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.