Equities: UP

The collapse of the volatility index (VIX) is telling us that the horrific, gut churning, 10% daily moves are over. But equities are no longer a US play. Extracting the insane leverage of the last decade means chopping the US growth rate down from a booming 5% to an anemic 2%. This is not a strong argument to buy American companies, which is why most analysts only see the indexes recovering 10%-20% this year. You might just get tedious range trading after the late 2008 dead cat bounce. The real action will be in the BRIC countries, which will see upside returns double what you will get with the S&P 500. Buy Brazil’s Bovespa ($BVSP), Russia’s RSX, India’s Bombay Sensex ($BSE), and China’s FXI or Hang Seng. And it may be time to spell BRIC with a “K” by throwing in the Korean Kospi ($KOSPI) as a sweetener.

However, this is not a riskless trade. There have already been several rounds of stop loss buying by traders who jumped into this strategy too early, as unimaginable buying kicked in at 120, 125, 131, 136 and finally 141. In Japan the ten year bond eventually hit a low of 0.46%, making our ten year at 2.85% look incredibly expensive. That works out to a futures price of 200 or more.

2) Q2 GDP came in at a blistering 3.2%, almost double some forecasts. While the stimulus checks provided a minor assist, it was really all about the enormous boost being given the economy by international trade. Unfortunately, if you don’t sell routers in India, ship food or commodities to China, or sell crude products anywhere you were toast. When this market does recover there is no doubt it will be lead by companies with half or more of their income from overseas. Think big tech: Microsoft (MSFT), Intel (INTC), Oracle (ORCL), Hewlett Packard (HP), and Cisco (CSCO), or just buy a technology ETF (XLK).

2) It is amazing that natural gas [NG] let you in at $7.75 when the hurricane season was only half over. It is up $1.10, or 14% in two days. [Editor's note: ETFs are iPath DJ-AIG Natural Gas Total Return Sub-Index (GAZ), United States Natural Gas Fund, LP ETF (UNG).]

2) The S&P case-Shiller home price index for June fell 15.4% in June YOY. San Francisco came in at -23.7% YOY. Even though homebuilders have cut back construction dramatically, foreclosures keep dumping more properties on the market, driving prices down.

2) Beijing’s Olympic gold medals actually have only 1/5 ounce of gold plate over five ounces of silver on a white jade backing. The last time winning medals were made of solid gold was at the 1912 Olympics in Stockholm. The last gold medal that sold on the open market was by a Polish swimmer in 2004 for $82,000. The organizers of the 2012 London Olympics can’t help but thinking they are screwed. Their budget is one fifth of what the Chinese spent on their games, which will never again be matched in terms of spending, manpower, and organization.

2) Your long awaited opportunity to buy Napoleon’s penis is finally here. The relic was part of a massive collection of quirky and macabre historical items assembled by famed Columbia University urologist John Lattimer. It will be offered for sale along with Hermann Göring’s monogrammed boxer shorts, the shirt Abraham Lincoln wore when he was shot, and W.C. Field’s top hat.

2) The tiny island nation of Singapore, which has never won a medal in the Olympics, has offered to pay $735,000 to anyone who brings home the gold. Malaysia is offering $300,000, Greece $220,000, and the Philippines $200,000. The US pays a relatively chintzy $25,000 to its medal winners. NBC thought it died and went to heaven when it rained during the women’s volleyball gold medal final. Suddenly it became an Olympic wet T-shirt contest.

2) Maudie Hopkins, one of the last surviving confederate army widows, died at 93. In 1934, at age 19, she married an 86 year old veteran of the Civil War who died shortly thereafter. She has been collecting a government pension ever since. The Veterans Administration is still paying pensions to a half dozen similar widows from both sides of the civil war, which ended 143 years ago. One is collecting a pension from a late Civil War veteran and a WWII veteran.

2) Nine million jobs are expected to leave the US for China and India over the next ten years, manufacturing to China and back office and support to India. China’s GDP is expected to exceed that of the US by 2035. Hopefully I will be dead by then.

2) The National Association of Realtors says that Q2 prices were down 16.3% YOY and that sales volume was down 16.7%. The biggest drop in sales was in California, down -25% where foreclosures are still a major part of the market.

2) July CPI came in at a red hot +0.8%, or 5.6% YOY. With wage growth at zero this means that the US standard of living is declining at a 5.8% annual rate this year. Thank you president Bush! Well done! This is what John McCain has to sell this year. Tough.

2) Gasoline inventories fell as surprising 6.4 million barrels as the summer driving season draws to a close. Wholesalers are trying to keep stocks to a minimum to avoid the hit from falling prices. Crude jumped $5 to $117.50.

2) The Olympic coverage has given a huge boost to McDonald’s (MCD), a major sponsor. The stock has jumped to an all time high of $67.

2) China has spent a total of $70 billion preparing for the Olympics. They have priced tickets at a very reasonable $12 to enable the masses to attend. A record 6.5 million have been sold so far. The opening ceremony tickets only cost $29, but were scalped for $2,000. 500,000 visitors have descended on the city to watch 202 countries compete. The Shanghai market plunged 4.6% to a 19 month low of 2,600 as locals cashed out to watch the games. A UK based website sold $40 million worth of opening ceremony tickets. The unfortunate buyers didn’t find out they were fake until after they arrived in Beijing.

2) Whole Foods (WFMI) is suspending its dividend, canceling new store openings, and offering more low cost food in the wake of a 31% decline in earnings. The Texas based food retailer, also known as “whole paycheck” by its long suffering clientele, has seen its stock plunge 74% from $70 to $18 in the past two years.

2) US paper money was found to have the highest cocaine contamination of any currency in the world. In some neighborhoods up to 50% of all bills tested positive for the South American drug, and therefore the people who handle them. This is the best strong dollar argument I have heard this year.

2) Pawn shops are also a booming business, which see 60% of their income from scrap gold. EZCorp (EZPW) is up 95% this year, Cash America International (CSH) is up 78%, and First Cash Financial Services (FCFH) is up an amazing 165%. However, some states are gunning for the sector, enforcing new 36% interest rate caps.

2) Florida based luxury homebuilder WCI Communities (WCI) filed for chapter 11 because of its inability to roll over $1.8 billion in debt. Carl Icahn tried to take over this company a year ago at $22/share after it had fallen from $40, but failed. Sometimes your best trades are the ones you don’t do. Expect more homebuilders to fail. Read the “ghost towns” article in the Saturday WSJ.