Market Comments for April 14, 2008
1) Retail sales were up 0.2% in March, better than expected. Don't pop the champagne corks yet. Most of the increase was due to higher fuel sales due to higher prices. The market was on hold today due to the imminent release this week of earnings by Intel, IBM, Ebay, Google, and Merrill Lynch.
2) The Wachovia Bank bail out was announced today. Not as draconian as WAMU's, the stock still fell 10%, and pulled down the rest of the financials.
3) The average salary on Wall Street is $387,000. Wall Street accounts for 15% of the jobs in New York City, but 35% of the reported income.
4) Another lagging indicator for the economy: breast augmentations, which are used by the youngest, least earning, and most recession sensitive consumers in the market, are down. Botox treatments and hair replacement, which are used by the high earning, recession immune consumers are still increasing. It is a lagging indicator because these operations are typically booked three months in advance. There were 2.2 million breast augmentations last year.
5) Blockbuster has made a takeover bid for Circuit City at a 30% premium to Friday's close. The company has been decimated by competition from best of breed Best Buy, and the stock has fallen from $20 to $4 in the past year. Carl Icahn is a 10% owner of Circuit City as a takeover target.
6) REIT's are trading at levels indicating a further 10% fall in real estate prices. Real Estate prices have already fallen by 15%, so that indicates a top to bottom fall of 25%, which is normal for a recession. Thus, the recession is fully discounted by REIT's. Cash flows are holding up well because there has not been the degree of overbuilding seen in past recessions. They are also not facing the credit crunch of other industries since their debt has long maturities and their cost of money has fallen. It is, however, a bad time to negotiate a debt roll over.
THOUGHT OF THE DAY
Copper could soon have a major melt up as occurred with wheat in January. Chile accounts for 40% of the world's copper supply and much of the electric power there is hydroelectric. A severe draught will soon lead to power cut backs that will force mine closures. Something similar happened in South Africa recently which caused the precious metals to spike upward. I recommended a buy of copper earlier this year at $3/pound. It is now $3.90 and close to breaking out to an all time high.
Market Comments for April 14, 2008
1) Retail sales were up 0.2% in March, better than expected. Don't pop the champagne corks yet. Most of the increase was due to higher fuel sales due to higher prices. The market was on hold today due to the imminent release this week of earnings by Intel, IBM, Ebay, Google, and Merrill Lynch.
2) The Wachovia Bank bail out was announced today. Not as draconian as WAMU's, the stock still fell 10%, and pulled down the rest of the financials.
3) The average salary on Wall Street is $387,000. Wall Street accounts for 15% of the jobs in New York City, but 35% of the reported income.
4) Another lagging indicator for the economy: breast augmentations, which are used by the youngest, least earning, and most recession sensitive consumers in the market, are down. Botox treatments and hair replacement, which are used by the high earning, recession immune consumers are still increasing. It is a lagging indicator because these operations are typically booked three months in advance. There were 2.2 million breast augmentations last year.
5) Blockbuster has made a takeover bid for Circuit City at a 30% premium to Friday's close. The company has been decimated by competition from best of breed Best Buy, and the stock has fallen from $20 to $4 in the past year. Carl Icahn is a 10% owner of Circuit City as a takeover target.
6) REIT's are trading at levels indicating a further 10% fall in real estate prices. Real Estate prices have already fallen by 15%, so that indicates a top to bottom fall of 25%, which is normal for a recession. Thus, the recession is fully discounted by REIT's. Cash flows are holding up well because there has not been the degree of overbuilding seen in past recessions. They are also not facing the credit crunch of other industries since their debt has long maturities and their cost of money has fallen. It is, however, a bad time to negotiate a debt roll over.
THOUGHT OF THE DAY
Copper could soon have a major melt up as occurred with wheat in January. Chile accounts for 40% of the world's copper supply and much of the electric power there is hydroelectric. A severe draught will soon lead to power cut backs that will force mine closures. Something similar happened in South Africa recently which caused the precious metals to spike upward. I recommended a buy of copper earlier this year at $3/pound. It is now $3.90 and close to breaking out to an all time high.
