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.
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.
Global Market Comments for July 18, 2008
1) Crude was stable today. A big part of the selling this week has come from bank sales of crude holdings to shore up balance sheets. There was a major effort to make sure that the crude August $130 calls, where enormous positions had been built up, expired worthless yesterday, which they did. China's Olympic shut down is starting to affect all markets where they are the major player, like crude and copper. Who knew banks were such big players in this market? In every crisis there are always unexpected bodies that float to the surface.
2) If gas prices stay at current levels the decline in driving, and more driving at slower speeds will cause highway deaths to fall by 12,000/year. There will also be dramatic reductions in traffic, air pollution, and traffic noise. Land near freeways might become worth more, especially if we move to silent all electric cars. The San Francisco Bay Bridge morning rush hour toll gate back up has almost disappeared.
3) The Pakistan stock market has dropped for 15 consecutive days. It is now down 35% from its April high. Yesterday a crowd stormed the exchange and destroyed it in the hope that it would prevent further price falls. It makes our SEC's action against short sellers pale by comparison.
4) Google (GOOG) did not beat expectations with Q2 earnings so they took the stock down 10%. It shows you how demanding the market is these days.
5) Merrill Lynch sold its 20% stake in Bloomberg, which it has owned since the company?s creation by Mayor Michael in the early eighties, for $4.4 billion. This values the mayor of New York at a breathtaking $22 billion.
6) The stock market had its best three day run in five years. The bank and airline sub indexes had their best moves in history. The biggest moves were in what I call the 'imminent bankruptcy' sector: Lehman (LEH) up 80%, United Airlines (UAUA) up 60%, General Motors (GM) up 45%. GM has lost $50 billion over the last three years. Unbelievable!
Global Market Comments for July 18, 2008
1) Crude was stable today. A big part of the selling this week has come from bank sales of crude holdings to shore up balance sheets. There was a major effort to make sure that the crude August $130 calls, where enormous positions had been built up, expired worthless yesterday, which they did. China's Olympic shut down is starting to affect all markets where they are the major player, like crude and copper. Who knew banks were such big players in this market? In every crisis there are always unexpected bodies that float to the surface.
2) If gas prices stay at current levels the decline in driving, and more driving at slower speeds will cause highway deaths to fall by 12,000/year. There will also be dramatic reductions in traffic, air pollution, and traffic noise. Land near freeways might become worth more, especially if we move to silent all electric cars. The San Francisco Bay Bridge morning rush hour toll gate back up has almost disappeared.
3) The Pakistan stock market has dropped for 15 consecutive days. It is now down 35% from its April high. Yesterday a crowd stormed the exchange and destroyed it in the hope that it would prevent further price falls. It makes our SEC's action against short sellers pale by comparison.
4) Google (GOOG) did not beat expectations with Q2 earnings so they took the stock down 10%. It shows you how demanding the market is these days.
5) Merrill Lynch sold its 20% stake in Bloomberg, which it has owned since the company?s creation by Mayor Michael in the early eighties, for $4.4 billion. This values the mayor of New York at a breathtaking $22 billion.
6) The stock market had its best three day run in five years. The bank and airline sub indexes had their best moves in history. The biggest moves were in what I call the 'imminent bankruptcy' sector: Lehman (LEH) up 80%, United Airlines (UAUA) up 60%, General Motors (GM) up 45%. GM has lost $50 billion over the last three years. Unbelievable!
Global Market Comments for July 17, 2008
1) Crude broke down to $129, down $6?? on the day and down $19 from a high a week ago. Stocks loved it, flying another 200 points.
2) Traders are still reeling from the explosiveness of yesterday's move in financials. Lehman (LEH) was up 37%, Bank of America (BAC) 24%, WAMU (WM) was up a mind boggling 54%. Short sellers rushed to cover naked shorts ahead of the Monday implementation of the tightened short selling rules. Can you believe that Bank of America got down to $18 on Tuesday? With a market cap of $123 JPM is now by far the largest bank in the US. In the land of the blind the one eyed man is king.
3) June housing starts came in at a surprisingly strong +9.1%, giving us a 1.09 million units annualized rate. New building permits were up 11.6% in June.
4) Coke (KO), JP Morgan (JPM), and United Technology (UTX) all announced better than expected Q2 earnings. The story is all the same. Domestic weakness is being more than offset by international income.
