Since mid summer (2010) most key equity and commodity markets have rallied strongly (20-30%) - following a 3 to 4 month consolidation period - April 2010 to July 2010.
Equity markets had rallied a spectacular 50% from April 2009 to April 2010 in the largest rally ever recorded in a single annual period - all in the face of very negative, deteriorating, and fearful economic circumstances. The 'Wall of Worry' had been beautifully and methodically scaled!
Since the beginning of 2011 geo-political conditions have sensationally unraveled throughout much of the world. Everything I can think of has been thrown in front of this astonishing bull market and then some - including the proverbial kitchen sink. Japan has now almost become a fully discounted afterthought - a full 3 weeks after their heart breaking Armageddon. Almost anything that happens now in the Middle East hardly raises a 'road rage eyebrow' in money flow traffic. The current rehashing of European sovereign currency and credit issues hardly raises the pulse of hardened bond and foreign exchange types. Anything less that 9.0 on the Richter scale is considered mere indigestion. It sure is going to take a lot to create any kind of excitement or panic after what we've been through.
To say equity and commodity markets have absorbed, consolidated, and held up well during this chaotic period may be the understatement of the year. It is now becoming very obvious that there is plenty of liquidity 'sloshing' around in low or negative return accounts - and is enviously and anxiously looking for a loving 'higher return' home to call their very own. The trebling of the US monetary base since 2008 sure has had it's full and expected effect. We are reminded of the old adage that 'a bull market never ends until the last dollar is spent.'
The most recent February sell off had been contained to a normal & mild, low volume, 5% affair - thereby effectively working off a very overbought condition. The key support levels (DJIA 12,000, TSX 14,000, and S&P 1,300) were fractionally violated probably because of nervous triggered stop-loss activity. Those key indices have quickly been bought up and are on the threshold of recording new recovery all time highs. The recent 2 to 3 month shallow consolidation (3rd since 2008) is setting up what looks to be a very exciting, colorful, and very volatile spring house cleaning. Many important valuation indicators are at statistically normal & fairly valued levels. A few sub indices are over bought, and a tad over valued, and they include materials, energy, consumer staples, telecom services, and health care - but more than likely they will continue to provide critical market leadership.
Most key markets indices are now within a 'relative' eye lash of the historic 'highly levered' all time high territory of 2007-08. The economic 'Fear of God' has substantially dissipated from front page newspaper coverage and investment psyche. Multi-billion dollar debt takeover and merger activity has returned with a vengeance and is now almost an hourly process. A few selected Tech IPO's are even opening 100+% higher on their first day of trading. It is almost impossible to wipe the smiles off Investment Bankers and M&A lawyers faces.
In the US, the dirty dollar and hapless housing continues to be the unloved and unwanted whipping boys du jour! W Buffet is the latest in a long line of impressive financial guru's to warn of 'staying the hell away' from long term bonds. Municipal bonds are either the best or worst opportunities ever. Total tax receipts at the state and local levels have just broken into all time high territory despite apparently being bankrupt? The black hole called 'residential housing' appears to be bottomless in spite of never have been cheaper to the 'average' American and on a square foot basis. Key metrics of rapidly improving labor conditions, lusty corporate profit and earnings pictures, and a key commitment to improving critical corporate capital expenditures are all clear indications of a healthy business expansion. The DJIA is currently at a fair valuation of 16x price to earnings and debt levels have never been better.
In Canada the 'election nobody wants' has officially been called. It is the 4th billion dollar affair called in the last 7 years. Hopefully somebody wins a majority this time around because I'm not sure we can take much more of this 'musical chairs' syndrome. Perhaps a no holds barred 'steel cage match' might be the best way to settle it once and for all. Somehow Valeant Pharmaceuticals International (formerly Biovail) has found US$5.7 billion to take a run a fellow drug maker Cephalon? The frozen debt markets have thawed. RIM reported and unfortunately guided slightly lower which crushed the stock. RIM stock at 8x's earnings appears to be enticingly cheap but they sure have their hands full with the Apple and Google gangs which have invaded their turf! Lundin broke off merger talks with Inmet and appears to have put themselves into play to the highest bidder. The heavily weighted financial stocks have raised dividends and have rallied into new record high territory as expected. The Canadian dollar has new all time highs written all over it. With the pending May 2 election the bank rate looks to remain stable until the dog days of summer.
The commodity sector, like the equity markets, have also consolidated their largess impressively. Gold has held the key $1,400 level in spite of fund liquidation, threat of higher interest rates, and a slight decline in open interest. US$38/oz Silver did not hit US$40 by 'Opening Day' as I expected - and perhaps is waiting for the beginning of the Stanley Cup Playoffs. Crude Oil has broken out on a weekly basis with a near term measurement of US$110+/bbl. Natural Gas is nicely positioned for a 20+% rally to the US$5.50/mcf level before the first air conditioner is switched on. Key USDA planting figures are soon to be released followed by new life of the contract highs for most soft commodities. Looks like yet another great season for our hay seed farmer friends.
Bottom Line: I'm not sure I can be more impressed with how both the commodity and equity (and even bond) markets have absorbed and digested the variety of 'end of world' scenarios which have recently unfolded. QE I & II have obviously been the 'snake oil elixer which had healed all that ails us.' There is even talk of ending that notorious 'life support system' program a month early, and $100b less, because it has been so successful. Who would have thought it was so easy? It may suggest that financial markets are returning to 'normalized' conditions which may be effected by regular seasonal patterns and quarterly cyclical factors once again.
Eventually the relentless central bank monetization, the hyper accommodating interest rate structure & rising commodity prices we have experienced will all be passed through the system. We will indeed experience a nasty snoot full of damaging inflation at some point - but likely later than sooner.
I remain cautiously bullish (but very impressed) and maintain stop levels of DJIA 12k, TSX 14k and S&P 1,300. Gold US$1,400 , Silver US$34, Crude Oil US$100, and Copper US$4.10, are short term levels to be respected.
Keep your hands on the wheel, eyes on the road, and most importantly stay buckled up! We may be 'off road' and into uncharted territory before long!
Thursday, March 31, 2011
Wednesday, March 23, 2011
Week Ending March 25/2011 - Resilience
We sure do live in interesting times. I'm not sure that we can squeeze more earth shattering geo-political experiences into one single month - but perhaps I should wait a bit just to be sure.
The media outlets are having a field day trying to decide which ambulance to chase next. Definitely a great time NOT to be a politician! Even potential Leaf playoff excitement has even taken a back seat.
There are so many spectacular events to discuss that it is hard to know where to begin - but it hardly matters.
The Japanese catastrophic triple whammy media spotlight lasted the standard 48 hour attention span before intensifying conflicts in the Middle East retook center stage. 'Spectator in Chief ' & Nobel Peace Prize winner President B.H. Obama unilaterally thrust himself into the octagon for Arabian Showdown Round #3 flattening Libyan air defense systems - and thereby simultaneously stimulating potential defense contractor production throughout the 'free' world. The US has certainly become the glutton for 'doling out' punishment to the non Christian types. With currently almost 40% of every budgetary dollar being borrowed let's hope the multi-trillion dollar peace 'investment' initiative is worth it.
Heavily indebted thunderstruck Japan faces close to a crippling half a trillion dollars in reconstruction and rehabilitation repair costs. An all time record cost for any natural disaster for those who keep track of such milestones. Their 40 year old Quad nuclear reactor systems faced the ultimate test - and thankfully has survived to this point thereby avoiding a certain environmental Armageddon. Hopefully all safety standards will pass the test and thereby reduce the Green Peace rhetoric in the process. The fine people of Japan have redefined the definition of stoicism and emotional forbearance throughout their tragic mind boggling ordeal.
