Market Comments for April 30, 2008
1) The Fed cut the discount rate by 0.25% to 2%. Crude sold off $5, and most other commodities had substantial falls.
2) The Bank of Japan held rates steady at 0.5% where it has been for 13 years. This is why the yen is the world's major carry currency. It also shows the futility of today’s Fed action. Bernanke is taking lessons on how to push on a string.
3) Follow the money. Marriott is increasing the number of hotels it manages in the Middle East from 26 to 65 over the next three years.
4) Spain has had its worst reading for consumer sentiment in 26 years. Spain and England are leading the EC into recession. Interest rate cuts to follow. Someday.
5) General Motors (GM) lost only $600 million in Q1, exceeding analysts' forecasts. Whoopee! The stock leapt an impressive 13% on the news. Go buy that Hummer!
6) On April 4 I sent you a Special Report strongly advising you that it was time to buy stocks. April, 2008 has been the best month for the S&P 500 since April, 2003.
7) Citibank (C) announced that it is raising an additional $4.5 billion in equity. That brings the total capital raised to a staggering $40.5 billion since the sub prime crisis began. Talk about throwing more good money after bad. The buyers of this paper will live to regret it.
8) GDP growth for Q1 came in at +0.6%, better than expected. Only the strong performance of the large multinationals kept the economy out of recession. However, this number lies in that the economy was probably still growing at the beginning of January, but was definitely shrinking by the end of March and on a downtrend.
9) Exxon (XOM) reported earnings up 50% in Q1. No surprise there. But at eight times earnings, the stock is trading as if crude were still at $50. Equity investors apparently do not believe that crude will stay at this level for long.
TRADE OF THE DAY
The commodity bubble has at last been pricked by the strong dollar. There have been major sell offs in wheat, gold, energies, and rice. Bonds and the euro will follow. This area is long overdue for a major correction. As we saw last year, there will be short side opportunities in commodities for the next 3-6 months. Crude should make it back down at least to the sixties. However, the long term bull case is still valid.