Global Market Comments for January 13, 2009
Featured Trades: (PTEN)

1) The 'all clear' signal given by the markets last week has been cancelled. All of the 'feel good' trades, like stronger crude, gold, commodities, and Dow, have all viciously reversed in lockstep. The 'feel bad' trades like a stronger yen, euro yen, and Treasuries have once again reared their ugly poxy heads. There are basically only two trades in the world right now: 'things are getting better' and 'things are getting worse.' Only corporate bonds have held up because they are the cheapest thing out there, and will be the earliest to recover. I have a feeling that this kind of choppy, frustrating, range trading will continue for another six months. Things will become even more difficult to trade when the economic data evolves from all bad, to some good, some bad, later in the year. If you want to trade the market, lie down and take a long nap first. Like until September.

2) Hybrids now account for 2.4% of the severely diminished US car market, and 125,000 of these, or half, are accounted for by Toyota's Prius. The Japanese car maker has been developing this vehicle for more than a dozen years, and has had a competitively priced product on the market that consumers love for eight years. The just launched 2009 model is bigger, more powerful, with better mileage, for the same price. And the company's plug in version, now in fleet testing, which will enable drivers to live a largely carbon free existence, will be available in the US in 2010. Listening to Detroit and its apologists promise Congress they can save their industry with a ground up design of an inferior, later, and more expensive product, shows you how delusional they really are.

3) If you don't like the way the markets have been behaving lately, blame sun spots, which have been appearing in the fewest numbers since 1913. Many days this autumn saw no sun spots at all! Many economic historians are convinced of the validity of this theory. Fewer sun spots correlate with colder winters and agricultural failures, which feed into the economic cycle. Higher wheat and soybean prices this month are already starting to reflect this.

4) After last year's carnage, you can expect the remnants of the hedge fund industry to split in two. One group will inherit large, illiquid fixed income positions, like convertible bonds and subprime CDO's, and evolve into private equity funds, which they should have been all along. The rest will retreat to trading large liquid global positions that did well during the nineties, offering investors quarterly redemptions they now demand. Fees will fall across the board. This is how hedge funds will cope with a new world that is transitioning from excess capital to a capital shortage.

5) The world is drowning in crude. The spot/June contango is now up to an unbelievable $12. This means that you can buy crude today at $38, store it, and resell it for June delivery for $50. The trade has filled 75% of the world's storage capacity, and the balance can be had only for an enormous premium. There are so many dislocations going on in the world economy today that it is hard to keep track of them all.

6) I continue to feel like a kid in a candy store with these oil service stocks because I believe they have one more good crude spike in them. Look at Patterson-UTI Energy (PTEN), which operates 403 rigs for oil and gas drilling in the Midwest. The stock has been truly trashed by the oil glut, so the PE is now down to 5 X, and the dividend stands at a generous 5.5%. At its book value you are buying a rig for $5 million, which costs $15 on the open market. This means that it is now cheaper to drill on the floor of the New York Stock Exchange than in an oil field. I did business with these guys in my wildcatting days and they are a standout bunch.

QUOTE OF THE DAY

'Sometimes the end of an old technology is more exciting than the beginning of a new technology,' says comic Jay Leno of his new 650 horsepower SLR McLaren Mercedes.

Global Market Comments for January 12, 2009
Featured Trades: (FLS)

1) If you had any doubt where the next equity play is going to be, take a look at the chart below, which I lifted from The Economist. It shows that by the end of this year, 80% of GDP growth will be generated by emerging economies, while only 20% will come from developed ones. Time to brush up on your Portuguese, Russian, Hindi, Mandarin or Cantonese, and for good measure, Korean. Forgetting you know where Wall Street is might also help.

2) Hennessee Group says that hedge funds lost an average 18.9% in 2008, the worst year ever. Despite all of the moaning, I think this is pretty good for a year when all known asset classes, except Treasuries, dropped by half. And the jungle telegraph tells me that there are thousands of disciplined, risk controlled, low leveraged traders out there who used the volatility to generate great years, but are keeping a low profile. Making tons of money has suddenly gone out of fashion.

3) War sure has changed in the Internet age. Israelis are coming home from work, setting up lawn chairs outside, and making videos of incoming missiles. They then post these on YouTube to be viewed by cheering supporter in the US. The closest explosions are getting the most views.

4) Many economists believe that the Great Depression?? was only ended by the massive spending brought on by WWII, which cost $4 trillion in today's dollars. So when Obama says that we are looking at trillion dollar deficits as far as the eye can see, he is not kidding.

