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Stocks Crushed As Fund Liquidation Continues

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The Dow was only down 348 points on Thursday but the decline was much more severe on many individual stocks. The favorites of the last several months were the lepers on Thursday as they were cast out into the dungeons of major losses. Fertilizer stocks were hammered for 25% losses. POT -34, MOS -28. Solar stocks entered a nuclear winter of investor disgust. SPWR -22, FSLR -19. Energy stocks ran dry of investor cash with many hitting new 52-week lows. EOG -11, HES -11, RIG -10, APA -9.

This is not simple investor selling. This is pure liquidation as funds run for cover. With new revelations breaking daily about new names and new sectors falling prey to the financial fungus investors including funds and institutions are dumping everything to raise cash. Insurance companies led by Hartford were knocked to new lows after Fitch cut ratings on HIG due to mortgage exposure. HIG lost -12 or -32% and led the sector lower.

The near daily revelations of some new company in trouble is bleeding over into the energy sector. Energy investments have been a fund favorite and now they are turning into a source of cash. Crude dipped over $4 on fears of lower usage if the global recession worsens. At least that was the reason given but I believe it was just more dumping by funds. The last time crude traded at $93 energy stocks were not being knocked for $10 losses. Don't try to blame crude prices for the drop in energy stocks. This is a market problem not an energy problem. Bullish events in the energy sector are occurring every day but they are being completely ignored. Pipeline disasters that would have caused a $5 spike in crude just a couple months ago are being ignored. Mexican exports being cutoff for nearly a week would have sent prices soaring in June are now ignored. Fund managers are in a panic and that means sell anything with value.

Merrill Lynch did not help when they cut their 2009 crude estimate to $90 and said a global recession could push prices down to $50 in 2009.

The DOE was forced to deliver 900,000 more barrels of oil from the Strategic Petroleum Reserve on Wednesday. This brought the total delivered after Hurricane Ike to 5.7 million barrels in an effort to ease the fuel shortage in the southeast. 765,000 bpd of gulf production is still offline. Much of that could be offline for 3-6 months. At any other time that would be a major bullish factor but it is currently being ignored.

Russian oil output fell for the ninth consecutive month to 9.83 mbpd. At the current rate 2008 will be the first year since 1998 that Russian production has declined. Analysts are saying this could be the final peak for Russian production. Russia is the second largest oil producer in the world.

The dollar continued its rally to a new 52-week high against the Euro and that added to the pressure on dollar denominated crude contracts. Crude is trading at $93.30 early Friday morning. $88-90 is strong support but only if the U.S. markets recover. The House is expected to pass a bailout bill on Friday but there are now doubts it will be enough to turn the tide on the current market collapse.

Jim Brown

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