World equity markets also have been equally as resilient enduring & absorbing any 'panic' selling , shorting, or black box program algorithmic liquidation. The Nikkei (Japan) tested and held 9,000 as was needed in order to avoid a different kind of 'meltdown.' TSX, S&P, and DJI averages temporarily broke key support levels but quickly recovered and returned like the 'Miracle of the Swallows of Capistrano' - and back into 'quasi' bullish mode. Coincidentally it is on March 19th of each year that the Swallows return to Mission San Juan Capistrano in California - St. Joseph's Day. TSX (14,000), S&P (1,300), and DJIA (12,000) are significant levels that must be held and maintained. Long above - flat or short below to make it easy. VIX numbers are volatile but in a muted fairly low range bound subdued level.
Overall economic conditions in the USA are rapidly improving - and not a second too soon. Household balance sheets are improving, financial burdens (mortgage and credit) continue to ease, momentum is seen in manufacturing, profits margins have returned to record levels, and employment statistics are very encouraging. The Fed's commitment of buying $600b of Treasuries (QEII) which began in November ends at the beginning of July. The hope is that sufficient 'stimulus' has been added to the system until the 'real economy' kicks in and gets rolling. All fingers are crossed and breath is baited.
Gloomy record low new home sales continue to be announced - but US homes have never been more affordable. Interestingly rental vacancy rates are dropping and rental costs are increasing. The average new home goes for a paltry $202k and resales $156k - very low risk once in a life time bargains that finally puts the G.W.Bush American dream of home ownership within the reach of all. Ironically house prices are at 9 year lows - the time at which good old 'W' fired up the mortgage market!
More significantly is the 'structurally' weak US dollar which is quickly becoming an irrelevant financial instrument. Stunning geo-political events hardly created a bullish ripple in the once ultimate 'safe haven' massive currency pond - especially significant considering investors have been exceedingly bearish (80%+) for months. Currently the US$ hovers fractionally above key long term support lines and uncomfortably close to potential accelerated selling levels. There appears to be more 'intervention' for a lower US$ than there is for a lower Japanese Yen. A long term chronically weak currency could soon be a reality that the US monetary authorities wished they didn't make!
Gold and Silver have taken the cue and have quickly rebounded into very bullish new recovery high territory. Gen. Muammar Qaddafi looks to be a reluctant seller of his multi-billion dollar gold reserve 'nest egg' in order to meet payroll. I wonder what his average cost was? Significant and serious Portuguese financial issues are currently being added to the bullish mix. Gold miners continue to show significant and increasing earnings trends but significantly lag the underlying price of gold bullion - especially the senior companies. $40US/oz Silver by 'opening day' and the 'first crack of the bat' appears to be a 'March Madness' slam dunk. The few publically listed silver producing companies are also poised for huge earnings gains and major capital gain potential. It is impossible not to be bullish on hard assets - 'cause I've tried and it didn't work! We are reminded that it was J. Piermont Morgan who over 100 years ago said that, 'Gold and Silver are money. Everything else is credit.' Talk about a wise man being right!
Nuclear alternatives Coal and Natural Gas are also showing considerable event driven strength. The ultimate unloved 'low life laggard' Natural Gas has rallied almost 20% in just over a week but remains almost 50% BELOW full cycle break even cost! Encana of Canada agrees to acquire a 30% interest in the massive planned Kitimat (BC) liquefied natural gas production facility and export terminal from Apache and EOG with a potential enormous production of more than 7 Bcf/d. Encana has positively broken out to new weekly high levels on the chart. The related drillers look even better. The NG dog is finally having it's day! Metallurgical coal is going to jump from $225 to $325 per tonne when current contracts expire. Thermal coal is close to a record high at $130 per tonne.
Accelerating Middle East tensions could put the cost of a barrel of Texas Tea - Black Gold as high as $110/Bbl in the near term. New oil demand is outpacing new supply by a lusty 400%. Draw downs from 'crisis averting' strategic petroleum reserves are being discussed throughout the world. Copper can easily run as high as $5+/lb should the $4.50/lb high level be violated. Very little significant new copper production is scheduled to come on stream in the intermediate term. Aluminum will continue to garner attention and momentum through the spring cycle. Soft commodities continue to consolidate longer term gains and appear set for a solid seasonal rally and potentially toward multi-year new high territory. The recession in the US Mid West farming community is definitely over!
In Canada a fairly run-of-the mill vote buying budget was announced on Tuesday much to the irrational consternation of the fearless opposition parties. Quebec was mortified to be hardly mentioned. A spring election is in the offing with the early morning Las Vegas line calling for a slight Conservative majority. Interest rate increases by the Bank of Canada have now been extended from May to July because of democratic due process. Hot button issue TSX-LSE merger has been strategically shelved and muted.
RIM is taking orders for it's new snazzy notepad entry - Playbook. Geek types are currently testing and analyzing the specs and bells and whistles. RIM hopes to regain it's MoJo. Dozens of competing pads will soon be announced in what will be a very large but crowded space. The unit price under-cutting will be ferocious. Innovation giant Apple got a great 15m unit head start on the field and is the team to beat. RIM announces earnings Thursday at the close and the expectation is for a 30%+ increase over last quarter. Goldman Sachs is advising clients to buy RIM put spreads to position for negative or disappointing earnings/guidance. The Goldman lads have a fairly good track record if I recall.
Canadian Banks are moving relentlessly into new all time high territory from the euphoria of increasing dividends and bloated balance sheets. Seasonally the TSX enters a period of strength for resource and commodity issues. The TSX-Venture exchange appears to have fully digested and corrected the normal PDA Convention euphoria and should track higher. Many companies are flush with cash, no/low debt levels, have promising projects, and have images of sugar plums dancing in their heads.
Bottom Line: The teachers at school sure must have really interesting 'current events' presentations from their students now a day. Equity markets have absorbed world wide negative developments admirably to this point and deserve the benefit of the doubt. It is impossible not to be as nervous as a cat in a room full of rocking chairs - but - corporate balance sheets have never looked better, earnings momentum is very positive, and fresh liquidity continues to be printed as the smoke hovers over the Fukushima Daiichi nuclear reactors.
I remain cautiously bullishly short term based on improving market fundamentals and positive tape action but would not like to see the key slightly lower aforementioned support levels meaningfully violated. Keep your stops tight or keep your hands in your pockets. Resources are in a long term major super cycle and will continue to reach higher levels whether the world is ending or not.
For those anticipating escalating tensions in the Middle East - and dropping ammunition levels - these are the top 5 defense contractors according to sales to the US government ($27b to $10b) and which are all very close to new recovery high territory : Lockheed Martin (LMT), Boeing (BA), Northrop Grumman (NOC), General Dynamics (GD), and Ratheon (RTN). In the words of Col. Jessep (A Few Good Men) : 'Walk softly and carry an armored tank division,I always say.'
Also for the rest of us Nervous Nellie's, CNN money has just reported that sales of luxury doomsday bunkers ($200k-$20m) have risen 1000% in the USA and manufacturers can't keep up with 'skyrocketting' demand. Chic state of the art luxury units can shelter up to 100 persons protecting beloved in-laws and next door drinking buddies. I wonder if there are time share programs available?
The media outlets are having a field day trying to decide which ambulance to chase next. Definitely a great time NOT to be a politician! Even potential Leaf playoff excitement has even taken a back seat.
There are so many spectacular events to discuss that it is hard to know where to begin - but it hardly matters.