5) I continue to like buying key oil infrastructure stocks here at throw away prices, as cheap undated calls on the future resurgence of crude prices. Flowserve (FLS) is a global supplier of pumps, valves, seals, automation, and services to the power, oil, gas, and chemical industries. After a 75% drop in the stock, it now sells at a PE multiple of 7 X, giving you a return on equity of 33%. It's a perfect case of a baby being thrown out with the bath water. Remember my call eight months ago to buy airline stocks as cheap puts on crude before their 400% rise? Same thing. You are getting free leverage on multiple fronts with no expiration date.

4) Some 23% of the population of California does not speak English, compared to 14.5% for the entire US. These numbers have gone up since Homeland Security closed the border with Mexico.

Global Market Comments for January 9, 2009
Featured Trades: (NUE), (WMT), (AMTD), (SWIM), (SCHW)

1) The December nonfarm payroll came in at 524,000, taking the unemployment rate up to a 26 year high of 7.2%. At least the Labor Dept. didn't post a job loss of a million, as the Cassandras had predicted. More than 11 million Americans are now out of work. Some 2.6 million lost jobs in 2008, including 1.9 million in just the last four months. That is almost a whole recession's worth. Seasonal hiring for Christmas by retailers never happened. Only education and health care are still hiring workers. If you throw in those workers who have given up looking for jobs, and those whose unemployment benefits have run out, the real unemployment rate is probably closer to 15%.

2)?? Dan Dimicco, CEO of Nucor (NUE), the best run steel company in the US, says that only $1 billion in infrastructure spending can create 35,000 jobs. We need seven million jobs to put the unemployed back to work, along with new workers joining the labor force from natural population growth and immigration. So only $200 billion of well placed public works projects should do the trick.?? The only question is, can you turn stock brokers and mortgage brokers into ditch diggers?

3) I can't resist showing you the chart for Greek Shipping giant Dry Shipping (DRYS), which I recommended in November at $3. It is up 500% off the back of a healthy recovery in the Baltic Dry Shipping market ($BDI). This is yet another indication that the world is not ending.

4) 'Abandon Hope All Ye Who Enter.'?? So says Dante in his description of the Gates of Hell. This is how retailers must feel after enduring their worst December on record. Yesterday, Walmart (WMT), viewed by many as the only safe hideout in the sector, announced a sales shortfall, taking the stock down 7%. It turns out that WMT has the highest percentage of sales to customers who are getting laid off, maxing out credit cards, and losing homes in foreclosure. It is also believed that the new Obama administration will make it easier for WMT's workers to finally unionize, never a good development for a listed company. Think GM.

5) One of the few safe havens in the financial sectors is online brokers, who dodged the bullet, because they are pure fee collectors, don't have proprietary trading desks, don't take risk, and didn't use leverage to invest dubious high yield paper to artificially boost earnings. This approach was highlighted yesterday by TD Ameritrade's (AMTD) takeover of competitor Thinkorswim Group (SWIM) for $600 million. The move gives AMTD access to a first class online trading platform in options and an expanded customer base. Another good pick in this area is Charles Schwab (SCHW).

5) Governor Blagojevich was impeached, the vote coming in at 114-1. Thank you, thank you, People of Illinois, for making California no longer appear as the worst run state in the country!

FACT OF THE DAY

If Elvis had lived, he would have been 74 yesterday. Perish the thought of what he would look like now! I have to tell you that I was once given a personal tour of Graceland by his last girlfriend, and was shown the exact toilet where the King expired. It's been a full life. ?.

Global Market Comments for January 8, 2009
Featured Trades: (TRN), (JEC), (WTIC)

1) It is still possible to buy stocks on the cheap that will benefit greatly from the massive public works projects Obama is about to unleash. Trinity Industries (TRN), a major provider of concrete and aggregates with a presence in construction and rail cars, recently dropped 80%. It is now selling at 4 X earnings, 70% of book, and has a juicy 7% dividend yield. Another one to peek at is Jacobs Engineering (JEC), a leader in construction consulting and services.

2) Yesterday, Morgan Stanley led a jumbo 30 year, 7% bond issue for GE credit which was oversubscribed. This is 400 basis points through Treasuries, and is good news for all corporate borrowers. The credit thaw continues, even though stock traders can't see it.

