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.
Global Market Comments for June 26, 2008
1) The president of OPEC predicted that oil would soon hit $170/barrel. Crude rocketed back up to $139, the top end of the one month's trading range. Traders piled in on the short side with tight $141 stops to play the range for the tenth time. You can buy the crude August $130 puts here for $2, which expire on July 17, and get a quick double if the price dips back to $135 and play the downside volatility expansion. Longer term players are buying the December 110 puts and hedging their gamma buy shorting the December $90 puts against them. The Dow fell 300 at one point on this latest crude spike.
2) Goldman Sachs put out a sell recommendations on General Motors (GM) and Citibank (C), triggering bankruptcy rumors for both widespread panic selling of autos and financials. GM fell to a 53 year low at $11.30, while C hit a ten year low at $17.
3) There are now ten million millionaires in the world, a third of which live in the US.
4) According to the National Association of Realtors, existing home sales in May rose a surprising 2.0% to a 5 million unit annual rate, indicating that the vulture investors are out there at the right price. The gross sales figure was down -15.9% YOY. The median sales price fell 6.3% YOY to $208,600. Prices are still falling the fastest in the West. The stock market could care less, and fell anyway.
5) Lennar Homes, the nation's second largest homebuilder, announced a Q2 loss of $121 million, greater than expected. The cancellation rate is sticking at a high 22%. The stock dove to a new two year low of $12.90, down from $60.
Global Market Comments for June 26, 2008
1) The president of OPEC predicted that oil would soon hit $170/barrel. Crude rocketed back up to $139, the top end of the one month's trading range. Traders piled in on the short side with tight $141 stops to play the range for the tenth time. You can buy the crude August $130 puts here for $2, which expire on July 17, and get a quick double if the price dips back to $135 and play the downside volatility expansion. Longer term players are buying the December 110 puts and hedging their gamma buy shorting the December $90 puts against them. The Dow fell 300 at one point on this latest crude spike.
2) Goldman Sachs put out a sell recommendations on General Motors (GM) and Citibank (C), triggering bankruptcy rumors for both widespread panic selling of autos and financials. GM fell to a 53 year low at $11.30, while C hit a ten year low at $17.
3) There are now ten million millionaires in the world, a third of which live in the US.
4) According to the National Association of Realtors, existing home sales in May rose a surprising 2.0% to a 5 million unit annual rate, indicating that the vulture investors are out there at the right price. The gross sales figure was down -15.9% YOY. The median sales price fell 6.3% YOY to $208,600. Prices are still falling the fastest in the West. The stock market could care less, and fell anyway.
5) Lennar Homes, the nation's second largest homebuilder, announced a Q2 loss of $121 million, greater than expected. The cancellation rate is sticking at a high 22%. The stock dove to a new two year low of $12.90, down from $60.
Global Market Comments for June 25, 2008
1) Weekly crude inventories fell 1 million barrels vs. an expected build of 900,000 barrels. Crude fell $6 from $138 to $132. See my earlier trade of the month to short deep out of the money crude calls. The Dept. of Energy put out a forecast that crude could reach $186/barrel by in 22 years, or by 2030. Wow, that's a big help! If it doesn't happen by next Thursday!
2) The Fed left rates unchanged at 2.0%, but warned that the 'risk of inflation is high.' Long bonds got decimated. See my earlier countless recommendations to short long bonds. My friend Richard Fisher of the Dallas Fed, who comes from the only part of the country that is still growing, was the sole dissenting vote at the last Fed rate cut. He is the Fed's uber inflation hawk.
3) Stocks rallied on the fall in crude. See last week's trade idea to short the July 1200 puts, which plunged from $6 to $1.50.
4) The NY State Court of Appeals ruled in favor of Dick Grasso on four of the six counts against him regarding his $180 million compensation package from the New York Stock Exchange. The other two counts will probably be dropped.?? A rare victory for a defendant in a financial case where prosecutors are attempting to expand the reach of the law ex post facto.
5) February durable goods came in at unchanged in May and down -0.8% ex defense goods. The number was weak, but not as bad as expected, so the stock market rallied.
6) RIM's stock (RIMM) got slaughtered after hours, down 10%, on disappointing earnings, despite the addition of 2.3 million subscribers in Q1. One of the 'four horsemen' during last year's tech boom, the stock is a buy here at $130.
7) New home sales in May were down 2.5% MOM to the second lowest level on record.
8) My old Morgan Stanley colleague's firm, M&A boutique Greenhill & Co. (GHL), dropped 10% today to $56. One good M&A deal and it will pop back up to last year's high of $80.
Global Market Comments for June 25, 2008
1) Weekly crude inventories fell 1 million barrels vs. an expected build of 900,000 barrels. Crude fell $6 from $138 to $132. See my earlier trade of the month to short deep out of the money crude calls. The Dept. of Energy put out a forecast that crude could reach $186/barrel by in 22 years, or by 2030. Wow, that's a big help! If it doesn't happen by next Thursday!
2) The Fed left rates unchanged at 2.0%, but warned that the 'risk of inflation is high.' Long bonds got decimated. See my earlier countless recommendations to short long bonds. My friend Richard Fisher of the Dallas Fed, who comes from the only part of the country that is still growing, was the sole dissenting vote at the last Fed rate cut. He is the Fed's uber inflation hawk.
