Global Market Comments for March 16, 2009
Featured Trades: (CHINA), (BAC), (C)
1) Fed chairman Ben Bernanke did a great interview with CBS 60 Minutes last night. It's nice to know that the recession 'might' end this year. He ruled out the big banks going to zero, which is great news for Bank of America (BAC) and Citigroup (C). This should support global stock markets for at least another day, and every day helps! Who knew he missed only one question on his SAT test to score a 1590 and that his mother didn't want him to go to Harvard because he didn't have the right clothes? I bet it was a question in the verbal section. It was all a nice bit of hand holding while we may be enduring the worst quarter for the economy in a century. If we don't surpass the -8.1% seen in Q1, 1981, it will certainly be in the top three worst quarters of all time. Anyone going shopping, visiting a car dealer, or waiting in long lines for unemployment benefits will tell you this. By the way, BAC is now trading like a penny stock, up nearly triple from last week's low. A BAC triple? Pinch me!
2) Ian Bremmer, President of the Eurasia Group, the world's preeminent independent risk control consultant, passed through town last week to promote his latest book, The Fat Tail: The Power of Political Knowledge for Strategic Investing. The book details how money managers must become cognizant of and deal with foreign laws, regulation, government turnovers, civil unrest, expropriation, terrorism, and war, in order to survive in this increasingly complex and interconnected world. Globalization has ground to a screeching halt. Governments are now more important than multinationals in influencing our economic future, and a new form of 'state capitalism' is emerging. We are shifting from a unipolar to a nonpolar world. Iraq is morphing from war into a peace keeping operation, while Afghanistan is rapidly moving in the opposite direction. Geopolitical risks are rising. With crude at $46 a barrel there is no Iran premium currently in the market, and $20-$30 could price in very quickly. China and Brazil are the long term winners in the new set up, and the dollar is the big loser. The greatest risk to the US is its overdependence on borrowing from China. This is a must read book for any hedge fund manager struggling with his global risk exposure and looking for some great long term plays.
3) In one of the worst market timing efforts ever, the Financial Times reports that China dramatically increased it weighting in equities and other risk assets for its $1.8 trillion in reserves in early 2007, just before the markets crashed.?? The, unfortunately named, State Administration of Foreign Exchange (SAFE) boosted its holdings in US equities alone, from $4 billion to $100 billion, which have since dropped at least by half. It turns out the Middle Kingdom took its hard earned profits from US exports and used the money to buy, now worthless, American lottery tickets. I'm glad I'm not the guy who has to explain this decision to the country's senior leadership. At least poorly performing fund managers in the West don't face firing squads, or at least not yet.
4) The top Ten Messages Found on Bernie Madoff's answering machine, according to comedian David Letterman:
10) 'This is Barnes & Noble. I'm sorry we don't sell calendars for the year 2159.'
9) 'Hey Bernie, I've been out of the country-how are my investments doing?'
8) 'Blockbuster calling. Your copies of 'The Great Escape' and 'The Shawshank Redemption' are overdue.'
7) 'Do I have the correct number? Is this 1-800-F***-***?'
6) 'It's Ruth'?if you go out, remember to swindle some milk and eggs.'
5) 'If you're under house arrest why aren't you home?'
4) 'Sorry, I didn't mean to dial your number. I just sat on my phone.'
3) 'Hi Bernie, its A-Rod's cousin. You looking to bulk up for prison?'
2) 'It's Michael Phelps. Need something to help you relax?'
1) 'It's George W. Bush. Can I still get in?'
QUOTE OF THE DAY
'How badly can you get hurt falling out of a basement window,' said Bob Brusca of Fact and Opinion Economics about current stock prices.
