Monday Morning Markets

I know I'm worried about the markets when I spend more time than usual reading the travel section of the newspaper, thinking of all the nice, relaxing places I could be this spring if I just cash out. 

I hate to be doom and gloomy but I'm looking at $127 oil again this morning and I still can't figure out how we're supposed to be paying for this.  Broadbandbrew summed up the mood of the markets well, saying: "The same folks that were screaming that the sky was falling a few months ago and we should sell our stocks are now telling us that things look better and the economy may be recovering. Oh really? They were wrong then and they’re still wrong. The sky wasn’t falling a few months ago when we turned bullish and started buying long positions. The market has since rallied tremendously and now they want us to start buying stocks. That’s just wrong. Now is the time to take profits where you have them and wait for pullbacks while all those fund managers are forced to chase the S&P during some of the slowest months of the trading year."

My bullish outlook for the markets has been based on the premise that oil (at some point) would stop going up, the dollar (at some point) would stop going down (it did), that corporate profits would come in better than expected (they did) and that Congress would actually do something to address the mortgage crisis other than lowering rates, which we are still waiting to have passed on to the borrowers.  We are still waiting to see if the dollar will really turn up but oil has been relentless in it's rise (as are all bubbles near the top) and we can already see the cracks forming in the consumer, who are having a last gasp courtesy of Bush's $600 stimulus checks which is about as useful as putting a band-aid on a severed limb in the long haul.

The chart on the left is from the WSJ article titled "Bernanke's Bubble Laboratory" which gives a nice background to where we are today, in the third major bubble of the past 20 years, which is peaking right on schedule along with the same silly justifications we heard during the tech bubble and they housing bubble because "this time it's different."

Not only may this time not be different but we may be heading right back into tech bubble mark II, ironically in part driven by the oil bubble as alternative energy technology is becoming a very lucrative field and will remain so for the year or so it takes oil to come back down to a more realistic level.  As we see from T Boone's recent $2Bn foray into wind energy, the same people who made their fortune by getting in at the bottom of the great oil run are already switching trains and getting on board for the next great rally.  Fortunately, like the Internet boom of the 1990s, at least an alternate energy boom will leave something of lasting value when it fades.

And who does T Boone order his 667 wind turbines from?  Why GE, of course!  The very same network that has paraded him out like a deranged rooster crowing about "peak oil" on a regular basis during this 5-year oil bubble to "talk his book" as T Boone himself likes to say, is not getting a $2Bn check from the man who made those Billions off an oil boom that was made possible by the non-stop media blitz put on by this "news" network, which has pushed oil even harder than they pushed housing prior to that sector's collapse.  And who made Billions of dollars lending into the housing bubble – Why GE, of course!

So until we begin to pick up a clear trend on CNBC that will be confirmed by GE's investment in a new sector, we'll have to muddle through with a bit of stock picking in what continues to be a choppy market.  We still need oil prices to back off, we need the dollar to show some real strength and we need to do something to stop another 200,000 families from losing their homes this month or how can we be bullish on this economy?  I think the global economy is strong enough to carry us through a downturn, but not one in which we throw so many of our own people under a bus, not to mention the millions around the world who are starving to death as our traders get fat off commodity profits. 

Something has to give and, if you look over the history of the world, the poor starving masses are always there, it's the greedy upper class that periodically gets overthrown.  That's why Europe is socialist now, it's safer!  The peasants are on the verge of revolting in this country and the conservatives see the writing on the wall – they should count themselves lucky that all that happens to them is they get voted out of office, I haven't seen so many people so angry at our government since Watergate.

Asian markets held up well today, with a half-point gain pretty much across the board but, like our markets on Friday, they were led by the energy and commodity sectors so it remains to be seen if the move is sustainable.  It turns out the diesel "shortage" is being driven by China's stockpiling of 520,000 metric tons of diesel in April (about 5M barrels) and diesel imports for the first four months of the year are up eightfold over last year with even more expected in May and June ahead of the games.  Remember this when you hear about the "rise" in global demand.

 Europe is also up about half a point ahead of the US open, also driven by the same sectors.  The rise in mining is being driven by the dollar getting weak again and speculators are buying up gold despite the fact that actual demand in India, the world's biggest consumer of gold, is off 76% from a year ago.

In the US, LOW reported an 18% drop in income and is being punished for it pre-market but the big story of the day is MSFT back in the hunt for YHOO, after taking a week off.  This should be nice for our YHOO calls if it amounts to anything but taking profits quickly has always served us well in the past on this deal.  The crux of the problem with this deal is that Jerry Yang has a recurring nightmare in which he's getting married and every time he goes to lift the veil – it's Steve Ballmer!  Put yourself in Jerry's shoes, it's just not the sort of match you rush into…

We'll have to wait and see what sort of direction the market gives us this week, I said last week I'm waiting until Wednesday to make a decision but, for now, we're very well covered and may remain so through the holiday weekend.

Have a great week!