Market Comments for April 11, 2008
1) GE was the bad boy today, announcing earnings 10% less than expected, totally blindsiding the street, which had been expecting a gain of 10%. Outraged analysts were screaming for Jeff Immelt's head on a platter, claiming he mislead them only a month ago. Most of the shortfall was on the financial side caused by the collapse of several real estate deals in March because the end buyers couldn't get financing. Sales of all product lines in emerging markets continue to go gangbusters. The stock fell 12%, the biggest drop for GE since the 1987 crash, and the Dow fell 246 points. GE is a big 'tell' stock for the market because it is considered the best managed company in the world and it gives indications on the health of a large array of businesses. Investors are now wondering what other shoes are to fall. At 13 times earnings the stock is a strong buy here at $32.
2) Chip inventories are at six year lows. Whenever this happens the shares of chip makers have a big rebound as the J curve kicks in when they get control of pricing and volumes. Best of breed is Intel (INTC), a strong buy here at $21, down from $28 in November.
3) The University of Michigan consumer sentiment index for March came in at 63.2, down from 69.5, the worst reading in 26 years.
4) Just to give you an indication of the influence of hedge funds now, TPG announced the following deals this week: $7 billion bailout out of WAMU, purchase of the largest pharmaceutical company in Russia for $800 million, and the purchase of 25% of Citibank's mortgage backed portfolio for $12 billion. And this is only one hedge fund.
5) The company with the largest short interest in the S&P 500 is tobacco company Reynolds American at 56% of outstanding shares. The lowest is GE at 0.4%. The highest short interest ratio, the number of days of average trading volume that is short, is the New York Times at 21 days. The lowest is Humana at 0.6 days. Just another example of the sort of data I look at.
6) This real economic growth chart for 2008 shows why I am such a long term raging bull on China and Hong Kong. Net growth of +4.0% vs. -2.9%. Hmmmm, which shall it be?
| Country | GDP Growth | Inflation Rate | Net |
| US | 0.8% | 3.7% | -2.9% |
| EC | 1.3% | 2.5% | -1.2% |
| China | 9.8% | 5.8% | 4.0% |
Market Comments for April 11, 2008
1) GE was the bad boy today, announcing earnings 10% less than expected, totally blindsiding the street, which had been expecting a gain of 10%. Outraged analysts were screaming for Jeff Immelt's head on a platter, claiming he mislead them only a month ago. Most of the shortfall was on the financial side caused by the collapse of several real estate deals in March because the end buyers couldn't get financing. Sales of all product lines in emerging markets continue to go gangbusters. The stock fell 12%, the biggest drop for GE since the 1987 crash, and the Dow fell 246 points. GE is a big 'tell' stock for the market because it is considered the best managed company in the world and it gives indications on the health of a large array of businesses. Investors are now wondering what other shoes are to fall. At 13 times earnings the stock is a strong buy here at $32.
2) Chip inventories are at six year lows. Whenever this happens the shares of chip makers have a big rebound as the J curve kicks in when they get control of pricing and volumes. Best of breed is Intel (INTC), a strong buy here at $21, down from $28 in November.
3) The University of Michigan consumer sentiment index for March came in at 63.2, down from 69.5, the worst reading in 26 years.
4) Just to give you an indication of the influence of hedge funds now, TPG announced the following deals this week: $7 billion bailout out of WAMU, purchase of the largest pharmaceutical company in Russia for $800 million, and the purchase of 25% of Citibank's mortgage backed portfolio for $12 billion. And this is only one hedge fund.
5) The company with the largest short interest in the S&P 500 is tobacco company Reynolds American at 56% of outstanding shares. The lowest is GE at 0.4%. The highest short interest ratio, the number of days of average trading volume that is short, is the New York Times at 21 days. The lowest is Humana at 0.6 days. Just another example of the sort of data I look at.
6) This real economic growth chart for 2008 shows why I am such a long term raging bull on China and Hong Kong. Net growth of +4.0% vs. -2.9%. Hmmmm, which shall it be?
| Country | GDP Growth | Inflation Rate | Net |
| US | 0.8% | 3.7% | -2.9% |
| EC | 1.3% | 2.5% | -1.2% |
| China | 9.8% | 5.8% | 4.0% |
Market Comments for April 10, 2008
1) Walmart (WMT) and Dupont (DD) announced better than expected earnings today, prompting a mini short covering rally. The Dow was up 55 points.
