Page 2125 - Mad Hedge Fund Trader

October 30, 2008

Global Market Comments for October 30, 2008

1) Q3 GDP came in at -0.3%, the lowest in seven years, indicating that we are solidly in recession. Residential investment fell a gut wrenching -19.1%, while consumer spending is -2.2%, the biggest drop since 1980. Further revisions downward are expected. They don't call this the dismal science for nothing. We've had 1929 already, and next year will be 1930. The big question is, can our great leaders keep us out of 1931 and 1932?

2) Buried amidst the tons of pork in the 400 page bail out bill was a huge increase in the tax credit for alternative energy, from $2,000 to 30% of the investment. Desperate home builders like Standard Pacific, Centex, Pulte, and Lennar are using this credit, which can be worth up to $7,500/unit, as a gimmick to help eat into their inventory glut by selling 'Solar Homes'. These green buildings offer two way electric meters that automatically sell excess power generated back to PG&E, and cut the net monthly power bills to only $30. Great for homebuilders in sun drenched places like, well'?Stockton!

3) An amusing poll in Backpacker magazine says that Obama would provide the most support for national parks, but that McCain would be the most interesting person to wait out a storm in a tent with, and would certainly have the greatest chance of surviving being lost in the forest.

4) Exxon (XOM) Q3 profits came in at $14.8 billion, the largest in the history of any corporation. The stock has dropped from $96 to $55 since July. That was with crude peaking at $148. How will they do at $60?

5) The euro/yen cross has had an unbelievable move in the last two days, from ??111 to ??125, and was a major factor in the stock market rally. A year ago this cross was at ??165. Euro/yen is a great bellwether of risk taking by hedge funds, since they all fund in yen at effective 0% interest rates. It is the first sign that global deleveraging is reaching an end.

6) The steady thaw in the overnight credit markets is accelerating and will soon spread to other asset classes. It's making last week's bottom in global markets look more solid.

October 30, 2008

Diary

Global Market Comments for October 30, 2008

1) Q3 GDP came in at -0.3%, the lowest in seven years, indicating that we are solidly in recession. Residential investment fell a gut wrenching -19.1%, while consumer spending is -2.2%, the biggest drop since 1980. Further revisions downward are expected. They don't call this the dismal science for nothing. We've had 1929 already, and next year will be 1930. The big question is, can our great leaders keep us out of 1931 and 1932?

2) Buried amidst the tons of pork in the 400 page bail out bill was a huge increase in the tax credit for alternative energy, from $2,000 to 30% of the investment. Desperate home builders like Standard Pacific, Centex, Pulte, and Lennar are using this credit, which can be worth up to $7,500/unit, as a gimmick to help eat into their inventory glut by selling 'Solar Homes'. These green buildings offer two way electric meters that automatically sell excess power generated back to PG&E, and cut the net monthly power bills to only $30. Great for homebuilders in sun drenched places like, well'?Stockton!

3) An amusing poll in Backpacker magazine says that Obama would provide the most support for national parks, but that McCain would be the most interesting person to wait out a storm in a tent with, and would certainly have the greatest chance of surviving being lost in the forest.

4) Exxon (XOM) Q3 profits came in at $14.8 billion, the largest in the history of any corporation. The stock has dropped from $96 to $55 since July. That was with crude peaking at $148. How will they do at $60?

5) The euro/yen cross has had an unbelievable move in the last two days, from ??111 to ??125, and was a major factor in the stock market rally. A year ago this cross was at ??165. Euro/yen is a great bellwether of risk taking by hedge funds, since they all fund in yen at effective 0% interest rates. It is the first sign that global deleveraging is reaching an end.

6) The steady thaw in the overnight credit markets is accelerating and will soon spread to other asset classes. It's making last week's bottom in global markets look more solid.

October 29, 2008

Diary

Global Market Comments for October 29, 2008

1) The Fed cut rates by 0.50% to 1%, justifying yesterday's monster stock rally. But doesn't 1% sound familiar? Isn't that the rate that Greenspan targeted that planted the seeds of the current crisis? Beware of the unintended consequences!

