Markets Eye Commodities and WaMu Story

Two big stories today: commodities and Washington Mutual.

What's up with commodity prices? Copper, gold, oil all moving up again. Goldman Sachs raises aluminum price estimates on strong Chinese demand during 2008 (somewhat offset by a contraction in aluminum consumption in the U.S., Japan and Europe, they say), combined with supply constraints in China and South Africa. Massey raises estimates for how much it can charge for coal. Morgan Stanley raised estimates for prices on hot rolled steel.

The upshot? New highs for many commodity stocks. Now if Alcoa would give positive comments after the close--but expect them to bitterly complain about high energy prices.

1) WM dropped precipitously on Friday near the close, so this story came at the right time;

2) If this happens it happened with no government intervention;

3) Throw this news together with the news that National City has buyers sniffing around, and the feeling is if WM and NCC can get through it, maybe the worst is over. The longer we go without another failure (even if there is another one), the calmer the sentiment will be;

4) Everybody sat out the second quarter (lots of cash on the sidelines).

5) Investors appear to be looking ahead to increase earnings in late 2009 or 2010.

Three reasons bears think this is nonsense:

1) It's not even announced yet! Plus its 100 percent dilution at 50 percent discount!;

2) Earnings will not be so great and the market will pull back in the next 2 weeks;

3) The recession story will continue to weigh on stocks.

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