The beat goes on. Fueled by higher prices in the grain complex this week the 'Agra' related sectors continue to march into rarefied new high territory. Blow out earnings by Agrium which showed accelerating strength in all divisions added to the bullish momentum. The combination of persistent low interest rates, growing demand, and inclement weather factors have contributed to the stampede into the agriculture business. Up to this point the food processors and distributors have been willing to absorb the higher input costs - but at some point they will want/hope to pass the added burden onto consumers. Food inflation looks to be more of a short term issue for the emerging economies like Mexico, Egypt, and Asian jurisdictions who are very dependant on wheat, corn, and soy bean prices. The middle east tinderbox is very young, and hungry, and will be especially sensitive to higher costs considering relatively high unemployment levels and significantly dependant markets.
Looks like the newly minted Chinese Investment Company (CIC) office in Toronto sure isn't fooling around judging by it's recent mega purchase of half of a prolific shale gas project from Encana for an eye brow raising C$5.4b. I guess if your big enough it won't be long before your Chinese?
Gold and Silver continue to consolidate or distribute recent gains. It won't be long before we find out which it is. In spite of wide spread bullish sentiment crude oil remains contained in the $88-92 range. Natural Gas baffles the mind as it struggles to hold the psychological $4 level.
South of the border the American economy is beginning to percolate at an expanding 3.2% annualized rate -but significantly below potential capacity at this point of the business cycle. The American economy is running almost $1 trillion short of it's potential output. Although not entirely surprising considering much higher current healthy savings rate of over 5%. I am surprised that media outlets haven't made more hay out of the report late last Friday the the Fed wants to significantly and effectively reduce the dominant role of Fanny, Freddy, and the Federal Housing Authority in the $11 trillion mortgage market. It looks like the Fed is finally 'fed up' with the $150 b/yr that they pump into both of those basket cases. Definately very bullish real estate bottoming news in my opinion. Also a potentially explosive catalyst for the US economy.
Bottom Line: In spite of a significantly short term over bot condition in the TSE/DJIA/S&P indicies - look for equity markets continue to march to higher levels fueled by continuing low interest rates, massive liquidity levels, a very positive earnings season, and very healthy corporate balance sheets. Major beneficiaries will be those companies exposed to multi-national global opportunies and off shore growth. Higher interest rates will be a significant head wind at some point. In Canada we are in the midst of what looks like a very positive RSP season also. I was a tad surprised at the 'ho hum' shoulder shrug to the DJIA easily surpassing the major resistence level of 12,000. The S&P/TSX is within a whisker of the 'wild and wooly' 2007 levels of 14,000 and also refuses to correct significantly. Any selloff is of the low volume, shallow, and muted variety. The tidal wave of takeover money hardly gets a chance to be redeployed.
Looks like we have a very tough crowd out there to please? I am impressed. Not sure what the heck the markets have to do to cheer up people now a day?
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