July 16, 2008

Global Market Comments for July 16, 2008

1) Weekly Crude inventories jumped 3 million barrels on the back of rapid demand destruction, sending crude down $7 to $132. We have dropped $16 since last week’s high. If we can break $129 look for another rapid $10 drop to $119. This bubble may have burst. The airline index had its largest up day ever. United Airlines (UAUA) was up 40%. See my earlier recommendation to buy UAUA. The Dow rose 276.

2) The great opportunity presented by market conditions like this is that the best companies are being tossed out with the worst. Cisco (CSCO) has a 50% share of the router market, has $19 billion in cash, and at $21/share is selling at a 12.5 multiple, the lowest since it went public in 1990. This is the closest you can get to a legal monopoly. Just the interest that the company is earning on its cash is more than many companies are making right now.

3) The lack of leadership from Washington now is so palpable that you could say that Bush is imitating Nero, playing the fiddle while Rome burns. Except that Bush doesn’t know how to play the fiddle. Maybe a mouth harp.

4) Fannie Mae (FNM) and Freddie Mac (FRE) supply liquidity to about 75% of the mortgages in the country. Bank of America, Wells Fargo and a few others supply the rest. This is not a small problem.

5) Look at http://sendables.jibjab.com/ and click the green play arrow on Election 2008. It is hilarious.

6) Wells Fargo (WFC) earnings for Q2 came in at 53 cents/share vs. an expected 50 cents/share. This is one of the few solid banks out there and along with US Bank is a favorite of Warren Buffet. The stock soared 38% to $27.50. Rare good news from a financial. The bank index had its largest up day in history.

7) The Wall Street Journal is raising its newsstand price from $1.50 to $2.00. Inflation is here. Apparently Rupert Murdoch needs some help with the fuel bill on his Gulfstream.