Thursday
Jun122008

Oil: Like Nothing We've Ever Seen?

Up five dollars one day.  Up ten the next.  Down three.  Up five.  Down three.

With all the ups and downs in oil lately, the recent volatility in the oil market seems extreme.  We've even heard some traders say that in all their years of trading, the volatility in oil is like nothing they have ever seen.  However, while oil has been having large swings in dollar terms, based in percentages, the swings have hardly been historic.  The chart below shows the 10-day average intraday high/low spread of oil since 1986.  At current levels, the average daily intraday spread over the last ten days has been 4.4%.  While these intraday swings are considerably higher than the long-term average, calling them 'historic' might be somewhat of a stretch.

Crude_oil_high_low_spread_2

 

Thursday
Jun122008

Commodity ETF Volume

As we all know, there has been a boom in commodity ETFs and ETNs over the last few years, and we recently counted 53 that trade on US exchanges.  Investors have increasingly plowed into these securities to trade the run-up in commodity prices as well as easily gain exposure to an asset class that was once difficult to get into.  We gathered the daily volume of these 53 commodity ETFs and ETNs from the start of 2006 and then calculated a 30-day moving average of the total daily volume of all 53 securities.  As shown in the first chart below, volume has soared since the start of 2006.  Given the significant rise in commodity prices, it's not hard to see why volume has surged.

Commodityetfs

Recently, there has been talk that the large number of new commodity ETFs has added to the rise in prices.  While it's hard to quantify the impact that they have had, it's important to note that relatively speaking, the volume is really not that big.  As shown in the chart below, the average daily volume of all commodity ETFs and ETNs is just 1/6th of the average daily volume for the S&P 500 tracking SPY ETF.

Commodityvsspy 

Thursday
Jun122008

Nasdaq vs Homebuilders vs Oil

The price of oil has risen 729.58% from its low on November 19th, 2001 to its closing high of $138.54 on June 6th.  When compared to the tech bubble of the '90s and the real estate bubble earlier this decade, oil's rally is just about in between the two.  As shown below, from the Nasdaq's significant bottom on June 24th, 1994 to its peak on March 10th, 2000, the index rallied 639% over 2,086 calendar days.  From its bottom on March 14th, 2000 to its peak on July 20th, 2005, the S&P 1500 Homebuilder index rallied 839% over 1,954 calendar days.  Surprisingly, oil's rally is now longer in duration than both the tech and real estate bubbles at 2,391 calendar days.  As we all know, the tech and real estate bubbles eventually burst and fell by as much as they rose.  Their declines were very similar in both duration and size as well.  While significant gains in any asset class carry their own set of circumstances and positive arguments, it's hard to look at this chart and not expect to see oil's red line come down significantly at some point.  The demand argument for oil might be strong, but there were no shortage of "demand" arguments during prior bubbles either.

Nasdaqhomebuildersoil

Note: we always maintain a certain allocation to commodities in our all-ETF portfolios, with regular rebalancing to keep the allocation inline.

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Thursday
Jun122008

Erin Callan Out At Lehman

Lehman_erin_callan_3It's not too often that the WSJ features a head to toe picture of anybody, so less than a month ago, when the paper wrote a positive article on the cover of its "Money & Investing" section about CFO Erin Callan along with a full picture of her, it grabbed our attention.  The article was titled "Lehman's Straight Shooter" and said that the CFO instilled a "cool jolt of confidence to the credit-rattled street." 

Since then, Lehman's stock has been under selling pressure as investors have lost confidence in the company, claiming that Lehman's management has been anything but straight shooters in their explanation of the company's balance sheet.  This morning, LEH announced that it was replacing its CFO only three days after announcing it was raising $6 bln in new capital.  Like Sports Illustrated, does the WSJ now have a curse of its own?

Lehman_last_12_months

Thursday
Jun122008

Long-Term Ugliness

Below we highlight long-term stock charts of some of America's most well-known companies.  Needless to say, the last year (and in some cases many years) has not been good for them.  The real question is, will these firms remain the well-known, American companies they have been for decades, and if so, is now a good time to buy them?

