Global Market Comments for September 2, 2008

1) Hurricane Gustav pulled its punch, so crude (USO) crashed $13 from the Friday high to the $105 handle. The market was discounting another Katrina and got a damp squib instead. Natural gas (NG) collapsed 74 cents to $7.20. They don't call this contract the widow maker for nothing. Expect to hear about more hedge funds going under, married to their longs. Please see last week's call not to buy this dip. The ninety dollar handle for crude may be only one weak storm away. Don't expect pump prices to fall much because 2.6 million barrels/day of refining capacity is still offline.

2) Stocks loved the crude fall, for a few hours anyway, rallying 200 points, then falling 300. The fact that these rallies have no shelf life is telling you a lot. To see the Dow up only 500 points from the July bottom on a $43 drop in the price of crude is disheartening, to say the least. The bond market isn't buying it for a nanosecond, with prices approaching new highs for the year. United Airlines (UAUA) rocketed with the other airlines, up 50% intraday, and has risen from $2.50 to a high of $16, up 600% in ten weeks. Please see my June recommendation to buy the airlines as a cheap undated put on crude. This trade is now gone.

3) I come back from vacation to find out that if McCain wins the election and then dies, the finger on the nuclear launch button will belong to the recent alpha female, lifetime NRA member mayor of Wasilla, Alaska, population 5,469. McCain just tossed out the inexperience issue he could use against Obama, along with the ever important pro caribou constituency. Check out her Miss Alaska photos. They're hot! The rest of the world must think we've gone mad. You're good at filling in small town pot holes? Great, please run the country for us. I guess anyone is an improvement over what we've got. The market sold off big on the news. I'm going back to the mountains and becoming a survivalist.

4) There were massive outright sellers of Lehman (LEH) puts last week, something few have had the guts to do so far. Someone is betting that Dick Fuld can pull off a ?Hail Mary? before the earnings are due out later this month.

5) The dollar broke to a new high for the year to the $1.44/euro handle. It is becoming increasingly clear that the next moves in interest rates will be up in the US and down in Europe, with the UK leading the charge to the downside. Even the Australian central bank has cut interest rates for the first time in seven years. That makes sterling the best short out there. The move has been so massive, and so rapid, that multinationals are being forced to cover large scale hedges because of margin calls, adding fuel to the fire. Look for the euro going to the mid $1.30s and the pound at $1.50 at a minimum.

Global Market Comments for August 26, 2008

1) Crude pops $6 and natural gas leaps 42 cents to $8.25 as hurricane Gustav turns towards the oil and gas producing facilities in the Gulf of Mexico. One mathematical model has a category four hurricane hitting New Orleans in 3-4 days.

2) The S&P case-Shiller home price index for June fell 15.4% YOY. San Francisco came in at -23.7% YOY. Even though homebuilders have cut back construction dramatically, foreclosures keep dumping more properties on the market, driving prices down.

3) The ten year return on the S&P 500 has been a meager 3%. Add in dividends and it rises to 23%.

4) The top 1% of taxpayers in the US earn 20% of the income, but pay 40% of the taxes. Obama plans to raise the capital gains tax from 15% back to the Reagan level of 28%.

5) Since gas prices spiked people are driving less and driving slower, causing the accident rate to drop precipitously. Highway deaths are now running at an annualized rate of 33,000, the lowest since 1961. Car insurance rates will fall. US crude consumption has declined by one million barrels/day in the past year which is equivalent to 42% of our yearly imports from the Persian Gulf.

6) Natural gas (NG) hit my short term target of $7.75, down 42% from its $13.50 high two months ago. If you think this is an unusual move just look at a six year chart for NG. It is the third such move. Welcome to the natural gas market, where the ante is a pair of balls of steel. Stand aside for now. Storage is now above the five year moving average. If there are no more hurricanes after Gustav this season, and crude visits the eighties, you could see NG break below $7. Worse, the crude/NG ratio is now at an all time high of 14.7.

7) The commercial real estate debt market will be pushed closer to the brink on September 1. That is when an interest payment is due to Deutsch Bank on a $225 million loan to Riverton, a 1,232 apartment complex in Harlem. The owners used aggressive financing to overpay for a complex in 2005 where 93% of the units were subject to New York rent control. With market values now half of what they paid, the owners may find it expedient just to default and walk away from the project. The move could trigger a panic in the market for the securities backing similarly leveraged commercial deals, shut the window on new developments, and open the next chapter of the credit crisis. Terms have already dramatically tightened. In the past year commercial loan to value has dropped from 95% to 65%, spreads have widened from 75 basis points over Treasuries to 300 bp, and the volume of deals fallen from $3 billion in 2007 to only $1.5 billion so far this year.

