Global Market Comments for July 14, 2008
1) The government announced an impressive support package for Fannie and Freddie which includes direct access to the Fed window and Fed buying of their paper. The bad news is that they needed a bail out package. Fannie is launching a $3 billion private debt issue this week. The Treasury ordered the main brokers to buy the whole issue and then exchange it for T-bills. What a fig leaf!?? The package provided about one nanosecond of support for the stock market.
2) Indymac bank failed on Friday after a depression style bank run. All of the 'not too big to fail' banks like WAMU (WM), Wachovia (WB) and National City (NCC) got slaughtered. Deposits over the FDIC insurance ceiling of $100,000 are receiving only 50 cents on the dollar. Funny how all real estate lending crisis always come back to the LA area, as did the S & L crisis in the nineties. What are the lenders smoking down there?
3) In 1998, 20% of S&P 500 earnings were from abroad. Now the figure is 50%. This is one of the explanations for our non recessionary recession.
4) Lehman is acting like a stock that is going to zero. It hit a new multi decade low today of $12.25, down from its one year high of $80. The July $10 puts, which expire on Friday, are trading at a staggering 250% implied volatility.
Global Market Comments for July 11, 2008
1) Crude lept to a new high, $147.50, even though one of the Iranian missiles fired yesterday was found to be a Photoshop creation. It then closed at $144.30.
2) Bernanke saved the day today, announcing that Fannie Mae (FNM) and Freddie Mac (FRE) would have access to the emergency discount window. The two were down 40% at their lows. FNM closed down only 23%. Without the Fed move, the Dow was headed for a down 500 point day.
3) American Airlines is stripping the paint off of its aircraft. At 400 pounds per plane the troubled airline hopes the weight saving will cut $12 million/year in fuel costs across the fleet. Ultra lightweight decals will show the company logo. Look for US airlines to be mostly metallic colored from here on, until carbon fiber takes over.
4) The University of Michigan consumer sentiment index for June came in at 56.6 vs. 56.4 in May. This is surprisingly stable, given how sour the mood is out there.
5) The latest industrial production figures show that Germany's economy is about to fall off a cliff. There is no way the Polish economy will be immune from such a slowdown. Europe's economy could be lagging a US entry into a recession by 12-18 months.
QUOTE OF THE DAY
A gem from Berkshire Hathaway's (BRK/B) Warren Buffet about big banks' involvement in sub prime derivatives: 'It's poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end.' By the way, Buffet's much vaunted stock is down 25% from its October high, worse than an index fund for the same period.
Global Market Comments for July 11, 2008
1) Crude lept to a new high, $147.50, even though one of the Iranian missiles fired yesterday was found to be a Photoshop creation. It then closed at $144.30.
2) Bernanke saved the day today, announcing that Fannie Mae (FNM) and Freddie Mac (FRE) would have access to the emergency discount window. The two were down 40% at their lows. FNM closed down only 23%. Without the Fed move, the Dow was headed for a down 500 point day.
3) American Airlines is stripping the paint off of its aircraft. At 400 pounds per plane the troubled airline hopes the weight saving will cut $12 million/year in fuel costs across the fleet. Ultra lightweight decals will show the company logo. Look for US airlines to be mostly metallic colored from here on, until carbon fiber takes over.
4) The University of Michigan consumer sentiment index for June came in at 56.6 vs. 56.4 in May. This is surprisingly stable, given how sour the mood is out there.
5) The latest industrial production figures show that Germany's economy is about to fall off a cliff. There is no way the Polish economy will be immune from such a slowdown. Europe's economy could be lagging a US entry into a recession by 12-18 months.
QUOTE OF THE DAY
A gem from Berkshire Hathaway's (BRK/B) Warren Buffet about big banks' involvement in sub prime derivatives: 'It's poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end.' By the way, Buffet's much vaunted stock is down 25% from its October high, worse than an index fund for the same period.
Global Market Comments for July 10, 2008
1) Walmart reported better than expected earnings as the rebate checks worked their way through the system, taking the stock market up 150. Also helping was Dow Chemical's (DOW) takeover of Rohm & Haas (ROH) for $15 billion, a massive 73% premium.
2) Lehman Brothers (LEH) continued its free fall today, down another 17% to $16.30. The rumors of insolvency are flying. If true it would define the next bottom in the market. Pimco's Bill Gross, the largest bond manager in the world, said that he continued to trade with Lehman as a counter party and hold Lehman debt. The stock rallied. Government backed Freddie Mac (FRE) fell a breathtaking 32% to $6.80, down from $65 a year ago.
