Market Comments for April 24, 2008

1) Europe is seen as being 12-18 months behind the US economic cycle and they could well be cutting interest rates later this year. This will cause the euro, crude, gold, and Treasuries to fall sharply and the dollar, global stocks, junk bonds, munis, and sub prime loans to rise. Who knows, even real estate might start to recover. This is the call to make in financial markets this year.

2) The necessity to follow markets 24 hours a day couldn't be more evident with Apple shares last night. When the earnings came out after the close the stock trade from $160 to $170. When the guidance came out hours later the stock dropped from $170 to $155. It then rallied back to $170. This all happened overnight in OTC trade.

3) Arby's is buying Wendy's. I'm sure this will have a big impact on your dietary preferences. What is next? Chicken burgers?

4) New home sales for March came in at -8.5%. The inventory of unsold homes reached 11 months, the highest since 1981. Prices were down an average of 13% YOY, and that doesn't include generous buyer incentives.

5) The reason for the global food shortage is that the average farm size in Asia is 1-2 acres compared to 500 acres in the US. Farming benefits greatly from economies of scale.

6) The government has moved to criminalize rumors. The SEC charged an individual with market manipulation for spreading a false rumor about Blackrock's bid for Alliance Data Systems. The person first shorted the stock and made $26,000 on the trade after a 17% fall in the stock. Next they will criminalize thinking.

7) One of the few commodities that has gone down in the past year is lumber, which has been the obvious victim of the housing crisis. The futures contract has plummeted from $460 to $190, down 60%. Going long the commodity could be a nice recovery play. It is also a foreign demand play as the US is still a major exporter of wood. Alternatively, you could buy Weyerhaeuser (WY) which has dropped from $85 to $58, Temple Inland (TIN) $50 to $10, or Louisiana Pacific (LPX) $27 to $8. Another play is Brookfield Asset Management (BAM), an investor in forests.

Market Comments for April 23, 2008

1) In Q1 Toyota surpassed GM as the world's largest car maker for the first time. It sold 2.2 million units, 200,000 more than GM. Toyota has sold more than 1 million Priuses since its launch in 2002. In the meantime, GM leads in Hummer sales. GM stock has dropped from $42 to $18 since October.

2) Yahoo's (YHOO) Q1 earnings came in at $0.11/share on $1.25 billion in revenues, in line with expectations. The DOJ has said that it is concerned about a potential tie up between Yahoo and Google. ??Microsoft will probably raise its bid to cash by Saturday and bring an end to this sorry mess.

3) $150 billion in sub prime loans have been written off so far.

4) Apple (AAPL) earnings came in much better than expected. The company is seeing 55% earnings growth with only 30% revenue growth, producing great earnings leverage. Earnings are growing at 10 times those of the rest of its industry in the US and three times the global growth rate.?? It sold 10 million I phones in the last year which is less than 1% of the global cell phone market of 1.1 billion units. It sold 2.3 macs during the quarter. Apple also announced new software aimed at business users of I Phones. I recommended the stock as a strong buy in February at $120. It traded at $170 today, up 42%.

5) Rough rice hit a new all time high of $25 per hundred pounds, up from $10 last year. Walmart (WMT) has announced nationwide rationing of rice. The average American eats 20 pounds a year of rice compared to 150 pounds by the average Asian. Thailand is the world's largest exporter of rice, shipping 9 million tons, or $4.5 billion worth last year.

6) Joke of the day: The credit crisis is now so severe that the only thing still holding a AAA is the Auto Club.

7) Pulte Homes announced dreadful Q1 earnings.

8) The two year Treasury note yield now is only 3 bp less than the Federal funds rate of 2.25%, an important indication that risk taking is returning to the market. A month ago it was yielding 100 bp less.

9) Vietnam is a country worth looking at. The Ho Chi Minh index has fallen from 1100 to 500 in the past year, despite the country bringing in an economic growth rate of 8%. It is one of the few early stage emerging markets with a tradable stock market.

Market Comments for April 21, 2008

1) Another bail out, this time for National City, for $6 billion, one of the many weak links in the banking system. The stock has fallen from $37 to $6. This is becoming a recurring Monday morning event. Bank of America (BAC) disappointed on earnings and the Dow fell an anemic 24 points on the news.

2) The Caterpillar (CAT) guidance says it all. The US sales forecast for 2008 is +3%. For Asia it is 37%. The chairman is talking about a 'crisis' of a global shortage of heavy equipment. I recommended a buy on March 20 at $73.80. It closed today at $82, up 15%.

3) Thanks to the strong performance of the financial markets last week the futures markets are no longer discounting a 50 bp cut in interest rate at the Fed May meeting. They are now predicting only a 25 bp cut and even that chance is declining.

