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.
Global Market Comments for June 19, 2008
1) Natural Gas hit a new high of $13.50.
2) Gaming revenues in Las Vegas in April were down $1 billion YOY.
3) Donald Trump believes that the US banking system is essentially closed now. Banks are only financing large deals when they get a piece of the equity. The Fed says that 15% of US homes have negative equity, creating the risk that the owners will just walk away. There are 3 million empty homes in the US now.
4) A New York court reduced the trust fund received by Leona Helmsley's Maltese dog 'Trouble' from $12 million to $2 million. The money went to her obviously litigious and aggrieved heirs.
5) Some 935 small trucking companies went out of business during Q1 2008 because of high fuel costs. The industry is rapidly consolidating into larger national carriers which are more able to pass costs onto customers like JB Hunt (JBHT), YRC Worldwide (YRC), and CH Robinson Worldwide (CHRW). These would all be great plays on an economic recovery.
6) The two hedge fund managers who ran the Bear Stearns hedge funds that went bust were arrested for criminal fraud and conspiracy for lying about 'skin in the game'. The Feds staged a highly visible 'perp walk' on TV. Again, the government is trying the ?out of context email route? to expand its power and prove criminal intent, a stretch at best. They are trying to criminalize market risk.
TRADE OF THE MONTH!!
Crude is again probing the top end of its one month range so it is time to sell out of the month calls. Today you can sell the August $155 calls for $3 which expire in four weeks. The Saudi's have called a meeting of oil producers and consumers on Sunday and the market is pricing in a big Saudi disappointment and upward price spike, driving far out of the money call volatilities to unimaginable, almost mathematically impossible to achieve levels. A short sale of 600 contracts here would yield $900,000 in premium, or 30% on a $3 million capital position.
Global Market Comments for June 19, 2008
1) Natural Gas hit a new high of $13.50.
2) Gaming revenues in Las Vegas in April were down $1 billion YOY.
3) Donald Trump believes that the US banking system is essentially closed now. Banks are only financing large deals when they get a piece of the equity. The Fed says that 15% of US homes have negative equity, creating the risk that the owners will just walk away. There are 3 million empty homes in the US now.
4) A New York court reduced the trust fund received by Leona Helmsley's Maltese dog 'Trouble' from $12 million to $2 million. The money went to her obviously litigious and aggrieved heirs.
5) Some 935 small trucking companies went out of business during Q1 2008 because of high fuel costs. The industry is rapidly consolidating into larger national carriers which are more able to pass costs onto customers like JB Hunt (JBHT), YRC Worldwide (YRC), and CH Robinson Worldwide (CHRW). These would all be great plays on an economic recovery.
6) The two hedge fund managers who ran the Bear Stearns hedge funds that went bust were arrested for criminal fraud and conspiracy for lying about 'skin in the game'. The Feds staged a highly visible 'perp walk' on TV. Again, the government is trying the ?out of context email route? to expand its power and prove criminal intent, a stretch at best. They are trying to criminalize market risk.
TRADE OF THE MONTH!!
Crude is again probing the top end of its one month range so it is time to sell out of the month calls. Today you can sell the August $155 calls for $3 which expire in four weeks. The Saudi's have called a meeting of oil producers and consumers on Sunday and the market is pricing in a big Saudi disappointment and upward price spike, driving far out of the money call volatilities to unimaginable, almost mathematically impossible to achieve levels. A short sale of 600 contracts here would yield $900,000 in premium, or 30% on a $3 million capital position.
Global Market Comments for June 18, 2008
1) One airline analyst has ranked his companies according to the probability of bankruptcy. American (AMR) is at 33%, United (UAUA) is 25%, Delta (DAL) is 10%, Continental (CAL) is 4% and Southwest and Jet Blue (JBLU) are 0%. Watch out for your frequent flier points!
2) The recession is causing many consumers to switch from wine to beer to save money.
3) The GAO recommended that the Air Force reopen bidding for the next generation of tankers, pulling the $35 billion contract away from Airbus sponsored Northrop. This is huge. Northrop was just about to start construction of a plant in Alabama.
