March 5, 2009

Global Market Comments for March 5, 2009
Featured Trades: (GE), ($XEU), (GOOG)

1) Q4 European GDP came in at -1.5%. Consumer spending registered the sharpest fall on record, while exports fell off a cliff, the victim of a relentless shrinking of globalization. The euro ($XEU), down to $1.2450, is flirting with a new four year low. The continent continues to pay the price for the disastrous decisions and lack of experience of the EC central bank president, Jean-Claude Trichet, who raised interest rates last summer.

Euro-2.png picture by sbronte

2) Buy a house and pay no taxes for a year. That is what the government is saying with the most generous tax credits in history for first time buyers of new homes. Buyers in California with incomes under $75,000 can cash in on $18,000 in tax credits ($10k in state, $8k in federal) that were slipped into the stimulus program. This is on top of incredibly generous financing, free upgrades, and no fee loans offered by desperate sellers. The package also raised the FHA loan limit from $625,000 back up to $729,000, crucial in the high cost markets of California, New York, and Florida. The only catch is that you have to stay in the house for three years to reap the full benefit. Flippers need not apply.

3) Charlie Rose did an insightful interview with Marc Andreesen last week, who has one of the best high altitude views of the long term future of technology. This is the man who, at 22 co-authored Mosaic browser, which was used to create Netscape Navigator, and eventually Internet Explorer. He sees the recession creating a 'tragic opportunity' that accelerates the migration of dying industries to the Internet like, radio, TV, DVD's, music, newspapers, real estate, and banking. Every day the awesome power of the Internet to eat new industries grows, which is now populated by 1.5 billion users. His favorite game is the incredibly violent 'Gears of War 2' which you should keep out of the hands of your teenagers. Venture capital start ups are not in as bad of shape as people say because they are usually funded with five years of cash flow, enough to get through a downturn. Google, YouTube, and Facebook were all developed during the last recession. The Internet is creating a far better educated and connected consumer than ever seen before. Twitter, where Andreesen is a director, is becoming a real time electronic nervous system for the planet. The same is happening with the world's three billion video enabled cell phone users. He is also on the board of Facebook, with 175 million users, which is leaving at least a $1 billion a year in potential advertising revenues on the table. He is an angel investor in the social networking site LinkedIn, which now boasts 20 million resumes. All in all, it was a fascinating peak into the future.

4) One out of five stocks in the S&P 500 has a single digit price. General Electric (GE) hit the $5 handle. Amazing. This is a company that has $45 billion of cash, $60 billion in back up government financing, and has already rolled over 70% of its long term debt due this year. GE Capital will be profitable this year, because only 2% of its holdings are subject to market to market rules. CFO Keith Sherin says the only explanation for a share price that is a hat size is the rampant fear now sweeping the markets.

5) Google (GOOG) CEO Eric Schmidt says it is obvious that the news is bad and getting worse, that we are not at the bottom yet, and have some quarters to go. Watching traffic it is clear that advertisers are tightening budgets, but the numbers of online advertisers is increasing. The recovery will start first in the US and then spread overseas. However, the company does not expect any fall off in its own revenues. Does Google own the planet, or what?


'If something can't go on forever, it won't,' said Herb Stein, Chairman of the Council of Economic Advisors under presidents Nixon and Ford.