Ironically, Hearst acquired the Chronicle and dumped the San Francisco Examiner in 2,000, which was then put on a crash diet and made profitable by its new owners. If the Chronicle goes it will join the Philadelphia Enquirer which went under last week, and the soon to be shut Christian Science Monitor. Google has been eating their lunch for years, and classified ads have migrated to Craig?s List. It is tough to chop down a forest to make paper, get a union to print it, and manually distribute your product, and then compete against a one man email blast on costs. If the Chronicle goes it will be survived by a much smaller SFGate.com, one of the most successful web based newspaper portals out there. There could be a ninth earning save by a surprise buyer. But moguls willing to hemorrhage ?? ?? money just to promote a political view are a dying breed. Rupert Murdoch has been the only recent buyer of newspapers, and something tells me that a match with the Chronicle would not exactly be one made in Heaven. In five years there will probably be only two mass circulation papers left, The New York Times and the Wall Street Journal, with the Washington Post as an outlyer. Thousands of small, local, niche publications will take up the slack. As a long time print journalist dating back to the typewriter days myself, I am sad to see newspapers go. But you can't exactly sit like Denmark's old King Canute and order the tide to stop rising. Journalism is degrading into an army of guys banging away at the computers at 3:00 AM in their boxer shorts. Trust, accuracy, objectivity, style, and taste will be the victims.

3) I thought Joe Biden's chief economist Jared Bernstein made an interesting comment today. He inferred that Obama had a tough time crafting a stimulus and recovery plan because so many government data releases last year were massaged, distorted, obfuscated and misrepresented to hide how serious the unfolding economic crisis really was.

4) Expatriates have been bailing on Dubai so fast that there are now 3,000 abandoned luxury cars parked at the airport. Those with multiyear leases who don't want to pay early return penalties are just abandoning their vehicles with the keys left in the ignition, some with apology notes taped to the windshield. Failure to pay debts can get one locked up in a local prison.

QUOTE OF THE DAY

'Do not allow our newspapers to degenerate into propagandist organs,' said the late press baron, William Randolph Hearst.

Global Market Comments for February 23, 2009
Featured Trades: (C), (XOM), (GM), ($NIKK)

1) The Treasury moved to raise its stake in Citigroup (C) by up to 40% by converting preferred into common, yet another step down the road to creeping nationalism. With C trading as low as $1.20 on Friday, taking its market cap down to a mere $10 billion, does anyone care? The markets have already delivered their own judgment. Does this mean my ATM is going to start working with the same frustrating inefficiency of Amtrak, another poorly run government entity? The market cap for all 24 banks in the S&P 500 subsector has shrunk to $269 billion, less than the capitalization of Exxon (XOM) at $354 billion. The stock market hated all of this and fell 251 to a new 12 year low at 7,114.

2) On Friday General Motors (GM) hit a low of $1.60/share, taking its market cap below $1 billion. CEO Rick Wagoner says he 'doesn't know' if the company will need additional bail out money at the end of March if its $18 billion February request gets funded. The lowest market cap the company saw during the Great Depression was $4 billion. This company is toast.

3) My old friend, Stephen Roche, chairman of Morgan Stanley Asia, says that the current US bubble is four times larger than Japan's, whose market is still down 80% from its 1989 high (no typos here). The American consumer, who at the peak accounted for 72% of GDP, has been left for dead. Japan's bubble was caused by a collapse in capital spending, which never accounted for more than 17% of GDP. If we make China our whipping boy, as the Democratic Congress is historically inclined to do, they could come back to bite us in the hand. Treasury Secretary Geithner's recent comment that China is a 'currency manipulator' hasn't helped. Our financial markets are now desperately dependent on the Middle Kingdom recycling their trade surplus into our bond market. A Chinese boycott would trigger a collapse in the dollar, and send US interest rates sky high.