4) In July, Honda will make available only for lease in California its next generation hydrogen car, the FCX Clarity. The $600/month car gets a cost equivalent of 77 miles/gallon and has a 280 mile range. Honda introduced the first hybrid car 7 years ago.
5) As airlines discuss selling tickets by passenger weight we learn that the average American has gained 24 pounds since 1960.
6) The value traded of homes in Southern California has dropped 50% YOY. The number of transactions is down 25% and prices are down 25%.
7) Big hedge funds are hiring all of the top oil, gas, and commodities analysts on Wall Street as they move into these areas in size. As a result,??the information??the remaining brokers are telling the public is making less and less sense.
8) FedEx triggered a sell off in the stock market today when they announced disappointing earnings due to high fuel costs.
TRADE OF THE DAY
The VIX shot up to 23% today so there was a nice chance to go short the July S&P 500 July 1200 puts today for $4.50. These expire in four weeks, are 11% out of the money, and 25 of these would yield you $62,000, of 2% of your capital. Coming off of a 120 point drop in the index it would be a nice sale.
Global Market Comments for June 18, 2008
1) One airline analyst has ranked his companies according to the probability of bankruptcy. American (AMR) is at 33%, United (UAUA) is 25%, Delta (DAL) is 10%, Continental (CAL) is 4% and Southwest and Jet Blue (JBLU) are 0%. Watch out for your frequent flier points!
2) The recession is causing many consumers to switch from wine to beer to save money.
3) The GAO recommended that the Air Force reopen bidding for the next generation of tankers, pulling the $35 billion contract away from Airbus sponsored Northrop. This is huge. Northrop was just about to start construction of a plant in Alabama.
4) In July, Honda will make available only for lease in California its next generation hydrogen car, the FCX Clarity. The $600/month car gets a cost equivalent of 77 miles/gallon and has a 280 mile range. Honda introduced the first hybrid car 7 years ago.
5) As airlines discuss selling tickets by passenger weight we learn that the average American has gained 24 pounds since 1960.
6) The value traded of homes in Southern California has dropped 50% YOY. The number of transactions is down 25% and prices are down 25%.
7) Big hedge funds are hiring all of the top oil, gas, and commodities analysts on Wall Street as they move into these areas in size. As a result,??the information??the remaining brokers are telling the public is making less and less sense.
8) FedEx triggered a sell off in the stock market today when they announced disappointing earnings due to high fuel costs.
TRADE OF THE DAY
The VIX shot up to 23% today so there was a nice chance to go short the July S&P 500 July 1200 puts today for $4.50. These expire in four weeks, are 11% out of the money, and 25 of these would yield you $62,000, of 2% of your capital. Coming off of a 120 point drop in the index it would be a nice sale.
Global Market Comments for June 17, 2008
1) Natural Gas hit a new high of $13.15. The Persian Gulf is now full of tankers carrying sour heavy crude that no one wants to buy. Deep water drilling rigs are now commanding $600,000/day, up from $100,000/day a year ago. The Saudis are arguing within OPEC for a long term crude price of $50, a price high enough for them to meet their development needs but low enough to discourage the exploration of new fields and alternative energy sources.
2) The New York Mercantile Exchange is introducing a steel contract at the end of the year. I covered steel for five years for the Australian Financial Review, so I should have a real advantage here.
3) More bashing of speculators by congress. The word 'speculator' comes from the Latin 'speculare' which means 'to look forward', something congress is unable to do.
4) Goldman Sachs' earnings came in at $4.58/share vs. an expected $3.42 on Q2 revenues of $9.4 billion. GS should continue to be at the core of any portfolio of US stocks. They continue to do everything perfectly.
5) According to the Labor Dept. the May Producer Price Index came in at 1.4%, or 7.2% YOY, the highest since November. This is probably the true inflation rate that most people are facing.
6) May housing starts came in at -3.3%, -36.3% YOY, a 17 year low. The market is 'worse than dead in the water' according to one industry leader.
