May 13, 2008

Market Comments for May 13, 2008

1) New high in crude at $127. Natural Gas hit $11.70, and is now selling at a 47% discount to crude on a BTU basis.

2) You can now buy a home ethanol distiller for $7,000 after rebates. The EFuel 100 Microfueler will convert 70 pounds of sugar into 5 gallons of ethanol per day at a cost of $1/gallon. For details go to www.efuel100.com. This will enable thousands of consumers to become bootleg rum distillers, driving the ATF nuts.

3) Fluor announced stellar earnings, with 60% coming from overseas. They are doing a huge business converting US refineries to take heavy crude from Canadian tar sands. Customers are making capital investment budgets based on crude permanently staying above $40-$50/barrel.

4) According to long term Kondratieff charts, interest rates are going to rise for the next 30 years. When we are in the assisted living facility we will be able to thrill the youngsters with tales of 4.75% 30 year fixed rate mortgages and 1% teaser rates.

5) China has become a net importer of coal for the first time in 5 years, due to snow storms and rising crude prices.

6) The National Association of Realtors said the median home sold for $196,000 in April, down 7.7% YOY. The biggest hit nationally was in Sacramento, down 29.2%.?? The numbers are artificially low because of the almost complete absence of jumbo loans for more expensive homes.

7) US coal exports are expected to rise to 79 million tons this year from 59 million tons last year, thanks to the weak dollar and rising energy prices. The US is the Saudi Arabia of coal with a 250 year supply in the ground.

THOUGHT OF THE DAY

Down 23% from its high last year, BRIC country India is worth a good look. Earnings are expected to grow 20%/ year for the next 3-5 years and can be bought for 12 X earnings. India will soon have the world's largest population. The interesting plays there are in IT and financials. Among the negatives: persistent terrorism, poor infrastructure, and the lack of domestic energy supplies. The Bombay India Sensex 30 index futures just started trading in Chicago creating an easy entry vehicle for hedge funds. See $BSN.

May 12, 2008

Market Comments for May 12, 2008

1) The US now accounts for 24% of world GDP and the emerging markets 30%. Expect the US to shrink and emerging markets to grow substantially from here.

2) The USDA put out a very negative crop report due to poor weather during the planting season. Next year's corn harvest will hit a 13 year low. Corn hit a new high for the year of $6.30 and is probably on its way to $7.50 in the next few months. In the meantime, major producer Argentina has held up exports with a new punitive export tax. Also, expect soybeans to climb from $13.50 back to the year's high of $16.50 and maybe beyond.

3) A lot of talk about RIM's announcement of its IPhone buster, the 'Bold 9000'. This 3G Blackberry has double the resolution of the old model, will cost $399, and will only be available through AT&T. Sign me up! Apple is expected to announce its 3G IPhone in the next few weeks.

4) According to the senior loan officer survey, a lagging indicator, credit continues to tighten. According to credit spreads, a leading indicator, it is easing.

5) Arson always goes up in recessions as people try to burn their way out of bad investments. This time there is a new wrinkle. People are torching their large SUV's because they can't afford the payments or gas and can?t sell the vehicles. This is especially prevalent in California.

6) Fueling global oil demand is the fact that gas is still subsidized in many countries. Gas is $3.97/gal in India, $2.40/gal in China, and $0.19/gal in Venezuela. China?s Sinopet alone lost $3 billion on the subsidy last year. This is why oil imports rose 16% in China last year, but fell 8% YOY in January in California. Last month, energy demand in China and India combined, exceeded that in the US for the first time.

THOUGHT OF THE DAY

With crude at $126 and the Bush administration having shot its wad with the stimulus package, we now have to consider a double dip or 'W' scenario for the economy. This is why the rally failed at substantial technical resistance at the 200 day moving average of 1,430 in the S&P 500, which was also the 50% retracement level from the fall high. This is why I recommended selling all of your global stocks last week, or at the very lieast aggressively writing covered calls. The choice here is to sell all your stocks and book your substantial profits from the March 17 low, or to soften the blow with options strategies, including more call writing and index options. Sell in May and go away is sounding better every day.

