Global Market Comments for July 25, 2008
1) A new low for the move on crude, down to $122. All of the economic releases today came in better than expected. Stocks shrugged, bonds hated it.
2) June durable goods came in at +0.8%. The market had been expecting Armageddon. This is a great example of how noisy these monthly data releases can be. So is everyone running out and buying new refrigerators and washing machines while new home construction is at a multi decade low?
3) American Express is worth a watch. They have no sub prime exposure, no balance sheet risk, and are clearly the baby that is being thrown out with the bath water. The stock has fallen from $64 to $35, and is selling at a ten year multiple low of 13 times. There is an easy three year double here.
4) The University of Michigan consumer sentiment index came in at 61.2 vs. an expected 56.3.
5) Europe, on the other hand, is painting a completely different story. The eurozone purchasing managers index showed its second consecutive fall in July. German business confidence plunged to a six year low. Expect EC economic data to be diabolical from here on, thanks to Trichet's punishing anti inflationary high interest rate policy.
6) June new home sales were less awful than expected, -0.6% vs. -1.4%. More importantly, the inventory of unsold houses shrank marginally for the first time in many months, from 10.5 months to 10 months.
7) There are rumors that Lehman (LEH) is trying to sell Neuberger Berman, its highly profitable asset management unit. By selling its crown jewels analysts are wondering if LEH is trying to fund some yet to be disclosed major sub prime write offs.
8) Chrysler Financial is withdrawing from the car leasing business because they are getting stuck with too many early lease returns of gas guzzling SUV's with subterranean residual values. This will be devastating for the dealers, and is tantamount to Chrysler cutting its own throat.
TRADE OF THE MONTH
August bond futures expired today at 114. All of my short bond strategies from the 120 level on down came in hugely profitable. With a leverage factor of five times, you can do the math (+30%).
Global Market Comments for July 28, 2008
1) Panic selling of stocks into the close as last week's short covering rally exhausts itself. Crude?s back up to $125 didn't help. Dow down 240.
2) Fortune Brands (FO) reported Q2 net earnings down 41%. This hybrid company saw their alcoholic beverage sales hold up OK (Jim Beam, Ronrico Rum, Canadian Club), but were pulled down by their housing exposure (Master Brand Cabinets, Moen, and Master Locks). Last November the company sold its wine operations, including Clos du Bois, to Constellation Brands (STZ). The stock is down this year from $90 to $52.
3) Mark Cuban is bidding $1.3 billion for the Chicago Cubs. This is 15% of the $8.5 billion that seller Sam Zell paid for the entire Cubs, Wrigley Stadium, Chicago Tribune package. Zell has to be in a world of hurt on this one.
4) Use the sell off in crude to get a good entry point into the Russian stock market, where energy accounts for 60% of the market capitalization. The Russian Trading System Index ($RTSI) is off 22% from its 2,500 high in only two months. Russian GDP is growing at an 8% rate while consumption is growing at a breakneck 11% rate. Wages have risen by 65% over the last four years. High end homebuilder RGI International (RGI.LN) is a good way to play this. The average Russian home has only 200 square meters (1,800 square feet) compared to 300 square meters for Western Europe, and rising standards of living means new homeowners can afford to trade up. But buy only when there is blood in the streets.
5) Merrill Lynch has cut its forecast for Lehman (LEH) which they expect to take another $2.5 billion in write offs in Q3. It is quite amusing watching the brokers competitively downgrade each others? earnings outlooks.
6) If you strip out the problem children, the financials, Q2 2008 S&P 500 earnings will be up 10% YOY. More than 72% of companies are reporting sales increases. If you are not in headline dominating housing, automobiles, or financials, the economy is booming. Sometimes the best investment strategy is to simply turn off the TV.
7) If Obama wins the election, which now appears to be a certainty, there will be a rush to sell stocks towards year end and realize capital gains to beat the higher capital gains taxes that he is proposing.
8) The next big wave of defaults will be in prime option ARMS for trophy houses which have so far held up well. Many of these loans were taken out by high FICO score borrowers with teaser rates as low as 1%. With five year resets now hitting, the refinancing and the real estate market ain't there. I would look at more open houses on Sundays, but finding the real estate broker hanging from the bathroom shower head is a bit of a downer for my day off.