4) Which online businesses are currently booming??? According to the data firm ComScore, in a total online audience of 190 million in January, traffic to employment sites like CareerBuilder.com, Monster.com, and Yahoo's Hot Job Searches, leapt by 46% to 26.7 million, driven by the collapse of the job market. Visits to tax sites like IRS.gov, CA.gov, and H & R Block were up 176% MOM to 24.7 million, as weary taxpayers seek assistance on this unpleasant annual chore. Consumers looking for travel bargains for the spring triggered a stampede to sites like VacationstoGo.com, Disney Travel, and Expedia.com, which were up 46% to 13 million clicks. Concerns about salmonella poisoning drove a lot of traffic to a range of government websites. Facebook finally broke into the top ten, with 57.2 million visits.

5) I finally got my hug from the terrorist and ex-bomber who used to pal around with Obama during his reckless youth. Yesterday I donned my only tie died T-shirt and went to Berkeley to meet University of Illinois professor Bill Ayers, who was raising money for a Middle Eastern children's charity. It was fascinating to listen to this echo from the sixties, and to see political radicalism in its modern incarnation. It's no longer about mass demonstrations and civil disobedience (and bombing). It's about online networking and organization, which the Democratic campaign proved so effective at in the last election. Closet socialists on the left and hardliners on the right, who thought Obama was pretending to be a moderate just to win the votes, will be sorely disappointed. He really is a moderate! Ayers was joined by his wife, former Weather Underground activist Bernardine Dohrn, a former resident of the FBI's ten most wanted list. After having been told by the government that this was one of the most dangerous people in America, who should be hunted down at any cost, I was pleasantly surprised by the demure, but eloquent grey haired little old lady who appeared on stage. It occurred to me that Obama could be one of the greatest 'black swans' ever. Who gave odds that this guy would win a year ago? Now he is President, and his impact on the markets, and on history will be momentous.

QUOTE OF THE DAY

'You cannot multiply wealth by dividing it,? said the late Dr. Adrian Rogers, past president of the Southern Baptist Convention.

Global Market Comments for February 19, 2009
Featured Trades: ($GOLD), (DGP), (GLD), (WFC), (EPD)

1) GOLD! GOLD! GOLD! This is the cry being heard worldwide by investors in the Great Gold rush of 2009, looking for a generic 'short America' trade. Where in the past gold seekers used sluices, shovels, and jackhammers to extract the glittery stuff in California's Sierras, Alaska's Klondike, and South Africa's Rand, today the instrument of choice is the mouse. Online traders are unleashing clicks by the millions to buy ETF's, American Eagles, mining shares, and futures contracts. With stock traders sitting on their haunches, wondering if the Dow will hold 7,000, this is the only thing that is working right now. Gold is no longer just catastrophe insurance. Traders are buying gold more for what it isn't, than what it is. It isn't made of paper, made in the US, or held in custody by Bernie Madoff or Stanford Financial. The yellow metal hit a new high for the year of $887 overnight, and the risk of a 'melt up' is increasing. The Street Tracks Gold Trust ETF (GLD) is now the seventh largest holder of the barbaric relic in the world. For the newly aggressive, look at the DB Gold Double Long ETF (DGP), which gives you a 200% long exposure to gold, and is up 54% in a month. Who says there is nothing to buy out there?

2) We learn today that Stanford Financial invested with Bernie Madoff. A Ponzi scheme investing in a Ponzi scheme. Is this what we have come to? What ironic justice! It also appears that many of the world's top professional golfers invested with Stanford and have been wiped out.

3) Wells Fargo Bank (WFC) has been in a free fall for the last two weeks, as investors bail out of the stock in fear of nationalization, or an Alt-A loan loss driven bankruptcy. The stock has vaporized 47% in three weeks, down to a new 12 year low. Veloceraptor like hedge funds have been major short sellers of the stock because it is one of the last banks with any meat still on the bone. Demand for out of the money puts is soaring. The stock is being dragged down further by big selling of bank and financial ETF's, like the Financial Select Sector SPDR (XLF), which has WFC as its second largest holding at 8.74%.

