Market Comments for April 30, 2008

1) The Fed cut the discount rate by 0.25% to 2%. Crude sold off $5, and most other commodities had substantial falls.

2) The Bank of Japan held rates steady at 0.5% where it has been for 13 years. This is why the yen is the world’s major carry currency. It also shows the futility of today?s Fed action. Bernanke is taking lessons on how to push on a string.

3) Follow the money. Marriott is increasing the number of hotels it manages in the Middle East from 26 to 65 over the next three years.

4) Spain has had its worst reading for consumer sentiment in 26 years. Spain and England are leading the EC into recession. Interest rate cuts to follow. Someday.

5) General Motors (GM) lost only $600 million in Q1, exceeding analysts’ forecasts. Whoopee! The stock leapt an impressive 13% on the news. Go buy that Hummer!

6) On April 4 I sent you a Special Report strongly advising you that it was time to buy stocks. April, 2008 has been the best month for the S&P 500 since April, 2003.

7) Citibank (C) announced that it is raising an additional $4.5 billion in equity. That brings the total capital raised to a staggering $40.5 billion since the sub prime crisis began. Talk about throwing more good money after bad. The buyers of this paper will live to regret it.

8) GDP growth for Q1 came in at +0.6%, better than expected. Only the strong performance of the large multinationals kept the economy out of recession. However, this number lies in that the economy was probably still growing at the beginning of January, but was definitely shrinking by the end of March and on a downtrend.

9) Exxon (XOM) reported earnings up 50% in Q1. No surprise there. But at eight times earnings, the stock is trading as if crude were still at $50. Equity investors apparently do not believe that crude will stay at this level for long.

TRADE OF THE DAY

The commodity bubble has at last been pricked by the strong dollar. There have been major sell offs in wheat, gold, energies, and rice. Bonds and the euro will follow. This area is long overdue for a major correction. As we saw last year, there will be short side opportunities in commodities for the next 3-6 months. Crude should make it back down at least to the sixties. However, the long term bull case is still valid.

Market Comments for April 29, 2008

1) Fears of a strong dollar have triggered a broad sell off across all commodity classes. The Saudi oil minister said that if the dollar rises 10%, as I believe, it will trigger a $40 sell off in the price of crude. He may be right.

2) There can be little doubt where the earnings came from in Q1, 2008. Companies that receive 50% or more of their business from overseas saw earnings rise 21%. Companies that get less than 10% of their business from abroad saw earning fall 25%.

3) The S&P-Shiller Case home price index fell -12.7% in March. This is an average of residential home prices in the 20 largest US metropolitan areas. San Francisco fell -17.2%. Foreclosures are up 112% YOY. Expect things to get a lot worse before they get better.

4) Two year Treasury notes are yielding more than Fed funds for the first time since June, 2006.

5) ‘Grand Theft Auto IV’, a parent?s worst nightmare, was released yesterday, and $400 million in sales are expected this week. When your kids get older you will become a slave to this game, an upgrade hostage.

6) Fact of the day: The annual return of the S&P 500 since 1980 has been 9.3%. If you take out the 20 best performing days it is only 5.7%. If you take out the 30 best performing days it is only 4.4%. Proof that short term market timing doesn’t work.

7) Hong Kong’s Hang Seng hit 26,000 last night. You may recall that I recommended this market in February at 21,000.

THOUGHT OF THE DAY

The S&P 500 has had a virtually non stop run from the March 17 low of 1,250. As you recall, it respected my low for the year of 1,225. As a result it is now overbought on a short term basis, bumping up against the 200 day moving average of 1440. It’s now time for a major pull back and retest of the lows. The Fed meeting is providing a great pivot point for this to happen. This will take the market back to 1,330 from yesterday’s high of 1,408.

Market Comments for April 28, 2008

1) Natural Gas jumps to a new post Katrina high of $11.40. Crude fell. The Atlantic hurricane season starts in four weeks. The stock market is dead, waiting for the Fed news. It was a good day for a multistrategy approach.

2) Continental Airlines pulled out of its merger with United (UAUA) three days before the announcement. After an exhaustive look at the books, Continental didn’t like what it saw. United has accelerated its merger talks with US Air.

3) Mars and Wrigley are merging with a private equity participation by Warren Buffet. Just his kind of deal. Mars is one of the best managed food companies in the US with an international brand. This is fanning speculation of a takeover bid of Hershey by Cadbury Schweppes.

4) Fact of the day: If GDP growth is at 1% per capital GDP growth is falling because the population increases by 1% a year. That is why people may feel they are in a recession.

5) USA Today and the Wall Street Journal are the only two major newspapers that grew last year. This is a dying industry. Advertisers are decamping en masse to the internet. Buy Google (GOOG).