2) On Monday, when the commercial paper market reopened, Treasury bought $61 billion in paper, ten times the normal volume in that market. M1 is now growing at a red hot 20% rate. A tidal wave of money is hitting the financial system. LIBOR has fallen every day for three weeks, and 30 T-bill rates have made it all the back up to 0.45%. But as the Japanese learned in the nineties, you can make all of the money in the world available, but there will be no takers without business confidence. It's like pushing on a string. You can lead a horse to water but you can't make him lend. Am I mixing metaphors here? Faith in the future, which Treasury secretary Hank Paulson managed to destroy in a mere week, could take years to rebuild.

3) The S&P Case-Shiller home price index for August produced its usual horrific result, showing a 16.8% decline for the 20 largest home markets. Only Cleveland and Boston where up marginally. If you add in closing and carrying costs, every buyer of real estate since 2000 is now underwater.

4) Sweden announced a $200 billion bail out package to rescue its banks for the second time in two decades. Iceland raised its key interest rate to 18% to defend the kroner. ??Every day a new country drops like a piece of rotten fruit off the credit tree.

5) More than 90% of the world's economic growth in 2009 will occur in emerging markets, with the largest portion coming from China. The average growth rate is expected to be 5%. The US and Europe are expected to show no growth at all. Many emerging markets with huge reserves are going into this recession in better shape than the US. In China the savings rate is 40%, compared to zero here.

October 29, 2008

Diary

Global Market Comments for October 29, 2008

1) The Fed cut rates by 0.50% to 1%, justifying yesterday's monster stock rally. But doesn't 1% sound familiar? Isn't that the rate that Greenspan targeted that planted the seeds of the current crisis? Beware of the unintended consequences!

2) On Monday, when the commercial paper market reopened, Treasury bought $61 billion in paper, ten times the normal volume in that market. M1 is now growing at a red hot 20% rate. A tidal wave of money is hitting the financial system. LIBOR has fallen every day for three weeks, and 30 T-bill rates have made it all the back up to 0.45%. But as the Japanese learned in the nineties, you can make all of the money in the world available, but there will be no takers without business confidence. It's like pushing on a string. You can lead a horse to water but you can't make him lend. Am I mixing metaphors here? Faith in the future, which Treasury secretary Hank Paulson managed to destroy in a mere week, could take years to rebuild.

3) The S&P Case-Shiller home price index for August produced its usual horrific result, showing a 16.8% decline for the 20 largest home markets. Only Cleveland and Boston where up marginally. If you add in closing and carrying costs, every buyer of real estate since 2000 is now underwater.

4) Sweden announced a $200 billion bail out package to rescue its banks for the second time in two decades. Iceland raised its key interest rate to 18% to defend the kroner. ??Every day a new country drops like a piece of rotten fruit off the credit tree.

5) More than 90% of the world's economic growth in 2009 will occur in emerging markets, with the largest portion coming from China. The average growth rate is expected to be 5%. The US and Europe are expected to show no growth at all. Many emerging markets with huge reserves are going into this recession in better shape than the US. In China the savings rate is 40%, compared to zero here.

October 28, 2008

Diary

Global Market Comments for October 28, 2008

1) All the recent trends reversed today on imminent Fed and ECB rate cuts. The Dow soared 900, crude and commodities popped, while the dollar and Treasuries sold off. The yen short I strongly recommended yesterday at ??92/$ fell back to ??97/$. The VIX fell back from 80% to only 66%. Please see last Friday's 'strategy call of the decade' warning of an imminent sharp recovery in stocks. Looks like we will be in an 8,000 to 10,000 range in the Dow for a while, which will define the bottom of this bear market.

2) I was looking at homes in Stockton over the weekend, the foreclosure capital of the world. I was offered an FHA loan at a 30 year fixed rate, 3% down, requiring a credit score of only 650. That works out to a monthly payment of $2,000/month on a 3,500 square foot home brand new out of the box. The bad news is that it is in Stockton.

3) A disastrous unwind of a pairs trade gone wrong has inadvertently caused Volkswagen's market cap to shoot up to $303 billion, making it the world's largest company. Figuring the company was overvalued, hedge funds shorted Volkswagen and went long Porsche. The trade accounted for 12% of VW's float. A surprise increase in margin requirements forced everyone to come out of this trade ad once, creating a gigantic short squeeze that drove VW's stock from ???200 to ???665 in just two days. This is a perfect example of what happens when too many big hedge funds bunch up in a single stock, and is why I never do pairs trades.