4) The longer crude stays below $40, the more production is being taken off the market. At this stage all 35 million barrels of storage at the Cushing, Oklahoma delivery point for west Texas intermediate are brimming with crude. The 709 million barrel Strategic Petroleum Reserve (SPR) is nearly full. And there is another 50 million barrels stored in supertankers at sea which is building by the day. Demand has collapsed so fast, that oil companies can't shut down production fast enough. The scary thing about this is that when the next crude spike upward in crude comes, it will be worse than the last one. Take advantage of the current distress prices to accumulate oil infrastructure stocks. Kinder Morgan Energy Partners (KMP) has a PE multiple of 25 and a dividend yield of 8.3%. Enterprise Products Partners (EPD) has a $10 billion portfolio of fractionation facilities, storage, offshore drilling platforms, and 32,478 miles of product, natural gas, and crude pipelines, and carries a modest PE multiple of 12 X and a dividend yield of 9.2%. More expensive Kinder Morgan Energy Partners (KMP) with a PE multiple of 25 X and a dividend yield of 8.3% is also worth a look see.

QUOTE OF THE DAY

'He that lives upon hope will die fasting,' said Benjamin Franklin.

Global Market Comments for February 17, 2009
Featured Trades: (TM), ($GOLD), ($SSEC)

1) In three short weeks we have gone from an administration that had a political interest in portraying the economy as not as bad as it really was, to one that paints the economy as worse than it really is. The markets don't like it. It says a lot that the Dow is taking a run at a new six year low, and is perilously close to a 12 year low, the day Obama signs his stimulus package.

2) Gold continues to move from strength to strength, hitting a new high for the year of $972 today, up 22% from my recommended entry point.?? In January, gold ETF's bought a record 104 tonnes of the yellow metal. Last week alone, purchases soared to an astonishing 110 tonnes. There has also been huge buying of December, 2009 1,000 calls, suggesting that some players are hoping for a melt up if we break the old highs at $1,050. Looks like we have found our new bubble. Let the games begin!

3) Nobel Prize winning economist Paul Krugman published a blistering editorial in the New York Times yesterday where he makes the shocking observation that there has been no increase in Americans' net worth since 2001. The entire surge in asset prices this century was nothing more than a Madoff style illusion. This is what we should have been expecting all along, since as a nation, we have been spending more than we have been saving for a decade. Krugman uses the just released Federal Reserve Survey of Consumer Finances to support his position. Housing has another 10-15% to drop, and the fall is unstoppable. The just passed $787 billion stimulus package is only a quarter the size of the reflationary program that ended the Great Depression, known as WWII. All sobering food for thought. Now we have to restart the century all over again!

4) I thought you'd be interested to know the top 20 websites visited on the internet in December. No big surprises here.

Rank ???? ??Website ???? ??Market Share

1. ???? ??www.google.com ???? ??6.38%
2. ???? ??mail.yahoo.com ???? ??4.7%
3. ???? ??www.myspace.com ???? ??3.71%
4. ???? ??www.yahoo.com ???? ??3.65%
5. ???? ??mail.live.com ???? ??1.74%
6. ???? ??www.facebook.com ???? ??1.65%
7. ???? ??www.ebay.com ???? ??1.64%
8. ???? ??search.yahoo.com ???? ??1.52%
9. ???? ??www.msn.com ???? ??1.17%
10. ???? ??www.youtube.com ???? ??0.98%
11. ???? ??www.gmail.com ???? ??0.93%
12. ???? ??images.google.com ???? ??0.55%
13. ???? ??www.amazon.com ???? ??0.5%
14. ???? ??www.wikipedia.org ???? ??0.5%
15. ???? ??mail.aol.com ???? ??0.44%
16. ???? ??my.yahoo.com ???? ??0.4%
17. ???? ??www.pogo.com ???? ??0.4%
18. ???? ??search.msn.com ???? ??0.4%
19. ???? ??www.craigslist.org ???? ??0.37%

5) According to the New York Stock Exchange, the five largest shorts in the market are: Ford Motor (F), Citigroup (C), General Electric (GE), American International Group (AIG), and Wells Fargo (WFC).

