Who would have thought that 2 short months ago a harmless & voiceless Tunisian fruit seller (Muhammad Bouazizi) - who after having his small stand ruthlessly expropriated would set himself on fire in despair - and thereby - set the entire Middle East ablaze? Talk about a major error in judgement by the Tunisian retail licencing bureau!
The people of the Middle East have long suffered the tyrannical rule of their 'non elected' dictators and self serving autocrats. From my distance perch it sure looks to be a major 'spring time' house cleaning with the people throughout the region finally regaining the voice, respect, and dignity they have long desired.
Ongoing stability concerns have given the equity markets an opportunity to finally sell off and take profits on the eve of the 2 year anniversary of the great bull rally rebound. Those companies which have substantial direct interest in the Middle East may be in for a longer term volatile rocky ride if hostilities and protests continue to escalate. There may also be a focus on other multinational companies which derive a substantial proportion of their cash flow from similar dodgy political jurisdictions. I wonders if ol' Hugo Chavez subscribes to my blog?
Most major indices have easily absorbed any 'nervous' selling so far and have barely budged from recent high territory. The TSX/S&P/DJIA have all taken a short term breather to consolidate their well established up trends. If a major meltdown in the Middle East is not sufficient to reverse these powerful trends then a return to all-time high territory is potentially in the offing - and perhaps before the Blue Jays are mathematically eliminated from playoff contention. A further consolidations in the 8 to 10% correction range would be both healthy and productive - but not expected. Sovereign debt concerns, US mortgage refinancings, and US debt ceiling negotiations have all but disappeared from media coverage for the time being. GM cranks out a better than expected earnings/profits ($510m 4th quarter and first full year profit since 2004) albeit through a much different company. Retailers continue a very strong profit reporting parade and may be vulnerable to a profit taking correction. The US financial system appears to be in amazingly fine shape. The historical low interest rate Fed policy has been a major boon to corporate balance sheets throughout the industrialized world. It sure makes for good business and happy shareholders.
In Canada it seems like all news is good news. The world wide commodity consumption surge continues to accrue major dividends. It is a trend that does not look to end any time soon and more than likely will accelerate unless supply issues are methodically addressed. Cdn Financials are reporting yet another banner earnings season (surprise) with chatter of dividend increases not far behind. With the exception of the lagging Royal Bank most issues are breaking into fresh recovery high territory. Senior gold stocks are also reporting outstanding earnings and are having a heck of a time trying to reinvest and redeploy the capital. Most other Cdn companies that ship things on boats are experiencing banner profits and much improved financial conditions.
On the commodity front gold is marking time in the low $1,400 area with most indicator readings neutral to positive. The 'first bloom of spring' Silver has taken matters into it's own hands to recover into 35 year high territory in the $33-4 range. $40 looks like a layup and probably before the Liberals get their first chance to hurl pre-election political mud. The gold-silver ratio has improved to the 42x range. The Canadian Dollar is cleanly breaking into new recovery territory and looks head quickly into the $1.05 range. The price of oil has hardly reacted to all the geo-political excitement and is only marginally higher since the beginning of the year. Brent Crude was over $100 before the protest movement took hold. What has been reported is a new high consumption of almost 88 m/bls/day and a 2010 total increase of almost 2.5% world wide. Oil supplies continue to be constrained (other than Cushing Oklahoma) and relentless emerging market demand. Any sell off in the commodity complex should be treated as buying opportunities. Pullbacks in senior gold, base metal, forestry, fertilizer, oil drilling, and integrated oil stocks should be accumulated for a seasonally strong spring cycle.
Bottom Line: The Middle East political 'Genie' is definitely out of the bottle. Good luck trying to get that rascal back in! Concerns and solutions about leadership, rule of law, and freedoms will be addressed over the longer term. Should oil supplies get significantly disrupted it will be quickly reflected at the pump. The US economy does not fire on all cylinders @ $5/gal unleaded and really does not need yet another financial challenge. Agra soft commodity markets are also in very tight supply balance. Look for continued leadership in these and related areas throughout the spring and summer. North American mutual fund sales have accelerated considerably and will represent a higher 'octane' increase fueling further market advances. Domestically we are looking at an election before long with indications of a PC majority. South of the border the time line nears for a settlement for the ever extended/bloated debt ceiling and the major mortgage refinancing monster. If the Fed types can pull those two rabbits out of their hats a very warm and fuzzy feeling may sweep over the huddled masses. Asian and other emerging markets are in much better relative financial condition and have dealt responsibly with interest rate policy and growth/inflation issues. The 'Tiger's' will continue to represent the lion's share of world wide growth for the foreseeable future. If the Leaf's make the playoffs - anything is possible!
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