Lehlongterm

Aiglongterm

Citilongterm

Pfelongterm_2

Gmlongterm

Wednesday
Jun112008

Groundhog Day in Vietnam

Most of you are probably familiar with the movie Groundhog Day where Bill Murray plays the part of a local weather forecaster who wakes up each morning to find that he keeps reliving the same bad day over and over again.  That's exactly what it must feel like to be an investor in Vietnam right now.  In addition to being down 60% year to date, the index hasn't had an up day since April (25 consecutive down days).  That's right -- April!  Over that time span, the benchmark index has declined by 29%.  Investors in Vietnam are probably longing for the days pre-2002, when the exchange only opened every other day.

Vietnam

Wednesday
Jun112008

Financials Give Up Most of Bull Market Gains

PctchangebullmarketFor those that aren't aware of the dire straits that the credit crisis has put the Financial sector in, take a look at the chart below.  At current levels, the S&P 500 Financial sector is down 40.7% from its peak in February of last year.  The sector is now just 20.8% above its price at the start of the bull market on October 9th, 2002 and 1.58% below its price at the start of this decade. 

What was recently one of the best performing sectors of the bull market has now almost become the worst.  As shown in the table above, only the Health Care sector has gone up less than Financials since the start of the bull market.  On the flip side, the Energy sector has gone up nearly 15 times as much as Financials.  Thank you oil.

Financials611

Wednesday
Jun112008

Percent of World Market Cap by Country

Yesterday we highlighted that the United States' market cap as a percentage of global market cap has been on the decline.  Below we provide a table of the numbers for 29 other countries.  As shown, US stocks still dominate world market cap by a wide margin at 29.9%.  Japan has the second largest stock market representation at 8.2%, followed by the UK (6.8%), China (5.4%) and France (4.4%).  China is noteworthy because it made up just 1.7% of global market cap at the start of 2004, and now it has the fourth largest representation. 

We also sorted the list of countries by how much their % of world market cap has changed since the start of 2004.  As shown, Saudi Arabia has increased the most at 877.5% -- going from 0.1% to 0.9%.  Saudi Arabia is followed by Egypt, Qatar, Brazil, UAE, China, Russia and India.  With oil's enormous rise over the last few years, it's no surprise that many of the countries with the biggest gains are major oil producing countries.  The US is at the very bottom of the list with a significant decline of 31.6%.  Japan is down 20%, the UK is down 12%, Italy is down 10%, and France is down 5%.

Worldmarketcapbycountry_2 

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Wednesday
Jun112008

Energy Inventories

For the week ending June 6th, US crude oil inventories showed yet another larger than expected drawdown.  As the chart of current oil inventories versus their historical average indicates, crude oil stockpiles have rapidly declined at a time when they should be peaking.  In fact, the four-week decline of 23.6 million barrels represents the third largest four-week decline since the government began tracking the data in 1984.

Crude_inventories_0606

While crude oil inventories have shown a sharp decline, inventory levels for gasoline and distillates are more inline with their historical averages.  In fact, while gasoline inventories remain slightly below average, the spread between current and average distillate inventories (which had been a major concern earlier in the year) is at its highest levels of the year (lower chart on left).

Gasoline_and_distillatesinventories

Wednesday
Jun112008

Where's The Demand Destruction?

China released its monthly crude oil import figures this morning, and the results show that even with oil hitting record highs, imports during May reached their second highest levels on record.

Chinese_oil_imports

So weren't higher oil prices supposed to hurt demand? While there has been some demand destruction in the US, the figures above suggest that China keeps on chugging.  However, as we know, one explanation for the lack of demand destruction in China is because the government has controls on the price of gasoline.  These price controls have gotten so expensive for Chinese oil companies that PetroChina announced an $8.7 bln bond offering this morning.  The purpose of the offering was to cover losses from its refining operations due to price controls.

