April 21, 2008

Market Comments for April 21, 2008

1) Another bail out, this time for National City, for $6 billion, one of the many weak links in the banking system. The stock has fallen from $37 to $6. This is becoming a recurring Monday morning event. Bank of America (BAC) disappointed on earnings and the Dow fell an anemic 24 points on the news.

2) The Caterpillar (CAT) guidance says it all. The US sales forecast for 2008 is +3%. For Asia it is 37%. The chairman is talking about a 'crisis' of a global shortage of heavy equipment. I recommended a buy on March 20 at $73.80. It closed today at $82, up 15%.

3) Thanks to the strong performance of the financial markets last week the futures markets are no longer discounting a 50 bp cut in interest rate at the Fed May meeting. They are now predicting only a 25 bp cut and even that chance is declining.

4)  A stock I like here at $65 is New York Stock Exchange Euronext (NYX). This is a play on the future volume of financial markets. They earn fixed fees on every transaction that goes through the stock market and is a license to print money. The stock fell from $100 on the threat of increased government regulation and the demise of the world financial system.

5) Another area ripe for recovery is the private equity and fund management area, many of which went public at the absolute top of the market a year ago. Buy Pzena Investment Management (PZN) at $10.50. This is a smaller hedge fund that went public at $20 in November. Once the debt markets free up these stocks will skyrocket.

6) The Hang Seng hit 25,000 last night. In February I gave you a chart showing you that it was a strong buy at 21,000. The Shanghai market has continued to go down and is now off 50% from its November high.

7) New highs for natural gas at $10.85 and crude at $117.60. Shell is claiming force majure on Nigerian deliveries.