2) According to the National Insurance Crime Bureau, the most stolen car in the US last year was the 1995 Honda Civic, followed by the 1991 Honda Accord and the 1989 Toyota Camry. An American vehicle could only reach the number four slot with the Ford F-150 pickup. Apparently the quality of American cars is so poor that nobody wants to steal them.
3) Bearish sentiment in the stock market has hit a nine year high.
4) Russia has surpassed Germany as the largest car market in Europe. Who knew? The best way to play this? Indian auto maker Tata (TTM), the largest mass producer of low priced cars in the region.
5) Another good way to play Brazil is to buy small business jet manufacturer Embraer Empressa (EMJ). The stock has dropped from $50 to $25 while its order backlog has leapt from 34 to 52. And you have the long play on the Brazilian real.
6) 50% of the world's economies now are seeing double digit inflation.
7) Crude jumped $7 to $142 in the last 30 minutes of trading on essentially no news, quickly dispatching a 150 point rally in the stock market. The cheapest gas in my neighborhood is now $4.49.
8) Marriott (MAR) reported poor earnings for the US and great earnings for overseas. Looks like Q2 earnings are setting up for the same pattern we saw in Q1. It's all about foreign earnings.
Global Market Comments for July 10, 2008
1) Walmart reported better than expected earnings as the rebate checks worked their way through the system, taking the stock market up 150. Also helping was Dow Chemical's (DOW) takeover of Rohm & Haas (ROH) for $15 billion, a massive 73% premium.
2) Lehman Brothers (LEH) continued its free fall today, down another 17% to $16.30. The rumors of insolvency are flying. If true it would define the next bottom in the market. Pimco's Bill Gross, the largest bond manager in the world, said that he continued to trade with Lehman as a counter party and hold Lehman debt. The stock rallied. Government backed Freddie Mac (FRE) fell a breathtaking 32% to $6.80, down from $65 a year ago.
2) According to the National Insurance Crime Bureau, the most stolen car in the US last year was the 1995 Honda Civic, followed by the 1991 Honda Accord and the 1989 Toyota Camry. An American vehicle could only reach the number four slot with the Ford F-150 pickup. Apparently the quality of American cars is so poor that nobody wants to steal them.
3) Bearish sentiment in the stock market has hit a nine year high.
4) Russia has surpassed Germany as the largest car market in Europe. Who knew? The best way to play this? Indian auto maker Tata (TTM), the largest mass producer of low priced cars in the region.
5) Another good way to play Brazil is to buy small business jet manufacturer Embraer Empressa (EMJ). The stock has dropped from $50 to $25 while its order backlog has leapt from 34 to 52. And you have the long play on the Brazilian real.
6) 50% of the world's economies now are seeing double digit inflation.
7) Crude jumped $7 to $142 in the last 30 minutes of trading on essentially no news, quickly dispatching a 150 point rally in the stock market. The cheapest gas in my neighborhood is now $4.49.
8) Marriott (MAR) reported poor earnings for the US and great earnings for overseas. Looks like Q2 earnings are setting up for the same pattern we saw in Q1. It's all about foreign earnings.
Global Market Comments for July 9, 2008
1) Iran fired nine medium and long range missiles and crude did nothing. That says a lot. Last week this would have taken crude to $150. What a difference a week makes! Oil is now enjoying what economist call 'perverse elasticity'. The higher the price goes, the more people want to buy it, until demand collapses completely.
2) The stock market got hammered today, led downward by financials over fears of further write offs and further dilution. Lehman set a new low for the move, down 11% to $19.85 and is well into takeover territory.
2) My old friend John Templeton died at 95. He graciously invited my wife and I to spend a weekend at his reproduction 18 column antebellum Southern style mansion at Lyford Cay in the Bahamas, complete with black servants with livery that matched the tablecloth and upholstery. John was one of the very first foreign investors in Japan in the fifties when it was the first postwar emerging market, buying companies like Hitachi and Toyota at PE multiples of one and two.
3) The 3G IPhone goes on sale on Friday for $200, with higher service charges. Sales in 2008 are expected to reach 12 million globally, and 45 million in 2009. Apple expects to sell more than 350,000 on the first day and the lines started forming yesterday. The new phone has better sound, a GPS chip, and allows web page downloads four times faster than the previous generation. The phone has an 'Ap store' that for the first time allows thousands of third party providers to sell specialized programs. Expect the media to go bananas.
4) 50% of all corporate capital spending is now on technology.