2) Huge buyers have emerged in the Crude August $120 calls. Watch out above!
3) As I expected, the Bank of England cut interest rates by 25 bp. The European Central Bank will follow soon which will cause the Euro to fall. Now is a good time to take profits on Euro denominated assets.
4) The Chinese Yuan dropped below 7.0 to the US dollar for the first time, an all time high.
5) I am starting to like Boeing (BA) here which has recently fallen from $107 to $72. This normally well run company has experienced a perfect storm in the last quarter. It lost a huge Air Force tanker contract to EADS. Today it announced the third delay in the roll out of the 787 Dreamliner of 6-9 months. And it has been dragged down by the general market weakness. But the company has a 5 year order backlog for new aircraft, including 75 for the 787, which offers operators a 40% savings on fuel consumption. It has a four year lead over EADS in this class of aircraft, its only competitor. It is also a high quality multinational, being one of this country's largest exporters.
THOUGHT OF THE DAY
If you look just at the numbers, the economic performance of the Bush administration has been the worst since Herbert Hoover 80 years ago. The performance of the Dow has been zero over eight years. The dollar has fallen 40% against the Euro, and more against other currencies. The Federal deficit has nearly doubled from $5 trillion to almost $10 trillion. About $1 trillion of this was spent on the war in Iraq. Unemployment has increased from 4% to 5.1% and it is climbing rapidly. The real estate market is in free fall. By the time Bush leaves office some real estate prices may be approaching unchanged over the eight years. Several state governments, including California, are approaching bankruptcy. Crude has rocketed from $20 to $112 and gasoline from $1 to $4. The performance has been so dismal that republicans may not be electable for decades (8 years of Hillary followed by 8 years of Obama?). After Hoover was elected in 1928 the GOP could not elect a candidate until Eisenhower in 1952. This is all going to make very tough sledding for John McCain. Hoover only won six states in the 1932 election, and five were small ones (DE, PA, ME, NH, VT, and CT).
Market Comments for April 10, 2008
1) Walmart (WMT) and Dupont (DD) announced better than expected earnings today, prompting a mini short covering rally. The Dow was up 55 points.
2) Huge buyers have emerged in the Crude August $120 calls. Watch out above!
3) As I expected, the Bank of England cut interest rates by 25 bp. The European Central Bank will follow soon which will cause the Euro to fall. Now is a good time to take profits on Euro denominated assets.
4) The Chinese Yuan dropped below 7.0 to the US dollar for the first time, an all time high.
5) I am starting to like Boeing (BA) here which has recently fallen from $107 to $72. This normally well run company has experienced a perfect storm in the last quarter. It lost a huge Air Force tanker contract to EADS. Today it announced the third delay in the roll out of the 787 Dreamliner of 6-9 months. And it has been dragged down by the general market weakness. But the company has a 5 year order backlog for new aircraft, including 75 for the 787, which offers operators a 40% savings on fuel consumption. It has a four year lead over EADS in this class of aircraft, its only competitor. It is also a high quality multinational, being one of this country's largest exporters.
THOUGHT OF THE DAY
If you look just at the numbers, the economic performance of the Bush administration has been the worst since Herbert Hoover 80 years ago. The performance of the Dow has been zero over eight years. The dollar has fallen 40% against the Euro, and more against other currencies. The Federal deficit has nearly doubled from $5 trillion to almost $10 trillion. About $1 trillion of this was spent on the war in Iraq. Unemployment has increased from 4% to 5.1% and it is climbing rapidly. The real estate market is in free fall. By the time Bush leaves office some real estate prices may be approaching unchanged over the eight years. Several state governments, including California, are approaching bankruptcy. Crude has rocketed from $20 to $112 and gasoline from $1 to $4. The performance has been so dismal that republicans may not be electable for decades (8 years of Hillary followed by 8 years of Obama?). After Hoover was elected in 1928 the GOP could not elect a candidate until Eisenhower in 1952. This is all going to make very tough sledding for John McCain. Hoover only won six states in the 1932 election, and five were small ones (DE, PA, ME, NH, VT, and CT).