The Japanese catastrophic triple whammy media spotlight lasted the standard 48 hour attention span before intensifying conflicts in the Middle East retook center stage. 'Spectator in Chief ' & Nobel Peace Prize winner President B.H. Obama unilaterally thrust himself into the octagon for Arabian Showdown Round #3 flattening Libyan air defense systems - and thereby simultaneously stimulating potential defense contractor production throughout the 'free' world. The US has certainly become the glutton for 'doling out' punishment to the non Christian types. With currently almost 40% of every budgetary dollar being borrowed let's hope the multi-trillion dollar peace 'investment' initiative is worth it.
Heavily indebted thunderstruck Japan faces close to a crippling half a trillion dollars in reconstruction and rehabilitation repair costs. An all time record cost for any natural disaster for those who keep track of such milestones. Their 40 year old Quad nuclear reactor systems faced the ultimate test - and thankfully has survived to this point thereby avoiding a certain environmental Armageddon. Hopefully all safety standards will pass the test and thereby reduce the Green Peace rhetoric in the process. The fine people of Japan have redefined the definition of stoicism and emotional forbearance throughout their tragic mind boggling ordeal.
World equity markets also have been equally as resilient enduring & absorbing any 'panic' selling , shorting, or black box program algorithmic liquidation. The Nikkei (Japan) tested and held 9,000 as was needed in order to avoid a different kind of 'meltdown.' TSX, S&P, and DJI averages temporarily broke key support levels but quickly recovered and returned like the 'Miracle of the Swallows of Capistrano' - and back into 'quasi' bullish mode. Coincidentally it is on March 19th of each year that the Swallows return to Mission San Juan Capistrano in California - St. Joseph's Day. TSX (14,000), S&P (1,300), and DJIA (12,000) are significant levels that must be held and maintained. Long above - flat or short below to make it easy. VIX numbers are volatile but in a muted fairly low range bound subdued level.
Overall economic conditions in the USA are rapidly improving - and not a second too soon. Household balance sheets are improving, financial burdens (mortgage and credit) continue to ease, momentum is seen in manufacturing, profits margins have returned to record levels, and employment statistics are very encouraging. The Fed's commitment of buying $600b of Treasuries (QEII) which began in November ends at the beginning of July. The hope is that sufficient 'stimulus' has been added to the system until the 'real economy' kicks in and gets rolling. All fingers are crossed and breath is baited.
Gloomy record low new home sales continue to be announced - but US homes have never been more affordable. Interestingly rental vacancy rates are dropping and rental costs are increasing. The average new home goes for a paltry $202k and resales $156k - very low risk once in a life time bargains that finally puts the G.W.Bush American dream of home ownership within the reach of all. Ironically house prices are at 9 year lows - the time at which good old 'W' fired up the mortgage market!
More significantly is the 'structurally' weak US dollar which is quickly becoming an irrelevant financial instrument. Stunning geo-political events hardly created a bullish ripple in the once ultimate 'safe haven' massive currency pond - especially significant considering investors have been exceedingly bearish (80%+) for months. Currently the US$ hovers fractionally above key long term support lines and uncomfortably close to potential accelerated selling levels. There appears to be more 'intervention' for a lower US$ than there is for a lower Japanese Yen. A long term chronically weak currency could soon be a reality that the US monetary authorities wished they didn't make!
Gold and Silver have taken the cue and have quickly rebounded into very bullish new recovery high territory. Gen. Muammar Qaddafi looks to be a reluctant seller of his multi-billion dollar gold reserve 'nest egg' in order to meet payroll. I wonder what his average cost was? Significant and serious Portuguese financial issues are currently being added to the bullish mix. Gold miners continue to show significant and increasing earnings trends but significantly lag the underlying price of gold bullion - especially the senior companies. $40US/oz Silver by 'opening day' and the 'first crack of the bat' appears to be a 'March Madness' slam dunk. The few publically listed silver producing companies are also poised for huge earnings gains and major capital gain potential. It is impossible not to be bullish on hard assets - 'cause I've tried and it didn't work! We are reminded that it was J. Piermont Morgan who over 100 years ago said that, 'Gold and Silver are money. Everything else is credit.' Talk about a wise man being right!
Nuclear alternatives Coal and Natural Gas are also showing considerable event driven strength. The ultimate unloved 'low life laggard' Natural Gas has rallied almost 20% in just over a week but remains almost 50% BELOW full cycle break even cost! Encana of Canada agrees to acquire a 30% interest in the massive planned Kitimat (BC) liquefied natural gas production facility and export terminal from Apache and EOG with a potential enormous production of more than 7 Bcf/d. Encana has positively broken out to new weekly high levels on the chart. The related drillers look even better. The NG dog is finally having it's day! Metallurgical coal is going to jump from $225 to $325 per tonne when current contracts expire. Thermal coal is close to a record high at $130 per tonne.
Accelerating Middle East tensions could put the cost of a barrel of Texas Tea - Black Gold as high as $110/Bbl in the near term. New oil demand is outpacing new supply by a lusty 400%. Draw downs from 'crisis averting' strategic petroleum reserves are being discussed throughout the world. Copper can easily run as high as $5+/lb should the $4.50/lb high level be violated. Very little significant new copper production is scheduled to come on stream in the intermediate term. Aluminum will continue to garner attention and momentum through the spring cycle. Soft commodities continue to consolidate longer term gains and appear set for a solid seasonal rally and potentially toward multi-year new high territory. The recession in the US Mid West farming community is definitely over!
In Canada a fairly run-of-the mill vote buying budget was announced on Tuesday much to the irrational consternation of the fearless opposition parties. Quebec was mortified to be hardly mentioned. A spring election is in the offing with the early morning Las Vegas line calling for a slight Conservative majority. Interest rate increases by the Bank of Canada have now been extended from May to July because of democratic due process. Hot button issue TSX-LSE merger has been strategically shelved and muted.
RIM is taking orders for it's new snazzy notepad entry - Playbook. Geek types are currently testing and analyzing the specs and bells and whistles. RIM hopes to regain it's MoJo. Dozens of competing pads will soon be announced in what will be a very large but crowded space. The unit price under-cutting will be ferocious. Innovation giant Apple got a great 15m unit head start on the field and is the team to beat. RIM announces earnings Thursday at the close and the expectation is for a 30%+ increase over last quarter. Goldman Sachs is advising clients to buy RIM put spreads to position for negative or disappointing earnings/guidance. The Goldman lads have a fairly good track record if I recall.
Canadian Banks are moving relentlessly into new all time high territory from the euphoria of increasing dividends and bloated balance sheets. Seasonally the TSX enters a period of strength for resource and commodity issues. The TSX-Venture exchange appears to have fully digested and corrected the normal PDA Convention euphoria and should track higher. Many companies are flush with cash, no/low debt levels, have promising projects, and have images of sugar plums dancing in their heads.
Bottom Line: The teachers at school sure must have really interesting 'current events' presentations from their students now a day. Equity markets have absorbed world wide negative developments admirably to this point and deserve the benefit of the doubt. It is impossible not to be as nervous as a cat in a room full of rocking chairs - but - corporate balance sheets have never looked better, earnings momentum is very positive, and fresh liquidity continues to be printed as the smoke hovers over the Fukushima Daiichi nuclear reactors.
I remain cautiously bullishly short term based on improving market fundamentals and positive tape action but would not like to see the key slightly lower aforementioned support levels meaningfully violated. Keep your stops tight or keep your hands in your pockets. Resources are in a long term major super cycle and will continue to reach higher levels whether the world is ending or not.
