Wednesday, August 12, 2009

Global Market Comments

August 11, 2009

Featured Trades: (NATURAL GAS), (UNG)
, (BYD)

1)Welcome to the “square root” shaped recovery. That is the likely
shape of the recovery curve we can expect over the coming years. If you
back out what I call the “2000’s fluff” of excess car production, liar
loans, using the home ATM for serial, annual refinancings, excess
consumption, unneeded home construction to account for the new
frugality, US GDP growth drops by 1%. Chop off another 1% for
deleveraging in all its forms, including lower leverage ratios, the end
of the collaterized debt markets and credit default swaps, ultra high
junk yields, bond ratings for sale, and the new conservatism of CFO’s
and auditors. That leaves you with the 1% growth rate that Japan has
seen for the last 20 years. That means falling standard of livings, an
unemployment rate permanently stuck at German style double digits,
endemic deflation, a collapsing dollar, a comatose real estate market,
and moribund stock markets. Where are the 37 million jobs going to come
from that American needs over the next decade? If your kid is going to
graduate from college soon, or cash out from the army, he better start
learning Mandarin.

3% Average US GDP growth rate 2002-2007

-1% Bank deleveraging

-1% 2000’s fluff-liar loans, excess home construction, excess car production

-1% real GDP growth 2010-2020

squareroot.jpg picture by madhedge

Unemployment.gif picture by madhedge

jobsrecoveries.jpg picture by madhedge

2) Car sales are soaring by 48% to a 12 million unit annual rate.
Consumer spending is exploding. Property is going crazy, with prices
and volumes back to all time highs. The bubble is back. No, I’m not
talking about the US, dummy, it’s China. I’m amazed that the Middle
Kingdom’s car sales have exceed those of the US for the first time in
history without a peep from the press, a feat that Germany and Japan
were never able to pull off. It just shows how much time we are wasting
gazing at our own navel. Too bad they don’t have enough roads to drive
them on. The big question is how long until China take over the world
market? See my earlier piece on BYD Motors That’s what happens when your stimulus package gets spent on stimulus, and not on a 12 year backlog of pork.

ShnghaiMon.png picture by madhedge

BYD2-1.jpg picture by madhedge

3) I ran some numbers today and came to the staggering conclusion that
at $3.60/BTU, natural gas is now cheaper than coal in some markets. One
ton of high grade Pennsylvania anthracite costs $65/ton. Some 18
million BTU’s of natural gas, the energy equivalent, costs $66, and
doesn’t give you black lung, asthma, lung cancer, polluted air, and
mountains of ash. The BTU equivalent of crude comes in at $210, and
high test gasoline at an extortionate $420. The crude/NG ratio is at
19:1, an all time high, and an entire generation of ratio traders has
been wiped out. It’s just another one of those six standard deviation
events which seem to be happening constantly. And like a rubbernecker
driving past a gory accident where the human organs are draped over
the detailing, I am always interested in wipe outs. Yes, I saw the
movie Crash. Don’t ask. Why aren’t the power companies jumping in and
burning gas instead of coal? There is the minor issue in that the
industry needs $500 billion and ten years to build the plants to take
advantage of the enormous new supply. So only frenetic production cuts
will support the price until then, which are accelerating as you read
this. Or a major hurricane. Better keep UNG on your screen and buy the
next wash out.

UNG-2.png picture by madhedge

Coal.jpg picture by madhedge

gasworker-1.jpg picture by madhedge

4) The US Postal Service, the largest civilian government employer in
the country, is getting flayed by a pack of feral dogs. After cutting
$6 billion in costs this year by shortening hours, layoffs, and closing
branches, it still looks to lose $7 billion. The General Accounting
Office says that first class mail volumes have had their greatest fall
since the Great Depression I, dropping by half, and few send out junk
mail in a recession. Next on the chopping block is Saturday deliveries
to save another $3 billion. Naysayers argue that hard times for the
service is proof the government can’t manage anything, including health
care. Hellooooo! Have these people heard of e-mail? If the Boston
Globe, the Rocky Mountain News, and the San Francisco Chronicle are
getting gutted by the Internet, why not the post office? My investment
advice? Load up on nondenominated first class postage stamps, which
have already increased in value from 42 to 44 cents since December, a
gain of 5%. The last time I checked, it cost $8.25 to send a letter via
Fedex. Postage rates are going up large.

postman4-1.jpg picture by madhedge


“Without exception, no one I know is long term bullish,” said Michael
Steinhart, one of the founders of the hedge fund industry, and an early
backer of the Wisdom Tree family of ETF’s.

SteinhardPhoto.jpg picture by madhedge

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