May 1, 2008

Market Comments for May 1, 2008

1) The rout in commodities is continuing. Crude hit $110. Gold is getting crushed, off 15% from its high. The euro hit $1.54. The "buy the dollar and sell commodities" trade is accelerating. In the stock market money poured out of energy and commodity names, and into banks and technology. Goldman Sachs, which I recommended at $163, hit $200 today, up 23%. Please see my earlier comments about how the commodity bubble has burst.

2) The Brazilian stock market, the Bovespa, hit an all time high overnight of 66,000. Some individual stocks were up 20% on the day. I recommended Brazil earlier this year. The BRIC countries should be at the core of any long term equity position, but will also have the biggest drops in any correction.

3) Centex, the nation's largest homebuilder, announced massive Q1 losses of $7.50/share, about ¼ of its equity. This included $362 million in write downs on unsold homes.

4) Weekly jobless claims jumped by 35,000 to 380,000. The non-farm payroll, the biggest economic release of the month, comes out tomorrow. It is expected to show a loss of 75,000 jobs.

5) Global chip sales are up 3.4% YOY according to the Semiconductor Industry Association. Stripping out DRAM's, which are mostly sold by the Japanese and always subject to severe price competition, they are up 11%. PC's account for 40% of demand, followed by 20% by cell phones, then MP3 players and Ipods. More than $25 billion in chips were exported by the US last year, making it the second largest export after aircraft. I recommended a buy on Intel at $21. It is now at $23.5, up 12%.

6) GM's auto sales are down 22% in April, a breathtaking decline. I can't imagine why people aren't buying Hummers with gas at $4/gallon. It costs $128 to fill an H2 gas tank and at 8 miles/gallon that will only get you 250 miles. It's like driving around with a big sign on your car saying "I am a dummy."


When planning your financing needs for the next year I think you can count on the Fed raising rates by December. With current spreads the financial system is reliquifying its collective balance sheet at a phenomenal rate. Banks and brokers will be approaching something resembling health by year end. Once the Fed starts you can expect it to raise rates very quickly to head off inflation brought on by high commodities and the weak dollar.