6) Japan's Q3 GDP shrank 3.3%, worse than expected, and the current quarter may show a greater decline. Exports fell a stunning 45%. The country's finance minister, Shoichi Nakagawa, appeared drunk at a press conference, then resigned. The Tokyo stock exchange is off 14% YTD, making it the world's worst performer. Toyota has chopped the price of a new Prius to $20,000, with 0% financing, to clear an enormous backlog of unsold vehicles to make way for the launch of the new plug-in version at the end of this year.

7) One of the few mustard seeds out there continues to be the Shanghai stock market, up 32% YTD, and the best performing stock market in the world. Pundits with short memories are rehabilitating the 'decoupling' theory again, which so far has only 'decoupled' investors from their money. While the Middle Kingdom's growth rate has backed off from a torrid 13% to probably 5%, it is the only major economy that is actually growing. The bet is that their stimulus package, which has a much higher component of infrastructure as opposed to social spending and tax cuts, will work better than ours. Betting against China has been a loser for 30 years now.

QUOTE OF THE DAY

'Stocks have reached a permanently high plateau,' said Irving Fisher in 1929, one of the founders of the science of economometrics. Fisher lost a $10 million personal fortune in the 96% collapse in the market that ensued.

Global Market Comments for February 12, 2009
Featured Trades: (DEO)

1) Those who believe that the wine and spirits business is recession proof should take a look at UK based Diageo (DEO). Its shares just hit a new low for the year of $50, down 42%. Although the giant purveyor of alcoholic beverages posted profits up 18% in the recent half, CEO Paul Walsh says that a consumer in retreat is forcing him to scale back expectations for this year.?? The UK firm is hoping to limit the damage by restructuring to cut costs. There is no doubt they have buyer's remorse for the many wine labels it acquired at premium prices in recent years, including Rosenblum, Blossom Hill, Sterling, Acacia, and Chalone. The economic collapse has been so rapid and so severe, that old, trusted models for predicting consumer behavior are now useless. Shoppers are trading down to less expensive labels, and it is harder to realize higher prices on everything. People are going out to drink less, but taking beverages home for consumption more. Shoppers are more inclined to buy well known brands, and less prone to risk limited disposable income on experimenting with unproven new brands. Of course the world's largest owner of alcohol brands would say this, talking his own book.

2) In excessively focusing on our own problems here in the US, it is easy to miss an economic collapse of Biblical proportions that is going on in Japan. Q4 GDP is coming out next week, and the median forecast is -12%, with more dire numbers of -15% out there. This is four times the rate of decline we saw in the US. The global economic shut down is heavily concentrated in the auto industry, of which Japan is the largest exporter. My old friend IMF managing director Eisuke Sakakibara, known as 'Mr. Yen', does not see a recovery for two more years. The country has no ability to convert from an export led to a domestic demand economy in the short term. Bubbles are long in building, and long in deflating. As Vice Minister of Finance in Japan during the lost decade of the nineties, he should know.

3) Why don't we accept the wisdom of crowds and accept the market's judgment that the big banks are worthless? Let them all go bankrupt. With Bank of America (BAC) and?? Citigroup (C) down 95% from their peaks, shareholders have already been wiped out. All we are arguing about here is whether they should be allowed to come back in the next economic recovery. The Geithner bailout plan missed a golden opportunity to shock us all to our senses. Whatever happened to creative destruction? Let the weak banks go, and they will be replaced by stronger, better managed ones without any government involvement at all. Let the natural Darwinian survival of the fittest run its course. I watched with chagrin while Japanese banks pretended they were solvent for 15 years. Everyone in the country suffered as a result, and a whole generation's worth of economic growth was lost.

4) Notice how the campaign against hedge fund short sellers has quietly slithered back into the hole from which it came. It turns out that many of these banks were worthless after all. Hedge funds have in fact been one of the few sectors of the financial system that has not taken government bailout money. For this they got hit with the ill conceived short sale ban, which cost many players big money.

QUOTE OF THE DAY

'Perfect can't be the enemy of the necessary,' said President Obama about the just passed stimulus bill.