April 16, 2008

Market Comments for April 16, 2008

1) All of the economic news was bad today, but all people wanted to hear about was the upbeat guidance from Intel, and they took the Dow up 256 points.  Intel is predicting gross margins this year of 53%, great if they can do it. Almost 80% of their earnings come from Asia. The CPI came in at a hot 2.4% YOY, and housing starts were down 11.9% in March, and the Fed's beige book came in overwhelmingly negative. This reconfirms my view that technology, with their global markets and clean hands in the credit crisis, will lead any recovery in the stock market.

2) On February 29 I recommended Petrobras (PTZ) at $11.5, the largest oil producer in Brazil. Yesterday they announced a major offshore oil find the size of Saudi Arabia. The stock shot up to $15. It is still a buy here as is Brazil in general, the only country that is a net exporter of energy, commodities, food, and capital.

3) China's Q1 GDP growth came in at an annualized 10.6%, much higher than expected. The Chinese central bank raised reserve requirements to help cool down the economy.

4) Bill Gross of Pimco argues that Treasury bonds are the world's most overpriced asset and are headed for a big fall. I agree. The current yields on long bonds assume that there will be no reoccurrence of inflation in our lifetimes, a view that I am willing to short.

5) The global food panic is spreading. Russia, Indonesia, Argentina, Egypt, Vietnam, India, Pakistan, and Cambodia have all banned food exports in some form, reinforcing a global hoarding trend. This is a problem that will continue for decades. The upshot of the Chinese wanting to eat better is that many people will not eat at all. Buy fertilizer (Mosaic), seed producers (Monsanto), farm equipment (John Deere), and food exporters (Brazil).

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