3) The real estate disaster once known as Las Vegas, where 27,000 homes are for sale, continues to probe new lows. Hotel vacancy rates have hit 18%, and you can now get a four day weekend at a top hotel there, including flights from San Francisco, for $200! Construction has halted on the $5 billion Echelon Resorts for lack of financing, leaving a major eyesore on the city's skyline. MGM Mirage's massive City Center complex continues, only because of credit from Dubai. Sitting pretty is the Palms, which is just being completed, but sold out all of its condos two years ago when the market fever was still alive. While 10% of the buyers have walked away from their deposits, the owners are converting these to luxury hotel rooms.

4) The crude market continues to reel after yesterday's stunning inventory figures, with prices down another 5% to $40. The US should buy the fleet of tankers at sea storing crude, and add it to the Strategic Petroleum Reserve at these prices. With unlimited financing, the government is the only entity which can exploit the incredible 40% contango now present in the crude market. While this opportunity is screaming out to every junior trader in the energy pits, it is oblivious to Washington, where, in any case, we are leaderless. It was government buying for the SPR at $140 which put the top in for the crude market.

5) Most economists view the ECB's continued reluctance to further cut interest rates as nothing less than insanity. Trichet is living in a bubble. It can't last much longer. One out of seven German jobs depends on the car industry, and there is now excess global capacity of 20 million units/year. At least someone in the UK has some sense, where the Bank of England cut interest rates today by 0.5% to 1.5%, the lowest since the institution was created in 1694.

6) While weekly jobless claims fell, total unemployment hit a 27 year high of 4.6 million.

AMAZING FACT OF THE DAY

Investigators found $143 million in signed bonus checks for favored employees in Bernie Madoff's desk. I have pretty much seen everything after 35 years in the financial world, but the revelations in this case continue to floor me.

QUOTE OF THE DAY

Someone once asked the late Chinese premier Zhou Enlai what was the international impact of the 1789 French Revolution. He answered, 'It's still too early to tell.'

Global Market Comments for January 7, 2009
Featured Trades: (AA), (FSLR)

1) The market came back to Earth today, the Dow suffering the first down day of 2009. The guilty characters could populate one of those Agatha Christie mysteries where everyone did it except the butler. Take your pick: an ADP report showing 693,000 job losses, stunning crude inventory figures, bad Alcoa (AA) earnings, or spectacular budget deficit forecasts for this year. And on Friday economists are predicting Armageddon for the nonfarm payroll announcement. Of course, we knew all this was coming, but reality is still a bitch!

2) While the crash in global commodity prices, including crude, has been catastrophic for expensive alternative energy plans, it does have a silver lining. Spot prices for the polysilicon used in photovoltaic solar panels has dove from $500/lb to$50/lb since June, taking the cost of solar produced electricity down from $5/watt to $3/watt. This nearly makes solar competitive in high power cost states like California and Hawaii. Obama's yet to be announced solar initiative is expected to grow global solar power production from 3 gigawatts to 15 gigawatts by 2012. Buy Phoenix, AZ based First Solar (FSLR) at current distressed prices, after its 75% plunge.

3) President Bush had lunch with Obama and former presidents Clinton and Bush senior today. Wish I were a fly on the wall at that repast.

4) The Dept. of Energy's weekly inventory figures showed gigantic increases in every product, with crude up 6.7 million barrels and gasoline up 3.3 million barrels, causing crude to fall 15% to $42.90 at one point. To see these kinds of numbers in the dead of winter, when demand is normally strong, shows you the true extent of demand destruction. The financial crisis is spreading among oil producing countries, especially in the Middle East, and this will soon escalate into a political crisis. Heads will roll, literally. The real estate crash in Dubai is starting to rival our own. It couldn't happen to a nicer bunch of people.

5) Last week in Chicago I stopped by Obama's house on Greenwood Avenue and 50th street in up and coming Hyde Park to say hello. I was thwarted by two concrete crash barriers, 16 cop cars, and army of police happily pulling overtime. And this was the week he was in Hawaii! Every neighborhood bird nest, flagpole, and chimney sported video cameras, and Google Earth has wiped the block off the map. Instead, I settled for a visit to the delicious Valois Cafeteria, the president elect's favorite local diner, and his preferred bookstore at 57th Street Books. I managed to run into someone, who knew someone, who once babysitted Obama's kids. Need TARP money, a presidential pardon, a cushy ambassadorial appointment, or a juicy government contract? I'm now your 'go to' guy!