May 12, 2008

Market Comments for May 12, 2008

1) The US now accounts for 24% of world GDP and the emerging markets 30%. Expect the US to shrink and emerging markets to grow substantially from here.

2) The USDA put out a very negative crop report due to poor weather during the planting season. Next year's corn harvest will hit a 13 year low. Corn hit a new high for the year of $6.30 and is probably on its way to $7.50 in the next few months. In the meantime, major producer Argentina has held up exports with a new punitive export tax. Also, expect soybeans to climb from $13.50 back to the year's high of $16.50 and maybe beyond.

3) A lot of talk about RIM's announcement of its IPhone buster, the 'Bold 9000'. This 3G Blackberry has double the resolution of the old model, will cost $399, and will only be available through AT&T. Sign me up! Apple is expected to announce its 3G IPhone in the next few weeks.

4) According to the senior loan officer survey, a lagging indicator, credit continues to tighten. According to credit spreads, a leading indicator, it is easing.

5) Arson always goes up in recessions as people try to burn their way out of bad investments. This time there is a new wrinkle. People are torching their large SUV's because they can't afford the payments or gas and can?t sell the vehicles. This is especially prevalent in California.

6) Fueling global oil demand is the fact that gas is still subsidized in many countries. Gas is $3.97/gal in India, $2.40/gal in China, and $0.19/gal in Venezuela. China?s Sinopet alone lost $3 billion on the subsidy last year. This is why oil imports rose 16% in China last year, but fell 8% YOY in January in California. Last month, energy demand in China and India combined, exceeded that in the US for the first time.

THOUGHT OF THE DAY

With crude at $126 and the Bush administration having shot its wad with the stimulus package, we now have to consider a double dip or 'W' scenario for the economy. This is why the rally failed at substantial technical resistance at the 200 day moving average of 1,430 in the S&P 500, which was also the 50% retracement level from the fall high. This is why I recommended selling all of your global stocks last week, or at the very lieast aggressively writing covered calls. The choice here is to sell all your stocks and book your substantial profits from the March 17 low, or to soften the blow with options strategies, including more call writing and index options. Sell in May and go away is sounding better every day.

May 9, 2008

Market Comments for May 9, 2008

1) Crude hits $126. Fact of the day: The US uses 25 barrels of crude per person per day, Europe 12, Japan 6, and China 1. Natural Gas hit $11.60, which I expected.

2) Google has become the oxygen of the Internet and is going from strength to strength. It has 70% of the US search market, but so far only 7% of the US advertising budget is being spent on the Internet, leaving plenty of room for growth. Its YouTube asset, which gets 130 million viewers a day, more than on a Super Bowl Sunday, hasn't even been integrated into its business model yet and has huge potential. I recommended the stock at $420 earlier this year and believe it could eventually hit $800.

3) According to the Fed outstanding commercial paper stands at $1.75 trillion, a two year low, indicating continuing credit concerns.

3) Bankruptcies in the US are up 49% YOY to 235/day.

4) Walmart earnings came in better than expected as consumers flock to low cost retailers at the expense of middle and upper tier ones. I recommended the stock at $46 in January. It is now up 24% and is approaching a four year high.

5) Both the ECB and the Bank of England left rates unchanged. While the ECB's Trichet may remain stubborn, the BOE is expected to cut rates by 25 bp, every other meeting, for the rest of the year for a total of 75 bp. Buy yen and sell the pound.

6) According to Business Week this recession is being borne entirely by men. Since November 700,000 men have lost jobs while 300,000 women have gained jobs. This may be because women work harder than men for less money and are generally nicer to be around.

7) China has just surpassed the US as the world's largest Internet user.

THOUGHT OF THE DAY

Ford may be the first US carmaker to emerge from the graveyard. They are taking the lead in introducing new hybrid models like the Escape SUV. In August it will introduce a version of its famed F-150 pick up truck that gets 60 mpg. They are doing what they can to pare legacy costs by cutting back the participation of unions and spinning off the health care liabilities of retirees. There may be a 50% move in the stock from here at $8. Raider Kirk Kirkorian thinks so, who has been a steady accumulator of the stock the last few months.

