May 13, 2009

1) Ahem. Excuse me. Did someone out there say sell in May and go away?. Do I sense that risk is coming back into the market? Is it time for a reality check? Helloooo! Crude at $60? Take a look at your charts and you will see a whole host of them rolling over from nosebleed territory and dying on withering volume. You can start with the S&P 500, the DAX, the Nikkei, and go on to the dollar. These markets have summer written all over them. The flip side is that gold and silver have been positively perky, and the train wreck that has been long Treasuries are way overdue for a short covering rally. 'Things could be worse' was never a great argument for a new bull market. The dead cat has bounced. If ever there was a time to keep your powder dry it is now. The wafting scent of Coppertone beckons.

2) At the Harvard Business School they teach you that bond holders are senior creditors, followed by preferred stock investors and ordinary equity owners.?? A former community organizer from Chicago has taken over the role of a bankruptcy judge and upended this precedent. We are now learning that the 'prepackaged bankruptcy' of General Motors (GM) is Obamese for screwing bond investors, who are being stripped of their rights, so the United Auto Workers can have a booby prize. For years, widows, orphans, and pension fund investors regularly flocked to GMAC debt to capture the 400 basis points over Treasuries they offered. Now we know why. The last time I checked, the bond holders were only being offered 28 cents on the dollar, compared to the 43 cents the employee health care trust is getting; plus, they get control of the company. No wonder the hedge fund owners of the bonds prefer a normal bankruptcy. At least they would get the factories. But they are doing better than unsecured creditors, who are getting a mere five cents on the dollar. The trashing of bond holders' rights makes a mockery of 400 years of contract law, and is not exactly the right signal to send when you are betting the future of the country on selling gargantuan quantities of more bonds to finance exploding federal deficits.

3) Travel guru, Arthur Frommer, says that now is the best time to travel in 20 years, thanks to a combination of a strong dollar and desperate price cutting forced by the recession. One year after oil hit an historic peak at $148/barrel, when $500 fuel surcharges abounded and the demise of the travel industry was widely predicted, costs in some countries, like Mexico and Costa Rica are 50% lower than a year ago. Talk about price elasticity with a turbocharger! Frommer believes there are three sea change trends going on today. Business is moving away from the big three travel websites, Travelocity, Orbitz, and Priceline, who have more preferential side deals with airlines than can be counted, towards pure aggregator sites that almost always offer cheaper fares, like Kayak.com, Sidestep.com, and Fairchase.com. There is a move away from traditional 48 person escorted bus tours towards small group adventures, like those offered by Gap Adventures, Intrepid Tours, and Adventure Center, that take parties of 12 or less on eye opening public transportation. There has also been a huge surge in programs offered by universities that turn travelers into students for a week to study the liberal arts at Oxford, Cambridge, and UC Berkeley. His favorite was the Great Books programs offered by St. Johns University in Santa Fe, New Mexico. He says that the Internet has given a huge boost to international travel, but warns against user generated content, 70% of which is bogus, posted by the hotels and restaurants themselves. The 79 year old Frommer turned an army posting in Berlin in 1952 into a travel empire that publishes 340 books a year, or one out of every four travel books on the market. I met him on a swing through the San Francisco Bay Area (his ticket from New York was only $150), and he graciously signed my original 1968 copy of Europe on $5 a Day, which was crammed in my backpack for two years. Which country has changed the most in his 60 years of travel writing? France, where the citizenry have become noticeably more civil since losing WWII. Bali is the only place where you can still travel for $5/day, although you can see Honduras for $10/day. Always looking for a deal, Arthur's next trip is to Chile, the only country he has never visited, because the currency there has crashed.

4) Take a look at the recent performance of Brazil's Bovespa stock index, which I strongly recommended on February 4. It has jumped a healthy 68% since the March low, and gives credence to my theory that when global stock markets recover, emerging markets will rise twice as fast as developed ones. The best effort the Dow could mount was 33%, and even that is looking pretty wobbly now. There is really only one global stock market now that moves in the same direction most of the time. Only volatility varies country to country, and when conditions are good you want to own the most volatile, high beta ones. Look at the ETF for Brazil (EWZ), which offers the best of all worlds, an oil and food exporting emerging market with big cash reserves and a strong currency.?? Also on your shopping list should be the ETF's of other young natural resource exporting countries like Canada (EWC), Australia (EWA) so you can cash in on the long term trends in favor of commodities. When it comes time to be bullish on equities again, this is where you want to be long.

QUOTE OF THE DAY

'Don't forget my brain tumors,' said Arlen Specter, when listing the infirmities that will challenge him as a new Democratic Senator, having just defected from the Republican party.