6) One of the sectors hardest hit by the recession has been casual dining. It could be a nice recovery play when the consumer comes out of his bomb shelter. Best of breed here is Darden Restaurants (DRI) with Olive Garden and Red Lobster, followed by Chuck E. Cheese (CEC), the Wolfgang Puck offshoot, California Pizza Kitchen (CKKI), Brinker International (EAT), and Chipotle (CMG).

7) Another Fact of the day: According to Freddie Mac, during 2002-2007, $51 billion was taken out in home equity loans to meet day to day living expenses. Not good. What are people going to live on, now that the equity is gone? Expect the food bank business to boom.

8) Here is a somewhat depressing stock play. Thanks to the war in Iraq, 5,000 people a year require artificial arms and legs. A leader in this field is Stryker (SYK), an innovative maker of high tech orthopedic devices. At $62 it is down from last year’s high of $75.

Market Comments for April 25, 2008

1) There is a growing consensus that the euro has peaked for the year at $1.60. The currency ($XEU) is a strong short against the dollar at these levels. If the Fed doesn’t cut interest rates next week you can expect the euro to collapse and stocks to soar. Commodities have started a major sell off with the exception of Natural Gas, which hit a new 2 ?? year high today of $11.15.

2) The sell off in the bond market is accelerating and is going global. There was a major crash in the Japanese government bond market last night. The selling was so aggressive that authorities halted the futures market for 15 minutes. Yields on the 10 year JGB have shot up from 1.35% to 1.70% this month. US 2 year Treasury notes are yielding 15 bp over Fed funds.

3) You’re not drinking enough double shot frappocinos! Starbucks announced terrible earnings and the stock fell 12%. Howard Shultz says the economic environment is the worst in the company’s history.

4) More info on Apple. Mac’s global pc market share has risen to 3.8%, a new high. With its current leverage, each 0.25% increase in market share sends $700 million straight to the bottom line. There is an easy 50% move up in the stock to $250 in the next year. Lenovo is now looking at selling its laptops with the option of having Mac operating software. Another thing helping Apple is the fact that up to 40% of the Vista copies sold in Asia are pirated and that many companies are delaying the adoption of the Microsoft operating system until the bugs are worked out.

5) The spreads over Treasuries on every type of debt instrument are shrinking dramatically, including munis, sub prime loans, credit default swaps, commercial loans, and corporates from triple A’s to junk. The appetite for risk is back, at least temporarily.

6) Consumer sentiment dropped to a 26 year low in March according to the University of Michigan. The Dow sold off 100 points.

7) The Shanghai market was up 9% yesterday, its biggest gain in 6 years. Olympics here we come!

8) Fact of the day: Click fraud accounts for 16% of all internet advertising.

9) The 2-10 year Treasury spread has dropped to 150 bp. I recommended a 10:1 leveraged short last month at 260 bp. The trade would have made 11%.

Market Comments for April 24, 2008

1) Europe is seen as being 12-18 months behind the US economic cycle and they could well be cutting interest rates later this year. This will cause the euro, crude, gold, and Treasuries to fall sharply and the dollar, global stocks, junk bonds, munis, and sub prime loans to rise. Who knows, even real estate might start to recover. This is the call to make in financial markets this year.

2) The necessity to follow markets 24 hours a day couldn’t be more evident with Apple shares last night. When the earnings came out after the close the stock trade from $160 to $170. When the guidance came out hours later the stock dropped from $170 to $155. It then rallied back to $170. This all happened overnight in OTC trade.

3) Arby’s is buying Wendy’s. I’m sure this will have a big impact on your dietary preferences. What is next? Chicken burgers?

4) New home sales for March came in at -8.5%. The inventory of unsold homes reached 11 months, the highest since 1981. Prices were down an average of 13% YOY, and that doesn’t include generous buyer incentives.

5) The reason for the global food shortage is that the average farm size in Asia is 1-2 acres compared to 500 acres in the US. Farming benefits greatly from economies of scale.

6) The government has moved to criminalize rumors. The SEC charged an individual with market manipulation for spreading a false rumor about Blackrock’s bid for Alliance Data Systems. The person first shorted the stock and made $26,000 on the trade after a 17% fall in the stock. Next they will criminalize thinking.

7) One of the few commodities that has gone down in the past year is lumber, which has been the obvious victim of the housing crisis. The futures contract has plummeted from $460 to $190, down 60%. Going long the commodity could be a nice recovery play. It is also a foreign demand play as the US is still a major exporter of wood. Alternatively, you could buy Weyerhaeuser (WY) which has dropped from $85 to $58, Temple Inland (TIN) $50 to $10, or Louisiana Pacific (LPX) $27 to $8. Another play is Brookfield Asset Management (BAM), an investor in forests.