April 10, 2008

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.


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).