4)?? A stock I like here at $65 is New York Stock Exchange Euronext (NYX). This is a play on the future volume of financial markets. They earn fixed fees on every transaction that goes through the stock market and is a license to print money. The stock fell from $100 on the threat of increased government regulation and the demise of the world financial system.

5) Another area ripe for recovery is the private equity and fund management area, many of which went public at the absolute top of the market a year ago. Buy Pzena Investment Management (PZN) at $10.50. This is a smaller hedge fund that went public at $20 in November. Once the debt markets free up these stocks will skyrocket.

6) The Hang Seng hit 25,000 last night. In February I gave you a chart showing you that it was a strong buy at 21,000. The Shanghai market has continued to go down and is now off 50% from its November high.

7) New highs for natural gas at $10.85 and crude at $117.60. Shell is claiming force majure on Nigerian deliveries.

Market Comments for April 18, 2008

1) Today was the day of Google (GOOG), which saw a rise of $95 to $545, creating $30 billion in new market capitalization. This is the largest one day market cap increase in history, not including IPO's. The Dow broke out of it's three month trading range to the upside, rising 229 points. Let the melt up begin!

2) Please read the story on natural gas on the front page of the Wall Street Journal today. It outlines some of the arguments I have been giving you since January. Finally, some of my ideas are getting recognition in the press. Gas hit a new high for the year of $10.70 today. Crude hit $117. I'm seeing $4 gasoline in my neighborhood.

3) Rough Rice prices have gone parabolic, soaring from $10 to $24 in the last six months. This is going to become a major international political issue. When 70% of your income goes to pay for food, as it does for the poorest quarter of Africa and Asia, there is no room for a 100% price increase.

4) Fact of the day: 50% of S&P 500 earnings now come from international sales.

5) Vale do Rio Doce (RIO), the largest iron ore producer in Brazil and the world's second largest mining company, is a stock to watch at $37. It is a triple play on the global commodities boom, the Brazilian economy and the country?s currency, the Real. This is what US Steel is telling you when it runs from $55 to $160 in six months. The only problem is that RIO has already risen 350% in the past year.

6) Russia is making moves to create an OPEC of natural gas producers. It already has a near monopoly on supplying gas to the EC. It is now building a pipeline from Nigeria to Libya to increase supplies. Buy Gazprom (OGZYP).

7) Today was equity options expiration day and my April 1200-1450 S&P 500 short strangle recommendation expired out of the money for the fourth month in a row. Your four week profit on this trade would have been 5% of your capital. Closing at 1,396 today, the index didn't even come close on the strikes this time.

THOUGHT OF THE DAY

This week's earnings surprises have confirmed what I have been telling you all year, that is, if you take out financials and housing the US economy is booming. All of a sudden the glass went from being half empty to half full.

Market Comments for April 17, 2008

1) There was a major sell off in the bond market today. Since Monday the 30 Treasury futures have fallen from 120 to 116. This is a huge move. A normal leverage ratio for this trade is 5:1, so a short on Monday would have yielded a 20% return. As you know, I have been pounding the table about shorting bonds for months.

2) Natural gas soared to $10.55/btu, a new high for the year, on fears of supply shortfalls this summer. Natural gas has been one of my core longs since the beginning of the year and is up 40%. My short term target is $13/btu.

3) Copper finally broke through $4/pound on massive Chinese buying. Yesterday's hot Chinese Q1 GDP figure encouraged traders to increase longs. I have been recommending longs in copper since $3/pound. Copper is now up 33% from there. China announced that its current account surplus rose by $150 billion to $1.67 trillion in Q1. This is the largest quarterly increase in world history. China now has enough reserves to pay for its infrastructure build out for the next ten years. This will lead to acceleration in the appreciation of the Chinese Yuan against the dollar.

4) Southwest Airlines (LUV) announced earnings much better than expected. In 2006 it hedged 70% of its 2008 fuel costs and 50% of its 2009 fuel costs at $50/barrel in the futures market. This means that its fuel costs are half of that of other airlines. This hedging profit totaled $1 billion last year. Brilliant. A classic example of a best of breed company.

5) Google (GOOG) reported spectacular earnings after the close today and the stock jumped 11% to $504 in aftermarket trading. They are seeing no slowdown in the global economy whatsoever. Google should be a core holding in any US stock portfolio. The stock has been up 15% during a time when the Dow was virtually unchanged. This is the kind of out performance that you are looking for in a well run hedge fund, known in the trade as 'Alpha'. Today's news augurs well for the stock market tomorrow.

THOUGHT OF THE DAY

A number of technical indicators started to flash 'all clear' this week. The spread between Fed funds and the two year Treasury note has declined from 100 bp to 15bp. The VIX volatility index has fallen from 31% to only 21% as fears of big stock market drops diminish.?? A big sell off in the Treasury market means investors are taking off their safety trade and moving into higher risk trades like commodities, especially crude, natural gas, and the other longs I have been recommending.