For those anticipating escalating tensions in the Middle East - and dropping ammunition levels - these are the top 5 defense contractors according to sales to the US government ($27b to $10b) and which are all very close to new recovery high territory : Lockheed Martin (LMT), Boeing (BA), Northrop Grumman (NOC), General Dynamics (GD), and Ratheon (RTN). In the words of Col. Jessep (A Few Good Men) : 'Walk softly and carry an armored tank division,I always say.'
Also for the rest of us Nervous Nellie's, CNN money has just reported that sales of luxury doomsday bunkers ($200k-$20m) have risen 1000% in the USA and manufacturers can't keep up with 'skyrocketting' demand. Chic state of the art luxury units can shelter up to 100 persons protecting beloved in-laws and next door drinking buddies. I wonder if there are time share programs available?
Thursday, March 17, 2011
Week Ending March 18/2011 - Game Changer?
I was wondering what it was going to take to derail over bought world markets as they headed relentlessly in tandem towards new record high territory? And who would have thought it was possible to add yet another mind numbing geo-political head wind variable to the slew of potential land mines that already existed? Surely the gut wrenching Japanese tragedy trilogy has to be the high water mark - no pun intended! There has been a couple 'after-shocks' already that were bigger than Haiti! The Middle East conflict has temporarily taken a back seat but continues to roil. A number of pre-earthquake back-to-back outside volatility days was the precursor of a major move. Talk about March Madness!
The DJIA sat at a shade over 12,000 and a snick under a 'rolling over' 5-20 dma before the wrath of Mother Nature unleashed her fury on a vulnerable and relatively unprepared Japanese sea coast. As if a 9.0 earthquake was not nearly enough - minutes later a 10-20 meter Tsunami traveling at approximately the speed of an airliner traveled up to 6.5 kms inland and effectively wiped the slate clean. Kobe was a walk in the park compared to this monster.
Without a functioning electrical grid the multi-reactor nuclear facility was instantly brought to it's knees. And of course just to compound the fracture freezing temperatures and snow soon followed. Currently the world is holding it's collective breath hoping that it's not a sign of an early nuclear winter!
That is an impossible act to follow. Japan which accounts for almost 6% of the world economy has to be in a collective state of shock. The very impressive strength, character, and resolve that the Japanese people have shown is equally as astonishing.
However, that did not prevent the Nikkei from quickly peeling off 17% before finding support. The BOJ in the interim quickly added $350b to it's monetary system which is only about 20% of the US annual fiscal deficit. Commodity markets contracted 5-7% quickly and the price of oil submerged under triple digits for the first time in months.
Most key markets have also given up impressive gains for the year and currently hover around the Dec 31/10 level. Current major indexes are down only 3-8% from recent pre-earthquake highs. Sadly Japan and the Nikkei was building decent gains since Jan 1st and on the verge of breaking out through the key 11,400 level before life completely changed. Currently the Nikkei 225 stands at the critical 9,000 level and must hold - as must their reactors hold! My heart goes out to all those fine folks!
I wish I was sharp enough to know what all this means to the big picture of world wide growth, expansion, and emerging market momentum.
What I do know is that the Yen is at multi-decade highs against the US$ because of obvious short term repatriation requirements. The dollar is less than one yen away from the historic trough of 79.75 yen reached in 1995. An improving Japanese export sector is delivered yet another body blow.
Japan the world's current #3 economy will now be a substantial net borrower to fund the massive rebuilding process - and put yet another upward pressure on interest rates. Japan holds about 10% of the total amount of US Treasuries (currently equal to China) and is a major purchasing factor for weekly Fed issues. More than likely the BOJ will be sellers of treasuries and not critical buyers in the foreseeable future. Japan is also still a major banking factor for the world wide speculative 'carry trade' financing market.
The afflicted north east coast region makes up about 8-12% of the total Japanese GDP. From the stunning pictures nothing is 'temporary' about what happened and more than likely the cleanup and restoration will take decades - assuming we are not looking at worst case meltdown scenario. Currently heroic exposed workers are feverishly trying to prevent that reality. Tremendous hard ship does indeed bring the very best out in people.
Domestically negative gloomy numbers are being reported for US housing starts (down 23% in Feb - just above the Apr 2009 low) combined with very positive all-time high housing affordability statistics. Falling housing prices (40% nationwide) combined the medium income of $62k allows a family to have almost twice the income needed to qualify for a 30yr fixed rate mortgage to purchase a median priced single family dwelling of $160k assuming 20% down. Never has housing been this inexpensive. Sounds like housing bottoming stats to me in spite of the relatively high inventory numbers.
Very positive corporate earnings continue to roll out in almost all sectors. Help wanted signs for welders, carpenters, plumbers, and the like are starting to sprout up like the first bloom of spring. The most recent Philly Fed Survey reading is the highest since Jan 1984. In the week ending March 12 unemployment claims are down 4% from the previous week and the start of what will be a long term trend. The DJIA cracked the important 12,000 support/resistance level down 5% from recent high territory. Intermediate support comes in around 11,400 (200 dma) and longer term strength in the 10,750 to 11,000 level.
In Canada the spring election drums are beginning to beat. I'm calling for a small PC majority and carte blanche for major positive structural monetary and fiscal change. We definately deserve a major tax holiday in Canada. Sensational earnings continue to be released in most sectors. Yoga wear favorite Lululemon Athletica shattered upside expectations registering an almost 100% increase quarter over quarter from .40 to .72 cents - a very encouraging sign for curvy figures come the summer beach season. RIM is on the verge of unveiling what hopefully will be a geek's dream come true with Playbook and a frontal assault on Apple's/Google's market share. The TSX-LSE merger saga continues to be played out by those who have the most self interest. Japanese Armageddon has temporarily cooled down the blizzard of resource deal making and financings. Housing re-sales dropped fractionally but prices rose once again higher into nose bleed territory.
Key commodity markets are reluctantly giving up gains and are registering only fractional losses from recent high territory. Gold and metals stocks make up less than 1% of the NYSE and a clear indication that the sector has a long way to go on the upside. Silver has dropped $2 from the $36 level and would find significant support at the $30 level. Key rebuilding components copper, lead, lumber, and zinc look to quickly register new highs before long. The US Bond market has been a beneficiary of the recent Japanese tragedy being the destination for panic funds - a safe harbor. Upcoming housing mortgage rollovers, end of QEII, debt ceiling negotiations, and the unwinding of Freddy and Fanny Mac all have the potential of reversing that trend quickly. Soft commodities quickly sold off up to 7% (wheat and sugar) without a rising US$ - and have stabilized and are consolidating for further spring time gains.
Bottom Line: Talk about geo-political statistical over load. In times like these one is best served by technical analysis and interpretation. Psychology has taken over markets to say the least. VIX numbers quickly spiked but at figures well below the recent soverign debt crisis and sub-prime fiasco numbers of a few years back. I am sticking to a neutral position for the DJIA sub 12,000 and TSX sub 14,000. Gold must hold $1,400 and has done such to this point. Oil is gyrating at the $100 bbl level and would be a low risk entry point in the high $80 - low $90 level.
The fundamentals and economics of rising world wide consumption levels will probable not change and will continue to put pressure on supply. Uranium generated electricity and energy is here to stay. This time next year world wide crude oil consumption will be another 3% higher into record territory again. Liquidity levels are exceedingly friendly and corporate balance sheets are in the best condition since I've been in the business - just a few short years ago!
Keep your powder dry looking for tradable entry points on the downside. I normally don't like 'averaging' a trading position but this may be a good time. A quick rebound & return through recent highs would indeed take my breath away. I am braced for anything.
Pray for the people of Japan!
