Global Market Comments for July 21, 2008

1) Crude is dead. Traders are now gunning for $120. The general consensus for commodities is that we go down for the forseeable future, and then go back up again.

2) Internet users in China are 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. Baidu.com (BIDU), Netease (NTES), Sina (SINA), and Sohu.com (SOHU). All of these have just had major sell offs.

3) Just to illustrate the amount of BS is in the press about the severity of this economic downturn I have pulled out some interesting statistics:

4) Bank of America (BAC) announced better than expected earnings. The stock has now doubled in six days, from $18 to $36. If you absolutely must own a bank, this is a good one.

5) Looking at the whole commodity universe, natural gas has been the most severely punished in this sell off, plunging from $13.50 to $10. If we get through the hurricane season without a major storm hitting gas facilities in the Gulf it could drop to the $6 handle where it would be a screaming buy. However, tropical storm Dolly is now threatening, and some companies have started precautionary evacuation of their offshore rigs.

6) MF global has seen its stock jump 86% from $3.50 to $6.50 today because it successfully rolled over the bulk of its short term debt. The stock was down 88% from its IPO price a year ago of $30.

7) An appeals court threw out the $550,000 fine against CBS for Janet Jackson's 'wardrobe malfunction' at the Super Bowl.

8) Only 1% of economists believe that we will see negative GDP growth in the second half. We won't know sure until March. I think they are being wildly over optimistic.

Global Market Comments for July 18, 2008

1) Crude was stable today. A big part of the selling this week has come from bank sales of crude holdings to shore up balance sheets. There was a major effort to make sure that the crude August $130 calls, where enormous positions had been built up, expired worthless yesterday, which they did. China's Olympic shut down is starting to affect all markets where they are the major player, like crude and copper. Who knew banks were such big players in this market? In every crisis there are always unexpected bodies that float to the surface.

2) If gas prices stay at current levels the decline in driving, and more driving at slower speeds will cause highway deaths to fall by 12,000/year. There will also be dramatic reductions in traffic, air pollution, and traffic noise. Land near freeways might become worth more, especially if we move to silent all electric cars. The San Francisco Bay Bridge morning rush hour toll gate back up has almost disappeared.

3) The Pakistan stock market has dropped for 15 consecutive days. It is now down 35% from its April high. Yesterday a crowd stormed the exchange and destroyed it in the hope that it would prevent further price falls. It makes our SEC's action against short sellers pale by comparison.

4) Google (GOOG) did not beat expectations with Q2 earnings so they took the stock down 10%. It shows you how demanding the market is these days.

5) Merrill Lynch sold its 20% stake in Bloomberg, which it has owned since the company?s creation by Mayor Michael in the early eighties, for $4.4 billion. This values the mayor of New York at a breathtaking $22 billion.

6) The stock market had its best three day run in five years. The bank and airline sub indexes had their best moves in history. The biggest moves were in what I call the 'imminent bankruptcy' sector: Lehman (LEH) up 80%, United Airlines (UAUA) up 60%, General Motors (GM) up 45%. GM has lost $50 billion over the last three years. Unbelievable!

Global Market Comments for July 17, 2008

1) Crude broke down to $129, down $6?? on the day and down $19 from a high a week ago. Stocks loved it, flying another 200 points.

2) Traders are still reeling from the explosiveness of yesterday's move in financials. Lehman (LEH) was up 37%, Bank of America (BAC) 24%, WAMU (WM) was up a mind boggling 54%. Short sellers rushed to cover naked shorts ahead of the Monday implementation of the tightened short selling rules. Can you believe that Bank of America got down to $18 on Tuesday? With a market cap of $123 JPM is now by far the largest bank in the US. In the land of the blind the one eyed man is king.

3) June housing starts came in at a surprisingly strong +9.1%, giving us a 1.09 million units annualized rate. New building permits were up 11.6% in June.

4) Coke (KO), JP Morgan (JPM), and United Technology (UTX) all announced better than expected Q2 earnings. The story is all the same. Domestic weakness is being more than offset by international income.

5) Looks like Mitsubishi Motors will win the race to bring the first all electric car to the market. It is introducing its MiEV ultra compact in Japan in 2009. Nissan will follow in 2010 with a car with a 100 mile range and a Lithium-Ion battery that can be 80% recharged in 20 minutes. Fuel cell technology is proving too expensive. Honda says that it will take ten years for the production cost of its FCX Clarity fuel cell car to drop from $950,000/unit to $100,000/unit. It looks like the current generation of Prius and Civic based hybrid technology has about a six year window before they are overtaken by competitive all electric cars.

