July 23, 2008

Global Market Comments for July 23, 2008

1) Gasoline inventories fell a surprisingly large 2.8 million barrels as cancelled summer vacations leave the system awash in excess product. Crude fell $4 to $124. Prices at the pump could fall 20 to 30 cents/gallon in the next week. If you believe crude has finally peaked, buy the refiners which have been hammered this year because of crushed margins. Valero Energy (VLO) has plummeted from $76 to $30, while Tesoro Petroleum (TSO) has vaporized from $65 to $15.

2) Roche Holdings has made an $89/share offer to buy the remaining shares of Genentech (DNA). The Swiss pharmaceutical giant, which already has majority control of the company, sees this as a natural long dollar play with the euro at $1.59. Roche plans to integrate DNA's marketing, manufacturing and back office, while leaving its option incentivised research division alone. The stock shot up 12% to $93 as traders believe Roche may raise its offer. I toured DNA's principal manufacturing facility a few years ago, and since they used the eschericia coli bacteria as their principal biosynthesis media, the whole place smelled like a pile of shit.

3) During Q1 Verizon customers sent 58 billion text messages. That works out to 1,000/customer, or 11/day. I bet my kids account for at least half of that. 80% of the US population now uses cell phones.

4) Here are more China plays. VisionChina Media (VISN) has 45,000 display ad locations and is down from $22 to $14. ATA Inc. (ATAI) processed 123 million online licensing and college entrance examinations last year, and is down from $18 to $12. It caters to the Chinese desire to upgrade standards of living through improved education and professional qualifications. Oriental Education (EDU) offers the prep courses for these exams, and it has fallen from $82 to $53. All trade on NASDAQ.

5) United Airlines (UAUA) is up 50% to $7.50 on the successful roll over of its short term debt and falling crude prices. See my earlier recommendation to buy the stock at $5 as a cheap undated put on crude.

6) The new symbol for the Bombay Sensex is ($BSE), which at 12,500 is down 45% from its January high of 21,500. This eventually will be a strong buy when the BRIC’s come back into fashion.

7) VMWare (VMW) lowered guidance and got slaughtered, the stock plunging 10%. The Palo Alto based business virtualization software company had a nice little niche until Microsoft, IBM, and Hewlett Packard piled in and ate their lunch. The stock has fallen 70% from $115 to $34 since October and the CEO got fired.

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