Global Market Comments for December 4, 2008
Featured trades: (VIX), ($GOLD), ($SPX), (BAC), (DD), (T)

1) The relentless drumbeat of layoffs continues. United at SFO 500, DuPont (DD) 2,500, AT & T (T) 1,200, and Bank of America 30,000! Many of the BAC cuts will be at its newly acquired Merrill Lynch subsidiary. If the Big Three auto makers go under, add another two million to these figures. Overnight the ECB cut interest rates by 0.75% to 2.50%.

2) Historically, recessions end right after the government announces them. The most powerful leading indicator, the stock market, understands this and enters a bull market soon after. Employers, the most pitiful lagging indicator, start hiring about two years later.

3) It looks like the Volatility Index (VIX) is heading into a new, permanently higher range. When the VIX was at 15%, it created a daily Dow range of 1%, or 140 points. At 60% it creates a 4% daily range, or 350 points. Fasten your seat belts!

4) Hawaii has adopted the Better Place exchangeable battery program for cars you were so interested in. The state is an ideal location for such a program because the island limits most car trips to less than 40 low speed miles. Gas is expensive there, because it all must be imported from the West Coast. It will cost $1 billion to build the initial recharging network, and fleets are expected to be the initial users.

5) Famed short seller Bill Fleckenstein, author of Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve, has made a killing in this year's melt down. Bill is such a serious short seller that he keeps a seven foot tall stuffed bear in his office wearing a 'Dow 10,000' hat. Bill has just covered his stock shorts because the government has created just too much liquidity to justify the risk. And maybe he looked at the chart of the S&P 500 below. He is, however, keeping a core long in gold because the current massive reflationary campaign will eventually come back to bite in the form of much higher inflation.

Global Market Comments for December 1, 2008
Featured trades: (WTIC)

1) The good news is that the Black Friday retail sales figures came in better than expected, up 7% according to some surveys. The bad news is that designer goods were sold at flea market prices, jumbo flat screen TV's were given away for half, and that all of the stores slashing prices were losing money big time. Friday offered the greatest sales promotions ever. What's worse, it appears that many consumers finished their Christmas shopping on Friday. China's purchasing managers index indicates that the economy there has ground to a complete halt. It didn't help that Oppenheimer's Meredith Whitney predicted that credit card companies would cut credit lines by $2 trillion over the next 18 months. With traders anticipating the worst non-farm payroll number in decades this Friday, more than minus -300,000, it was all enough to chop 700 of the Dow. Treasury bond yields tumbled to 50 year lows across the board.

2) Last week was the best for the stock market since 1932. Today was the worst December 1 since 1929, and I am afraid that this will not be the last comparison with 1929 we will make this month.

3) Obama's appointment of former Fed governor Paul Volker as head of his special economic team tells you more than it says. It means that the president elect understands that the biggest challenge to his administration during the 2012 election will be reigning in double digit inflation triggered by today's massive liquidity creation. Who better to do this than Volker, the last living Fed governor to break the back of high inflation in the US. Warning: He did this by wringing every last drop out of credit growth, and jacking up short interest rates to 18%.

4) The hotel industry is now facing a perfect storm.?? Occupancy rates have fallen by 14 consecutive months, while supply is up 2.4%, well above its long term trend growth rate. Business travelers are down 2-3%, leisure travelers are down 6-7%, and international travelers have been knocked out of the box by the suddenly stronger dollar. What corporate business remains is seeing prices beaten down by customers desperate to cut their own costs. Only the convention business remains healthy, because bookings were made one to three years ago, back in the boom days. Hotel managers are trying to stop the bleeding by adding the innocuous little fees that I always hate, such as for mini bar restocking, baggage storage, early check ins, and late check outs.

5) The market is rife with stories of distress in the global crude markets, and a break below $50 is a gimme. OPEC has proven politically unable to make sufficient production cuts. Virtually all storage facilities are now full, and China has become a net exporter of gasoline for the first time. Shell just chartered a 311,000 ton tanker, the Front Crown, for $60,000/day to store crude it is unable to deliver. Because of the credit freeze, it now costs 17%/per annum to carry a long position in the futures market. Lat week whole gasoline futures crashed below $1, meaning the Bay Area retail prices may fall to $1.29/gallon by early next year!

Global Market Comments for November 26, 2008
Featured trades: (HCBK), (BRK/A), (WB)

1) The relentless drumbeat of dire economic data continues. October consumer spending was down 1%. Durable goods shrank by 6.2%, the lowest since 9/11. Sales of single family homes?? collapsed, -5.3%, a 17 year low. Will the last person leaving the stock market please turn the lights out?

2) Tom Barrack, CEO of Colony Capital, with $39 billion in assets, dumped most of his commercial real estate portfolio at the market top in 2005. He sees the next big financial disaster occurring at the regional and community banks, which so far have been too small to attract the attention of regulators. The problem with real estate is that you usually don't know you have a default until a year after it started, because the information flow from tenant, to mall owner, to lender, is so slow. He now sees the best investment opportunities in The US, Europe, and Russia.

3) The only financial in the S&P 500 that has gone up this year has been New Jersey based Hudson City Bancorp.?? (HCBK). The bank only lends money to local people it knows, and then keeps the loans on its books, neatly side stepping the valuation crisis plaguing the industry. It figures that you had to go to a museum of banking practices to find an institution that was prospering in this environment.

4) The Treasury's cash tsunami finally hit the mortgage market. The interest rate for 30 year, fixed rate mortgages has fallen from 5.62% to 5.30% in a week. You can count on them to drop a lot further.

5) Warren Buffet's Berkshire Hathaway (BRK/A) shares have dropped by 49%, from $148,000 to $76,000, in the past month. Investors fear that his fund will blow up because of a massive, ultra long dated, short put position he wrote, covering $37 billion of underlying stock index exposure. He made a bet that indexes would not fall more than 50% for 20 years. But the sage of Omaha was able to dictate terms that none of us could ever see. He is not required to put up any collateral as the put approaches the strike, even if Berkshire is downgraded. The put is European style, meaning that there is a one time only exercise date in 20 years. The S&P 500 has never fallen even 1% over any 20 year period. All the buyer, probably a large life insurance company, really got here was bragging rights. This has all driven BRK/A's stock price down to an enormous discount to underlying high grade assets, and makes the stock a screaming buy. A rare chance to tap into the Oracle of Omaha's mind on the cheap.

6) One novel theory I heard last week about stock market bottoms was that the Dow would drop to the value of one once of gold. It last traded there during the late 1970s, when the Dow and gold were both trading at $700. By 2000, the Dow was trading at 45 times an ounce of gold. If the Dow plunges to 5,000, and hyperinflation causes gold to rocket to $5,000/ounce, we might see parity again. But as much as I am a bull on inflation, I think this is a stretch, at best.

7) The number of people receiving food stamps surpassed 30 million for the first time. This is our modern equivalent to soup lines. Expect the numbers to rise dramatically.

8) The top ten executives at Wachovia Bank (WB) ran their bank into the ground, wiped out the shareholders, and then paid themselves $100 million in bonuses. I would have done it only for $50 million, and saved the shareholders $50 million. Really.