Market Comments for April 9, 2008
1) Weekly crude inventories showed a decline of 3.2 million barrels, 5 million barrels less than expected. Prices jumped to a new all time high of $112.30 barrel while the Dow fell 49 points. Gasoline at $4/gal is imminent and may see $5/gal before this is all over.
2) A consortium of three private equity firms, Apollo, TPG, and Blackrock are buying $12 billion of sub prime loans from Citicorp at 90 cents on the dollar.
3) The REIT exchange traded fund, RWR, has jumped from $62 to $76 in the past month, an increase of 22%. Sam Zell, no dummy in this space, has been a large buyer of his own REITs at a discount over the last few months. This could signal a turnaround in the commercial REIT market, another 'all clear' signal.
4) Crude has historically traded at 14 times the natural gas price on a BTU adjusted basis. It is now only at 11 times. A reversion to the mean would take gas prices up to $14/BTU. You can buy gas now at $9.75. Buy natural gas, or buy natural gas and short crude. Unlike crude, there is an actual supply/demand balance to justify higher prices in natural gas.
5) A lot of people are talking about Starbucks as a turnaround play, which has fallen from $40 to $17.?? The return from retirement of founder Howard Schultz is focusing a lot of attention on the stock. The company now has 16,000 stores worldwide serving 15 million customers a day, with 1/3 overseas. All of the future growth will come from overseas. China has only 600 stores now and could eventually reach the US store count of 11,000.
6) Sugar is a strong buy here at $12/pound. Crude at $112 will drag up ethanol, which outside the US is made from sugar. It has lagged other commodities. India, the other major exporter after Brazil, is starting to restrict food exports to head off famine. The listing of sugar futures and options on the new Intercontinental Exchange (ICE) has vastly increased the liquidity of these instruments bringing in new classes of investors with new capital. My short term target is $15/pound, up 25%.
THOUGHT OF THE DAY
The next 200 point pop in the Dow will come when a couple of multinationals report fabulous earnings because of the weak dollar. This will happen early next week.
Market Comments for April 9, 2008
1) Weekly crude inventories showed a decline of 3.2 million barrels, 5 million barrels less than expected. Prices jumped to a new all time high of $112.30 barrel while the Dow fell 49 points. Gasoline at $4/gal is imminent and may see $5/gal before this is all over.
2) A consortium of three private equity firms, Apollo, TPG, and Blackrock are buying $12 billion of sub prime loans from Citicorp at 90 cents on the dollar.
3) The REIT exchange traded fund, RWR, has jumped from $62 to $76 in the past month, an increase of 22%. Sam Zell, no dummy in this space, has been a large buyer of his own REITs at a discount over the last few months. This could signal a turnaround in the commercial REIT market, another 'all clear' signal.
4) Crude has historically traded at 14 times the natural gas price on a BTU adjusted basis. It is now only at 11 times. A reversion to the mean would take gas prices up to $14/BTU. You can buy gas now at $9.75. Buy natural gas, or buy natural gas and short crude. Unlike crude, there is an actual supply/demand balance to justify higher prices in natural gas.
5) A lot of people are talking about Starbucks as a turnaround play, which has fallen from $40 to $17.?? The return from retirement of founder Howard Schultz is focusing a lot of attention on the stock. The company now has 16,000 stores worldwide serving 15 million customers a day, with 1/3 overseas. All of the future growth will come from overseas. China has only 600 stores now and could eventually reach the US store count of 11,000.
6) Sugar is a strong buy here at $12/pound. Crude at $112 will drag up ethanol, which outside the US is made from sugar. It has lagged other commodities. India, the other major exporter after Brazil, is starting to restrict food exports to head off famine. The listing of sugar futures and options on the new Intercontinental Exchange (ICE) has vastly increased the liquidity of these instruments bringing in new classes of investors with new capital. My short term target is $15/pound, up 25%.
THOUGHT OF THE DAY
The next 200 point pop in the Dow will come when a couple of multinationals report fabulous earnings because of the weak dollar. This will happen early next week.
