1) Rumors are rampant that Delta is going to merge with Northwest. What would the new combination be called? Southeast? This is leading to speculation of a United-Continental merger.
2) Technology has now taken up the downside charge in the market, leaving the banks behind. Apple has dropped from $202 to $122 in three months and is approaching value stock levels.
3) Goldman Sachs put out a report today predicting that there will be $200 billion in real estate losses this year. The bulk of these losses will be borne by the insurance industry.?? There was then a long procession of experts in the press proclaiming that they weren't seeing it. The Fed cuts will cause dividends to spike in the second half. Vacancy rates have been low. There has been little construction the last two years. However, investors who overpaid for properties at the top of the bubble will be punished. Conditions vary from city to city, with New York looking great and Detroit terrible. Detroit alone could account for the bulk of this predicted loss.
4) Cisco gave cautious guidance. The stock dropped 15% to $19 overnight where it is a screaming buy. It recovered during the day. Such is the manic depressive nature of the markets now.
5) A quiet day in the markets at last. It will give back offices a chance to settle the enormous numbers of uncleared trades. Whew!
1) Rumors are rampant that Delta is going to merge with Northwest. What would the new combination be called? Southeast? This is leading to speculation of a United-Continental merger.
2) Technology has now taken up the downside charge in the market, leaving the banks behind. Apple has dropped from $202 to $122 in three months and is approaching value stock levels.
3) Goldman Sachs put out a report today predicting that there will be $200 billion in real estate losses this year. The bulk of these losses will be borne by the insurance industry.?? There was then a long procession of experts in the press proclaiming that they weren't seeing it. The Fed cuts will cause dividends to spike in the second half. Vacancy rates have been low. There has been little construction the last two years. However, investors who overpaid for properties at the top of the bubble will be punished. Conditions vary from city to city, with New York looking great and Detroit terrible. Detroit alone could account for the bulk of this predicted loss.
4) Cisco gave cautious guidance. The stock dropped 15% to $19 overnight where it is a screaming buy. It recovered during the day. Such is the manic depressive nature of the markets now.
5) A quiet day in the markets at last. It will give back offices a chance to settle the enormous numbers of uncleared trades. Whew!
1) Hillary won California, leaving her with 830 delegates vs. 740 for Obama. 2025 are needed to win, and 750 will go into the August convention uncommitted. Hilly could lock this up with the Texas and Ohio primaries on March 4.
2) Candidate Economic policies:
Hillary: more spending, universal health care, freeze interest rates on sub prime loans, raise capital gains tax from 15% to 20%, extend estate taxes.
Obama: raise capital gains taxes, stimulate economy through an increase in tax rebates.
McCain: Lower corporate tax rate from 35% to 25%.
3) Toll Brothers announced its seventh consecutive quarterly loss. Chairman is 'not seeing the light at the end of the tunnel.' 28% of recent purchase contracts have been cancelled.
4) Small regional bank lending is not as weak as portrayed. Lending rates are up 50 basis points while costs are down 1.75% so the profitability of new loans has increased tremendously. There is a surge of refi activity which started two weeks ago. Bond holdings are being sold off to take advantage of record prices and tax refunds are due soon so these banks will be flush with cash which they want to put to work with the right borrowers.
5) Futures prices are discounting a 100% certainty of another 50 basis point cut in the Federal funds rate on or before its March 13 meeting.
6) Some 60 cents of every dollar spent in the US is on imports, so any stimulus package will help China more than the US.
TRADE RECOMMENDATION
Get ready to short 30 year Treasury bonds ($USB). The inevitable government stimulus package will cause the US budget deficit to go through the roof, forcing the Treasury to run their printing presses 24 hours a day. M1 will skyrocket and inflation will once again rear its ugly head. The US has become such a massive borrower in an ever weakening currency it's just a matter of time before they have to pay the piper. All very bad for bonds. The 30 year Bond has just had a great 17 point run which is begging to be sold. If you can sell bond futures above 120 you might be able to take in ten points quickly.
1) Hillary won California, leaving her with 830 delegates vs. 740 for Obama. 2025 are needed to win, and 750 will go into the August convention uncommitted. Hilly could lock this up with the Texas and Ohio primaries on March 4.
