Saturday, July 14, 2007
Sign of a market... bottom? Hedge funds are shorting S&P 500 futures at the highest rate in three years. Analysts estimate that it will require $45 billion to cover the shorts.
Another sign of a bottom? On Tuesday, the U.S. dollar fell to an all-time low against the euro. Fears about the subprime crisis have speculators betting that the Fed will cut short-term rates, weakening the dollar further. How far will the dollar fall? Typically, these trends go to extremes before they reverse... so it could certainly move a lot lower. But we expect the dollar to put in a bottom shortly.
How do we know? The best-selling advisory in our industry last quarter was a "forex" trading system. After five years of a falling dollar, small-lot speculators are ready to bet against it. Seems like a good opportunity to go long the dollar is coming...
From a subscriber: It has always seemed to me that the market is one giant pyramid scheme that, unfortunately, you must engage in and hope to get out before the collapse...
I sympathize with the logic, but, I don't agree that stocks as an asset class are a pyramid scheme. Strategies that many people follow and wildly popular market sectors, like tech in 2000, certainly take on Ponzi-like characteristics. But... stocks are merely a form of ownership. Assuming the price is right and the legal framework robust, I see nothing inherently wrong with a large market for public equities and the public's ownership. Buying great businesses at a fair price is never a bad idea.
ConocoPhillips (COP) plans to repurchase $15 billion of stock – 11% of the shares outstanding – through the end of 2008. COP is up about 10% this week, and S&A Oil Report readers have made 30% on Matt Badiali's recommendation. Maybe COP sees this purchase, an all-time high, as a bargain.
Oil demand will grow 2.2% a year between 2007 and 2012, outpacing production, according to the International Energy Agency's newly released oil market report. This forecast is up from a 2% estimate in February. The group also flirted with the idea of "peak oil," stating that production in non-OPEC areas will fall.
All we need now for oil prices to crash is for pension funds to change their charters, allowing them to invest in commodities...
From our resident quant Ian Davis: For the first time in years, ethanol has become cheaper than gasoline. This is good news for companies like Archer Daniels Midland (ADM), the largest U.S. producer of ethanol, which has seen its stock price spike by about 5% last week. As long as corn is cheap relative to crude oil, ethanol will remain an attractive alternative for motorists interested in trying to save the planet... and profits for companies like ADM, Verasun (VSE), and Aventine (AVR) should continue to rise.
Editor's note: Ian's service, Quant Trader, is currently available to S&A Alliance members. If you want to find out more about the S&A Alliance, click here.
Carl Icahn's American Real Estate Partners (ACP) raised its bid for Lear to $37.25 per share from $36. The board "strongly encourages" shareholders to accept the offer and will vote on the offer at the annual meeting on July 16. The bid still faces opposition from Lear's second-largest shareholder, Richard Pzena. Pzena appreciates the higher bid, but does not believe the increase will shake out the long-term investors.
12% Letter pick Citigroup (C) is going long Japan. After buying Japan's third-largest retail brokerage, Nikko Cordial, for $10 billion, the U.S. bank is now trying to list its shares on the Tokyo Stock Exchange. Citi will also increase the number of local branches in Japan by 40%.
The average cost for a square foot of parking space in Manhattan is $1,100. Parking spaces are selling for up to $225,000.
The number of U.S. home foreclosures rose 87% in June year over year. There were 164,644 loan default notices, scheduled auctions, and bank repressions, led by California, Florida, Ohio, and Michigan.
If you assume that each of these homes is worth the median U.S. home price, that's $36 billion in defaults. And if you assume the banks, hedge funds, and bond managers that own these debts will recover 75% of this value, that's an estimated $9 billion in losses... in one month.
Last Thursday, GM announced that June U.S. car sales declined 22% and truck sales declined 25%. Wall Street analysts, who have been bullish on the stock in hopes of a new deal with the union, said they were surprised that Toyota was lowering prices. (What a shock!) They say sales will soon rebound. They'd better. GM owes Wall Street's banks more than $40 billion.
Date Range:7/5/2007 to 7/12/2007
Date Range:7/5/2007 to 7/12/2007