7) 3 million acres of corn were lost in last week's flood. Prices soared to $7.98/bushel. See my earlier recommendation to buy corn at $5.80.
8) United Airlines' fuel bill this year will be $9.5 billion, up 58% from 2007.
TRADE OF THE DAY
It turns out that the US did not invade Iran after all, so the July crude $150 calls I recommended shorting Thursday for $500, expired worthless, generating a four day profit of $300,000 on capital of $3,000,000. This was my third recommendation to short these calls in three weeks, on?? May 20, June 2, and June 11 and the total profit was $624,000, or 21% of capital. In fact you could have made six round trips on these calls during this time, and they never got within $10 of going into the money. When volatility reaches these extremes, professionals are granted a license to print money.
Global Market Comments for June 17, 2008
1) Natural Gas hit a new high of $13.15. The Persian Gulf is now full of tankers carrying sour heavy crude that no one wants to buy. Deep water drilling rigs are now commanding $600,000/day, up from $100,000/day a year ago. The Saudis are arguing within OPEC for a long term crude price of $50, a price high enough for them to meet their development needs but low enough to discourage the exploration of new fields and alternative energy sources.
2) The New York Mercantile Exchange is introducing a steel contract at the end of the year. I covered steel for five years for the Australian Financial Review, so I should have a real advantage here.
3) More bashing of speculators by congress. The word 'speculator' comes from the Latin 'speculare' which means 'to look forward', something congress is unable to do.
4) Goldman Sachs' earnings came in at $4.58/share vs. an expected $3.42 on Q2 revenues of $9.4 billion. GS should continue to be at the core of any portfolio of US stocks. They continue to do everything perfectly.
5) According to the Labor Dept. the May Producer Price Index came in at 1.4%, or 7.2% YOY, the highest since November. This is probably the true inflation rate that most people are facing.
6) May housing starts came in at -3.3%, -36.3% YOY, a 17 year low. The market is 'worse than dead in the water' according to one industry leader.
7) 3 million acres of corn were lost in last week's flood. Prices soared to $7.98/bushel. See my earlier recommendation to buy corn at $5.80.
8) United Airlines' fuel bill this year will be $9.5 billion, up 58% from 2007.
TRADE OF THE DAY
It turns out that the US did not invade Iran after all, so the July crude $150 calls I recommended shorting Thursday for $500, expired worthless, generating a four day profit of $300,000 on capital of $3,000,000. This was my third recommendation to short these calls in three weeks, on?? May 20, June 2, and June 11 and the total profit was $624,000, or 21% of capital. In fact you could have made six round trips on these calls during this time, and they never got within $10 of going into the money. When volatility reaches these extremes, professionals are granted a license to print money.
Global Market Comments for June 16, 2008
1) Crude jumps to a new intraday high today of $139.89, up $6.60. A fire in the North Sea took 150,000 barrels/day of production off the market. Natural gas finally hit a new high of $13. Then crude dropped $7. The big fireworks this week are going to be in the crude options pits, where the options expire on Tuesday, and the futures expire on Friday. These dates could mark a top in crude prices.
2) Only 6% of the US work force is now going to work wearing a tie.
3) The dollar had its strongest week against the euro in three years last week, moving from $1.58 to $1.53. Clearly, the potential for lower euro interest rates caused by a rapidly weakening economy is the main driver now. Look for this to spill into the other markets. The two year Treasury note market had its worst week in history last week, while the 30 year bond market had its worst week in 25 years. Please see my earlier recommendation to sell 30 year bond futures at 120. They hit 111.
4) The California Supreme Court's recent decision to permit gay marriages is creating a 'gay boom' for the state's beleaguered economy. Over 100,000 happy couples are expected to tie the knot, generating a $684 million impact on the economy. The epicenter for all of this will be San Francisco. Local wedding planners are seeing a sudden tripling of business as long waiting couples are spending up to $15,000 per wedding.
