9/12/07

Economics

protectionism (Free trade is a major positive for world and US economic growth.). Hopefully this is good news:

http://thehill.com/business--lobby/rangel-levin-walk-fine-line-on-peru-trade-deal-2007-09-07.html

a disruption in global oil supplies (It is not the price of oil but its availability that will cause severe economic dislocation.). Yesterday, OPEC announced an increase in production of 500,000 barrels a day primarily at the insistence of the Saudis--and the price of oil rose suggesting that (1) investors’ recognize that historically the Saudis consistently lie about the real level of their production, (2) and even if they do raise production, it might not matter in light of either the terrorists’ attacks on pipelines in Mexico and Iran or the continued strength in the global economy or both. For now our oil stocks are looking good; however, they are at the upper end of their Value Range.

Exxon Mobil (Sell Half-$93.50); ConocoPhillips (Sell Half-$86); BP (Sell Half-$82)

Politics

Domestic

International War Against Radical Islam

The Market

Technical

We were pleasantly surprised by the Market action yesterday especially since we assumed that it would likely sell off if Bernanke didn’t provide some hope of easier monetary policy in his speech yesterday (which he didn’t). We are not sure whether the strong up day was a delayed technical bounce off of last Friday’s 249 point decline or an indication that stocks had successfully completed a second test of the recent August 16^th low (DJIA 12860). Clearly we will have the answer to that soon. Watch DJIA 12978 for support and DJIA 13520 as a point of resistance.

Cramer’s take on yesterday’s action:

http://www.thestreet.com/p/_htmlrmd/rmoney/jimcramerblog/10379056.html

Fundamental

A bit of good news yesterday which may have contributed to the rally: American Express [AXP] was able to refinance $2 billion in commercial paper with virtually no problem. [this obviously addresses one of our biggest concerns: the rising inability of US businesses to finance working capital which could lead to lower sales and employment]. This was the first positive data point we have had from the commercial paper [CP] market in the last month; and we needed one because there is another approximate $300 billion in CP that needs to be refinanced over the two weeks. At the moment, we aren’t sure if AXP’s successful transaction is the result a gradually improving adjustment of the Markets to the credit freeze up, the Fed pumping money into the system, just a fluke or some combination of them all. We will obviously know more with time, but right now count this a plus.

Here is a good explanation of what is going on in the commercial paper market. We were surprised to discover that sub prime problem [financial institutions are not being forthcoming on the volume of sub prime debt they own and how they are pricing it] was playing a greater role in the CP liquidity problem than we had originally thought. However, it doesn’t change the solution [easier short term money supply policy from the Fed].

http://www.thestreet.com/p/_htmlrmd/rmoney/bonds/10379010.html

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