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?
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