Forbes is picking up on my premise that US equities are the least sucky place to put your money in 2008.
This article points out that: "The blue chip Dow Jones Industrial Average and the large-cap Standard & Poor's 500 both have lost much less than their major European and Asian counterparts of late, suggesting that the five- or six-year run in which foreign bourses routinely thrashed the S&P and the Dow has ended."
"The international [outperformance] was a great story, but it's over," says Alec Young, S&P's international equity strategist, who notes that U.S. stocks now represent 41.3% of world stock market capitalization, up from 40% at the end of the year. While other global markets are breaking throught the 20% zone (something we have been tracking on the Big Chart all year), signaling a bear market, the US keeps bouncing off the line, consolidating around 15% declines.
Forbes echos my sentiment with this: "Either the equity markets are in complete denial, and U.S. markets will soon face a major crash, or maybe, just maybe, great U.S. companies that are not home builders or financials or purveyors of overpriced consumer junk are quietly selling excellent products and services around the world and are still making good money." The article claims that $9 out of every $10 from US fund investors went into international equities last year but I find that very hard to believe. If true, it would be possible to see a shocking, major reversal of fortune as money gets repatriated back to the states.
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Wheat has gone from $4.05 in July '06, to $4.88 in July '07 to $10.68 this month. How did that happen? Was there a surge in demand, did farmers stop planting wheat? Was there a drout? No, none of those things. What happened is the same thing that happened in the energy markets in 2001, when trading restrictions on oil and natural gas were lifted – The Commodity Futures Trading Comission (who answers to the White House) opened the markets to unlimited trading by giant hedge funds last year! This happened at the same time that Bush rolled out his "energy plan" to turn food into fuel.
"It is estimated that $8 billion has flowed into ag futures since the start of the year,” said Joe Hampton, President of the Oklahoma Grain and Feed Association. "They never have any intention of owning that grain. This ongoing large investment has served to drive general commodity prices to ever higher prices, often in disrespect to prevailing fundamentals.”
So aside from Bush's farm constituency, who else gets a windfall from allowing the hedge funds to bleed US consumers in yet another commodity outrage (the poor ones, who tend to vote Democrat are, of course, the most affected)? Mike Cassidy, president of Cassidy Grain in Frederick, recently said that his business will need a $10 million to $12 million line of credit this year after operating on a $2 million line of credit for a quarter of a century. Wow – 5-6 times more debt REQUIRED to run his business after NOT needing the bank's money for 100 years and doing just fine!
"It's in no way a reality of what the real cash market or the new crop, what the real value is,” Doug Tippens, of Yukon Bank said. "It's almost counter-intuitive to what all of us know, almost to the point where I won't let customers use this tool (hedging) any more because it's so damaging to the market because we don't know what the price of wheat really is.”
The solution to wild price swings and prices far above what industry fundamentals would dictate would be to limit the number of bushels that hedge funds can control, both Tippens and Hampton said. Treat them as speculators. "We need to get the index funds out,” Hampton said. "They need to be considered what they are, and they are speculators.”
The situation was created by a "pure power play with money,” Tippens said. "If the CFTC would come back in and put those limits back on I think you would see the market probably adjust back to what the real price of wheat is,” he said.
This is EXACTLY what happened in the oil markets under Bush – no fundamentals, just speculators getting rich at the expense of the Amercian people in the largest transfer of wealth in world history!
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Corporate credit markets had a huge rally last week, something that was so not covered that I ddn't see it until this evening. A huge indicator that gave us a very early warning of this problem, the cost of insuring corporate bond defaults (iTraxx), is coming back down from 160 in early March to 116.99 Friday (it was 20 last June!). Another number improving fast is the number of unsold buyout loans, which fell from $156Bn in Jan to $123Bn. That explains the 2-year notes going from 1.34% mid-March to 1.66% at last week's aution, lots of competition for money right now.
Meanwhile, investors pulled $100Bn out of equity funds so far this year vs. inflows of $19Bn last year's Q1 (when the market also sucked) and inflows of $49Bn in 2005.
“We are determined to curb inflation even if we have to live with slower growth,” finance minister Palaniappan Chidambaram told reporters in Mumbai on Friday. India's inflation is at 6.7% and they have elections this year too. The inflation target is 5% and the RBI (Reserve Bank of India) meets April 29th and may raise rates so watch our for those Indian stocks.
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Excellent primer on taking down your competition from Don Luskin at SmartMoney:
Let's say you are running a big investment bank called Big Investment Bank. And let's say you have a competitor called Competitor to Big Investment Bank. You'd be following the Bear Stearns story very closely, and you might have gotten some dangerous ideas from it.
You'd remember that the credit crisis began last July, when the first finger pushed over the first domino that set off the whole chain reaction. The finger was J.P. Morgan (JPM: 42.71, -0.15, -0.34%), serving a default notice on a hedge fund operated by Bear Stearns.
Then you'd notice that nine months and many fallen dominoes later, rumors start circulating that Bear Stearns is in trouble. Nothing specific, mind you. But the rumors are persistent enough that people with money on deposit at Bear start withdrawing it. Once one investor does that, others have to follow suit. And pretty soon Bear really is in trouble, if for no reason than that everyone wants his money out all at once.
