April 4, 2008

Market Comments for April 4, 2008

1) Non farm payrolls came in at -80,000, much worse than expected. Earlier months had big revisions downward. The biggest loser: construction at -50,000. The unemployment rate jumped from 4.9% to 5.1%. It was the most brutal report since September, 2005. As I predicted, the economic data continues to be horrific. Futures are now showing a 50% probability of another 50 bp rate cut to 1.75% at the Fed May meeting. The Dow ended up unchanged on the news.

2) The Senate is proposing giving $6 billion in emergency tax credits to the homebuilding industry. They are proposing allowing losses to be carried back six years instead of the usual two. The industry has written off $22 billion in the last two years. The stocks rocketed on the news. For individuals they are offering a $7,000 tax credit for buyers of new or foreclosed homes, a band aid at best. Still, a $6 billion package pales in comparison to the $3 trillion in US residential real estate losses in the past year.

3) Constellation Brands (STZ) announced a smaller than expected loss of only $832 million in Q4, smaller than expected. Wine sales were down 2% on the quarter for the Franciscan Oakville Estate, Simi, Ravenswood, and Arbor Mist labels. In November they bought the wine operations of Fortune Brands for $885 million adding 1,500 acres of grape production and 2.6 million cases per year of 'super premium' wine production, including Clos du Bois. The stock has fallen from $32 to $20 over the past year. The company is expecting a profit this year on the back of an increase in wine sales, especially in the premium area. The stock rose 12% on this news.

4) Copper is ready to break out to a new time high above $4. It will soon replace gold as the leading speculative metal and is also a good predictor of a recovering economy. Every Prius has 100 pounds of copper in it.

5) LA hedge fund manager John Paulson was paid $4 billion last year, the biggest payday in Wall Street history. He started highly leveraged shorting of sub prime loans in 2005. Could you ever cut a bonus check that big? I bet you could if I made $20 billion for you.

6) Robert Toll sold $244 million of his insider stock in Toll Brothers in Q1 1995 when it was above $36. It hit $14 in January when he could buy the same amount of shares back for $150 million.  Nice sale.


The good news is that Walmart (WMT) has started giving away a free bank with every toaster. The bad news is that they haven't sold any toasters yet. Also, the market has started calling the US dollar the 'US peso'.