Market Comments for April 8, 2008
1) Earnings announcements started with a resounding thud today with Alcoa (AA) coming in worse than expected. 'Less than expected' will be the most commonly heard expression on Wall Street for the next four weeks. The Dow fell 36 points.
2) The market is starting to take the view that the Fed rate cuts are over, or that there may be only 25 bp left. The Fed wants to hold further rate cuts in reserve in case the current dose of medicine doesn't work.
3) The homebuilding industry tax credits to be earned by the proposed Senate bail out bill are enormous: Lennar-$573 million, DR Horton-$609 million, Pulte Homes-$598 million. Insider buying in these stocks has accelerated, and Hovnanian is now the top performing stock in my model portfolio, up 67% since January. Homebuilding stocks historically start rising 6-9 months before a turnaround in the new home market, so the sector will have a lot to run from here.
4) Pending home sales in February were down 21.4%, the worst on record. The biggest hit was in the West, the region most affected by the seizing up of the jumbo loan market.
5) You may need to go to Russia for your next chemotherapy. Russia has approved Antigenic's kidney cancer drug 'oncophage' which is able to significantly extend patients' lives. With a market cap of only $150 million the microcap couldn't afford to go through expensive FDA trials to win approval here. Thus Antigenics will be in effect be testing their drug on the public in Russia instead of on volunteers. The shares of other microcap biotech shares jumped on the news.
6) The terms for the Washington Mutual (WM) bail out are public and they are nothing less than draconian. The net net is that private equity fund TPG Partners (no typo here) is getting 47% of the company for $7 billion at $8.75/share, with a guaranteed yield of 8.75% (yesterday it traded at $13.50). The dividend on the existing common will be cut by half to pay for this. This continues the existing pattern of punishing existing shareholders and excessively rewarding new equity investors as the price of a bail out. The alternative is for the stock to go to zero a la Bear Stearns. Anybody who owns this stock should view this rescue as a gift from Heaven and get out now. WAMU doesn?t resell its originated loans, it keeps them on its books. And even TPG probably does?t know how many option rate ARMS WM really has.
Market Comments for April 8, 2008
1) Earnings announcements started with a resounding thud today with Alcoa (AA) coming in worse than expected. 'Less than expected' will be the most commonly heard expression on Wall Street for the next four weeks. The Dow fell 36 points.
2) The market is starting to take the view that the Fed rate cuts are over, or that there may be only 25 bp left. The Fed wants to hold further rate cuts in reserve in case the current dose of medicine doesn't work.
3) The homebuilding industry tax credits to be earned by the proposed Senate bail out bill are enormous: Lennar-$573 million, DR Horton-$609 million, Pulte Homes-$598 million. Insider buying in these stocks has accelerated, and Hovnanian is now the top performing stock in my model portfolio, up 67% since January. Homebuilding stocks historically start rising 6-9 months before a turnaround in the new home market, so the sector will have a lot to run from here.
4) Pending home sales in February were down 21.4%, the worst on record. The biggest hit was in the West, the region most affected by the seizing up of the jumbo loan market.
5) You may need to go to Russia for your next chemotherapy. Russia has approved Antigenic's kidney cancer drug 'oncophage' which is able to significantly extend patients' lives. With a market cap of only $150 million the microcap couldn't afford to go through expensive FDA trials to win approval here. Thus Antigenics will be in effect be testing their drug on the public in Russia instead of on volunteers. The shares of other microcap biotech shares jumped on the news.
6) The terms for the Washington Mutual (WM) bail out are public and they are nothing less than draconian. The net net is that private equity fund TPG Partners (no typo here) is getting 47% of the company for $7 billion at $8.75/share, with a guaranteed yield of 8.75% (yesterday it traded at $13.50). The dividend on the existing common will be cut by half to pay for this. This continues the existing pattern of punishing existing shareholders and excessively rewarding new equity investors as the price of a bail out. The alternative is for the stock to go to zero a la Bear Stearns. Anybody who owns this stock should view this rescue as a gift from Heaven and get out now. WAMU doesn?t resell its originated loans, it keeps them on its books. And even TPG probably does?t know how many option rate ARMS WM really has.