Global Market Comments for July 25, 2008
1) A new low for the move on crude, down to $122. All of the economic releases today came in better than expected. Stocks shrugged, bonds hated it.
2) June durable goods came in at +0.8%. The market had been expecting Armageddon. This is a great example of how noisy these monthly data releases can be. So is everyone running out and buying new refrigerators and washing machines while new home construction is at a multi decade low?
3) American Express is worth a watch. They have no sub prime exposure, no balance sheet risk, and are clearly the baby that is being thrown out with the bath water. The stock has fallen from $64 to $35, and is selling at a ten year multiple low of 13 times. There is an easy three year double here.
4) The University of Michigan consumer sentiment index came in at 61.2 vs. an expected 56.3.
5) Europe, on the other hand, is painting a completely different story. The eurozone purchasing managers index showed its second consecutive fall in July. German business confidence plunged to a six year low. Expect EC economic data to be diabolical from here on, thanks to Trichet's punishing anti inflationary high interest rate policy.
6) June new home sales were less awful than expected, -0.6% vs. -1.4%. More importantly, the inventory of unsold houses shrank marginally for the first time in many months, from 10.5 months to 10 months.
7) There are rumors that Lehman (LEH) is trying to sell Neuberger Berman, its highly profitable asset management unit. By selling its crown jewels analysts are wondering if LEH is trying to fund some yet to be disclosed major sub prime write offs.
8) Chrysler Financial is withdrawing from the car leasing business because they are getting stuck with too many early lease returns of gas guzzling SUV's with subterranean residual values. This will be devastating for the dealers, and is tantamount to Chrysler cutting its own throat.
TRADE OF THE MONTH
August bond futures expired today at 114. All of my short bond strategies from the 120 level on down came in hugely profitable. With a leverage factor of five times, you can do the math (+30%).
Global Market Comments for July 24, 2008
1) A $3 pop in crude sent stocks down 200 points and bonds up a point. We are not out of the woods yet.
2) Want to get rid of that barbed wire around your bicep, or your ex wife?s nickname? The tattoo removal business is booming, where laser treatments can run into the thousands of dollars. More than 50 million Americans have tattoos and 20% of them regret it. The Google of tattoo removal is Cynosure (CYNO), which has jumped from $19 to $23 in the past month. Also in this space is Palomar Medical Technologies (PMTI), up from $9 to $13. This is great news for that guy at Lompoc who had F*** tattooed across his forehead in Germanic script. What an interview killer!
3) Existing housing sales for June came in at -2.6%, or a 4.86 million annual rate, a ten year low. An amazing 40% of all sales came from foreclosures.
4) At the peak of the housing market in 2005 credit creation was $1.2 trillion. This year it is running at a $400 billion rate. Mortgage rates are at a five year high, and are higher now than when the Fed first started cutting interest rates a year ago. That is called a credit crunch. Something you don't hear about in the media is that new banking business is now the most profitable in its history. The good news is that credit creation during recessions historically bottoms out at the $400 billion level. Conventional 30 year mortgages are now at 7% and jumbos 8%.
5) Weekly jobless claims skyrocketed to 406,000, up 34,000, the highest figure in three years.
6) The Hurricane Dolly miss has hammered natural gas again, from $13.50 to $8.90, down a gob smacking 35% in two weeks. This unwind is happening so fast that we are only $1 away from entering 'buy' territory. This is how gas trades. This extreme volatility makes it the best contract to be right about, and the worst one to be wrong about. Traders will tell you that it always takes the stairs up, but the elevator down.
7) What is the difference between an actuary in England and one in Sicily? The actuary in England can tell you how many people die over the next three years. The one in Sicily can tell you how many will die in the next three years and who they are!
8) Facebook has seen subscribers grow from 40 million to 90 million in the past year. Now that the company is offering Spanish language pages it is growing at one million new subscribers a week. In interviews, founder Mark Zukerberg looks like a kid who loves the technology, but is overwhelmed by the business side of things.
Global Market Comments for July 24, 2008
1) A $3 pop in crude sent stocks down 200 points and bonds up a point. We are not out of the woods yet.