Tuesday
Jun102008

Shanghai vs FXI

US investors looking for exposure to Chinese equities generally go to the iShares FTSE/Xinhua China 25 ETF -- FXI.  While it doesn't directly track China's most popular equity index -- the Shanghai Composite -- the two are pretty highly correlated.  Below we highlight the return of the Shanghai Composite and FXI since FXI began trading in October 2004.  As shown, FXI is currently up 161.24% versus the Shanghai Composite's return of 115.92%.  FXI investors have actually done much better holding the ETF than they would have if they invested directly in the Shanghai Composite.

Fxishanghai_2

On another note, we found that the correlation between the one-day percent change of the Shanghai Composite and the open to close percent change of the FXI ETF has been -0.02 throughout FXI's history.  This means that there are no trading opportunities for US investors who want to buy or sell FXI at the open when the Chinese markets are up or down big prior to the open here in the US.

Tuesday
Jun102008

Shrinking U.S.A.

Below we highlight a chart of world market cap since 2004 along with the percentage of world market cap that US stocks make up.  The current value of stocks worldwide is just over $54 trillion according to Bloomberg.  US market cap currently stands at a little more than $16 trillion, which puts it at 29.9% of world market cap.  While 29.9% still puts the US at more than 3 times the market cap of the second biggest country, Japan, it is much lower than it was just a few years ago.  As shown in the chart, US market cap as a percentage of the world has steadily drifted lower over the last four years as global stocks have risen more and the dollar has declined in value.  At the start of '04, the US made up nearly 45% of global market cap.  Only time will tell if the world will continue to get flatter or if the US will widen its market cap lead again.

Worldmarketcap

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Tuesday
Jun102008

Lehman (LEH) Downgraded From Outperform to Neutral at Wachovia and Credit Suisse

Two more analysts have thrown in the towel on Lehman.  Wachovia had an Outperform rating on Lehman (LEH) since upgrading it on March 15th, 2007.  They reiterated the Outperform rating 12 times since then, but today, after declining 61% from the upgrade, Wachovia downgraded the stock to Market Perform.  Credit Suisse upgraded Lehman from Neutral to Outperform on October 8th, 2007.  After a 54% decline since the 10/8 upgrade, Credit Suisse downgraded the stock to Neutral today.  Even after today's 2 downgrades, Lehman still has 7 buy ratings, 10 hold ratings and 2 sell ratings.  Are today's multiple downgrades a sign that a reversal is near, or is it just a case of better late than never?

Wachovialeh

Csleh 

Tuesday
Jun102008

Global vs US Sector Performance

52wkchangeWe recently gathered the 52-week change of MSCI's World sector indices to see how global sector performance compares to domestic sector performance.  The performance numbers are all in US dollars.  As shown in the table at right, Materials have shown the biggest difference between global and domestic performance.  MSCI's World Materials index is up 22.2% over the last 52 weeks, while the S&P 500's Materials sector is up just 10.1%.  Financials in the US are down much more than they are globally over the last year.  The S&P 500 Financials sector is down nearly 39%, while globally Financials are down 27%.  The only US sector that is outperforming its global counterpart is Energy, and it's not by much.  The S&P 500's Energy sector is up 24.7% over the last 52 weeks, while MSCI's World Energy index is up 24.3%.

52weekchange

Tuesday
Jun102008

Bespoke's Commodity Snapshot

Below we highlight our trading range charts for ten major commodities.  The green shading represents 2 standard deviations above and below the commodity's 50-day moving average, and moves above or below this area are considered overbought or oversold.  As shown, oil and natural gas are just below the top of their trading ranges, but corn is actually the most overbought of them all.  Corn's 13% rally over the last 8 trading days has put it 2.68% above the top of its trading range.  Precious metals, wheat, orange juice and coffee remain in neutral territory.

Oilnatg

Goldsilver

Platcopp

Cornwheat

Ojcof_2

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