November 18, 2008

Global Market Comments for November 18, 2008

Special Russia Edition

Highlighted Trades: ($RTSI), (YHOO), (BUD)

1) October retail sales came in at -2.8%, the biggest decline on record. The Producer Price Index plunged by 2.8%, up 5.2% YOY. Inflation is doing a disappearing act. The market was ready for another swan dive, but then was spared by Hewlett Packard (HP) surprisingly announcing a very strong Q4, and raising guidance for next year. I thought the words 'raise', 'up', and 'improve' had become extinct species.

2) Belgian Inbev's takeover of Budweiser (BUD) closed today. The old Bud shareholders get $50 billion in cash. What a great time to get cash!

3) Google Earth will soon offer users a new option when clicking on aerial views of Rome. You can now get a satellite view of Rome for 320 AD. Even the shadows are astronomically correct for April 1 that year. The only thing missing are the Romans and their chariots, which you can see in today's view.

4) BRIC Internet usage can be a good guide to future economic growth. In Brazil it is currently 26.1%, followed by Russia at 23.2%, China at 19%, and India at only 5.2%. Spreading Internet usage will enable companies in these countries to become more profitable and efficient and be great for stock markets. When US Internet usage was last at 5%, the Dow was at 3,000 on it's way to 14,000. The BRICS are all long term buys here.

5) The financial sector in New York City is expected to lose 112,000 jobs this year. Bad for Connecticut, and worse for New Jersey.

6) I bet Obama is carefully reading all of Franklin Delano Roosevelt's 1933 speeches. He set sales hungry publishers a twitter during his '60 Minutes' interview when he mentioned he was reading a book about FDR's first 100 days. In fact three such books have recently come out. Which one? The winner is Jonathan Alter's 'The Defining Moment: FDR's Hundred Days and the Triumph of Hope'. I predicted an FDR boom. Should I order a copy from Amazon? Renew the lease on the Potomac!

7) Many analysts are now ranking Jerry Yang's spurning of a $33 bid from Microsoft in February as the single worst decision in the history of American business. $30 billion is a lot to pay for hubris. Head Yahoo? Give me a break, Jerry!

8) It is a good time to update you on the Russian stock market ($RTSI), which has fallen 77% from 2600 to 600 since July. One of its lead energy stocks, Lukoil (LUKOY) has collapsed from $120 to $30. At least 70% of the trading in this market is by foreign investors, so much of the boom and bust has been caused by foreign hedge funds pouring money in, and then pulling it right back out.  Russia is the world's second largest oil exporter after Saudi Arabia, and a $1 drop in the price of crude shaves $3 billion off of the country's exports. This is why plunging crude has knocked 15% off of the value of the Ruble, and another 15% fall is in store. Four of Russia's top 30 banks have failed. A residential real estate bubble has collapsed, where up to 70% of all transactions were accounted for by speculators. But Russia is going into this crisis in much better shape than it has in the past. It has $485 billion in reserves, the third largest in the world. It has a national plan to raise the per capita standard of living from $12,000 to $30,000 by 2020, and to spend $6.4 trillion on infrastructure by 2030. It is the perfect combination of a country in desperate need of a modern build out which has the money to do it. Russia should be at the core of any long equity portfolio, once the markets turn.