Global Market Comments for March 13, 2009
Featured Trades: ($USD), (DOLLAR)
1) I ran into governor Arnold Schwarzenegger at the men's bathroom at San Francisco's Mark Hopkins yesterday, much to the distress of his posse of ex Marine bodyguards. He was there to take credit for hammering together a compromise solution to his state's $42 billion budget fiasco in front of 400 admiring members of the Commonwealth Club of California. After heavies physically dragged hecklers out of the ballroom, the retired Terminator confessed that enduring the tedious, and often contentious negotiations was worse than watching his first movie, 'Hercules in New York.' The shortfall was so gigantic, that even firing all 200,000 state workers would not have filled the gap. Well funded special interests from both the right and the left make it impossible to get anything done in Sacramento. Unrestrained gerrymandering means that extremists are rewarded at the polls, and moderates punished. Of course, the budget compromise still requires an amendment to the state constitution which must be approved by voters on May 19, not exactly a sure thing. I have never been a big fan of the 'governator,' but a lot of what he said made sense.
2) I once gave you the specs of your next car, the plug-in Prius. Now I can tell you what your kids will drive. Toyota is rumored to be working on a sub compact hybrid that will sell 20%-30% cheaper than its existing alternative vehicle. The Japanese giant is attempting to head off inroads being made by Honda's Insight model, and lay a greater claim to the world's car market.
3) Chinese president Hu Jintao has expressed 'concern' about the safety of his country's $696 billion investment in US Treasury bonds. What he is not telling you is that he is even more 'concerned' about the hundreds of billions of Fannie Mae, Freddie Mac, GMAC, and other agency debt, which are either now untradeable, or have gone into the toilet. And 'concerned' he should be. Not only is some of the paper China owns now worthless, there is a 50% devaluation of the dollar in the cards which is the guaranteed result of current US government printing press policies. One of the great luxuries of running a dictatorship is that you can skip mark-to-market accounting. The government entities that own this garbage are carrying it on their books at par, because they intend to hold it to maturity. If China used mark-to-market they would have plunged into another civil war by now. Expect to hear more 'concerns' from Japan, Singapore, and the sovereign wealth funds that are in the same boat.
4) The diamond market has crashed. Recession plagued wholesalers and retailers in the US, which account for half of world demand, are glutted with stagnant inventory, and have watched helplessly as prices dropped a third from the 2007 peak. De Beers has shuttered its Botswana mine, which supplied a quarter of the world's rough sparklers. Diamonds account for a third of the African country's GDP and 80% of its foreign exchange income, and now Standard and Poor's is threatening a sovereign ratings downgrade. Was there ever a better time to drop down on one knee and make that marriage proposal?
QUOTE OF THE DAY
'Politics are like a road. The middle is drivable, but on the right and left you find the gutter,' said President Dwight D. Eisenhower.
Global Market Comments for March 12, 2009
Featured Trades: (TBT)
1) Forbes Magazine has published its annual list of the 400 wealthiest, and the carnage has been awesome. The net worth of the elite club has shrunk from $4.4 trillion to $2.4 trillion, with the average dropping from $3.9 billion to $3 billion. Bill Gates, worth $40 billion, jumps back up to the number one position, even though he lost $18 billion in 2008. The number of billionaires has plunged from over 1,100 to 793. Among the fallen are Citigroup's Sandy Weil, Facebook's Mark Zukerberg, and AIG's Hank Greenberg, and of course, Sir Alan Stanford.?? China managed to add five new billionaires, including Wang Chuanfu, founder of battery maker BYD, who has attracted backing from Warren Buffet for his electric car efforts.
2) The global economic collapse has finally hit China with full force, knocking down exports by 25.7%, and shrinking imports by 24% in February. The ghastly figures show how rapidly international trade is shrinking. The Middle Kingdom's trade surplus is in free fall, and it is just a matter of time before the renminbi starts to fall against the dollar. Do you suppose that anyone in the US government understands that this will lead to fewer Chinese purchases of Treasuries, just when they need to sell the most? Better double up on the TBT, the 200% short long bond ETF.
3) Looks like we are going to have to invent ourselves out of this mess. One third of US GDP is produced by companies that were created after 1980. Almost all new jobs are created in firms that are less than five years old. These figures show that innovation is the primary driver of new hiring.
QUOTE OF THE DAY
' For decades, the money shufflers, the paper shufflers, have been the captains of the universe. That is now changing. The people who produce real things will be on top. You're going to see brokers driving taxis,' said legendary investors Jim Rogers, former partner of George Soros.