3) Stocks rallied on the fall in crude. See last week's trade idea to short the July 1200 puts, which plunged from $6 to $1.50.
4) The NY State Court of Appeals ruled in favor of Dick Grasso on four of the six counts against him regarding his $180 million compensation package from the New York Stock Exchange. The other two counts will probably be dropped.?? A rare victory for a defendant in a financial case where prosecutors are attempting to expand the reach of the law ex post facto.
5) February durable goods came in at unchanged in May and down -0.8% ex defense goods. The number was weak, but not as bad as expected, so the stock market rallied.
6) RIM's stock (RIMM) got slaughtered after hours, down 10%, on disappointing earnings, despite the addition of 2.3 million subscribers in Q1. One of the 'four horsemen' during last year's tech boom, the stock is a buy here at $130.
7) New home sales in May were down 2.5% MOM to the second lowest level on record.
8) My old Morgan Stanley colleague's firm, M&A boutique Greenhill & Co. (GHL), dropped 10% today to $56. One good M&A deal and it will pop back up to last year's high of $80.
Global Market Comments for June 24, 2008
1) Rumors of an Israeli attack on Iran drove crude up to $138. It then fell back to $136. 72% of US consumers now want to buy a hybrid car but will have to contend with a long waiting list to get one. 49% are willing to pay a $5,000 premium for the fuel efficient cars. 26.8% of US oil production now comes from offshore, which is why drilling in Florida and California has become such a hot political issue.
2) The IRS is increasing its per mile expense allowance for driving personal cars for business purposes from 50.5 cents/mile to 58.5 cents/mile from July 1.
3) Shanghai had its worst week in the market in 12 years. Hyperinflation is slamming emerging market economies and stock markets as high food and fuel prices feed though. Vietnam and Russia are now suffering 25% inflation rates.
4) Hilton Hotels plans to build 300 new hotels in Asia over the next 10 years in addition to the 47 they currently have. Follow the money.
5) Dow Chemical is raising prices by 25%, something that will filter through to the entire US economy. Dow will spend $32 billion on energy costs this year, up four times in five years.
6) The S&P/Case Shiller national home price index fell 15% in April, the sharpest drop on record. Worst off were Las Vegas and Miami, down by -27%, followed by San Francisco, down -22%. Condos in Miami are trading at 40 cents on the dollar. The Midwestern cities like Chicago, Cleveland, and Denver, which never went up much, are seeing only single digit price falls and may be close to a bottom.
7) Office Depot is seeing 'unprecedented' price increases from suppliers, indicating that inflation is about to hit the US big time. Shorting long dated Treasuries is a no brainer here. Treat every three point bond rally as a gift to sell into. Treasuries are going to do this year what sub prime loans did last year.
8) According to the Conference board, the US economy is about to fall off a cliff. Its consumer confidence index fell from 58.1% in May to 50.4% in June, an all time low and one of the most rapid falls on record.
Global Market Comments for June 24, 2008
1) Rumors of an Israeli attack on Iran drove crude up to $138. It then fell back to $136. 72% of US consumers now want to buy a hybrid car but will have to contend with a long waiting list to get one. 49% are willing to pay a $5,000 premium for the fuel efficient cars. 26.8% of US oil production now comes from offshore, which is why drilling in Florida and California has become such a hot political issue.
2) The IRS is increasing its per mile expense allowance for driving personal cars for business purposes from 50.5 cents/mile to 58.5 cents/mile from July 1.
3) Shanghai had its worst week in the market in 12 years. Hyperinflation is slamming emerging market economies and stock markets as high food and fuel prices feed though. Vietnam and Russia are now suffering 25% inflation rates.
4) Hilton Hotels plans to build 300 new hotels in Asia over the next 10 years in addition to the 47 they currently have. Follow the money.
5) Dow Chemical is raising prices by 25%, something that will filter through to the entire US economy. Dow will spend $32 billion on energy costs this year, up four times in five years.
6) The S&P/Case Shiller national home price index fell 15% in April, the sharpest drop on record. Worst off were Las Vegas and Miami, down by -27%, followed by San Francisco, down -22%. Condos in Miami are trading at 40 cents on the dollar. The Midwestern cities like Chicago, Cleveland, and Denver, which never went up much, are seeing only single digit price falls and may be close to a bottom.
7) Office Depot is seeing 'unprecedented' price increases from suppliers, indicating that inflation is about to hit the US big time. Shorting long dated Treasuries is a no brainer here. Treat every three point bond rally as a gift to sell into. Treasuries are going to do this year what sub prime loans did last year.
8) According to the Conference board, the US economy is about to fall off a cliff. Its consumer confidence index fell from 58.1% in May to 50.4% in June, an all time low and one of the most rapid falls on record.
Global Market Comments for June 23, 2008
1) It is breathtaking the extent to which the markets ignored the incredible positive results of the weekend's oil summit in Jeddah. The Saudis guaranteed to raise production from 9.4 million barrels/day now to 9.6 million barrels next month to 12.5 million barrels by the end of 2009, and 15 million after that. They provided everything but the handstands, and all the market wanted to focus on was the 1 million barrels/day lost by Nigeria. Crude rose by $4 to $138.25 after the announcement.