The DJIA sat at a shade over 12,000 and a snick under a 'rolling over' 5-20 dma before the wrath of Mother Nature unleashed her fury on a vulnerable and relatively unprepared Japanese sea coast. As if a 9.0 earthquake was not nearly enough - minutes later a 10-20 meter Tsunami traveling at approximately the speed of an airliner traveled up to 6.5 kms inland and effectively wiped the slate clean. Kobe was a walk in the park compared to this monster.
Without a functioning electrical grid the multi-reactor nuclear facility was instantly brought to it's knees. And of course just to compound the fracture freezing temperatures and snow soon followed. Currently the world is holding it's collective breath hoping that it's not a sign of an early nuclear winter!
That is an impossible act to follow. Japan which accounts for almost 6% of the world economy has to be in a collective state of shock. The very impressive strength, character, and resolve that the Japanese people have shown is equally as astonishing.
However, that did not prevent the Nikkei from quickly peeling off 17% before finding support. The BOJ in the interim quickly added $350b to it's monetary system which is only about 20% of the US annual fiscal deficit. Commodity markets contracted 5-7% quickly and the price of oil submerged under triple digits for the first time in months.
Most key markets have also given up impressive gains for the year and currently hover around the Dec 31/10 level. Current major indexes are down only 3-8% from recent pre-earthquake highs. Sadly Japan and the Nikkei was building decent gains since Jan 1st and on the verge of breaking out through the key 11,400 level before life completely changed. Currently the Nikkei 225 stands at the critical 9,000 level and must hold - as must their reactors hold! My heart goes out to all those fine folks!
I wish I was sharp enough to know what all this means to the big picture of world wide growth, expansion, and emerging market momentum.
What I do know is that the Yen is at multi-decade highs against the US$ because of obvious short term repatriation requirements. The dollar is less than one yen away from the historic trough of 79.75 yen reached in 1995. An improving Japanese export sector is delivered yet another body blow.
Japan the world's current #3 economy will now be a substantial net borrower to fund the massive rebuilding process - and put yet another upward pressure on interest rates. Japan holds about 10% of the total amount of US Treasuries (currently equal to China) and is a major purchasing factor for weekly Fed issues. More than likely the BOJ will be sellers of treasuries and not critical buyers in the foreseeable future. Japan is also still a major banking factor for the world wide speculative 'carry trade' financing market.
The afflicted north east coast region makes up about 8-12% of the total Japanese GDP. From the stunning pictures nothing is 'temporary' about what happened and more than likely the cleanup and restoration will take decades - assuming we are not looking at worst case meltdown scenario. Currently heroic exposed workers are feverishly trying to prevent that reality. Tremendous hard ship does indeed bring the very best out in people.
Domestically negative gloomy numbers are being reported for US housing starts (down 23% in Feb - just above the Apr 2009 low) combined with very positive all-time high housing affordability statistics. Falling housing prices (40% nationwide) combined the medium income of $62k allows a family to have almost twice the income needed to qualify for a 30yr fixed rate mortgage to purchase a median priced single family dwelling of $160k assuming 20% down. Never has housing been this inexpensive. Sounds like housing bottoming stats to me in spite of the relatively high inventory numbers.
Very positive corporate earnings continue to roll out in almost all sectors. Help wanted signs for welders, carpenters, plumbers, and the like are starting to sprout up like the first bloom of spring. The most recent Philly Fed Survey reading is the highest since Jan 1984. In the week ending March 12 unemployment claims are down 4% from the previous week and the start of what will be a long term trend. The DJIA cracked the important 12,000 support/resistance level down 5% from recent high territory. Intermediate support comes in around 11,400 (200 dma) and longer term strength in the 10,750 to 11,000 level.
In Canada the spring election drums are beginning to beat. I'm calling for a small PC majority and carte blanche for major positive structural monetary and fiscal change. We definately deserve a major tax holiday in Canada. Sensational earnings continue to be released in most sectors. Yoga wear favorite Lululemon Athletica shattered upside expectations registering an almost 100% increase quarter over quarter from .40 to .72 cents - a very encouraging sign for curvy figures come the summer beach season. RIM is on the verge of unveiling what hopefully will be a geek's dream come true with Playbook and a frontal assault on Apple's/Google's market share. The TSX-LSE merger saga continues to be played out by those who have the most self interest. Japanese Armageddon has temporarily cooled down the blizzard of resource deal making and financings. Housing re-sales dropped fractionally but prices rose once again higher into nose bleed territory.
Key commodity markets are reluctantly giving up gains and are registering only fractional losses from recent high territory. Gold and metals stocks make up less than 1% of the NYSE and a clear indication that the sector has a long way to go on the upside. Silver has dropped $2 from the $36 level and would find significant support at the $30 level. Key rebuilding components copper, lead, lumber, and zinc look to quickly register new highs before long. The US Bond market has been a beneficiary of the recent Japanese tragedy being the destination for panic funds - a safe harbor. Upcoming housing mortgage rollovers, end of QEII, debt ceiling negotiations, and the unwinding of Freddy and Fanny Mac all have the potential of reversing that trend quickly. Soft commodities quickly sold off up to 7% (wheat and sugar) without a rising US$ - and have stabilized and are consolidating for further spring time gains.
Bottom Line: Talk about geo-political statistical over load. In times like these one is best served by technical analysis and interpretation. Psychology has taken over markets to say the least. VIX numbers quickly spiked but at figures well below the recent soverign debt crisis and sub-prime fiasco numbers of a few years back. I am sticking to a neutral position for the DJIA sub 12,000 and TSX sub 14,000. Gold must hold $1,400 and has done such to this point. Oil is gyrating at the $100 bbl level and would be a low risk entry point in the high $80 - low $90 level.
The fundamentals and economics of rising world wide consumption levels will probable not change and will continue to put pressure on supply. Uranium generated electricity and energy is here to stay. This time next year world wide crude oil consumption will be another 3% higher into record territory again. Liquidity levels are exceedingly friendly and corporate balance sheets are in the best condition since I've been in the business - just a few short years ago!
Keep your powder dry looking for tradable entry points on the downside. I normally don't like 'averaging' a trading position but this may be a good time. A quick rebound & return through recent highs would indeed take my breath away. I am braced for anything.
Pray for the people of Japan!
Thursday, March 10, 2011
Week Ending March 11/2011 - Weight of the Evidence - Crashaversary Edition
Hot off the finale of the slickest and most energized PDA Conference ever - major equity markets look to finally correct long term excesses and an extremely overbought condition on the eve of the two year 'Great Crashaversary!' A period in which major markets have not experienced a meaningful 15% correction or greater.
A mind numbing number of testosterone laden PDA mining promoters and operators displayed glimmering core samples of great things to come. I don't think I spoke to anyone who claimed to be sitting on less than 1 million ounces of gold or 100's of millions of pounds of copper and other assorted goodies. I sure didn't speak with any company who had balance sheet issues or empty coffers. Over 1000 exhibitors from throughout the world flogged 'once in a life time' low risk opportunities. Record 'silk suited' attendance numbers with record deal and merger business likely to follow before long. It took a while to get used to all the optimism and enthusiasm.
And as usual - the letdown at the end of this year's PDAC has brought out short term small cap resource selling which will test the market's resolve over the next few weeks and into the seasonally strong spring season.
Politically the Middle East has already taken a back seat to serious and sober US fiscal and monetary issues. I think a run on the Saudi royal families would rekindle serious media attention. Apparently Islam and democracy can coexist. The fine Arabic folks sure aren't afraid of their autocratic despots anymore!
