May 8, 2008

Market Comments for May 8, 2008

1) New high for crude at $124.60. Who has been the best speculator in the market? George Bush. The strategic petroleum reserve hit an all time high of 727 million barrels, which equates to 58 days of US imports. Every one of these barrels could be sold now for a profit. Natural Gas, which I recommended in January at $7.75, has been the best energy play this year, up 41%. Crude is up only 26%.

2) Tom Thornhill of Vinum Capital is raising $250 million to invest in vineyards in California. There are 2,500 vineyards in the state, 80% of which are family owned and many lose money. Up to 50% of these are expected to change hands over the next 10 years and Thornhill hopes to provide an exit strategy for these owners. Thornhill, who employs eight full time wine professionals, will then add value by bringing in professional management, gaining economies of scale, and building a family of brands. In the meantime the demand side of the equation for premium wine is improving the increase in consumption by the boomer and millennial generations.

3) Toyota announced a Q1 net of $3 billion, down 28%, on sales of  +3.8%. The company is getting hit with a double whammy of falling US sales and falling yen proceeds from those sales because of the weak dollar. Growth in emerging markets was gangbusters. The company expects global sales to rise only 1.6% in 2008. It has sold 1.4 million hybrids so far. This has always been a great company with a boring stock. Since they are virtually 100% internally financed they never raise outside equity, so the stock never gets promoted by brokers. It is still a nice 'tell' on the state of the global economy.

4) Colorado State University, which has one of the most sophisticated weather forecasting models out there, is predicting that there will be eight hurricanes this season, and that four of these will be major. The season runs from June 1 to November 30. There is a 69% chance that one of these will make landfall, compared to 52% for past years. Current energy prices are not factoring in these risks at all. Natural gas hit $15 during Katrina three years ago.


The next crisis facing the US will be the skyrocketing number of aging poor. Now that the baby boomers are starting to collect social security the number of retirees is expected to double to 72 million within the next 15 years. Only 18% of workers have corporate pensions compared to 60% in the sixties. In the meantime the median 401k account is only worth $31,000. Health care workers are currently the fastest growing job sector. No doubt the government will be asked to step in and pay for all of this.