5) Local Segway dealers are seeing business jump by 50% this year. People are buying the $5,000 two wheeled electric vehicles in order to save money on gas on short commutes.
6) The three highest paid executives in 2007 where John Thain at Merrill Lynch ($83.1 million), Leslie Moonves at CBS ($67.6 million), and Richard Adkerson at Freeport-McMoran ($65.3 million).
7) Last week's storms destroyed 10%-15% of the US corn crop. This is pulling up the prices of other foodstuffs.
Global Market Comments for June 16, 2008
1) Crude jumps to a new intraday high today of $139.89, up $6.60. A fire in the North Sea took 150,000 barrels/day of production off the market. Natural gas finally hit a new high of $13. Then crude dropped $7. The big fireworks this week are going to be in the crude options pits, where the options expire on Tuesday, and the futures expire on Friday. These dates could mark a top in crude prices.
2) Only 6% of the US work force is now going to work wearing a tie.
3) The dollar had its strongest week against the euro in three years last week, moving from $1.58 to $1.53. Clearly, the potential for lower euro interest rates caused by a rapidly weakening economy is the main driver now. Look for this to spill into the other markets. The two year Treasury note market had its worst week in history last week, while the 30 year bond market had its worst week in 25 years. Please see my earlier recommendation to sell 30 year bond futures at 120. They hit 111.
4) The California Supreme Court's recent decision to permit gay marriages is creating a 'gay boom' for the state's beleaguered economy. Over 100,000 happy couples are expected to tie the knot, generating a $684 million impact on the economy. The epicenter for all of this will be San Francisco. Local wedding planners are seeing a sudden tripling of business as long waiting couples are spending up to $15,000 per wedding.
5) Local Segway dealers are seeing business jump by 50% this year. People are buying the $5,000 two wheeled electric vehicles in order to save money on gas on short commutes.
6) The three highest paid executives in 2007 where John Thain at Merrill Lynch ($83.1 million), Leslie Moonves at CBS ($67.6 million), and Richard Adkerson at Freeport-McMoran ($65.3 million).
7) Last week's storms destroyed 10%-15% of the US corn crop. This is pulling up the prices of other foodstuffs.
Global Market Comments for June 13, 2008
1) Saudi Arabia is considering a 'substantial' increase in oil production to 10 million barrels/day from the current 9.45 million in an attempt to prick the bubble. Crude fell $2 to $134.80. The Saudis are terrified of crude at these prices, fearing that the bigger the rise now, the bigger the crash later. If crude falls back to $20 the country's current spending will drive it into bankruptcy and the government could fall in a coupe. Former leaders in the Middle East are not sent out to retirement homes, they are taken out and shot, so stable crude prices are a life or death issue for the Saudi leadership.
2) The number one city nationwide for web searches for home foreclosures is San Francisco.
3) May CPI came in at 0.60%, 4.2% YOY. Inflation is now at a two year high and rising.
4) US Air disclosed that they are paying $299/person per round trip flight for just the fuel versus $151 in 2007 and only $70 in 2006. No wonder they are charging for peanuts and luggage.
5) May consumer sentiment readings came in at the worst level in 28 years. McCain is a strong short.
6) You probably don't want to hear this, but Lehman stock (LEH) is a short term buy here. The stock double bottomed yesterday at $20.25 on enormous volume. This is down from $82 a year ago. You don't have to marry the stock, but you could get a 25% trading rally from here, or back to where it was on Monday. If this makes you feel queasy you could protect your downside by buying a $15 put for $1, limiting your loss to $5.
7) Bank repossessions in April were up 49%, the highest on record.
THOUGHT OF THE DAY
With rising oil prices and interest rates the stock market appears to be headed towards another climactic sell off. This will cause volatility to spike again, allowing you to sell puts at prices so high that they are mathematically impossible to go into the money without a major geopolitical event. And there is only one of these on the horizon, a US invasion of Iran. I am thinking of shorting the July 1200 or 1100 puts, 12.5% and 23% out of the money for 5 weeks. Watch this space.