6) A three year old Prius is now selling for 87% of the cost of a new one, compared to 55% for the typical used car the same age. If you drive 15,000 miles/year you need to drive your Prius three years to earn back this premium in gas savings. The waiting list at my local Toyota dealer is six weeks.

TRADE OF THE MONTH

August crude options expired today. Please note that all call short selling strategies that I have recommended saw their options expire worthless today. Crude went out today at $129, $21 away from my nearest strike. You could have made a dozen round trips this month using this strategy, which would have been immensely profitable.

Global Market Comments for July 16, 2008

1) Weekly Crude inventories jumped 3 million barrels on the back of rapid demand destruction, sending crude down $7 to $132. We have dropped $16 since last week's high. If we can break $129 look for another rapid $10 drop to $119. This bubble may have burst. The airline index had its largest up day ever. United Airlines (UAUA) was up 40%. See my earlier recommendation to buy UAUA. The Dow rose 276.

2) The great opportunity presented by market conditions like this is that the best companies are being tossed out with the worst. Cisco (CSCO) has a 50% share of the router market, has $19 billion in cash, and at $21/share is selling at a 12.5 multiple, the lowest since it went public in 1990. This is the closest you can get to a legal monopoly. Just the interest that the company is earning on its cash is more than many companies are making right now.

3) The lack of leadership from Washington now is so palpable that you could say that Bush is imitating Nero, playing the fiddle while Rome burns. Except that Bush doesn't know how to play the fiddle. Maybe a mouth harp.

4) Fannie Mae (FNM) and Freddie Mac (FRE) supply liquidity to about 75% of the mortgages in the country. Bank of America, Wells Fargo and a few others supply the rest. This is not a small problem.

5) Look at http://sendables.jibjab.com/ and click the green play arrow on Election 2008. It is hilarious.

6) Wells Fargo (WFC) earnings for Q2 came in at 53 cents/share vs. an expected 50 cents/share. This is one of the few solid banks out there and along with US Bank is a favorite of Warren Buffet. The stock soared 38% to $27.50. Rare good news from a financial. The bank index had its largest up day in history.

7) The Wall Street Journal is raising its newsstand price from $1.50 to $2.00. Inflation is here. Apparently Rupert Murdoch needs some help with the fuel bill on his Gulfstream.

Global Market Comments for July 15, 2008

1) Crude fell a breathtaking $10 to $136 on the Bush announcement lifting the ban on offshore drilling. Options expirations this week helped.

2) Apple sold one million new 3G IPhones in the first three days, more than double the most optimistic forecast.

3) Christopher Cox, chairman of the SEC, announced restrictions on the short selling the shares of primary dealers, Fannie Mae (FNM) and Freddie Mac (FRE). Lehman (LEH) shares rocketed 20% and the Dow rose 250 points. The CFTC did something similar in 1980 to put the Hunt Brothers out of business in their silver cornering. Talk about closing the gate after the horses have bolted.

4) At today's low of $12 Lehman had a market capitalization of less than $9 billion, down from $60 billion a year ago. Its days are numbered. It doesn't have enough money left to play in the big league anymore. All of the outside money they raised this year has been wiped out by the fall in the share price. You can bet that Dick Fuld is working the phones feverishly now trying to find a buyer.

5) General Motors (GM) announced its umpteenth restructuring plan for the year. The company will sell its foreign operations, the only part of the company that is making money, cut its dividend, slow down assembly lines to reduce truck and SUV production, and cancel executive bonuses. The stock has dropped from $42 to $8.50 since October. These measures will raise $15 billion in cash, only temporarily allaying bankruptcy fears.

6) The Producer Price Index in June, the real inflation rate, rocketed a stunning 1.8% MOM and 9.9% YOY as fuel price increases surged through the system. Put on your platform shoes, gold chains and white disco suit, the seventies are back!

7) Fears of health of the US financial system have driven the euro to an all time high of $1.6022. The euro is double topping a seven year cycle on the charts and is an extreme short here.

8) According to Eurostat, the EC's statistical office, industrial production in the Euro zone in May fell 1.9%, the sharpest fall in 16 years.

TRADE OF THE DAY

Some of the algorithms I follow are starting to flash 'buy' signals for the stock market. The volatility index (VIX) has risen from 17 to above 30 and the number of stocks at 52 weeks lows is above 20%. What we really need to finish off this down move is a cathartic, capitulation day of down 500 points on huge volume. The market has to throw up on its shoes. Until then we will just have a slow bleed.