long overdue update

Three developments have emerged the markets since my last blog. First, oil dropped from $60 to $50 to $60 in little more than a month. Second, news from China indicated that the Asian leader was a net exporter of zinc, as well as the world's largest consumer of the metal. Thirdly, the subprime mortgage market has suffered a deadly blow.

First, oil. Quoted in Barron's, Art Smith, head of energy research firm John S. Herold, said that he's amazed at the market reaction to a 100,000 barrel weekly inventory change. He points out that 100K is equivalent to a rounding error. As a weekly change it is insignificant in the face of the 85 million barrels consumed daily. My thought on oil is that global warming is a good thing to bet against short-term. Everyone was talking about how warm it was a month ago; now the Northeast is in an ice age. I must admit that while I love the logic, I only came up with it in hindsight. Another development in oil is that Venezuelan production has fallen apart faster than I had anticipated. I had thought that Chavez would pump oil like crazy, but he's already neglected maintenance enough for production to plummet. I know I predicted $40 oil, but global growth and lack of OPEC cheating may desroy that prediction.

Second, zinc. A major hedge fund revealed research that China was, shockingly, a net exporter of zinc last year. Zinc, one of the hottest metals last year, immediately underwent a 15% correction. Copper fell 5%. However, gold is up from $602 to $662. Talk about contradictory signals. If I had to pick one, I'd say the gold bugs were nuts. I know the Fed's been talking about inflation again, but they don't even have the employment report on their side this time.

Finally, the subprime mortgage market imploded with twin reports from HSBC (HBC) and New Century Financial (NEW) warning that bad loans were returning to cost them much more than anticipated. HSBC's losses were 20% greater than they were prepared for. NEW was down 36% on a suprise warning of 4th quarter losses and upcoming restatements of Q1-Q3 of '06. Novastar Financial (NFI) which I bought too soon at $21 was down to $16.36 on the sector hit. However, I think their downside is limited because they have $12 a share in cash. NEW also has $12/share.
I think NFI is a buy.