Global Market Comments for March 11, 2009
Featured Trades: (GOLD)
1) Noted international monetary economist Judy Shelton believes the US should return to at least a partial gold standard to help damp volatility in the $4.4 trillion a day foreign exchange market to hasten an economic recovery. The current 'dirty float' system, where a free market is subject to occasional coordinated central bank intervention that emerged after the collapse of the original Bretton Woods agreement in 1973, is not working. The US currently holds 260 million ounces of the yellow metal, which for some arcane government accounting reason is still carried on its books at the old fixed rate of $42 an ounce. At today's prices the holdings are worth no less than $231 billion. Such a system would make it easier for governments to manage interest rates and control inflation. The highlight of the evening came when she passed around a ten ounce gold bar worth $9,000 and a one billion deutschmark Weimar Republic bank note, both of which were miraculously returned to her. In the meantime, the recent bounce in global stock markets raise the risk that we have put in a medium term double top in the chart for the barbaric relic.
2) The economic crisis is accelerating the demise of print journalism, whose migration to the Internet was already well underway as cash hemorrhaging owners desperately take a hatchet to costs. Advertising by car dealers has almost vaporized, and revenues from retailers are off by half. The Seattle Post-Intelligencer is in the process of downsizing from print to online only, and early indications are that 85% of the staff will be laid off. If you extrapolate these figures nationally, 37,000 of the 44,000 full time employed journalists in this country are soon to be fired. Newly laid off investment bankers, brokers, and hedge fund managers hoping to build second careers as writers are jumping out of the frying pan into the fire.
QUOTE OF THE DAY
'When we declared war in 1941, there were not 8,000 earmarks attached,' said Warren Buffet in chiding congress in its handling of the economic crisis.
Global Market Comments for March 10, 2009
Featured Trades: (GE), (ABX), (SPX), (WTIC), (OIL)
1) It only took a few dew drops of good news for the Dow to recover from its near death experience and rocket 350 points. The 'I love America trades' of long bonds and Treasuries came back with a vengeance. The 'short America trades' were last seen running down the street with their tails between their legs, with gold breaking key support at $900. News that Citigroup was profitable in 2008, and rumors of the suspension of the uptick rule and mark-to-market accounting were enough to do the trick. It also helped that every technical analyst on the planet was screaming 'Buy!'Although this may not last, even a single day of fresh air is welcome.
2) While most industries are facing the worst conditions in 70 years, the market for business journalists is booming, who investors increasingly look to for advice on how to save their last dollar. During the first two months of this year the financial network CNBC, a subsidiary of General Electric (GE), averaged 282,000 home viewers, compared to 264,000 last year and 233,000 in 2007. The financial crisis is boosting profits there, much as the Gulf War did for CNN in 1991. The network is now increasingly becoming the story itself, offering a rallying point for criticism of the Obama administration as it plays to its overwhelmingly conservative audience. Anti bailout comments by futures markets reporter Rick Santelli, who called those behind on mortgages 'losers', sparked nationwide 'tea party' rallies. The theatrical Jim Cramer accused Obama of causing 'the greatest wealth destruction of any US president,' inviting a White House counterattack. Convincing people they are sick, and then offering to sell them the medicine for a cure, has always been a great business strategy.
3) There is one canary in the coal mine that was squawking loud and clear yesterday. Chinese stockpiling, hedge fund short covering, and rebel interruption of exports from Nigeria drove crude to a two month high yesterday at $48.50, up 50% from its December low. The huge contango, where far month futures contracts traded at enormous premiums, has shrunk dramatically, taking selling pressure off of the front month contract. Perish the thought, but could this be an early indicator of an economic recovery? Today's stock market action certainly says so. Go buy that Smart car!
3) The Financial Times printed a great interview with Peter Munk, the visionary chairman of Canada based Barrick Gold (ABX), the world's largest gold producer. He says that it will only take decisions by a few central banks to move gold up to $2,000 an ounce. The feeling of insecurity is here to stay, and the appeal of gold as a hedge has broadened enormously. With a new floor of gold at $800, the profitability of gold mining companies is soaring. Gold is a win-win play because if financial distress continues, so will gold's flight to safety bid. If the economy recovers, jewelry demand will come roaring back. The world's gold supply is constrained, as miners are having to dig deeper and deeper. Send me another sack of American eagles!