5) Looks like Mitsubishi Motors will win the race to bring the first all electric car to the market. It is introducing its MiEV ultra compact in Japan in 2009. Nissan will follow in 2010 with a car with a 100 mile range and a Lithium-Ion battery that can be 80% recharged in 20 minutes. Fuel cell technology is proving too expensive. Honda says that it will take ten years for the production cost of its FCX Clarity fuel cell car to drop from $950,000/unit to $100,000/unit. It looks like the current generation of Prius and Civic based hybrid technology has about a six year window before they are overtaken by competitive all electric cars.
6) A three year old Prius is now selling for 87% of the cost of a new one, compared to 55% for the typical used car the same age. If you drive 15,000 miles/year you need to drive your Prius three years to earn back this premium in gas savings. The waiting list at my local Toyota dealer is six weeks.
TRADE OF THE MONTH
August crude options expired today. Please note that all call short selling strategies that I have recommended saw their options expire worthless today. Crude went out today at $129, $21 away from my nearest strike. You could have made a dozen round trips this month using this strategy, which would have been immensely profitable.
Global Market Comments for July 17, 2008
1) Crude broke down to $129, down $6?? on the day and down $19 from a high a week ago. Stocks loved it, flying another 200 points.
2) Traders are still reeling from the explosiveness of yesterday's move in financials. Lehman (LEH) was up 37%, Bank of America (BAC) 24%, WAMU (WM) was up a mind boggling 54%. Short sellers rushed to cover naked shorts ahead of the Monday implementation of the tightened short selling rules. Can you believe that Bank of America got down to $18 on Tuesday? With a market cap of $123 JPM is now by far the largest bank in the US. In the land of the blind the one eyed man is king.
3) June housing starts came in at a surprisingly strong +9.1%, giving us a 1.09 million units annualized rate. New building permits were up 11.6% in June.
4) Coke (KO), JP Morgan (JPM), and United Technology (UTX) all announced better than expected Q2 earnings. The story is all the same. Domestic weakness is being more than offset by international income.
5) Looks like Mitsubishi Motors will win the race to bring the first all electric car to the market. It is introducing its MiEV ultra compact in Japan in 2009. Nissan will follow in 2010 with a car with a 100 mile range and a Lithium-Ion battery that can be 80% recharged in 20 minutes. Fuel cell technology is proving too expensive. Honda says that it will take ten years for the production cost of its FCX Clarity fuel cell car to drop from $950,000/unit to $100,000/unit. It looks like the current generation of Prius and Civic based hybrid technology has about a six year window before they are overtaken by competitive all electric cars.
6) A three year old Prius is now selling for 87% of the cost of a new one, compared to 55% for the typical used car the same age. If you drive 15,000 miles/year you need to drive your Prius three years to earn back this premium in gas savings. The waiting list at my local Toyota dealer is six weeks.
TRADE OF THE MONTH
August crude options expired today. Please note that all call short selling strategies that I have recommended saw their options expire worthless today. Crude went out today at $129, $21 away from my nearest strike. You could have made a dozen round trips this month using this strategy, which would have been immensely profitable.
Global Market Comments for July 16, 2008
1) Weekly Crude inventories jumped 3 million barrels on the back of rapid demand destruction, sending crude down $7 to $132. We have dropped $16 since last week's high. If we can break $129 look for another rapid $10 drop to $119. This bubble may have burst. The airline index had its largest up day ever. United Airlines (UAUA) was up 40%. See my earlier recommendation to buy UAUA. The Dow rose 276.
2) The great opportunity presented by market conditions like this is that the best companies are being tossed out with the worst. Cisco (CSCO) has a 50% share of the router market, has $19 billion in cash, and at $21/share is selling at a 12.5 multiple, the lowest since it went public in 1990. This is the closest you can get to a legal monopoly. Just the interest that the company is earning on its cash is more than many companies are making right now.
3) The lack of leadership from Washington now is so palpable that you could say that Bush is imitating Nero, playing the fiddle while Rome burns. Except that Bush doesn't know how to play the fiddle. Maybe a mouth harp.
4) Fannie Mae (FNM) and Freddie Mac (FRE) supply liquidity to about 75% of the mortgages in the country. Bank of America, Wells Fargo and a few others supply the rest. This is not a small problem.
5) Look at http://sendables.jibjab.com/ and click the green play arrow on Election 2008. It is hilarious.
6) Wells Fargo (WFC) earnings for Q2 came in at 53 cents/share vs. an expected 50 cents/share. This is one of the few solid banks out there and along with US Bank is a favorite of Warren Buffet. The stock soared 38% to $27.50. Rare good news from a financial. The bank index had its largest up day in history.
7) The Wall Street Journal is raising its newsstand price from $1.50 to $2.00. Inflation is here. Apparently Rupert Murdoch needs some help with the fuel bill on his Gulfstream.