4) Consumer confidence for September produced a record fall from 61% to 38%. We knew it was going to be bad, but this is off the charts bad. It was the largest month on month drop to the lowest absolute level in history.

5) After being suspended for a week, the Icelandic kroner opened for trading today and promptly fell 50%. Watch for great vacation packages to this fascinating but newly impoverished Nordic country. Great for girl watching, sardines, spa treatments and puffin watching.

6) You know times are tough when Howdy Doody dies. E. Roger Muir, the star behind the NBC fifties children's' show we all grew up on, was 89. The last four decades had been kind of slow for him. Howdy Doody ran for president against Truman in 1948. Buffalo Bob mourns.

QUOTE OF THE DAY

'Control everything. Own nothing', John D. Rockefeller, founder of the Standard Oil Company.

October 28, 2008

Diary

Global Market Comments for October 28, 2008

1) All the recent trends reversed today on imminent Fed and ECB rate cuts. The Dow soared 900, crude and commodities popped, while the dollar and Treasuries sold off. The yen short I strongly recommended yesterday at ??92/$ fell back to ??97/$. The VIX fell back from 80% to only 66%. Please see last Friday's 'strategy call of the decade' warning of an imminent sharp recovery in stocks. Looks like we will be in an 8,000 to 10,000 range in the Dow for a while, which will define the bottom of this bear market.

2) I was looking at homes in Stockton over the weekend, the foreclosure capital of the world. I was offered an FHA loan at a 30 year fixed rate, 3% down, requiring a credit score of only 650. That works out to a monthly payment of $2,000/month on a 3,500 square foot home brand new out of the box. The bad news is that it is in Stockton.

3) A disastrous unwind of a pairs trade gone wrong has inadvertently caused Volkswagen's market cap to shoot up to $303 billion, making it the world's largest company. Figuring the company was overvalued, hedge funds shorted Volkswagen and went long Porsche. The trade accounted for 12% of VW's float. A surprise increase in margin requirements forced everyone to come out of this trade ad once, creating a gigantic short squeeze that drove VW's stock from ???200 to ???665 in just two days. This is a perfect example of what happens when too many big hedge funds bunch up in a single stock, and is why I never do pairs trades.

4) Consumer confidence for September produced a record fall from 61% to 38%. We knew it was going to be bad, but this is off the charts bad. It was the largest month on month drop to the lowest absolute level in history.

5) After being suspended for a week, the Icelandic kroner opened for trading today and promptly fell 50%. Watch for great vacation packages to this fascinating but newly impoverished Nordic country. Great for girl watching, sardines, spa treatments and puffin watching.

6) You know times are tough when Howdy Doody dies. E. Roger Muir, the star behind the NBC fifties children's' show we all grew up on, was 89. The last four decades had been kind of slow for him. Howdy Doody ran for president against Truman in 1948. Buffalo Bob mourns.

QUOTE OF THE DAY

'Control everything. Own nothing', John D. Rockefeller, founder of the Standard Oil Company.

October 27, 2008

Diary

Global Market Comments for October 27, 2008

1) Another Asia melt down hit the markets. Hong Kong was down 12% to 11,000. Japan was down 6.4%, hitting a new 24 year low. The euro made it to $1.23. Iceland's stock market is now down 90% from its top. The Great Global Deleverage continues. Futures markets are increasing margin requirements. Prime brokers are increasing collateral requirements from 10% to 30%. This is all happening while hedge funds and mutual funds are seeing record redemptions. Fear is rampant. October has so far shown the worst stock market loss since 1938, down 25%. It all adds up to: 'Sell!'

2) From 1929 to 1932 US Steel (X) crashed 91% from $262 to $22. It took a decline in US GDP of 70% and a factory utilization rate of only 12% to knock the stock down that much. In the past five months the same exact stock fell 85% from $196 to $30, and that is while Steel's capacity utilization rate has stayed at 100% and is facing a GDP decline of only 5-7%.?? X and many other stocks have already discounted a depression that isn't going to happen. X was one of the most widely own stocks by hedge funds looking for a commodity play. Something is wrong with this picture.

3) I expect the Fed to cut interest rates from 1.5% to 1% on Wednesday. Rates will likely stay there for a couple of years. The commercial paper market reopened today with a government guaranteed rate of 2.88%. The Treasury is flooding the system with liquidity there, taking on all comers.

