First of all, I'd like to congratulate my man Vlad for being selected as Time Magazine's "Person of the Year."
As many of you know, I was selected as last year's person of the year and I have served out my term with great honor. I will be very busy today consoling Al Gore, who hasn't lost an award he's been nominated for in quite some time and is taking this rather hard. "It's like November 2000 all over again" was the message he left on my machine…
Both Al Gore and Vlad Putin have been vocal critics of US policy this year but, when push comes to shove, Al Gore just isn't willing to go that extra mile and poison his critics, which gave Vlad a serious edge as the judges deliberated who they'd rather not piss off. As much as the US mainstream media would spin it otherwise, Putin is admired in much of the world for his vocal criticisms of the US, reasserting Russia's place in the world after years of accepting "defeat" in the cold war.
In market terms, Russia is ?? ?????? (on Fire) with the RSX (Russia ETF) jumping 44% since its launch in May and TRF holding steady this year after gaining 300% since '05. We still grossly underestimate the economic potential of Russia and their vast recourses covering almost twice as much land as the US with about 1/2 the population, Russia may be in better position to expand their $2Tn economy than China does of expanding their $3Tn yet you almost never hear a positive word mentioned about our former enemy in the US press.
That's why Putin may be a surprising choice to US readers but to the rest of the World, it is certainly not surprising that he beat out JK Rowling, David Patreus, Al Gore and even Hu Jintao in the magazine's international poll of editors.
Speaking of Hu, the Hang Seng mirrored the Dow's weak bounce yesterday, impressing no one with the "recovery," especially the Nikkei who came back from lunch in a very sour mood and dove 200 points in 150 minutes and were literally saved by the bell at 15,030. The Japan drop was led by heavy selling of the energy sector, notably refiners as well as shipping companies as the economic forecasts for Japan look awful and the rest of Asia, although strong, do not look good enough to carry the weight. Asian consumer discretionary outlook took a huge downturn as attendance at Hong Kong Disneyland fell close to 20% through September (and things are getting worse!).
Europe was way downed but has fought back to flat ahead of the US open, still very scary on the heels of a $501.7Bn cash infusion this week. One would think if the banks took on $501,700,000,000 that they intended to do something productive with it and our concern has to be that they really needed that money just to stay solvent and there still isn't any left to loan out. "The enormity of the sum is an indication of just how stressed [commercial banks] were," said James Nixon, euro-zone economist with Société Générale in London. ECB policy makers aren't aiming their relief at any specific bank, but they worry that European banks still have undisclosed losses related to the subprime-mortgage problems in the U.S. "This isn't solving the problem," he said. "It's just postponing it."
I mentioned yesterday how hard it is for Investors to resist the temptation to gamble but these are VERY uncertain times and, if you can't be in cash, then at least make sure you are very well hedged as we head into the holidays.
MS lost ANOTHER $5.7Bn that they forgot to mention last time they told you their $4Bn write-down would be more than adequate. With Monday's CNBC poll showing us that 87% of US homeowners do not believe their homes will lose value next year – how realistic do we really believe 100% of the financial industry's outlook to be for next year. With $15Tn in mortgage debt outstanding, it wouldn't take much of a drop in the housing market to make this year's round of write-downs look like the first act of a very long play.
Meanwhile our broke-ass government looks like they may pass a $555Bn spending package that includes an unfunded $50Bn annual cut of the AMT but does not yet address Bush's requested $190Bn of additional military funding as they house bill gives the President "just" $47Bn to tide him over the holidays while the Senate was more willing to compromise by offering $70Bn. Word is the Prez will take the House cut and that will be bad for defense contractors so we'll keep an eye on that sector.
Also heading to the President's desk is the revised energy bill, which raises mileage requirements to 35 mpg but over a very long time and, more importantly, raises the use of ethanol to 36Bn gallons a year by 2022, which will be a big hit with farmers and a big hit on your food budget. If you want a really quick take on how stupid this is – 36Bn gallons of fuel is 45 days worth of fuel at our current consumption rate.
Using food to run our cars will drive up food costs perhaps 30% over the current record prices while simply raising mileage requirements by 25%, to 25 mpg of all new cars by 2010 would IMMEDIATELY save us 5% (15Bn gallons) of gasoline in the first year those cars are on the road and will save us over 20% of our current fuel consumption by the 5th year, when the majority of the fleet rolls over. That's 60Bn gallons saved by 2015 under the Davis plan with no disruption of the global food market. Sure there's the disadvantage of having a few less agribucks to pay for the election but ACTUALLY DOING SOMETHING THAT HELPS might be a nice idea once in a while.
As to the markets, they're in our range – what else is there to say. We get to play cat and mouse with our callers this week and get ourselves into position to maximize the gains from our January callers, who are paying us full price for just 17 trading days and that includes Christmas Eve and New Years day – not usually big market movers.
Hopefully we'll get another silly oil run around inventories to short into. They closed the shipping channel again and they roll the contract to February today so the gain you see in oil needs to be taken with a grain of salt and those are the new plays I am most likely to make.
Have fun out there!
– Phil