2) General Motors drops to $12.75, giving it a market cap of just $7 billion, making it by far the smallest Dow Jones Industrial Average component. The troubled company has launched a last ditch campaign to get rid of bulging unsold stocks of SUV's, offering discounts of up to $7,000 per vehicle or 0% financing for 5 years. This works out to free gas for 3 years for the average driver.
3) Product promotion through social networking sites has been found to be four times more effective than conventional advertising. Procter and Gamble has been cutting new ground here.
4) Talk about a tough business! RV sales in the first four months of this year are down 26% YOY. Sales volumes are at the lowest level since 1991. Some of these behemoths get four miles/gallon. An M1 Abrams tank gets ?? mile per gallon.
5) The high cost of fuel is making major changes in trade patterns. Heavy products with low labor content that must travel long distances from China have lost their price advantage because of transportation costs. First and foremost affected is steel. Buy US Steel (X) at $175.
6) Wages in China have risen 550% since 1995, compared to 50% in the US.
7) Speculators now account for 70% of the trading in the West Texas crude contract compared to 30% five years ago. Traders must go where the money is.
8) European economies are now rapidly stagnating, led by Southern Europe. Germany is the only country that seems to be holding its own.
Global Market Comments for June 23, 2008
1) It is breathtaking the extent to which the markets ignored the incredible positive results of the weekend's oil summit in Jeddah. The Saudis guaranteed to raise production from 9.4 million barrels/day now to 9.6 million barrels next month to 12.5 million barrels by the end of 2009, and 15 million after that. They provided everything but the handstands, and all the market wanted to focus on was the 1 million barrels/day lost by Nigeria. Crude rose by $4 to $138.25 after the announcement.
2) General Motors drops to $12.75, giving it a market cap of just $7 billion, making it by far the smallest Dow Jones Industrial Average component. The troubled company has launched a last ditch campaign to get rid of bulging unsold stocks of SUV's, offering discounts of up to $7,000 per vehicle or 0% financing for 5 years. This works out to free gas for 3 years for the average driver.
3) Product promotion through social networking sites has been found to be four times more effective than conventional advertising. Procter and Gamble has been cutting new ground here.
4) Talk about a tough business! RV sales in the first four months of this year are down 26% YOY. Sales volumes are at the lowest level since 1991. Some of these behemoths get four miles/gallon. An M1 Abrams tank gets ?? mile per gallon.
5) The high cost of fuel is making major changes in trade patterns. Heavy products with low labor content that must travel long distances from China have lost their price advantage because of transportation costs. First and foremost affected is steel. Buy US Steel (X) at $175.
6) Wages in China have risen 550% since 1995, compared to 50% in the US.
7) Speculators now account for 70% of the trading in the West Texas crude contract compared to 30% five years ago. Traders must go where the money is.
8) European economies are now rapidly stagnating, led by Southern Europe. Germany is the only country that seems to be holding its own.
Global Market Comments for June 20, 2008
1) Crude crashes, down $7 from yesterdays high to a low of $132 on news that China is raising retail gasoline prices by 17% and diesel prices by 18%. Prices are still well below market levels and may be raised again after the Olympics to prevent rioting during the games. China accounted for 40% of the growth in world oil consumption last year. Demand destruction goes global. Watch for an imminent peak in crude.
2) German 10 year bund yields hit 4.70%, a six year high. Expect US Treasury yields to follow and bond prices to fall big. See my earlier recommendation to sell 30 bond futures at 120. This is one of the most compelling shorts out there right now.
3) There is a rising outcry to build more nuclear plants in the US, where one has not been approved for 30 years. McCain has made construction of 30 plants part of his campaign and the industry wants 100. Nuclear now accounts for 16% of the US electricity supply, compared to 39% from coal, 19% from hydro, 15% from natural gas, and 10% from oil. France gets 75% of its electricity from nuclear.
4) According to Goldman Sachs, high gas prices are hurting the $50 million a year Nevada prostitution industry, which is permitted in counties with populations fewer than 400,000. These very remote houses of ill repute rely on truckers as their principal clients. With diesel fuel at $5.50/gallon there are fewer truckers to go around. One entrepreneurial house is offering a two for one if you spend your tax rebate check there.
TRADE OF THE MONTH CLOSED!!!
The August $155 calls you sold short yesterday for $3 could be bought back today for only $1, creating a one day trading profit of $600,000. It only took a move in crude from $138 to $132, caused by the China fuel price increases, to create this profit. These kind of profits are only possible when you get one month's worth of price movement compressed into a single day, as we are seeing in the crude market every day now. Time to take the profit and resell these again on the next spike up. No point in carrying the weekend risk with the big oil meeting on Sunday. It is also a classic example of how a hedge fund works. Find the lowest risk trade out there, wait for an event driven extreme price movement to give you a great entry point, and then leverage up. Don't stay married to the position, bank a profit as quickly as possible. This is how well run hedge funds generate their huge returns.