May 30, 2008

Market Comments for May 30, 2008

1) Crude stayed in a range of only $3 today, from $126-$129, so more people are talking about a top. Bonds were licking their wounds.

2) Another new word for the lexicon: 'cocooning'. Because of high gas and food prices nobody has enough money to leave the house, so they are staying home, telecommuting whenever they can, and buying whatever they need on the Internet. Buy Amazon, Visa, Master Card, FedEx, and UPS. Go short theme parks, high end restaurant chains, hotel chains, and any company that relies on brick and mortar stores.

3) Best of Breed in the airline industry today is Southwest Airlines (LUV). The company hedged most of its fuel needs through 2012, when crude was at $51/barrel. Not only can the company still make a profit selling tickets for only $100, they can substantially expand their network while others are shrinking.

4) Dell earnings came in much better than expected and the stock jumped 8%. The Michael Dell turnaround is finally happening. The company is moving more aggressively into the consumer space inhabited by Apple and to the international area where, of course, everyone makes money.

5) The average discount on foreclosed homes nationwide is 23%. The best deals were to be had in Indiana where homes sold at a 42% discount to market value.
6) Had a sip of China Silk lately? China has become the 5th largest wine producer in the world, its chief growing area being on the same latitude as Napa Valley. Most of this is low quality bulk wine. China has the world's fastest growing per capita wine consumption. My recollection is that this stuff is real rotgut, best used for salad dressing.

7) Starbucks has hedged 100% of its coffee needs in the futures markets for this year, about $320 million worth. Coffee has gone up 10% so far this year.


If you had sold the crude July $150 calls last week at $550 you would have covered them this morning at $110 for an eight day profit of $490,000. The hurricane season starts on Sunday and we are one storm away from a possible crude spike to $150 and a natural gas spike to $15. Hanging on to the last $110 in this trade would be imprudent from a risk/reward point of view. Remember, in this business, pigs get slaughtered. Time to say "Thank you very much Mr. Market," and move on to the next trade.