Bear is looking at instant annihilation. And the Fed is looking at a catastrophe with ripple effects that could literally shut down the world's capital markets. So on Sunday afternoon there is a meeting with J.P. Morgan. The table is removed from the conference room, and is replaced by two barrels — one for Bear Stearns to bend over, and another for the Fed. By the end of the evening, J.P. Morgan owns Bear Stearns for a price lower than the value of Bear's office building, with the Fed assuming all the risk of Bear's virtual portfolio of dodgy mortgage-backed securities.
So, from your perch at Big Investment Bank, you decide that it's time to start circulating a few rumors about your competitor. If you have any cash on deposit with Competitor to Big Investment Bank, you withdraw it. Your brokers start talking to your customers (who are also your competitor's customers). Your traders start talking to traders at other firms, so soon their brokers are calling their customers (who are also your competitor's customers). Pretty soon there's a run on Competitor to Big Investment Bank, just like there was at Bear Stearns.
Don't think something like that can't get started out of thin air. Now two weeks after the Bear collapse, there is still no actual evidence that anything really was wrong there.
So what do you know? Next Sunday afternoon, there's a meeting at the headquarters of Big Investment Bank, and those two barrels are there again. One for Competitor to Big Investment Bank, and one for the Fed. By Sunday night, Big Investment Bank owns Competitor to Big Investment Bank for next to nothing, and the Fed owns another $30 billion of mortgage junk.
Don't think the Fed isn't aware of this risk. Why do you think that ever since the Bear Stearns collapse the SEC has been all over the headlines (as has its counterpart in London, the Financial Services Authority) to squelch rumors, and to sternly remind market players that starting false ones is a crime.
THIS IS SUCH AN AMAZING SCAM FOLKS!
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Fortune magazine: "Unless you believe poor people will suddenly start to enjoy being unconnected and uninformed, you've got to have faith in tech's future. Just look at the numbers."
Things that make you go hmmm: "Spending on alternative media hit $73.43 billion in 2007, a 22% increase over the previous year, and will continue to grow, according to PQ Media's Alternative Media Forecast: 2008-2012, released today. The research firm tracked 18 digital and nontraditional segments, with a combined 16.1% of total advertising and marketing dollars in 2007, up from 7.9% in 2002, yielding a compound annual growth rate of 21.7%. The forecast predicts a 20.2% increase over the next year, to a total of $88.24 billion, and a compounded annual growth rate of 17% for 2007-2012, reaching $160.82 billion. By then, alternative media will represent 26.6% of all advertising and marketing dollars." Gosh doesn't Google have a 58.2% market share in on-line advertising, which makes up a majority of the "alternative media" and aren't they big in on-line classifieds, on-line videos and mobile ads, which make up pretty much the rest of the segment?
Here's what went wrong with our TWX options, they LOST the exclusive rights to Superman! This just blows me away, perhaps some lawyer can explain to me how this happened as I would have thought DC's $94,000 settlement with Schuster and Siegel in 1940 plus the $30K a year they paid them until they died 40 years later would have… settled it.
Richard Band says "Not only is Phil Davis right to be bullish but I think he's too conservative with his 14.,500 target."
Barrons is backing me up on commodity prices saying: "The CFTC could also prick the bubble by enforcing its own rules. If the agency were to rescind the exemption on position limits given to the index funds (say, on a phased basis, so that the funds could make an orderly retreat), prices would probably fall back to reflect their true supply-demand fundamentals. Briese's analysis of commercial hedger positions leads him to believe that commodities in general were fully valued in terms of the fundamentals as of early September 2007. Based on the 24-commodity S&P Goldman Sachs Commodity Index, that would mean about a 30% collapse from present levels. But, he adds, "Given the tendency for prices to overshoot, commodity values could be cut in half before they stabilize."
If you like to bet with the big boys, check out the chart on page 3 of the Barrons article showing commercial net shorts are up 100% from last fall in what looks like a rolling and DD progression to me – big boys are looking for a big crash in commodities!
Paulson may save the markets tomorrow, Congress may save the markets tomorrow, Bush may even save the markets tomorrow – can't wait!
Bloomberg "Fed Actions Defuse Subprime ARM Rate Reset Bomb": "Many analysts and public officials have said that foreclosures of subprime adjustable-rate mortgages would soar this year as owners' monthly payments jumped when interest rates reset to a higher level. Not only is that unlikely to happen, this year's resets of earlier vintages of subprime mortgages may even reduce some payments that increased in 2007. The reason? The index to which many ARMs are tied is the six-month London inter-bank offered rate, or Libor, and that rate has fallen from more than 5.3 percent last fall to about half that level."
By the way, I am truly not fishing for positive articles, this is what I'm seeing!
Of courseI can always count on Barry to dig up some negativity. This is a very strange spin though as GS is sticking to their $460Bn estimate but that is in turn being spun by Andrew Titlon to lever up to $1.2Tn but I challenge you to read this article and tell me you don't get the imprssion that the $1.2Tn figure comes straight from GS. Still Barry is hilarious: "A trillion here, a trillion there, pretty soon, you're talking real money…"