2) Candidate Economic policies:
Hillary: more spending, universal health care, freeze interest rates on sub prime loans, raise capital gains tax from 15% to 20%, extend estate taxes.
Obama: raise capital gains taxes, stimulate economy through an increase in tax rebates.
McCain: Lower corporate tax rate from 35% to 25%.
3) Toll Brothers announced its seventh consecutive quarterly loss. Chairman is 'not seeing the light at the end of the tunnel.' 28% of recent purchase contracts have been cancelled.
4) Small regional bank lending is not as weak as portrayed. Lending rates are up 50 basis points while costs are down 1.75% so the profitability of new loans has increased tremendously. There is a surge of refi activity which started two weeks ago. Bond holdings are being sold off to take advantage of record prices and tax refunds are due soon so these banks will be flush with cash which they want to put to work with the right borrowers.
5) Futures prices are discounting a 100% certainty of another 50 basis point cut in the Federal funds rate on or before its March 13 meeting.
6) Some 60 cents of every dollar spent in the US is on imports, so any stimulus package will help China more than the US.
TRADE RECOMMENDATION
Get ready to short 30 year Treasury bonds ($USB). The inevitable government stimulus package will cause the US budget deficit to go through the roof, forcing the Treasury to run their printing presses 24 hours a day. M1 will skyrocket and inflation will once again rear its ugly head. The US has become such a massive borrower in an ever weakening currency it's just a matter of time before they have to pay the piper. All very bad for bonds. The 30 year Bond has just had a great 17 point run which is begging to be sold. If you can sell bond futures above 120 you might be able to take in ten points quickly.
1) The January ISM non-manufacturers index, which accounts for 80% of the economy, dropped from 54.4 to 41.9, the lowest level since the terrorist attacks of 9-11. It's as if someone turned the lights off on the economy. The Dow dropped 560 points from yesterday's highs on the news. The market has given up nearly half of the gains from the MLK low two weeks ago. The market would have dropped more, but the Super Bowl winning New York Giants football team had their ticker tape parade down Broadway today.
2) A Federal Reserve survey of senior bank loan officers showed that one third of all US banks and two thirds of foreign banks have tightened up commercial lending. When loans are going through they are on wider spreads over Treasuries. The most affected are small community oriented banks with large exposure to commercial real estate lending in areas like California where prices have fallen the most.
3) Google dropped below $500 in fears of the competitive threat from Microsoft/Yahoo. It is down a third from its peak of $750 and is a buy here.
4) The futures markets are now discounting a 100% chance of a 0.25% interest rate cut at the next Fed meeting in March.
5) United Airlines will start charging $25 for a second checked bag. The plan will generate $100 million in income, but is a terrible idea from a marketing point of view.
6) Even if we don't have a consumer lead recession, it will feel like it, with growth decelerating from 5% to 0% in one quarter.
Quote of the day: 'Losing your credit rating is like losing you virginity. It is easier to lose it than to get it back.'
TRADE IDEA
The first leg of the bear market is now complete, with the S&P 500 ($SPX) down 21% for its October top of 1586. Expect a period of digestion and range trading to follow. You can cash in on this by selling the June S&P 500 1200-1450 strangle. This involves going short puts on dips and going short calls on rallies. If the market stays in the range I expect profits to drop straight through to your P&L as the time decay accelerates. It's like having a rich uncle write you a check for your monthly allowance. If we break out of this range you can always hedge yourself with futures. Use volatility spikes to 30% to scale into these positions.
1) The January ISM non-manufacturers index, which accounts for 80% of the economy, dropped from 54.4 to 41.9, the lowest level since the terrorist attacks of 9-11. It's as if someone turned the lights off on the economy. The Dow dropped 560 points from yesterday's highs on the news. The market has given up nearly half of the gains from the MLK low two weeks ago. The market would have dropped more, but the Super Bowl winning New York Giants football team had their ticker tape parade down Broadway today.
2) A Federal Reserve survey of senior bank loan officers showed that one third of all US banks and two thirds of foreign banks have tightened up commercial lending. When loans are going through they are on wider spreads over Treasuries. The most affected are small community oriented banks with large exposure to commercial real estate lending in areas like California where prices have fallen the most.
