July 22, 2008

Global Market Comments for July 22, 2008

1) Hurricane Dolly missed, so crude fell $4 to $126, while gas deflated $1 to $9.80. Bonds collapsed and stocks avoided a collapse.

2) American Express (AMP) reported Q2 profits down 38% as the consumer spending slowdown hits, taking the stock down 15% to $36. High end customers are reducing spending while formerly middle income earners are increasing delinquencies.

3) Apple (AAPL) disappointed with their guidance on Q3 gross margins, which are expected to fall from 34% to 30%. It turns out that the IPhone business is not as profitable as the computer business. The company is now offering a free IPOD with each Mac purchase in its back to school program for students. The stock cratered 11% to $149. Also, Steve Jobs was absent from the call, again raising health concerns about the aggressive founder. The high profile vegan recently recovered from normally fatal pancreatic cancer.

4) According to Noble prize winning economist Joseph Stiglitz, the war in Iraq has cost $800 billion so far. If you count indirect costs, like the lifetime support and medical expenses for tens of thousands of military amputees and the wearing out of a good portion of our military equipment, the bill comes to $1.8 trillion. Throw in the war premium in the price of crude and it rises to $3 trillion. Stiglitz is a real firebrand, but he is right.

5) The REIT Simon Property (SPG) now owns 10% of the malls in the US and 20% of the class 'A' malls. The stock has fallen 36% from $117 to $75 to a discount to book value. Add to your buy list for when the market turns.

6) If you are looking for a white knuckle vehicle to play foreign markets consider the Claymore Fund (BXP) which focuses on frontier markets like Nigeria, Uganda, Uzbekistan, and Vietnam. The range of this ETF over the past year has been $78 to $107. If you are not looking for the E-ticket ride, look at ETF SPDR S&P BRIC 40 (BIK), which only invests in the relatively more stable growth BRICs of Brazil, Russia, India, and China.

7) Moody's has downgraded the long term debt of Lehman (LEH). Less risk taking means much fewer future profits. They might as?? well call Moody?s ?Closing the Door After the Horses have Bolted, Inc.?

8) The average length of a postwar recession is 14 months. Putting on your rosiest set of glasses, and assuming the downturn started in January, and that crude soon plummets below $100, the earliest this recession will end is early 2009. It is more likely that the recession will go on to June, 2009 and that we won't see this in the data until September, 2009.