May 9, 2008

Market Comments for May 9, 2008

1) Crude hits $126. Fact of the day: The US uses 25 barrels of crude per person per day, Europe 12, Japan 6, and China 1. Natural Gas hit $11.60, which I expected.

2) Google has become the oxygen of the Internet and is going from strength to strength. It has 70% of the US search market, but so far only 7% of the US advertising budget is being spent on the Internet, leaving plenty of room for growth. Its YouTube asset, which gets 130 million viewers a day, more than on a Super Bowl Sunday, hasn't even been integrated into its business model yet and has huge potential. I recommended the stock at $420 earlier this year and believe it could eventually hit $800.

3) According to the Fed outstanding commercial paper stands at $1.75 trillion, a two year low, indicating continuing credit concerns.

3) Bankruptcies in the US are up 49% YOY to 235/day.

4) Walmart earnings came in better than expected as consumers flock to low cost retailers at the expense of middle and upper tier ones. I recommended the stock at $46 in January. It is now up 24% and is approaching a four year high.

5) Both the ECB and the Bank of England left rates unchanged. While the ECB's Trichet may remain stubborn, the BOE is expected to cut rates by 25 bp, every other meeting, for the rest of the year for a total of 75 bp. Buy yen and sell the pound.

6) According to Business Week this recession is being borne entirely by men. Since November 700,000 men have lost jobs while 300,000 women have gained jobs. This may be because women work harder than men for less money and are generally nicer to be around.

7) China has just surpassed the US as the world's largest Internet user.

THOUGHT OF THE DAY

Ford may be the first US carmaker to emerge from the graveyard. They are taking the lead in introducing new hybrid models like the Escape SUV. In August it will introduce a version of its famed F-150 pick up truck that gets 60 mpg. They are doing what they can to pare legacy costs by cutting back the participation of unions and spinning off the health care liabilities of retirees. There may be a 50% move in the stock from here at $8. Raider Kirk Kirkorian thinks so, who has been a steady accumulator of the stock the last few months.

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.

THOUGHT OF THE DAY

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.

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.

THOUGHT OF THE DAY

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.

May 7, 2008

Market Comments for May 7, 2008

1) Weekly crude inventories jumped 5.7 million barrels. Crude prices fell $1.50, then soared $3 to a new all time high of $123.80. Traders are gunning for $125 within the next week. This has become a one way bet. There is now so much excess oil in the system that storage facilities are running short. Tankers will soon have to start steaming in circles at sea because storage facilities at every part of the supply chain are full, as they have during past oil peaks. OPEC oil revenues are expected to increase from $664 billion in 2007 to $1 trillion this year.

2) Cisco came up with better than expected earnings. Their Asian sales came in hot, US sales eked out a small increase, while European sales came in very slow. It is becoming a predictable pattern. The stock rose to $27, up 10% from when I recommended it in March.

3) Toyota is bringing out the third generation Prius in 2009. The car will be four inches longer and the engine will grow from 1.5 to 1.8 liters. Thanks to a redesigned hybrid package it will also have better mileage. Incredibly, the car will keep the same base price of $21,000. Talk about giving the customer everything he wants! Toyota could get double that with gas on its way to $5/gallon. Clearly the hybrid market is something that Toyota wants to own. GM take note.

4) The National Association of Realtors says that March pending sales were down 20.1% YOY. They predict that prices will fall 2.4% this year. Don't tell that to home sellers in Stockton, California, the foreclosure capital of the US!

5) Sprint Nextel announced a joint venture with Comcast, Google, and Time Warner to build a Wimax network. Wimax will take your local hot spot at Starbucks and give it a 50 range. AT&T and Verizon are already building a competing network called LTE. This will be the Next Big Thing.

THOUGHT OF THE DAY

When we get a democratic president in January the war in Iraq will either be substantially wound down or ended. This will reduce what has been a major drag on the economy for the last six years. So far the war has burdened the US with $1 trillion in direct costs and another $1 trillion in indirect costs. This is one of the reasons that the US stock market has been the world's major under performer this decade. The S&P 500 index return since 2000 has been zero. Take the war away and US stocks will do better. Crude prices will also ease.

