Hedge Fund Manager's Notebook: Why Hummers Are Greener Than Hybrids, and Tech & Homebuilders May Be a Buy

by: John Thomas August 28, 2008 | about stocks: XHB / XLK    

John Thomas

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1) Hurricane Gustav wavered, so crude fell $6 and natural gas plunged a mind blowing 10%, or 80 cents. Other commodities collapsed across the board and stocks took off.

2) Q2 GDP came in at a blistering 3.2%, almost double some forecasts. While the stimulus checks provided a minor assist, it was really all about the enormous boost being given the economy by international trade. Unfortunately, if you don’t sell routers in India, ship food or commodities to China, or sell crude products anywhere you were toast. When this market does recover there is no doubt it will be lead by companies with half or more of their income from overseas. Think big tech: Microsoft (MSFT), Intel (INTC), Oracle (ORCL), Hewlett Packard (HP), and Cisco (CSCO), or just buy a technology ETF (XLK).

3) If you want to minimize the impact your vehicle has on the environment buy a used Hummer. Building a new hybrid consumes the energy equivalent of 1,000 gallons of gasoline. The purchase of any used car uses no energy at all because it is already built. By the way, General Motors (GM) is close to selling its Hummer subsidiary to one of two Middle Eastern buyers. It only makes sense that the parties interested in buying the maker of the most inefficient fuel consuming vehicle on the planet would have unlimited access to gas at 25 cents a gallon.

4) It has been a great year for kings and queens (not the San Francisco kind). The richest monarch in the world, Thailand’s King Bhumibol of Thailand has seen his wealth grow to $35 billion, according to Forbes magazine. His family has owned most of downtown Bangkok for the last 226 years. He is followed by the sheik of Abu Dhabi, the King of Saudi Arabia, and the Sultan of Brunei (whose San Francisco home I bought cheap when crude was at $8). Queen Elizabeth came in at a relatively impoverished 12th on the list with only $650 million.

5) Put the home builders’ ETF (XHB) on your watch list. The chart may be making a double bottom at $12, down 75% from its 2005 high. I don’t care if they make widgets; double bottoms down 75% always pique my interest. Is the wisdom of crowds working here (see James Surowiecki)?

6) With the “official” inflation rate now at 4.5% and the 30 year yield at 4.5% the long bond futures contract (US) has to be a screaming short here. If everything goes perfectly and there is no inflation you break even on an inflation adjusted basis. If not then the contract will drop by half over the next three years. Take if seven point rally over the last month as a gift and fill your boots on the short side.

Full disclosure: no long or short positions in any stocks mentioned. This is not a solicitation to buy or sell securities.

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This article has 6 comments:

  •  
    Aug 28 02:03 PM
    I think you mean XHB.

    XLB is materials
    Reply | Link to Comment
  •  
    Aug 28 02:56 PM
    Thank you Dame Daxx! We've fixed it.
    Reply | Link to Comment
  •  
    Aug 29 08:46 AM
    John---Good post. Things are not as they seem sometimes. "Buy a Hummer and save fuel" Great!! And of course you are right.
    Reply | Link to Comment
  •  
    Aug 29 09:10 AM
    Only reason I would want to drive a Hummer over a Prius is if I had to drive in a hurricane.
    Reply | Link to Comment
  •  
    Aug 29 02:45 PM
    7)....Announcements from Japan, China on fiscal stumulus packages...could result in some nice short-run bull runs and a good profit-taking opportunity going long on the way up and short on the way back down to reality...

    By the way, T-Bird, are you a fellow T-Bird alum???
    Reply | Link to Comment
  •  
    Aug 29 04:36 PM
    Let's slow down on the "used Hummer is better than a new Prius" argument. First of all, the supply of used cars is not really affected by demand - you can't create more used Hummers by buying one. On the other hand, you can create more new Prius's by buying one (one TM manages to get production in line with demand - you can be sure they're working hard on that one). Also, in the long run, your purchase of a new Prius can create greater availability of used Prius's for those who can't afford a new car.

    Furthermore, 1,000 gallons of gasoline is not a huge savings compared the amount of gasoline you use over the life of a new car. Let's say someone drives 10,000 miles per year. If they're getting 10 mpg, they will use 1,000 gallons of gas. If they're getting 40 mpg, they will use 250 gallons of gas (saving 750). So the alleged "savings" of the Hummer will be cancelled out after a little over a year.

    You can make this argument more effectively by comparing a used conventional Honda Civic to a hybrid SUV. If anyone tells you that their hybrid SUV is environmentally friendly, please ignore everything they say in the future.
    Reply | Link to Comment
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