4) Bookies in Ireland are giving ten to one odds on a McCain win. The weekend polls show Obama ahead 53% to 40%. Democrats are looking at their biggest non incumbent win since 1932. Echoes of The USS Potomac.

5) Great headline in Barron's over the weekend: 'Can a Horror Movie Have a Happy Ending?' The loss in market value of global equities in the past year has been $20 trillion, $12 trillion from the US alone. Real estate and commodities may have been another $20 trillion. Mind boggling numbers of Great Depression proportions.

6) The lobster market has collapsed. Dockside prices in New England have fallen 50% from $4.40/lb to $2.20/lb in the past year and is now cheaper than baloney. The export business has seized up because of the inability to obtain letters of credit, and domestic demand has plummeted. Communities are holding lobster bakes to eat up excess inventory and help distressed fishermen. A sign of the times.

QUOTE OF THE DAY

'It could be structured by cows and we would still rate it', a Moody's staffer.

October 27, 2008

Diary

Global Market Comments for October 27, 2008

1) Another Asia melt down hit the markets. Hong Kong was down 12% to 11,000. Japan was down 6.4%, hitting a new 24 year low. The euro made it to $1.23. Iceland's stock market is now down 90% from its top. The Great Global Deleverage continues. Futures markets are increasing margin requirements. Prime brokers are increasing collateral requirements from 10% to 30%. This is all happening while hedge funds and mutual funds are seeing record redemptions. Fear is rampant. October has so far shown the worst stock market loss since 1938, down 25%. It all adds up to: 'Sell!'

2) From 1929 to 1932 US Steel (X) crashed 91% from $262 to $22. It took a decline in US GDP of 70% and a factory utilization rate of only 12% to knock the stock down that much. In the past five months the same exact stock fell 85% from $196 to $30, and that is while Steel's capacity utilization rate has stayed at 100% and is facing a GDP decline of only 5-7%.?? X and many other stocks have already discounted a depression that isn't going to happen. X was one of the most widely own stocks by hedge funds looking for a commodity play. Something is wrong with this picture.

3) I expect the Fed to cut interest rates from 1.5% to 1% on Wednesday. Rates will likely stay there for a couple of years. The commercial paper market reopened today with a government guaranteed rate of 2.88%. The Treasury is flooding the system with liquidity there, taking on all comers.

4) Bookies in Ireland are giving ten to one odds on a McCain win. The weekend polls show Obama ahead 53% to 40%. Democrats are looking at their biggest non incumbent win since 1932. Echoes of The USS Potomac.

5) Great headline in Barron's over the weekend: 'Can a Horror Movie Have a Happy Ending?' The loss in market value of global equities in the past year has been $20 trillion, $12 trillion from the US alone. Real estate and commodities may have been another $20 trillion. Mind boggling numbers of Great Depression proportions.

6) The lobster market has collapsed. Dockside prices in New England have fallen 50% from $4.40/lb to $2.20/lb in the past year and is now cheaper than baloney. The export business has seized up because of the inability to obtain letters of credit, and domestic demand has plummeted. Communities are holding lobster bakes to eat up excess inventory and help distressed fishermen. A sign of the times.

QUOTE OF THE DAY

'It could be structured by cows and we would still rate it', a Moody's staffer.

October 24, 2008

Diary

Global Market Comments for October 24, 2008
STRATEGY CALL OF THE DECADE

We are building up to a textbook capitulation in global stock markets, and I believe that equities will hit multigenerational valuation lows sometime in the next ten days. The extremely rare limit down move in the S&P Index futures at the opening today, driving the VIX to another new record high of 89.5%, shows us that the end is near. More than 11,000 contracts, or $2.7 billion worth of stock equivalent, were for sale at market at the opening. Many people did not expect the stock market to open at all today, but in fact the Dow closed down only 316. Use the opportunity to load up on a portfolio of equities which you can put away for the rest of your life. There is no way to know when or where the final low will come, so put scale in bids at throw away levels well below the market. When the rally comes it will be vicious and you won't be able to buy stock. Focus on liquid, cash flow positive, best of breed names that will lead the charge upward like IBM (IBM), Intel (INTC), Cisco Systems (CSCO), General Electric (GE), Goldman Sachs (GS), Boeing (BA), Caterpillar (CAT), Microsoft (MSFT), US Steel (X), Exxon Mobile (XOM), and Walmart (WMT). You can also load up on long dated calls on the S&P 500 and NASDAQ.