May 7, 2008

Market Comments for May 7, 2008

1) Weekly crude inventories jumped 5.7 million barrels. Crude prices fell $1.50, then soared $3 to a new all time high of $123.80. Traders are gunning for $125 within the next week. This has become a one way bet. There is now so much excess oil in the system that storage facilities are running short. Tankers will soon have to start steaming in circles at sea because storage facilities at every part of the supply chain are full, as they have during past oil peaks. OPEC oil revenues are expected to increase from $664 billion in 2007 to $1 trillion this year.

2) Cisco came up with better than expected earnings. Their Asian sales came in hot, US sales eked out a small increase, while European sales came in very slow. It is becoming a predictable pattern. The stock rose to $27, up 10% from when I recommended it in March.

3) Toyota is bringing out the third generation Prius in 2009. The car will be four inches longer and the engine will grow from 1.5 to 1.8 liters. Thanks to a redesigned hybrid package it will also have better mileage. Incredibly, the car will keep the same base price of $21,000. Talk about giving the customer everything he wants! Toyota could get double that with gas on its way to $5/gallon. Clearly the hybrid market is something that Toyota wants to own. GM take note.

4) The National Association of Realtors says that March pending sales were down 20.1% YOY. They predict that prices will fall 2.4% this year. Don't tell that to home sellers in Stockton, California, the foreclosure capital of the US!

5) Sprint Nextel announced a joint venture with Comcast, Google, and Time Warner to build a Wimax network. Wimax will take your local hot spot at Starbucks and give it a 50 range. AT&T and Verizon are already building a competing network called LTE. This will be the Next Big Thing.

THOUGHT OF THE DAY

When we get a democratic president in January the war in Iraq will either be substantially wound down or ended. This will reduce what has been a major drag on the economy for the last six years. So far the war has burdened the US with $1 trillion in direct costs and another $1 trillion in indirect costs. This is one of the reasons that the US stock market has been the world's major under performer this decade. The S&P 500 index return since 2000 has been zero. Take the war away and US stocks will do better. Crude prices will also ease.

May 6, 2008

Market Comments for May 6, 2008

1) Fannie Mae (FNM) announced large losses and plans to raise $6 billion in new equity. They expect serious losses in real estate loans to continue through 2009. More than 8 million homes in the US now have negative equity. At the peak of the housing market in 2005 houses were selling at a 60% premium to their construction cost. The market will have to give all of that premium up before it bottoms. When prospective home buyers see headlines like this they only participate at the most severely distressed prices.

2) Goldman Sachs (GS) put out a report saying that crude may see a super spike to $150-$200 over the next 6-24 months. Crude rose to $122.50. Unbelievable. Six months ago Goldman was saying that only a major geopolitical event like a war would cause a brief spike in crude to $120. Natural Gas, the value play in the energy area, hit a new post Katrina high of $11.45.

3) Las Vegas has seen gambling revenues drop 4% YOY, the first decline since 9/11. The Tropicana filed for bankruptcy.

3) Homebuilder DR Horton announced huge losses, a sales drop of 25%, and $800 million in inventory write downs. The stock is up 31% from where I recommended it in March.

4) $200 billion in new money is expected to flow into hedge funds in 2008, bringing the total under management up to $2 trillion.

5) April car sales fell off a cliff: Chrysler -30%, GM -23%, Ford -19%, Toyota???? ??-5%. Some dealers are now offering a year of free gas with new sales.

THOUGHT OF THE DAY

The market may stall here as all of the major indexes bump up against their 200 day moving averages and the market digests the implications of crude over $120. It is a great time to sell out of the money short dated calls and take in some premium income. For example, you can sell a May S&P 500 May 1450 call at $5, or 35 bp, which expires in 8 trading days. This is currently $30 out of the money. You can also sell the Goldman Sachs May 210 calls at $1, giving you an 8 day return of 50 bp. These are currently $13 out of the money. This is a great way to bring in incremental income in a stalled market and boost returns.