March 31, 2008

Market Comments for March 31, 2008

1) The market staggered to a close for the quarter, bringing in the worst quarterly performance in 5 years. Brokers were down 25%, technology down 16%, and banks were down 9%. Homebuilders, which have been savaged for two years now, were unchanged. Drug stocks, normally a safe haven, were down 13%.

2) A study was published today by the respected New England Journal of Medicine saying that the anti-cholesterol drug Vytorin is useless in life extension. Merck and Shering-Plough were down 20% and 25%. This is why I never touch this sector. Everything always comes out of the blue. Vytorin accounted for 60% of the latter's profits, and with this fall, the stock now has a 10% dividend yield.

3) Builder DR Horton held an 'unauction' in LA where it sold 200 homes down 30% from list. It is cheaper to dump houses at a bottom cycle price now than to wait 5 years for prices to get there.

4) Steel prices are up 60% in a year. When the economy recovers physical shortages of steel may dramatically drive up all types of construction costs and create delays  due to the long lead times needed to increase production of this commodity.

5) Inflation in the euro block hit 3.5% in March, the highest in the history of the currency, reducing chances that interest rates will be cut there.

6) At the market peak, the US housing stock was worth $21 trillion. It may drop to $14 trillion before the housing collapse ends.  That is a huge negative wealth effect and means the loss of a lot of purchasing power in the US over the next few years. Good bye home ATM!

7) According to Cal State University, research people who have fun at work are more creative, productive, work better in teams, stay at work longer, and have fewer sick days. Funny bosses are listened to more than unfunny ones. The most fun companies to work for are Nike and Microsoft.

8) 'Girls Gone Wild' offered 'Kristen' $1 million to appear nude in a future video, but then withdrew the offer when they found out that she had already appeared in their 2003 'Girls Gone Wild Spring Break' video. You can't make this stuff up.


Russia is a country that bears close watching. It is the largest commodity exporter in the world and is the largest non OPEC oil producer, making an investment hear a great inflation hedge.  The economy is growing at 8% a year, allowing the rapid emergence of a middle class. This is the same argument you hear for buying China. Their companies are not leveraged and there is no financial crisis. The ways to play this are to buy the Moscow Fund (.RRTS) or just directly buy Gazprom, the world's largest natural gas producer and the largest company in Russia. It’s a great emerging market play as long as oil keeps going up. If it doesn’t, watch out!

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