2) Want to get rid of that barbed wire around your bicep, or your ex wife?s nickname? The tattoo removal business is booming, where laser treatments can run into the thousands of dollars. More than 50 million Americans have tattoos and 20% of them regret it. The Google of tattoo removal is Cynosure (CYNO), which has jumped from $19 to $23 in the past month. Also in this space is Palomar Medical Technologies (PMTI), up from $9 to $13. This is great news for that guy at Lompoc who had F*** tattooed across his forehead in Germanic script. What an interview killer!
3) Existing housing sales for June came in at -2.6%, or a 4.86 million annual rate, a ten year low. An amazing 40% of all sales came from foreclosures.
4) At the peak of the housing market in 2005 credit creation was $1.2 trillion. This year it is running at a $400 billion rate. Mortgage rates are at a five year high, and are higher now than when the Fed first started cutting interest rates a year ago. That is called a credit crunch. Something you don't hear about in the media is that new banking business is now the most profitable in its history. The good news is that credit creation during recessions historically bottoms out at the $400 billion level. Conventional 30 year mortgages are now at 7% and jumbos 8%.
5) Weekly jobless claims skyrocketed to 406,000, up 34,000, the highest figure in three years.
6) The Hurricane Dolly miss has hammered natural gas again, from $13.50 to $8.90, down a gob smacking 35% in two weeks. This unwind is happening so fast that we are only $1 away from entering 'buy' territory. This is how gas trades. This extreme volatility makes it the best contract to be right about, and the worst one to be wrong about. Traders will tell you that it always takes the stairs up, but the elevator down.
7) What is the difference between an actuary in England and one in Sicily? The actuary in England can tell you how many people die over the next three years. The one in Sicily can tell you how many will die in the next three years and who they are!
8) Facebook has seen subscribers grow from 40 million to 90 million in the past year. Now that the company is offering Spanish language pages it is growing at one million new subscribers a week. In interviews, founder Mark Zukerberg looks like a kid who loves the technology, but is overwhelmed by the business side of things.
Global Market Comments for July 23, 2008
1) Gasoline inventories fell a surprisingly large 2.8 million barrels as cancelled summer vacations leave the system awash in excess product. Crude fell $4 to $124. Prices at the pump could fall 20 to 30 cents/gallon in the next week. If you believe crude has finally peaked, buy the refiners which have been hammered this year because of crushed margins. Valero Energy (VLO) has plummeted from $76 to $30, while Tesoro Petroleum (TSO) has vaporized from $65 to $15.
2) Roche Holdings has made an $89/share offer to buy the remaining shares of Genentech (DNA). The Swiss pharmaceutical giant, which already has majority control of the company, sees this as a natural long dollar play with the euro at $1.59. Roche plans to integrate DNA's marketing, manufacturing and back office, while leaving its option incentivised research division alone. The stock shot up 12% to $93 as traders believe Roche may raise its offer. I toured DNA's principal manufacturing facility a few years ago, and since they used the eschericia coli bacteria as their principal biosynthesis media, the whole place smelled like a pile of shit.
3) During Q1 Verizon customers sent 58 billion text messages. That works out to 1,000/customer, or 11/day. I bet my kids account for at least half of that. 80% of the US population now uses cell phones.
4) Here are more China plays. VisionChina Media (VISN) has 45,000 display ad locations and is down from $22 to $14. ATA Inc. (ATAI) processed 123 million online licensing and college entrance examinations last year, and is down from $18 to $12. It caters to the Chinese desire to upgrade standards of living through improved education and professional qualifications. Oriental Education (EDU) offers the prep courses for these exams, and it has fallen from $82 to $53. All trade on NASDAQ.
5) United Airlines (UAUA) is up 50% to $7.50 on the successful roll over of its short term debt and falling crude prices. See my earlier recommendation to buy the stock at $5 as a cheap undated put on crude.
6) The new symbol for the Bombay Sensex is ($BSE), which at 12,500 is down 45% from its January high of 21,500. This eventually will be a strong buy when the BRIC?s come back into fashion.
7) VMWare (VMW) lowered guidance and got slaughtered, the stock plunging 10%. The Palo Alto based business virtualization software company had a nice little niche until Microsoft, IBM, and Hewlett Packard piled in and ate their lunch. The stock has fallen 70% from $115 to $34 since October and the CEO got fired.
