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.
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.