QUOTE OF THE DAY
'If I had only followed CNBC's advice, I'd have a million dollars today, provided that I'd started with $100 million,' said John Stewart of the comedy program, The Daily Show.
Global Market Comments for March 9, 2009
Featured Trades: (COPPER), (XLF), (FCX), (WTIC), (JPM), (WFC), (GS), (BAC), (C)
1) Traders looking for the Next Big Play are keeping a laser like focus on two key commodities. Chinese stockpiling prompted copper to break out of its recent trading range to the upside to $1.70, taking lead producer Freeport McMoran (FCX) up 30% on the week. Crude rose 15% to a high of $46. These impressive moves happened during a week when global equity markets were in complete freefall. This suggests that the bulk of the world's growth will be in emerging economies, and that the next round of commodity buying will be even more ferocious than the last. Since I believe that the future is all about the ascent of hard assets over paper ones, this is music to my ears.
2) To say the market has gone mad is an understatement. The Dow has lost 24% since January 1, giving up $2.6 trillion in value. Other than that Mrs. Lincoln, how was the play? Credit default swap risk premiums now tell you that it is much riskier to invest in Warren Buffet's Berkshire Hathaway (BRK/A) than Vietnam, and that Russia is a safer bet than General Electric (GE). The Dow is headed for the 4,000, according to ultra bear Felix Zulauf of Zulauf Asset Management in Zug, Switzerland. The rock star fund manager believes that we entered a 10-15 year bear market in 2000. He argues that analysts are smoking something with S&P consensus earnings forecasts at $60, down from $100 a year ago, and that the real number will come in at zero to $40. We may see one more bear market rally to 9,000 in the next few months led by financials, mining stocks, and consumer discretionaries. After that the Dow will drop by half. Day traders only need apply.
3) The markets continue to behave like a spoiled child throwing a tantrum because the global response to date has been too little, too late. China did the right thing with a stimulus package amounting to 16% of GDP over two years. But the US has so far come up with a package worth 6% of GDP over three years, which is clearly not enough. $881 billion sounds like a lot of money, but in this world it is only the down payment. Treasury Secretary Hank Paulson promised to ring fence toxic assets but never delivered, buying into the banks instead. Policy makers are not equipped to deal with the globally synchronized nature of this melt down. In 1988 world trade accounted for only 5% of GDP. Last year it was 33%, but is going to hell in a hand basket with stunning speed. More global coordination is necessary, no matter how distasteful that may be.
4) Looks like there is a massive short covering play setting up in the financial sector. There was big hedge fund buying of calls and call spreads in the Financials Select Sector SPDR ETF (XLF) at the end of last week. The healthy components of this basket, like JP Morgan (JPM) (12%), Goldman Sachs (GS) (7%), and Wells Fargo (WFC) (6%), are at record low valuations. The sick ones like Citigroup (C) and Bank of America (BAC) are essentially at zero. This makes your downside risk very low. Watch this space.
5) If you want to see the most vicious roast of a TV network of all time, paste the link to the Huffington Post below to your browser and watch comedian John Stewart demolish CNBC on the Daily Show. It is five minutes of their esteemed commentators telling investors to buy the market at the top, and praising financial heavyweights for their investing acumen just before they were found to have stolen all the money. Their recommendations to load up on Bear Stearns and Lehman brothers are particularly entertaining. It will make your day. Go to:
'http://www.huffingtonpost.com/2009/03/06/cnbc-jon-stewart-response_n_172654.html'
QUOTE OF THE DAY
'When we declared war in 1941 there were not 8,000 earmarks attached,' said Warren buffet in chiding congress in its handling of the economic crisis.
'We must all hang together, or surely we will hang separately', said Benjamin Franklin.