Fresh muti year record high monthly US trade deficit numbers will certainly refocus priorities domestically. Pending national debt ceiling negotiations lead right into the scheduled end of the historic QE II stimulus. It is year 3 for President Obama to shine - and convince all that he was indeed the best choice to lead the current most powerful country in the world.
The 2 year S&P 96% bull rally (675 to 1,340) is in line with most historic post recessionary gains. While many ETF's are up more than 100% since the bull market started very few are up from the highly leveraged 2007 top. The Silver trust (SLV) is the current reigning champion - up over 160% since the 'end of the world.' Global share values have added a tad less than a total $30T - of which more than $12T was originated by governments and central banking types in a coordinated effort to avoid the media generated 'certain' financial Armageddon. Valuations are currently a tad below historical long term averages. US profit margins are returning to record 2007 high levels of 13%+. Labor wage issues are beginning appear most notably in the union represented public sector. Stocks yields exceed paltry treasury returns - a rare and notable occurrence. US multinational corporate balance sheets have never been in better shape. S&P companies will boost earnings by almost 20% over the next year to a record $100 per share. Jobs are indeed quickly returning in the US whether the media wants to admit it or not. NYSE short interest has declined to a historically low reading of 12.6b shares. Insider selling has accelerated for the past few months.
The world 'thankfully' remains solidly in an early stage long term powerful expansionary mode. China is promising an economic overhaul that would raise the status of consumers and entrepreneurs. Beijing wants to nurture self-sustaining growth driven by consumption and develop service and high-tech industries. They do not fool around. We worry and endlessly debate strategic national essential resource takeover issues while erecting barriers of entry. Go figure?
R. Doll of financial behemoth Blackrock believes that, 'The US government is slowly passing the baton to the real economy, and we're moving from government to self sustaining growth.' He is a sharp dude with lots of $$$ and he might be right too! Let's hope so!
A just as influential - but much more cynical Bill Gross of Pimco has liquidated ALL of the funds US treasury holdings citing a calculated negative 0.15% return on 10 year treasuries. He did lock in sweet overall returns but definitely not a long term vote of confidence. Pimco manages $240b with over $60b in deflating US dollar cash levels of almost 25%. Joining Mr Gross are notables Carl Icahn, Chris Shumway, and Stanley Druckenmiller who are all returning shareholders money and/or are liquidating funds for a variety of reasons and concerns. I guess these dudes don't love $$$ as much as I thought they did? The US government currently holds over 60% of all of it's treasury issues which is definitely not a good situation any way you may want to slice that.
The US Dollar is every ones favorite whipping boy. I'm not sure that negative sediment can get much worse but you never know. The US dollar monthly chart is 'coiling' in a perfect weekly symmetrical triangle and approaching very quickly it's day of reckoning. The US treasury market is currently consolidating recent weakness and faces potential issue distribution concerns. Debt and mortgage rollover concerns are front and center issues that must be handled very delicately. The US Municipal Bond market is a mess while very aggressive hedge funds await in the wings to deliver the final knock out punch. Serious Soverign debt issues have only disappeared in media coverage - and will be reset at much higher interest levels over the next few months. Interests cost increases will be unsustainable and defaults will be in the offing. The Cdn$ has broken out and looks to consolidated to higher levels. Gold has recently registered new all time highs and would turn short term negative through $1,400. A healthy 8% correction would take it back to the $1,320 level and 200 day moving average. Silver has run to 30+ year high territory of $37. It could easily return to the low $30's before a run to $40+. Oil looks like it has run into considerable resistance and looks to fall back to the low $90 level before the summer driving season begins. The $4US per gallon level appears to be a short term consumer resistant level. I cannot tell if there is a 'fear premium' in the price of oil or if supply will 'ever' be significantly disrupted at any time or any place in the Middle East. I have no idea if Saudi Arabia has lots of oil left or is almost on empty. I have even less of an idea why Natural Gas continues to be free on a relative basis? Soft commodity levels are held hostage to Mother Nature and updated weather reports. Supply will continue to remain in 'air tight' condition throughout the growing season.
Bottom Line: I must confess I am getting a tad 'over resourced' and 'over China'ed' in the short term. Many mid/small cap mining and resource issues have 'outperformed ' considerably and are priced for perfection. The massive crowds at the PDAC smacked of retail distribution to me. The world's largest private resource manager Swiss Glencore International AG going 'public' ($60b m/c) - and Dynamic/Dundee Wealth selling out ($3.2b) to the Bank of Nova Scotia - both can be construed as potential intermediate term warning flags. Merger premiums built into many issues have also raised risk concerns.
On the eve of the TMX-LME merger/takeover debate it looks like it will be up to our omnipotent banking cartel to make the important and critical decisions for all of us. Since they control pretty much everything else I guess it will be up to them to make the final call? I am sure TMX shareholders will 'all' be well taken care of! Too bad 'their' votes don't count though?
I do remain long term bullish (assuming stable bond and currency markets) and would welcome a normal and healthy sell off in the 10-15% range. Many large cap Sr. metal/material and oil/gas issues are currently very reasonably priced and would be fetching bargains at lower levels. I believe this to be the first major leg in the commodity long term super cycle. Hopefully this major 'bull' has four legs.
Corporate balance sheets and earnings potential are solidly situated. Cash and liquidity levels are very constructive with all time high implications in major indexes.
Shorter term the DJIA breaking 12,000 would imply a correction to the lower 11,200 level. Sub 1,300 S&P implies 1,220 fairly quickly. The TSX has broken a key 14,000 level and will find major support in the 12,800-13,200 level. The sidelines might be the best place to be for the short run with bids in the 10-15% lower levels.
Book your tee off times early should the Leaf's lose more than 5 of their last 15 games. Without a solid lefty starter and a closer in the 'pen' the Jay's better have lively bats and team speed - or else it will be a long landscaping season for me!
A mind numbing number of testosterone laden PDA mining promoters and operators displayed glimmering core samples of great things to come. I don't think I spoke to anyone who claimed to be sitting on less than 1 million ounces of gold or 100's of millions of pounds of copper and other assorted goodies. I sure didn't speak with any company who had balance sheet issues or empty coffers. Over 1000 exhibitors from throughout the world flogged 'once in a life time' low risk opportunities. Record 'silk suited' attendance numbers with record deal and merger business likely to follow before long. It took a while to get used to all the optimism and enthusiasm.
And as usual - the letdown at the end of this year's PDAC has brought out short term small cap resource selling which will test the market's resolve over the next few weeks and into the seasonally strong spring season.
Politically the Middle East has already taken a back seat to serious and sober US fiscal and monetary issues. I think a run on the Saudi royal families would rekindle serious media attention. Apparently Islam and democracy can coexist. The fine Arabic folks sure aren't afraid of their autocratic despots anymore!
Fresh muti year record high monthly US trade deficit numbers will certainly refocus priorities domestically. Pending national debt ceiling negotiations lead right into the scheduled end of the historic QE II stimulus. It is year 3 for President Obama to shine - and convince all that he was indeed the best choice to lead the current most powerful country in the world.
The 2 year S&P 96% bull rally (675 to 1,340) is in line with most historic post recessionary gains. While many ETF's are up more than 100% since the bull market started very few are up from the highly leveraged 2007 top. The Silver trust (SLV) is the current reigning champion - up over 160% since the 'end of the world.' Global share values have added a tad less than a total $30T - of which more than $12T was originated by governments and central banking types in a coordinated effort to avoid the media generated 'certain' financial Armageddon. Valuations are currently a tad below historical long term averages. US profit margins are returning to record 2007 high levels of 13%+. Labor wage issues are beginning appear most notably in the union represented public sector. Stocks yields exceed paltry treasury returns - a rare and notable occurrence. US multinational corporate balance sheets have never been in better shape. S&P companies will boost earnings by almost 20% over the next year to a record $100 per share. Jobs are indeed quickly returning in the US whether the media wants to admit it or not. NYSE short interest has declined to a historically low reading of 12.6b shares. Insider selling has accelerated for the past few months.