3) Google dropped below $500 in fears of the competitive threat from Microsoft/Yahoo. It is down a third from its peak of $750 and is a buy here.
4) The futures markets are now discounting a 100% chance of a 0.25% interest rate cut at the next Fed meeting in March.
5) United Airlines will start charging $25 for a second checked bag. The plan will generate $100 million in income, but is a terrible idea from a marketing point of view.
6) Even if we don't have a consumer lead recession, it will feel like it, with growth decelerating from 5% to 0% in one quarter.
Quote of the day: 'Losing your credit rating is like losing you virginity. It is easier to lose it than to get it back.'
TRADE IDEA
The first leg of the bear market is now complete, with the S&P 500 ($SPX) down 21% for its October top of 1586. Expect a period of digestion and range trading to follow. You can cash in on this by selling the June S&P 500 1200-1450 strangle. This involves going short puts on dips and going short calls on rallies. If the market stays in the range I expect profits to drop straight through to your P&L as the time decay accelerates. It's like having a rich uncle write you a check for your monthly allowance. If we break out of this range you can always hedge yourself with futures. Use volatility spikes to 30% to scale into these positions.
1) China had its largest up day in history yesterday at +9%. It is up 20% from the recent low 9 trading days ago.
2) Exxon reported profits of $11.7 billion on the quarter and $45 billion on the year, the largest annual profit in US history. Amazing. The broader energy industry accounted for 40% of all US profits in 2007.
3) Bush announced his 2008-2009 federal budget proposal of $3.1 trillion, the largest in history. Military spending increases , while health and education get cut. It's his way of saying ?screw you? to the current crop of republican candidates, who will have a tough time selling this package to the electorate.
4) Legal insider trading reached an all time high in the last two weeks. The biggest has been in ETrade (ETFC) which saw multiple buyers. The stock has fallen from $25 to $4.
5) Barton Biggs has just published a new book called Wealth, War, and Wisdom about the financial markets. It gives one a great historical perspective and now that we are all in search of a market bottom is a must read.
TRADE OF THE DAY
Natural gas ($NATGAS) has been the orphan of the energy complex, lagging crude, heating oil and distillates. It is now historically cheap compared to the others. Virtually all of the new power plants being built in the US for the next 20 years will be gas fired. Imports will remain at a trickle due to the high cost of LNG liquifaction facilities. Many major gas fields are becoming depleted and with most of the country now having been explored there are no big replacements coming on line. Natural Gas is also environmentally friendly, producing only steam and CO2 as byproducts. Natural gas is a strong buy here at $7.80 with a summer target of $12, and $15-$20 if a major hurricane hits the gulf. Take a look at the chart below. It is about to break out to the upside, dragged kicking and screaming by crude.
1) China had its largest up day in history yesterday at +9%. It is up 20% from the recent low 9 trading days ago.
2) Exxon reported profits of $11.7 billion on the quarter and $45 billion on the year, the largest annual profit in US history. Amazing. The broader energy industry accounted for 40% of all US profits in 2007.
3) Bush announced his 2008-2009 federal budget proposal of $3.1 trillion, the largest in history. Military spending increases , while health and education get cut. It's his way of saying ?screw you? to the current crop of republican candidates, who will have a tough time selling this package to the electorate.
4) Legal insider trading reached an all time high in the last two weeks. The biggest has been in ETrade (ETFC) which saw multiple buyers. The stock has fallen from $25 to $4.
5) Barton Biggs has just published a new book called Wealth, War, and Wisdom about the financial markets. It gives one a great historical perspective and now that we are all in search of a market bottom is a must read.
TRADE OF THE DAY
Natural gas ($NATGAS) has been the orphan of the energy complex, lagging crude, heating oil and distillates. It is now historically cheap compared to the others. Virtually all of the new power plants being built in the US for the next 20 years will be gas fired. Imports will remain at a trickle due to the high cost of LNG liquifaction facilities. Many major gas fields are becoming depleted and with most of the country now having been explored there are no big replacements coming on line. Natural Gas is also environmentally friendly, producing only steam and CO2 as byproducts. Natural gas is a strong buy here at $7.80 with a summer target of $12, and $15-$20 if a major hurricane hits the gulf. Take a look at the chart below. It is about to break out to the upside, dragged kicking and screaming by crude.
