Trading Lessons 2008 And the Great Commodity Drop

Trading Lessons 2008
Forget about Lehman--suppose its problems were magically solved by a buyout, or someone offered them oodles of money for Neuberger. What would happen next? The shorts would cover and simply find another target.

What have we learned about trading this year?

1) that (long-term) the most bearish position has been the one that made the most money;

2) that shorts have consistently cycled through names perceived to be weak--mortgage insurers first, then Bear Stearns, then Fannie Mae and Freddie Mac, now Lehman. Notice each time the “issue” is “addressed” the market rally gets shorter and shorter. When does it end? When taking short positions in select names doesn't work any more.

The Commodity Drop
The drop in oil and distillates, natural gas, and other commodities is finally starting to filter through. Federal Express raised estimates for their fiscal first quarter due to lower fuel costs, though they did not raise full year guidance.

Here's why it's such a big deal: In late June, FedExwas paying $3.85/gallon. By the end of August, it was paying $3.27/gallon. That's a $0.60 difference. Is that a lot? Yes! FedEx uses 300 MILLION gallons of fuel per quarter--300 m x $0.60 = $180 million in savings--PER QUARTER.

This good news is going to play out with all the commodity users--from aluminum companies to food companies to transports.


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