The world 'thankfully' remains solidly in an early stage long term powerful expansionary mode. China is promising an economic overhaul that would raise the status of consumers and entrepreneurs. Beijing wants to nurture self-sustaining growth driven by consumption and develop service and high-tech industries. They do not fool around. We worry and endlessly debate strategic national essential resource takeover issues while erecting barriers of entry. Go figure?
R. Doll of financial behemoth Blackrock believes that, 'The US government is slowly passing the baton to the real economy, and we're moving from government to self sustaining growth.' He is a sharp dude with lots of $$$ and he might be right too! Let's hope so!
A just as influential - but much more cynical Bill Gross of Pimco has liquidated ALL of the funds US treasury holdings citing a calculated negative 0.15% return on 10 year treasuries. He did lock in sweet overall returns but definitely not a long term vote of confidence. Pimco manages $240b with over $60b in deflating US dollar cash levels of almost 25%. Joining Mr Gross are notables Carl Icahn, Chris Shumway, and Stanley Druckenmiller who are all returning shareholders money and/or are liquidating funds for a variety of reasons and concerns. I guess these dudes don't love $$$ as much as I thought they did? The US government currently holds over 60% of all of it's treasury issues which is definitely not a good situation any way you may want to slice that.
The US Dollar is every ones favorite whipping boy. I'm not sure that negative sediment can get much worse but you never know. The US dollar monthly chart is 'coiling' in a perfect weekly symmetrical triangle and approaching very quickly it's day of reckoning. The US treasury market is currently consolidating recent weakness and faces potential issue distribution concerns. Debt and mortgage rollover concerns are front and center issues that must be handled very delicately. The US Municipal Bond market is a mess while very aggressive hedge funds await in the wings to deliver the final knock out punch. Serious Soverign debt issues have only disappeared in media coverage - and will be reset at much higher interest levels over the next few months. Interests cost increases will be unsustainable and defaults will be in the offing. The Cdn$ has broken out and looks to consolidated to higher levels. Gold has recently registered new all time highs and would turn short term negative through $1,400. A healthy 8% correction would take it back to the $1,320 level and 200 day moving average. Silver has run to 30+ year high territory of $37. It could easily return to the low $30's before a run to $40+. Oil looks like it has run into considerable resistance and looks to fall back to the low $90 level before the summer driving season begins. The $4US per gallon level appears to be a short term consumer resistant level. I cannot tell if there is a 'fear premium' in the price of oil or if supply will 'ever' be significantly disrupted at any time or any place in the Middle East. I have no idea if Saudi Arabia has lots of oil left or is almost on empty. I have even less of an idea why Natural Gas continues to be free on a relative basis? Soft commodity levels are held hostage to Mother Nature and updated weather reports. Supply will continue to remain in 'air tight' condition throughout the growing season.
Bottom Line: I must confess I am getting a tad 'over resourced' and 'over China'ed' in the short term. Many mid/small cap mining and resource issues have 'outperformed ' considerably and are priced for perfection. The massive crowds at the PDAC smacked of retail distribution to me. The world's largest private resource manager Swiss Glencore International AG going 'public' ($60b m/c) - and Dynamic/Dundee Wealth selling out ($3.2b) to the Bank of Nova Scotia - both can be construed as potential intermediate term warning flags. Merger premiums built into many issues have also raised risk concerns.
On the eve of the TMX-LME merger/takeover debate it looks like it will be up to our omnipotent banking cartel to make the important and critical decisions for all of us. Since they control pretty much everything else I guess it will be up to them to make the final call? I am sure TMX shareholders will 'all' be well taken care of! Too bad 'their' votes don't count though?
I do remain long term bullish (assuming stable bond and currency markets) and would welcome a normal and healthy sell off in the 10-15% range. Many large cap Sr. metal/material and oil/gas issues are currently very reasonably priced and would be fetching bargains at lower levels. I believe this to be the first major leg in the commodity long term super cycle. Hopefully this major 'bull' has four legs.
Corporate balance sheets and earnings potential are solidly situated. Cash and liquidity levels are very constructive with all time high implications in major indexes.
Shorter term the DJIA breaking 12,000 would imply a correction to the lower 11,200 level. Sub 1,300 S&P implies 1,220 fairly quickly. The TSX has broken a key 14,000 level and will find major support in the 12,800-13,200 level. The sidelines might be the best place to be for the short run with bids in the 10-15% lower levels.
Book your tee off times early should the Leaf's lose more than 5 of their last 15 games. Without a solid lefty starter and a closer in the 'pen' the Jay's better have lively bats and team speed - or else it will be a long landscaping season for me!
Thursday, March 3, 2011
Week Ending March 4/2011 - High Ho Silver!
Looks like every cloud does indeed have a silver lining!
New high 31 year prices have been registered this week in the $35 range. $40-45 is the next significant level of resistance and looks to be challenged before Spring Training ends. Silver trades currently around 400 m ozs per day on the Comex. Lately it has been bullishly trading approx. the same dollar value as gold. In February silver gained 19% and gold rose 6%. Front month prices are significantly higher than future months levels (backwardization) which indicate serious demand and potential upcoming delivery issues. The cost of borrowing silver is at 2 year highs and a half a dozen major producers have totally hedged future sales at current levels. Silver stocks in Comex warehouses are at the very low levels of 6 years ago when the price was in the $5 bill level. Tight global silver supply-demand levels are locked in the 900m oz level. The gold-silver ratio looks to break 40x and is gaining momentum. Mid tier silver producers and junior exploration companies are performing the best. There are not very many names in the sector as silver has been more of a 'by-product' than a 'go to' metal for many years - very much like copper. The silver & copper industry remains far behind in the production supply cycle should demand continue at current or potentially higher rates.
Less than 3 months before the expiration of the QE2 hyper adrenaline stimulus program - inflation is already beginning to find it's way from domestic gas pumps to the besieged back pedalling autocratic regimes of the world. Bernake announced this week that inflation is indeed reaching 'expected' and 'desired' target levels - but in a very controlled manner? He may regret making that statement public. To make matters worse he used a warped analogy of a family with credit card debt to explain how the ceiling differs from congressional spending decisions. I'd rather not explain.
The bulk of the economy will be facing severe input price increases and potential shortages not long after summer ends. Apparel companies are facing at least a 20% increase in cotton prices. Cocacola and McDonald's are considering rising prices before long because of all increasing input costs. Wheat inventory is down to 2 weeks of consumption levels. Soya Beans less than that! All this before any 'revised' negotiation on raising debt ceiling levels or heated discussions of a modified QE3 - the final installment in Bernake's dramatic 'Financial Viagra Trilogy.'
I remained glued to the Internet awaiting fast breaking middle east developments. The Financial Post did a fabulous spread (Feb 26) titled 'Ripe For Revolt - Who Might Fall' which covered everything from cell phone users to corruption scores. I was pleasantly surprised to discover that there are countries in the middle east which are very well run and quite happy with their lot in life. Issues in Libya continue to heat up significantly. Southern Europe will be most affected in the short run should the Libyan gas pipeline close and shut down the 25 m cubic meters per day that it exports. GazProm from Russia is capable of supplying the difference but they have been know to be an even more 'dodgy' and unreliable source of natural gas.
