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!
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