Global Market Comments for March 6, 2009
Featured Trades: (GE), (C), (FXI),(BIDU), (SOHU), (NTES)
1) February nonfarm payroll came in at -651,000, taking the unemployment rate up to 8.1%, a 25 year high. The unemployment rate in California is now well over 10%. There were huge revisions up in the December and January figures. Remember when the market used to have a heart attack over a job loss of 100,000? Those were the days! More than 4.4 million workers have lost their jobs since December, 2007, taking the total unemployed to a record 12.5 million. It may be only a matter of months before we surpass the 1981 peak unemployment rate of 10.8%. These figures suggest that the current quarter GDP could be as low as -8%, the worst since the thirties.
2) Spreads on commercial real estate backed mortgage securities have absolutely blown out to the upside, with the lowest grade BBB- paper now yielding a staggering 45% over Treasuries. This is more than double the peak seen in the wake of the Lehman bankruptcy in September. It reflects just a few throw away bids by opportunistic hedge and vulture funds outside of a closed market, and equates to about 20 cents on the dollar. These are levels anticipating nothing less than a Great Depression II and the utter collapse of the commercial real estate market. The reasons, which you well know, have already been eloquently detailed in these pages: failing tenants, emptying malls, too much leverage, and no refinancing.?? This is one of the reasons why General Electric (GE), which has heavy exposure in the sector, is trading at the $5 handle, down from $38. This is all happening when some of the most expensive and luxurious commercial space ever built, which broke ground three years ago, is about to swamp the market.
3) It now takes only four shares of Citigroup (C) to buy a cup of coffee at Starbucks. The stock market has hit twelve year lows only three times in the last 109 years. Remember, bottoms are made when things look terrible and are getting worse. I am not a big market timer, but this certainly qualifies as one of those times. If you assume that we are seeing the worst economic conditions this quarter since the Depression, then we are setting up for improving conditions in Q2, and the market will start to discount that. The short interest out there is enormous, and the trade is getting too easy. Even my cleaning lady is running a leveraged short on the S&P 500. Could the short bubble be the next one to pop? Watch for another furious 10%-20% bear market rally ensue in the next few days or weeks.
4) There is more speculation that China may lead any upturn in the global capital markets. China's holdings of US government bonds leapt by $250 billion last year, through capital appreciation alone, taking their current market value to roughly $1.25 trillion. To finance a domestic reflationary program, China need only sell some Treasuries, not print money, as the US must. This would involve converting a sizeable chunk of the Middle Kingdom's productive capacity away from US oriented exports to domestic consumption, particularly accelerated much needed infrastructure spending. This would be painful in the short term, to say the least, but is necessary for the long term. This would enable the Chinese stock market to lead the world out of the current morass. Buy the iShares FTSE/Xinhua China 25 ETF (FXI).
5) Clever traders are keeping a sharp eye out for things to buy for the next recovery, whenever that is. Look at the industry of the future in the country of the future, Chinese Internet shares, which are growing 15%-30% a year with strong cash flows. Baidu (BIDU), which is often referred to as the Google of China, saw its shares sell off 75% last year, but have rallied 75% from the December lows. Internet use in China is expected to increase from 250 million to 900 million over the next 5-10 years. The majority will access the net via cell phones, where gaming is the dominant application. Expect huge growth at the four horsemen of the Chinese internet sector, which also includes Netease (NTES), Sina (SINA), and Sohu.com (SOHU).
6) A year ago GMAC financed 1,500 cars for Autonation, the country's biggest auto retailer.?? Last month they financed only nine, despite much higher demand. This tells you where the real problem is.
QUOTE OF THE DAY
?Pessimism is your friend, euphoria the enemy,? said Warren Buffett in his 2009 letter to shareholders.
Global Market Comments for March 5, 2009
Featured Trades: (GE), ($XEU), (GOOG)
1) Q4 European GDP came in at -1.5%. Consumer spending registered the sharpest fall on record, while exports fell off a cliff, the victim of a relentless shrinking of globalization. The euro ($XEU), down to $1.2450, is flirting with a new four year low. The continent continues to pay the price for the disastrous decisions and lack of experience of the EC central bank president, Jean-Claude Trichet, who raised interest rates last summer.