Global Market Comments for July 23, 2008
1) Gasoline inventories fell a surprisingly large 2.8 million barrels as cancelled summer vacations leave the system awash in excess product. Crude fell $4 to $124. Prices at the pump could fall 20 to 30 cents/gallon in the next week. If you believe crude has finally peaked, buy the refiners which have been hammered this year because of crushed margins. Valero Energy (VLO) has plummeted from $76 to $30, while Tesoro Petroleum (TSO) has vaporized from $65 to $15.
2) Roche Holdings has made an $89/share offer to buy the remaining shares of Genentech (DNA). The Swiss pharmaceutical giant, which already has majority control of the company, sees this as a natural long dollar play with the euro at $1.59. Roche plans to integrate DNA's marketing, manufacturing and back office, while leaving its option incentivised research division alone. The stock shot up 12% to $93 as traders believe Roche may raise its offer. I toured DNA's principal manufacturing facility a few years ago, and since they used the eschericia coli bacteria as their principal biosynthesis media, the whole place smelled like a pile of shit.
3) During Q1 Verizon customers sent 58 billion text messages. That works out to 1,000/customer, or 11/day. I bet my kids account for at least half of that. 80% of the US population now uses cell phones.
4) Here are more China plays. VisionChina Media (VISN) has 45,000 display ad locations and is down from $22 to $14. ATA Inc. (ATAI) processed 123 million online licensing and college entrance examinations last year, and is down from $18 to $12. It caters to the Chinese desire to upgrade standards of living through improved education and professional qualifications. Oriental Education (EDU) offers the prep courses for these exams, and it has fallen from $82 to $53. All trade on NASDAQ.
5) United Airlines (UAUA) is up 50% to $7.50 on the successful roll over of its short term debt and falling crude prices. See my earlier recommendation to buy the stock at $5 as a cheap undated put on crude.
6) The new symbol for the Bombay Sensex is ($BSE), which at 12,500 is down 45% from its January high of 21,500. This eventually will be a strong buy when the BRIC?s come back into fashion.
7) VMWare (VMW) lowered guidance and got slaughtered, the stock plunging 10%. The Palo Alto based business virtualization software company had a nice little niche until Microsoft, IBM, and Hewlett Packard piled in and ate their lunch. The stock has fallen 70% from $115 to $34 since October and the CEO got fired.
Global Market Comments for July 22, 2008
1) Hurricane Dolly missed, so crude fell $4 to $126, while gas deflated $1 to $9.80. Bonds collapsed and stocks avoided a collapse.
2) American Express (AMP) reported Q2 profits down 38% as the consumer spending slowdown hits, taking the stock down 15% to $36. High end customers are reducing spending while formerly middle income earners are increasing delinquencies.
3) Apple (AAPL) disappointed with their guidance on Q3 gross margins, which are expected to fall from 34% to 30%. It turns out that the IPhone business is not as profitable as the computer business. The company is now offering a free IPOD with each Mac purchase in its back to school program for students. The stock cratered 11% to $149. Also, Steve Jobs was absent from the call, again raising health concerns about the aggressive founder. The high profile vegan recently recovered from normally fatal pancreatic cancer.
4) According to Noble prize winning economist Joseph Stiglitz, the war in Iraq has cost $800 billion so far. If you count indirect costs, like the lifetime support and medical expenses for tens of thousands of military amputees and the wearing out of a good portion of our military equipment, the bill comes to $1.8 trillion. Throw in the war premium in the price of crude and it rises to $3 trillion. Stiglitz is a real firebrand, but he is right.
5) The REIT Simon Property (SPG) now owns 10% of the malls in the US and 20% of the class 'A' malls. The stock has fallen 36% from $117 to $75 to a discount to book value. Add to your buy list for when the market turns.
6) If you are looking for a white knuckle vehicle to play foreign markets consider the Claymore Fund (BXP) which focuses on frontier markets like Nigeria, Uganda, Uzbekistan, and Vietnam. The range of this ETF over the past year has been $78 to $107. If you are not looking for the E-ticket ride, look at ETF SPDR S&P BRIC 40 (BIK), which only invests in the relatively more stable growth BRICs of Brazil, Russia, India, and China.
7) Moody's has downgraded the long term debt of Lehman (LEH). Less risk taking means much fewer future profits. They might as?? well call Moody?s ?Closing the Door After the Horses have Bolted, Inc.?
8) The average length of a postwar recession is 14 months. Putting on your rosiest set of glasses, and assuming the downturn started in January, and that crude soon plummets below $100, the earliest this recession will end is early 2009. It is more likely that the recession will go on to June, 2009 and that we won't see this in the data until September, 2009.
