Global Market Comments for September 26, 2008
1) The government seized WAMU and sold it to JP Morgan without even telling WAMU’s senior management because they were all on a plane to meet with a potential buyer. Common, preferred, and debt holders were all wiped out. Morgan immediately wrote off $31 billion of WAMU’s debt, about 20% of the total.
2) From 2002 to 2007, $100 billion poured into BRIC country stock markets. In the last three months $25 billion has come out, taking these markets down 39%-58%.
3) The five largest sovereign wealth funds are the United Arab Emirates (Dubai) $625 billion, Norway $322 billion, Singapore $215 billion, Kuwait $213 billion, and China $200 billion.
4) The trailing ten year return on the S&P 500 is the lowest since 1974. This signals that the market is in the process of forming a major multi decade bottom. It has made this low only four other times in history.
5) It?s looking like China’s economic slowdown is more than just a post Olympic hangover. The US Christmas selling season is expected to be a disaster this year and that will make a big dent in Chinese exports, the main driver of the economy. Home prices in Southwest China are down 20% and may enter a US style meltdown. The Shanghai and Hong Kong stock markets are already reflecting as much, down 68% and 45% respectively. Economic growth may fall from an 11% annualized rate earlier this year to under 8%. If it falls to zero, there will be a revolution. Expect bulk commodity prices to fall further.
TRADE OF THE DAY
Time to come out of the bull cylinder I recommended yesterday. The congressional talks are obviously in trouble, and with the WAMU failure there is a real chance of a crash on Monday. And there is already a big profit in the position. Time to say ‘thank you very much Mr. Market’, take the gift and retreat to the sidelines. If your friends make a killing on a giant up move on Monday, just let them pay for dinner next time. Capital preservation is key here. The October mini S&P 1100 puts you sold yesterday for $13 you can now buy back for $10 because the market is taking the weekend’s time decay out in advance and short dated volatility has come in a bit. The Dec mini S&P 1300 calls you bought for $18 you can now sell for $25 because of a 200 point move up in the market and because longer dated volatility is holding up. The overnight net profit on the position is $15, or $750,000. Just trying to show you how I operate. Take the money and run.