2) Buy a house and pay no taxes for a year. That is what the government is saying with the most generous tax credits in history for first time buyers of new homes. Buyers in California with incomes under $75,000 can cash in on $18,000 in tax credits ($10k in state, $8k in federal) that were slipped into the stimulus program. This is on top of incredibly generous financing, free upgrades, and no fee loans offered by desperate sellers. The package also raised the FHA loan limit from $625,000 back up to $729,000, crucial in the high cost markets of California, New York, and Florida. The only catch is that you have to stay in the house for three years to reap the full benefit. Flippers need not apply.
3) Charlie Rose did an insightful interview with Marc Andreesen last week, who has one of the best high altitude views of the long term future of technology. This is the man who, at 22 co-authored Mosaic browser, which was used to create Netscape Navigator, and eventually Internet Explorer. He sees the recession creating a 'tragic opportunity' that accelerates the migration of dying industries to the Internet like, radio, TV, DVD's, music, newspapers, real estate, and banking. Every day the awesome power of the Internet to eat new industries grows, which is now populated by 1.5 billion users. His favorite game is the incredibly violent 'Gears of War 2' which you should keep out of the hands of your teenagers. Venture capital start ups are not in as bad of shape as people say because they are usually funded with five years of cash flow, enough to get through a downturn. Google, YouTube, and Facebook were all developed during the last recession. The Internet is creating a far better educated and connected consumer than ever seen before. Twitter, where Andreesen is a director, is becoming a real time electronic nervous system for the planet. The same is happening with the world's three billion video enabled cell phone users. He is also on the board of Facebook, with 175 million users, which is leaving at least a $1 billion a year in potential advertising revenues on the table. He is an angel investor in the social networking site LinkedIn, which now boasts 20 million resumes. All in all, it was a fascinating peak into the future.
4) One out of five stocks in the S&P 500 has a single digit price. General Electric (GE) hit the $5 handle. Amazing. This is a company that has $45 billion of cash, $60 billion in back up government financing, and has already rolled over 70% of its long term debt due this year. GE Capital will be profitable this year, because only 2% of its holdings are subject to market to market rules. CFO Keith Sherin says the only explanation for a share price that is a hat size is the rampant fear now sweeping the markets.
5) Google (GOOG) CEO Eric Schmidt says it is obvious that the news is bad and getting worse, that we are not at the bottom yet, and have some quarters to go. Watching traffic it is clear that advertisers are tightening budgets, but the numbers of online advertisers is increasing. The recovery will start first in the US and then spread overseas. However, the company does not expect any fall off in its own revenues. Does Google own the planet, or what?
QUOTE OF THE DAY
'If something can't go on forever, it won't,' said Herb Stein, Chairman of the Council of Economic Advisors under presidents Nixon and Ford.
Global Market Comments for March 4, 2009
Featured Trades: (SILVER), (GOLD)
1) The February ADP employment report showed a loss of 697,000 jobs. Since we are probably in a minus 6% GDP quarter, expect these numbers to remain grisly for months to come. Watch for the Labor Department's nonfarm payroll on Friday, which will be a blockbuster. Rumors of another China stimulus package caused stocks to pop, and took crude back up to $45. The bears have gotten complacent.
2) Simon Rubenstein, chief economist at the Royal Institute of Chartered Surveyors in London, sees global capital values and rents falling everywhere. The biggest hits are in formerly hot areas in China, Russia, and the Persian Gulf. Latin America has held up best so far, but now even it has started to crack. Falling exports and commodity prices are the villain, which is causing a reversal of a decades long globalization trend. The shortage of financing means only a few deals are getting done now, and we have some ways to go before we see a turn. Yields/cap rates have to rise 100 basis points before we draw in substantial investors.
3) I met my paperboy at 5:00 a.m. this morning, who is actually a Vietnamese girl driving a minivan. She delivered all five at once, which means the newspapers have outsourced local delivery to save money, who then aggregate customers to improve efficiency. Phuong took the rubber bands off of the papers when she saw that I was about to pick them up. Now that is cost cutting!