Global Market Comments for August 21, 2008

1) Crude (USO) spiked $10 to $122 when it realized that 1% of the world's production passes through a pipeline in Georgia where the Russian invasion shows no sign of ending soon. Tropical storm Fay also brought out fears of a Gulf hurricane back to the surface. Panic buying spread across a wide range of commodities contracts, from rice to gold to natural gas.

2) The tiny island nation of Singapore, which has never won a medal in the Olympics, has offered to pay a $735,000 bounty to anyone who brings home the gold. Malaysia is offering a $300,000 prize, Greece $220,000, and the Philippines $200,000. The US pays a relatively chintzy $25,000 to its medal winners. NBC thought it died and went to heaven when it rained during the women's volleyball gold medal final. Suddenly it became an Olympic wet T-shirt contest!

3) Weekly jobless claims moderated to 432,000, down 13,000. Just noise.

4) Last week the Treasury called Credit Suisse and asked them not to cut off short term credit lines to Lehman (LEH) to head off a run on the bank. The stock tanked down to $12.50, and the stock will soon be trading at a hat size. The Treasury doesn't do this for companies that are in the pink of health. What do they know? When did they know it? What are they not telling us?

5) You only want to buy when there is blood in the streets, and Russia's invasion of Georgia is presenting us with an opportunity to do so by the bucket load. Russia's recent seizure of assets owned by BP (BP) and Royal Dutch Shell (RDS-B) has also sent a shiver down investors' backs. But the rising Russian middle class story is still alive. The Market Vectors Russia ETF (RSX) is down 36% from its June high of $59. Lukoil (LUKOY), the country's most independent oil producer, is now selling for five times earnings compared to seven times for ExxonMobile (XOM) and Chevron (CVX) and ten ties for Petrobras (PBR). Companies enjoying government political protection include Gazprom (OGZPY) and savings bank Sberbank (SBRBF). The best non energy play is wireless operator Vimpelcom (VIP). Mechel Steel Group (MTL) is down a gut wrenching 70% on fears of a tax investigation. If you really want to go out on a limb there is JSC Bank of Georgia (BGEO).

6) Rim (RIMM) launched its next generation Blackberry Bold in Canada today. The 3G smart phone designed for high end business users is thinner, faster, carries a two megapixel camera, and can use a wide range of third party financial and market tracking software. Sign me up. The phone will only be available through AT&T in the US.

Global Market Comments for August 20, 2008

1) Weekly crude inventories soared by a record 9.4 million barrels as demand destruction accelerates, knocking the price down $5 to $12.50. The world is clearly producing more crude than it is using, but there is still no margin for error on the supply side. Several big hedge funds are now targeting a move to $86 before year end.

2) Maudie Hopkins, one of the last surviving confederate army widows, died at 93. In 1934, at age 19, she married an 86 year old veteran of the Civil War who died shortly thereafter. She has been collecting a government pension ever since. The Veterans Administration is still paying pensions to a half dozen similar widows from both sides of the civil war, which ended 143 years ago. One is collecting a pension from a late Civil War veteran and a WWII veteran.

3) The US share of world GDP has fallen from 50% at the end of WWII to 21% today, and is expected to fall to only 18% in the next ten years. It won't be the end of the world. Holland's world GDP share peaked in 1617, and things are not so bad there.

4) Lehman (LEH) stock collapsed again, by 15% yesterday to $12 as the incredible shrinking Lehman story continues. One report predicted that LEH will soon write off another $4 billion in assets. If they sell their $40 billion real estate?? portfolio and their money management division, the firm will be back where it was strategically in 1995, a much smaller, less profitable entity. Most senior staff have seen the value of their stock options wiped out and are expected to bail soon, including CEO Richard Fuld.

5) Fears that the next wave of defaults will come from the commercial real estate sector have driven the share prices of listed developers down to absurd levels. Stocks are now discounting a doomsday scenario which may or may not happen.?? Best of breed here are the Westfield Group (HQR.BE), developer of malls in the US, Australia, and New Zealand, and Japan's Mistubishi Estate (8802.TO), the largest owner of prime office space in Tokyo's Marunouchi business district.

6) Fannie Mae (FNM) and Freddie Mac (FRE) hit new lows on concerns that a Fed bailout may not come. With FNM at $4 and FRE at $3 they are now trading at the value of a perpetual option with a zero strike price and an incredibly low implied volatility. Cheap. The two together own half the mortgages sold in the US. If they do go under, China and Russia will declare war on the US because they hold so much of their paper.?? If these two don't go bankrupt, they will generate stock returns of several hundred percent. These look like the airline stocks that I recommended two months ago that brought in an immediate fourfold return.