Global Market Comments for July 22, 2008
1) Hurricane Dolly missed, so crude fell $4 to $126, while gas deflated $1 to $9.80. Bonds collapsed and stocks avoided a collapse.
2) American Express (AMP) reported Q2 profits down 38% as the consumer spending slowdown hits, taking the stock down 15% to $36. High end customers are reducing spending while formerly middle income earners are increasing delinquencies.
3) Apple (AAPL) disappointed with their guidance on Q3 gross margins, which are expected to fall from 34% to 30%. It turns out that the IPhone business is not as profitable as the computer business. The company is now offering a free IPOD with each Mac purchase in its back to school program for students. The stock cratered 11% to $149. Also, Steve Jobs was absent from the call, again raising health concerns about the aggressive founder. The high profile vegan recently recovered from normally fatal pancreatic cancer.
4) According to Noble prize winning economist Joseph Stiglitz, the war in Iraq has cost $800 billion so far. If you count indirect costs, like the lifetime support and medical expenses for tens of thousands of military amputees and the wearing out of a good portion of our military equipment, the bill comes to $1.8 trillion. Throw in the war premium in the price of crude and it rises to $3 trillion. Stiglitz is a real firebrand, but he is right.
5) The REIT Simon Property (SPG) now owns 10% of the malls in the US and 20% of the class 'A' malls. The stock has fallen 36% from $117 to $75 to a discount to book value. Add to your buy list for when the market turns.
6) If you are looking for a white knuckle vehicle to play foreign markets consider the Claymore Fund (BXP) which focuses on frontier markets like Nigeria, Uganda, Uzbekistan, and Vietnam. The range of this ETF over the past year has been $78 to $107. If you are not looking for the E-ticket ride, look at ETF SPDR S&P BRIC 40 (BIK), which only invests in the relatively more stable growth BRICs of Brazil, Russia, India, and China.
7) Moody's has downgraded the long term debt of Lehman (LEH). Less risk taking means much fewer future profits. They might as?? well call Moody?s ?Closing the Door After the Horses have Bolted, Inc.?
8) The average length of a postwar recession is 14 months. Putting on your rosiest set of glasses, and assuming the downturn started in January, and that crude soon plummets below $100, the earliest this recession will end is early 2009. It is more likely that the recession will go on to June, 2009 and that we won't see this in the data until September, 2009.
Global Market Comments for July 21, 2008
1) Crude is dead. Traders are now gunning for $120. The general consensus for commodities is that we go down for the forseeable future, and then go back up again.
2) Internet users in China are expected to increase from 250 million to 900 million over the next 5-10 years. The majority will access the net via cell phones, where gaming is the dominant application. Expect huge growth at the four horsemen of the Chinese internet sector. Baidu.com (BIDU), Netease (NTES), Sina (SINA), and Sohu.com (SOHU). All of these have just had major sell offs.
3) Just to illustrate the amount of BS is in the press about the severity of this economic downturn I have pulled out some interesting statistics:
| Time Period | 1929-1932 | 2005-2008 |
| Unemployment Rate | 25% | 5.5% |
| Bank Failures | 4,000 | 14 |
| Dow Jones Performance | -89% | +3% |
| Home Foreclosures | 25% | 3% |
4) Bank of America (BAC) announced better than expected earnings. The stock has now doubled in six days, from $18 to $36. If you absolutely must own a bank, this is a good one.
5) Looking at the whole commodity universe, natural gas has been the most severely punished in this sell off, plunging from $13.50 to $10. If we get through the hurricane season without a major storm hitting gas facilities in the Gulf it could drop to the $6 handle where it would be a screaming buy. However, tropical storm Dolly is now threatening, and some companies have started precautionary evacuation of their offshore rigs.
6) MF global has seen its stock jump 86% from $3.50 to $6.50 today because it successfully rolled over the bulk of its short term debt. The stock was down 88% from its IPO price a year ago of $30.
7) An appeals court threw out the $550,000 fine against CBS for Janet Jackson's 'wardrobe malfunction' at the Super Bowl.
8) Only 1% of economists believe that we will see negative GDP growth in the second half. We won't know sure until March. I think they are being wildly over optimistic.