4) Now that we are at the 6,000 handle in the Dow and investors are jumping out of windows, it's time to put things in perspective. My old friend and global economist David Hale dug up some historical data for me. The maximum drawdown in real GDP from the 1929 high to the 1933 low was 26%. The decline nominal GDP was a steeper 46%. David's forecast for this recession is for a mere 3% drawdown. OK, what if?? this is optimistic, and it goes to 4%, or even 5%? We are not even in the ballpark of the numbers seen in the darkest days of the thirties. I know it makes for great, sensationalist headlines, but enough of this talk about another Great Depression already! Get a grip!
5) Howard Ruff is the irascible Mormon publisher of Ruff?? Times (http://www.cyrusfirst.com/guests/rufftimes3/index.php), which after 32 years is one of the oldest investment letters in the business, and one of the original worshipers of hard assets. He says that any investment denominated in dollars is a mistake, which is in a long term down trend. Silver is his first choice, which will outperform gold, and eventually top $50 from the current $12.50. Equities may never come back from their current slide. Don't buy ETF's because they may not actually buy the gold or silver they claim. The government is laying the foundation for a massive inflation which will begin in 6-12 months. You can't say this guy isn't entertaining.
QUOTE OF THE DAY
?Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway,? said Warren Buffett, the Sage of Omaha.
Global Market Comments for March 3, 2009
Featured Trades: (WFC), (JPM), (C), (BAC), (GOLD)
1) We're going to 6,000 in the Dow, then maybe 4,000. So argues Louise Yamada, one of the most respected long term technical analysts on Wall Street. The targets for the S&P 500 are 600 and 400. Let me reprint a comment I made on January 27, when the Dow was at 8,250, some 1,500 points, or 22% higher. 'There is a hulking great 800 pound gorilla sitting on the floor of the New York Stock Exchange right now. Past stock market crashes in the thirties and the seventies produced market price earnings multiples of seven. Today it is 11. Does this mean that the Dow has one last 40% down leg left in it before we bottom out? That would take us to a 5,500 Dow, or a 570 S&P 500. Maybe the old PE benchmarks have been rendered meaningless by zero interest rates. Maybe so many single digit stock prices and trough earnings are skewing the numbers. Or, maybe nothing makes any difference anymore, and everything is just driven by the sentiments of attention deprived traders on steroids. But if I am right, look for a few more weeks of Obamaphoria supported stock prices, followed by a long, frightening plunge in the down elevator.' Looks like investors found the gorilla.
2) There is some fascinating action going on in the options market right now. There is some massive buying of short dated puts in Wells Fargo (WFC) and JP Morgan (JPM), while buying of longer dated puts has weirdly almost vaporized.?? These are the only two high priced big bank stocks left. It is not happening in Citibank (C) or Bank of America (BAC), where there is so little meat left on the bone that buyers don't want to feel like they are the last man at an all you can eat buffet. Brace yourself. This is good news. It means that traders expect to see some short term volatility in these names. After that, Obama's bank bailout, stimulus program, and new budget will start to kick in and come to the rescue of the sector. Call me the 'options whisperer.' I stroke these things and they speak to me.
3) I went to the Marines' Memorial Club in San Francisco for a meeting last week and discovered the entire floor taken over by the Veterans Administration for bereavement counseling. More than 100 widows and parents tended to photographic shrines to loved ones in the ball rooms, and grief counselors met with small groups in the library. When I mentioned to some participants that we had nothing like this when I came back from Cambodia and Desert Storm, they held my hand and looked at me with pained expressions, tears streaming down cheeks. I told them their loved ones died doing what they wanted, and that they would live as long as they were remembered. What else could I say? I realized they were looking to me as one who made it back, and wished their loved ones had been able to do the same. When we leave Iraq next year, as Obama is promising, what are we going to tell these people? Was it all for nothing? What a waste.
4) Panic buying of gold coins continues to overwhelm coin dealers around the world. According to the Financial Times, the US Mint sold 193,500 American eagles in the first seven weeks of this year, more than it sold in all of 2007 at prices 40% lower. Retail investors fleeing paper assets, like plummeting stocks and bonds, are paying 5% premiums over face values. The same phenomena are appearing in other countries where gold coins are available to the public. Now that gold has backed off from $1,007 to $905, is it time to double up?
QUOTE OF THE DAY
'Insanity is doing the same thing over and over and expecting a different result,' said Albert Einstein.