1) American traders were stunned to find the world down 10% overnight. Hong Kong hit 12,600, down 60% from the year's high, and this is for an economy with a long term growth rate of 10% a year. Gold fell as low as $663, down from $1,050 in the spring. A massive unwind of the carry trade pushed the yen up 5% to ??92. Any buying of anything gets run over by a stampede of hedge fund selling, which has been ordered by lenders to cut positions and reduce leverage. The market is now fixated by two dates: October 31 when mutual funds close their books for the year, and November 15, the deadline for annual hedge fund redemption notifications. The last Monday in October is historically the most likely day to put in a low for the year.

2) PNC Financial (PNC) buys National City (NCC) with Treasury financing for $5.2 billion in stock, making it the 5^th largest bank in the country. The strong are eating the weak at fire sale prices. Expect more to come.

3) OPEC announced production cuts of 1.5 million barrels/day when 4 million was needed, driving prices down $4 to $63. This guarantees a glut early next year which may drive prices down to $50. Then they will cut production by 4 million?? barrels. Expect local gasoline price to drop below $2 before this sell off is over. US motorists drove 15 billion fewer miles than a year ago, a record drop, saving 12 million barrels of crude (24 super tankers full) for that month alone. Can you believe that crude has fallen by $85 since July?

4) LIBOR has dropped 10 consecutive days. The commercial paper market reopens next week. The medicine is on the way as long as the patient doesn't die first. The futures market is pricing in a likelihood of a 75 basis point cut in rates in November. The ECB may cut rates as early as Monday.

October 24, 2008

Diary

Global Market Comments for October 24, 2008
STRATEGY CALL OF THE DECADE

We are building up to a textbook capitulation in global stock markets, and I believe that equities will hit multigenerational valuation lows sometime in the next ten days. The extremely rare limit down move in the S&P Index futures at the opening today, driving the VIX to another new record high of 89.5%, shows us that the end is near. More than 11,000 contracts, or $2.7 billion worth of stock equivalent, were for sale at market at the opening. Many people did not expect the stock market to open at all today, but in fact the Dow closed down only 316. Use the opportunity to load up on a portfolio of equities which you can put away for the rest of your life. There is no way to know when or where the final low will come, so put scale in bids at throw away levels well below the market. When the rally comes it will be vicious and you won't be able to buy stock. Focus on liquid, cash flow positive, best of breed names that will lead the charge upward like IBM (IBM), Intel (INTC), Cisco Systems (CSCO), General Electric (GE), Goldman Sachs (GS), Boeing (BA), Caterpillar (CAT), Microsoft (MSFT), US Steel (X), Exxon Mobile (XOM), and Walmart (WMT). You can also load up on long dated calls on the S&P 500 and NASDAQ.

1) American traders were stunned to find the world down 10% overnight. Hong Kong hit 12,600, down 60% from the year's high, and this is for an economy with a long term growth rate of 10% a year. Gold fell as low as $663, down from $1,050 in the spring. A massive unwind of the carry trade pushed the yen up 5% to ??92. Any buying of anything gets run over by a stampede of hedge fund selling, which has been ordered by lenders to cut positions and reduce leverage. The market is now fixated by two dates: October 31 when mutual funds close their books for the year, and November 15, the deadline for annual hedge fund redemption notifications. The last Monday in October is historically the most likely day to put in a low for the year.

2) PNC Financial (PNC) buys National City (NCC) with Treasury financing for $5.2 billion in stock, making it the 5^th largest bank in the country. The strong are eating the weak at fire sale prices. Expect more to come.

3) OPEC announced production cuts of 1.5 million barrels/day when 4 million was needed, driving prices down $4 to $63. This guarantees a glut early next year which may drive prices down to $50. Then they will cut production by 4 million?? barrels. Expect local gasoline price to drop below $2 before this sell off is over. US motorists drove 15 billion fewer miles than a year ago, a record drop, saving 12 million barrels of crude (24 super tankers full) for that month alone. Can you believe that crude has fallen by $85 since July?

4) LIBOR has dropped 10 consecutive days. The commercial paper market reopens next week. The medicine is on the way as long as the patient doesn't die first. The futures market is pricing in a likelihood of a 75 basis point cut in rates in November. The ECB may cut rates as early as Monday.