The S&P and DJIA continue to 'March' ahead relentlessly toward new all time record high territory. Inter day 'teflon & resilient' action has been stimulated by a accelerated flow of funds into mutual/managed funds and from many of the treasury bonds refugees who took shelter from the painful deleveraging fiasco of 2 years ago. Internal economic news continues to 'over deliever' with very encouraging news from the stellar service sector, reduced unemployment claims, muted corporate layoff activity, strong car sales, and a very positive ISM Manufacturing Employment Index numbers. All we need is for housing to play ball and we might just have a pre-season 'perfect game' on our hands. The 'silver lined' clouds are starting to part and the birds are starting to sing!
In Canada the roll out of the 'almost obscene' bank earnings and very long awaited dividend increases lead the cavalry charge.The Cdn$ briefly poked it's head above $1.03US and looks to tack on at least another 5% before the Blue Jays take the field for the home opener. Hostile (25% increase) overtures for Lundin from the fine Austrailian Equinox folks set off what looks to be the best PDA Conference ever. Bombardier basks in the glow of a $7b+ order from W.Buffet and his NetJets operation. RIM is on the verge of unveiling it's much vaunted Playbook and is very close to recent high levels in anticipation of greatness. I hope it has all the bells and whistles needed to take a healthy bite out of Apples 90% market share. With crude oil in excess of $100/bb there ain't a drilling rig that is idle or a rough necker who is unemployed. Even our national current account situation seems to be a lot better than expected. The BofC continues to hold interests levels at a paltry 1% until further notice. The country is firing on all 'super charged' 16 cylinders. It is truly amazing what a 5 game Leaf winning streak and a run to the much covetted 8th playoff spot can do!
Bottom Line: Most significant markets appear to be on a single minded march higher to the June 30th QE2 program official end irrespective of the cost of oil, interest rate levels, or political turmoil. The tidal wave of liquidity is in 'risk on' mode. Crude oil may challenge $110 but is more likely to settle in the more affordable and reasonable mid $90 level until the driving season takes hold. March 11th is the official 'Internet Day of Protest' in Saudi Arabian. Look for the plug to be pulled on March 10th.
The spring season heralds significantly improving economic conditions both sides of the border. A bidding war appears imminent for the consumer financial unit of CitiFinancial. Conditions have changed very quickly indeed. Corporations hold over $1.2 T in cash on their balance sheets and looks to grow significantly based on this stellar earnings season. Joy returns to Mudville after all!
It will be nice to see the Americans regain their strut and swagger. It's the confidence and attitude that I miss the most. They sure are just ain't the same on bended knee and with cap in hand!
New high 31 year prices have been registered this week in the $35 range. $40-45 is the next significant level of resistance and looks to be challenged before Spring Training ends. Silver trades currently around 400 m ozs per day on the Comex. Lately it has been bullishly trading approx. the same dollar value as gold. In February silver gained 19% and gold rose 6%. Front month prices are significantly higher than future months levels (backwardization) which indicate serious demand and potential upcoming delivery issues. The cost of borrowing silver is at 2 year highs and a half a dozen major producers have totally hedged future sales at current levels. Silver stocks in Comex warehouses are at the very low levels of 6 years ago when the price was in the $5 bill level. Tight global silver supply-demand levels are locked in the 900m oz level. The gold-silver ratio looks to break 40x and is gaining momentum. Mid tier silver producers and junior exploration companies are performing the best. There are not very many names in the sector as silver has been more of a 'by-product' than a 'go to' metal for many years - very much like copper. The silver & copper industry remains far behind in the production supply cycle should demand continue at current or potentially higher rates.
Less than 3 months before the expiration of the QE2 hyper adrenaline stimulus program - inflation is already beginning to find it's way from domestic gas pumps to the besieged back pedalling autocratic regimes of the world. Bernake announced this week that inflation is indeed reaching 'expected' and 'desired' target levels - but in a very controlled manner? He may regret making that statement public. To make matters worse he used a warped analogy of a family with credit card debt to explain how the ceiling differs from congressional spending decisions. I'd rather not explain.
The bulk of the economy will be facing severe input price increases and potential shortages not long after summer ends. Apparel companies are facing at least a 20% increase in cotton prices. Cocacola and McDonald's are considering rising prices before long because of all increasing input costs. Wheat inventory is down to 2 weeks of consumption levels. Soya Beans less than that! All this before any 'revised' negotiation on raising debt ceiling levels or heated discussions of a modified QE3 - the final installment in Bernake's dramatic 'Financial Viagra Trilogy.'
I remained glued to the Internet awaiting fast breaking middle east developments. The Financial Post did a fabulous spread (Feb 26) titled 'Ripe For Revolt - Who Might Fall' which covered everything from cell phone users to corruption scores. I was pleasantly surprised to discover that there are countries in the middle east which are very well run and quite happy with their lot in life. Issues in Libya continue to heat up significantly. Southern Europe will be most affected in the short run should the Libyan gas pipeline close and shut down the 25 m cubic meters per day that it exports. GazProm from Russia is capable of supplying the difference but they have been know to be an even more 'dodgy' and unreliable source of natural gas.
The S&P and DJIA continue to 'March' ahead relentlessly toward new all time record high territory. Inter day 'teflon & resilient' action has been stimulated by a accelerated flow of funds into mutual/managed funds and from many of the treasury bonds refugees who took shelter from the painful deleveraging fiasco of 2 years ago. Internal economic news continues to 'over deliever' with very encouraging news from the stellar service sector, reduced unemployment claims, muted corporate layoff activity, strong car sales, and a very positive ISM Manufacturing Employment Index numbers. All we need is for housing to play ball and we might just have a pre-season 'perfect game' on our hands. The 'silver lined' clouds are starting to part and the birds are starting to sing!
In Canada the roll out of the 'almost obscene' bank earnings and very long awaited dividend increases lead the cavalry charge.The Cdn$ briefly poked it's head above $1.03US and looks to tack on at least another 5% before the Blue Jays take the field for the home opener. Hostile (25% increase) overtures for Lundin from the fine Austrailian Equinox folks set off what looks to be the best PDA Conference ever. Bombardier basks in the glow of a $7b+ order from W.Buffet and his NetJets operation. RIM is on the verge of unveiling it's much vaunted Playbook and is very close to recent high levels in anticipation of greatness. I hope it has all the bells and whistles needed to take a healthy bite out of Apples 90% market share. With crude oil in excess of $100/bb there ain't a drilling rig that is idle or a rough necker who is unemployed. Even our national current account situation seems to be a lot better than expected. The BofC continues to hold interests levels at a paltry 1% until further notice. The country is firing on all 'super charged' 16 cylinders. It is truly amazing what a 5 game Leaf winning streak and a run to the much covetted 8th playoff spot can do!
Bottom Line: Most significant markets appear to be on a single minded march higher to the June 30th QE2 program official end irrespective of the cost of oil, interest rate levels, or political turmoil. The tidal wave of liquidity is in 'risk on' mode. Crude oil may challenge $110 but is more likely to settle in the more affordable and reasonable mid $90 level until the driving season takes hold. March 11th is the official 'Internet Day of Protest' in Saudi Arabian. Look for the plug to be pulled on March 10th.
The spring season heralds significantly improving economic conditions both sides of the border. A bidding war appears imminent for the consumer financial unit of CitiFinancial. Conditions have changed very quickly indeed. Corporations hold over $1.2 T in cash on their balance sheets and looks to grow significantly based on this stellar earnings season. Joy returns to Mudville after all!
It will be nice to see the Americans regain their strut and swagger. It's the confidence and attitude that I miss the most. They sure are just ain't the same on bended knee and with cap in hand!
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