Market Comments for February 1, 2008
1) If you are a breathing, sentient being in the universe you have already been inundated with news of the Microsoft/Yahoo takeover. I will just make a couple of points: a) This could spark a takeover boom in the technology area. Time Warner and AOL are already moving on potential Google takeover bids. b) This in turn could lead to a takeover boom across all industries which will put a floor under the market. Prices are certainly cheap enough. They are calling it the free 'Gates put'.
2) The really big news today which was totally overshadowed by Microsoft, is that the Non-Farm payroll for December came in at -17,000. A 75,000 increase had been expected. This is the first down number in 4 years and the first statistical evidence that we are going into a recession. Expect economic data to look terrible for the next six months. The non-farm payroll is the single most important leading indicator for the stock market. Without the Microsoft news the market would have been down 500 on this.
3) At +500 the market had its best week in 5 years this week. My recommended sectors of ? banks and home builders were up on average 30%. Washington Mutual rose 110% from $10 to $21. ? January was the worst month in 17 years.
4) Overlooked by all of the news this week was the collapse in the dollar caused by the new lower interest rates. It will take a run at $1.50 to the Euro in the near future.
5) Stocks are their cheapest vs. bonds in 25 years. Bonds are at a multi-decade high here and are a strong short.
Trade of the Month
The purest play on the weak dollar is to go long gold. As long as US interest rates are falling and Europe is holding fast you can count on the greenback to go downhill. Skyrocketing American budget and current account deficits are also helping the glittery stuff. Hedge funds are pouring into gold as part of the general rush into commodities. Gold also has its own special classes of buyers. Standards of living are rising rapidly in China and India which have historic cultural affinities to gold as a store of wealth. And with economic conditions worsening in the US by the day, gold will increasingly catch a flight to safety bid. $1,000 an ounce is a chip shot from here and look for it to go high long term (I mean years.) The old inflation adjusted high for gold is $1,500 and it should have no problem getting there over time.
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Market Comments for February 1, 2008
1) If you are a breathing, sentient being in the universe you have already been inundated with news of the Microsoft/Yahoo takeover. I will just make a couple of points:
a) This could spark a takeover boom in the technology area. Time Warner and AOL are already moving on potential Google takeover bids.
b) This in turn could lead to a takeover boom across all industries which will put a floor under the market. Prices are certainly cheap enough. They are calling it the free 'Gates put'.
2) The really big news today which was totally overshadowed by Microsoft, is that the Non-Farm payroll for December came in at -17,000. A 75,000 increase had been expected. This is the first down number in 4 years and the first statistical evidence that we are going into a recession. Expect economic data to look terrible for the next six months. The non-farm payroll is the single most important leading indicator for the stock market. Without the Microsoft news the market would have been down 500 on this.
3) At +500 the market had its best week in 5 years this week. My recommended sectors of ??banks and home builders were up on average 30%. Washington Mutual rose 110% from $10 to $21. ??January was the worst month in 17 years.
4) Overlooked by all of the news this week was the collapse in the dollar caused by the new lower interest rates. It will take a run at $1.50 to the Euro in the near future.
5) Stocks are their cheapest vs. bonds in 25 years. Bonds are at a multi-decade high here and are a strong short.
Trade of the Month
The purest play on the weak dollar is to go long gold. As long as US interest rates are falling and Europe is holding fast you can count on the greenback to go downhill. Skyrocketing American budget and current account deficits are also helping the glittery stuff. Hedge funds are pouring into gold as part of the general rush into commodities. Gold also has its own special classes of buyers. Standards of living are rising rapidly in China and India which have historic cultural affinities to gold as a store of wealth. And with economic conditions worsening in the US by the day, gold will increasingly catch a flight to safety bid. $1,000 an ounce is a chip shot from here and look for it to go high long term (I mean years.) The old inflation adjusted high for gold is $1,500 and it should have no problem getting there over time.
