January 26, 2009

Global Market Comments for January 26, 2009
Featured Trades: (GOOG), (AOL), (MSFT), (YHOO), (T), (VZ), (W), (DBA), (FNM)

1) It was the weekend of the big layoff, with 70,000 getting pink slips globally. Key infrastructure and emerging market player Caterpillar chopped 20,000, followed by Intel, Pfizer, Home Depot, Microsoft, and yes, even Apple. You can count on these headline grabbing cost cutting measures to appear daily for the foreseeable future. Keep in mind, this is always a deep lagging indicator.

2) In a rare piece of good news, existing home sales rose a surprising 6.5% in December to 4.74 million. Median prices are still falling, down 15.3% to $174,499. Some 40% of these sales were in California, where a feeding frenzy took place in foreclosure auctions. Every time we see an uptick in these numbers, the real estate industry screams 'bottom'. Don't bet on it.  I think the numbers were skewed by a yearend rush to close deals before Fannie Mae (FNM) conforming loan limits were cut by $104,000 to $625,000.

3) It looks like the grains may be coming into play again, after a six month hiatus.  Drastically lower prices have forced farmers to cut plantings of soft red winter wheat by 26%, to 8.29 million acres. An unusually harsh winter, and poor snow cover will reduce yields further. The credit crisis is preventing famers from getting loans for seed, fertilizer, and equipment, much like occurred during the Great Depression. Buy wheat futures (W) at $6.30/bushel, down from last year's top of $12.60. Or buy the Multigrain and Agriculture ETF (DBA) at $25, down from $42. Investors are looking for any alternatives to paper assets, and this is a great one. People would rather eat than buy stocks or bonds.

DBAGrain.png picture by sbronte

4) Google announced Q4 revenues of $4.2 billion, with click income jumping 18%. The company is moving from strength to strength, impressively growing its share of the advertising pie, while the rest of the industry is shrinking. AOL (AOL), Microsoft (MSFT), and Yahoo (YHOO) combined can't touch them. GOOG is the only place where advertisers can get a positive return on investment in this environment. The company only hired 99 new staff last quarter, a new low, allowing more profits to fall straight to the bottom line. The company is repricing options for 14,000 staff, moving strike prices lower, to maintain loyalty for what is probably the most talented work force out there. The online giant appears to be the only truly recession proof company, and is a screaming buy at $300.
GOOG.png picture by sbronte

5) Rumors are flying that Ebay (EBAY) is looking to dump Skype, which it vastly overpaid for at $2.6 billion three years ago. The online marketplace has been unable to profitably integrate the Internet telephone provider into its core business. Potential buyers are thought to be Google (GOOG), AT&T (T), and Verizon (VZ). Be prepared for a big write down at EBAY.