April 11, 2008

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%