5) Cargill has finally commercially developed the Brazilian plant stevia. Until now leaves of this exotic plant, which are 200 times sweeter than sugar, was found only in health food stores as a sugar substitute. Cargill's Rebana product will be sold as a healthy, natural alternative to Splenda and Equal.
6) Treasury Secretary Hank Poulson predicts that home foreclosures will hit an all time high of 2.5 million this year. Bad for McCain.
7) CNBC voted Texas as the most business friendly state in the country, followed by Virginia. The state has a booming economy, thanks to the oil industry, which also makes it the country's largest exporter. The Lone Star state is home to 58 of the Fortune 500 and has the best state transportation system. It has no state income tax and a pro business legal system.
Global Market Comments for July 9, 2008
1) Iran fired nine medium and long range missiles and crude did nothing. That says a lot. Last week this would have taken crude to $150. What a difference a week makes! Oil is now enjoying what economist call 'perverse elasticity'. The higher the price goes, the more people want to buy it, until demand collapses completely.
2) The stock market got hammered today, led downward by financials over fears of further write offs and further dilution. Lehman set a new low for the move, down 11% to $19.85 and is well into takeover territory.
2) My old friend John Templeton died at 95. He graciously invited my wife and I to spend a weekend at his reproduction 18 column antebellum Southern style mansion at Lyford Cay in the Bahamas, complete with black servants with livery that matched the tablecloth and upholstery. John was one of the very first foreign investors in Japan in the fifties when it was the first postwar emerging market, buying companies like Hitachi and Toyota at PE multiples of one and two.
3) The 3G IPhone goes on sale on Friday for $200, with higher service charges. Sales in 2008 are expected to reach 12 million globally, and 45 million in 2009. Apple expects to sell more than 350,000 on the first day and the lines started forming yesterday. The new phone has better sound, a GPS chip, and allows web page downloads four times faster than the previous generation. The phone has an 'Ap store' that for the first time allows thousands of third party providers to sell specialized programs. Expect the media to go bananas.
4) 50% of all corporate capital spending is now on technology.
5) Cargill has finally commercially developed the Brazilian plant stevia. Until now leaves of this exotic plant, which are 200 times sweeter than sugar, was found only in health food stores as a sugar substitute. Cargill's Rebana product will be sold as a healthy, natural alternative to Splenda and Equal.
6) Treasury Secretary Hank Poulson predicts that home foreclosures will hit an all time high of 2.5 million this year. Bad for McCain.
7) CNBC voted Texas as the most business friendly state in the country, followed by Virginia. The state has a booming economy, thanks to the oil industry, which also makes it the country's largest exporter. The Lone Star state is home to 58 of the Fortune 500 and has the best state transportation system. It has no state income tax and a pro business legal system.
Global Market Comments for July 8, 2008
1) Crude fell another $6 to $135, taking it down $10 in two days. The sell off spread across the entire commodities sector, taking corn -8%, soybeans -8%, wheat -7%, and copper -4%. All frothy, market top type price action. Producing stocks, like Mosaic and US Steel, fell more. The long awaited commodities correction may finally be at hand. One of the explanations for this is that the Chinese are gearing down their economy in preparation for the Olympics, temporarily halting all commodity purchases. The Dow rose 150.
2) Boone Pickens rolled out his personally financed national campaign for a new energy policy. Foreign oil imports have soared from 24% of US requirements in 1970, to 42% in 1991, and 70% in 2008, and now cost $700 billion/year. Natural gas now accounts for 22% of the 987,000 Megawatt/year in power generation. Boone advocates diverting this to cars and replacing that power generation with wind. This would cut US foreign oil purchases to $400 billion/year and would cause the price of oil to collapse. It would take 5-10 years to implement his plan. This would cause fuel costs to fall dramatically. One million BTU of natural gas costing $13 has the same energy equivalent as 8 gallons of gas costing $40. It costs $2,000 to convert a convention gasoline engine to natural gas. I think this would work, and is one of the reasons I spent 2000-2004 exploring for natural gas in Texas. US natural gas reserves have doubled in the past five years due to improved extraction technology. The whole plan would give us a 30 year window to develop alternative energy technologies. For details go to www.pickensplan.com.
3) According to the National Association of Realtors, pending home sales in May were -4.7% and -14% YOY. The West fell only 1.3% in May.
4) The price of donkeys in Turkey has increased seven fold in a year as people switch from cars. Regular gas costs $10.60/gallon there.
5) Great quote from Jamie Diamond, CEO of JP Morgan, in reference to his Bear Stearns purchase: 'The price of a house for sale is not the same as the price of a house on fire for sale.'
6) The spread between stock dividend yields and bond yields is the narrowest since 1981.
7) The VIX hit 27%, creating put selling opportunities on the S&P 500.
8) Siemens announced a layoff of 16,750 employees worldwide. The recession is spreading to Europe.
Global Market Comments for July 8, 2008
1) Crude fell another $6 to $135, taking it down $10 in two days. The sell off spread across the entire commodities sector, taking corn -8%, soybeans -8%, wheat -7%, and copper -4%. All frothy, market top type price action. Producing stocks, like Mosaic and US Steel, fell more. The long awaited commodities correction may finally be at hand. One of the explanations for this is that the Chinese are gearing down their economy in preparation for the Olympics, temporarily halting all commodity purchases. The Dow rose 150.
2) Boone Pickens rolled out his personally financed national campaign for a new energy policy. Foreign oil imports have soared from 24% of US requirements in 1970, to 42% in 1991, and 70% in 2008, and now cost $700 billion/year. Natural gas now accounts for 22% of the 987,000 Megawatt/year in power generation. Boone advocates diverting this to cars and replacing that power generation with wind. This would cut US foreign oil purchases to $400 billion/year and would cause the price of oil to collapse. It would take 5-10 years to implement his plan. This would cause fuel costs to fall dramatically. One million BTU of natural gas costing $13 has the same energy equivalent as 8 gallons of gas costing $40. It costs $2,000 to convert a convention gasoline engine to natural gas. I think this would work, and is one of the reasons I spent 2000-2004 exploring for natural gas in Texas. US natural gas reserves have doubled in the past five years due to improved extraction technology. The whole plan would give us a 30 year window to develop alternative energy technologies. For details go to www.pickensplan.com.
3) According to the National Association of Realtors, pending home sales in May were -4.7% and -14% YOY. The West fell only 1.3% in May.
4) The price of donkeys in Turkey has increased seven fold in a year as people switch from cars. Regular gas costs $10.60/gallon there.
5) Great quote from Jamie Diamond, CEO of JP Morgan, in reference to his Bear Stearns purchase: 'The price of a house for sale is not the same as the price of a house on fire for sale.'
6) The spread between stock dividend yields and bond yields is the narrowest since 1981.
7) The VIX hit 27%, creating put selling opportunities on the S&P 500.
8) Siemens announced a layoff of 16,750 employees worldwide. The recession is spreading to Europe.
Global Market Comments for July 7, 2008
1) Crude fell $5.50 to $139.50 and the stock market fell. A great example of?? heightened fears amplified by summer illiquidity where things don't make sense. Oil is now the holy grail of trading. The trader who calls the top on this one will make his year, decade, and century.
2) Janet Yellen of the San Francisco Fed said that interest rates are unusually low. Hint: the next move in rates is up. The bond market went up two points. See above.
3) There is a new term circulating in the bond market: 'return free risk.' With the 30 year Treasury bond yielding 4.5% and the official inflation rate officially at 4.5% (although it is really 7%), if everything goes perfect you make zero. If it doesn't, you could lose half your capital in five years. This is what the flight to safety has driven treasury prices to. Sell long dated treasuries.
4) Steve Silverman, owner of the World trade Center, says there is a large scale movement of families to downtown Manhattan to take advantage of lower rents. A classic example of talking your own book.
5) There is a new ETF that gives you a balanced and equal play on both soybeans and corn at the same time which could be interesting. The symbol is (JJB). These instruments are becoming increasingly complicated and focused on very narrow plays.
6) Although the Dow is now at a two year low, only 6% of outstanding stocks have sell recommendations. Some firms like Morgan Stanley have a quota limiting sell recommendations to 20% of the total. What a joke. Proof that the system is geared to selling securities, not buying them.
7) According to my former journalism colleague, Steve Ratner of Quadrangle, private equity transactions are down 80% YTD. Steve, who now manages $6 billion, says that many of the transactions of the past two years were 'aberrations' dependent of excessive leverage. There are so few transactions, that major firm Cerebrus has told its staff to take a two week vacation with pay.
8) At Mammoth Lakes, one of the most remote areas of California, I saw six buses filled with Chinese tourists, passing though from Las Vegas to San Francisco. Local tourists were unhappily introduced to the Chinese practice of public urination. The hotel had 60 better behaved Italian guests, who later went apoplectic when they watched a ranger fire shots at a huge black bear to scare him away. The manager said that any drop off in domestic guests is being more than offset by foreign guests, because of the weak dollar.