There appears to be a seasonal ' low-confidence correlation' in the month of June. The recent stream of uncertainty has finally led to a significant loss of confidence. June now appears to be the month of 'lowered hope and expectation.'
Perhaps it's because June is when the kids get out of school - and moods seem to swing around the house? Maybe only teachers and June brides are upbeat in this cruel month?
The last few weeks have been no exception! It's hard to pinpoint the exact news item that first turned feelings so sour - but the 28 year low in last week's Misery Index seemed to accelerate these palpable negative proceedings.
In these past few days Rim has been summarily and perhaps permanently dispatched to the Apple 'road kill bin' based on lower performance of $US5+/sh earnings and shrinking margins. The overall tech mood was so sour that investors even sold the shares of Apple too - just for good measure! Goldman Saks then got the liquidation merry-go-round fired up with a 1% reduction in economic GDP expectations for the balance of the year. Although GS's is on record for accurately being bearish for most of this year! Then the Royal Bank of Canada showed no USA love/faith whatsoever dumping their $US3.45b US retail banking assets to PNC. RBC took their lumps with their tails between their legs - and even got upgraded for doing so. Simultaneously J. Paulson announced he has bit the painful $US1b loss bullet dumping all of his Sinoforest shares based on recent 'uncertainty?' No word if JP also ejected his now 'fully trimmed' bond holdings. JP's move is a full 180 degree reversal from his previously 'faithful & trusting' comments of early last week! The 'former Dr. Death' - NYU's N. Roubini also appears to be jumping off the bull market bandwagon with his 'almost' double dip recession prognostications. I guess his two months of 'bullishness' was too much for him to bear (pun intended). His low expectations counterpart - Bearish Bill Gross - came out this week looking like the most 'frazzled' billionaire I've ever seen! He looked (and sounded) like he just got back from an Amy Winehouse concert! Not to be outdone Petro China walked away from it's $5.4b natural gas deal with Encana - also for no 'specified' good reason. So much for 'good faith' understandings and 'gentlemans agreements!' Almost all recent formerly 'hot' tech IPO"s became either now cool (as in slightly above water) or downright cold this week! Jeez - less than a week ago lead underwriter Deutsche Bank tanked it's own Renren (Chinese Facebook) issue 'initating coverage' with a hold rating and a price target 40% below their 'offering price' of just five weeks ago! RENN almost doubled to $US24 after issue and now languishes at sub $US7/sh in less than two months! It looks like the Chinese are too busy 'working' to spend much time on Renren! The Greek government, led by a very sullen G Papandreou, which had it's second bailout package recently rescinded 'barely' escaped a total 'non confidence' vote by just a couple votes or a very slim 2 percent margin! Aegean summer protestation and dissatisfaction is only beginning irrespective of any pending 'deal' being made! Let's hope that the US Congress is at least on speaking terms when they mastermind in a few weeks? I'm looking for a fairly decent punch up to say the least. On Wednesday Chief Ben Bernake's morose Fed economic statement was about as much fun as a LeBron James post final press conference! His 'uncertain,' glum, and ambiguous statements on the GDP & employment levels shook what little confidence was left on Wall Street. A Fed chief needs to speak with clarity and confidence - or not speak at all. Thursday the 28 members of the IEA released 60m bbls from it's strategic petroleum reserve in response to Libyan 'uncertainty' and a lack of confidence in the Saudi Arabian pipeline. And most significantly, ESPN actually had the nerve and temerity to lambaste the entire mighty 'unachieveing' Toronto pro sports scene as being 'maybe the worst ever on record' - led by our always lovable losers the Toronto Maple Leafs! Is nothing sacred I ask?
So far this very 'forgetable' low confidence month of June makes investors long for the frozen and frosty months of winter and all the strep throat that comes with it!
In the US, just when it looked like the DIIA and S&P had bounced off critical support and significant moving average levels B. Bernake's dour comments cratered a decent (low volume) 4 day rally. Both markets continue to violently thrash at fairly solid support and 50/200 day moving average territory. Based on freshly lowered GDP expectations analysts are busily reducing earnings growth targets and proforma profitability. Most significant earnings reports have been released and traders will have to wait for a few months for any meaningful guidance. Corporate balance sheets remain strong, treasuries flush with capital, and pending lower gasoline prices should help to support the economy this summer. Monetary policy looks to remain friendly until after the 2012 election despite the end of the FOMC's incremental quantitative easing efforts. The banking system is flush with over $US1.5 trillion in freshly printed reserves which should bolster any short term liquidity issues. US equity markets have effectively priced in lowered/negative expectations and look to be braced for a negative investment environment for the second half of the year.
In commodities, the suspicious release of 60m bbls (16 hours of daily world consumption) of crude from the strategic reserve shocked long positions triggering stop loss orders across the resource complex. Crude oil dropped almost 5% on Thursday and fell back into significant support in the $US88-92/bbl level. I'd be very surprised to see crude oil drop meaningfully below $US85/bbl based on record world consumption and Venezuelan supply uncertainties. Natural Gas has fallen back into a positive entry level of $US4.10/mcf. Gold looked to register new all time highs but fell back $US30+/oz on the sharply lower crude oil price. Gold can easily retrace to support at $US1,450-75/oz. Silver continues to impressively consolidate in the mid $US30's/oz and at the 40x's gold/silver ratio. Copper held $US4/lb for the time being but could easily retest the $US3.50-75/lb level. In the Agra sector grains took it on the chin falling back into strong support and entry levels. I expect further commodity downside to be muted and limited based on well balanced and relatively under levered markets. I have my doubts that world consumption levels will drop that far at all.
In Canada, the TMX-LME-MAPLE love triangle takeover appears to be heating up. The TSX-LME promised a special dividend to entice faithful shareholders. The ever expanding Maple Group added a 'Toonie' sweetener to seal it's deal. My bet is on the banks (Maple Group) and a return to the monopolized/mutualized old boys network. Oil & Gas and Metal equities across the board have been crushed in anticipation of lower commodity consumption levels and a deflationary credit environment. It is a lot cheaper to buy good quality senior producing equities on the TSX than it is to dig or drill. A significant headwind for the TSX is the rapidly weakening heavily weighted financial sector. The S&P/TSX Capped Financials must hold the 180-85 level. The TSX-Venture exchange should find support in the current inexpensively priced 1,850-900 level. A significant amount of bad news and down side has been priced into the small cap mining and resource shares. The TSX has built a formidable top in the 13,300-14,300 level. It needs to consolidate this recent sell off at current levels (12,500-13,000) over the summer months in order to challenge those recovery high levels.
Bottom Line: Equity markets are currently challenged to digest the plethora of reported negative macro issues. I believe conditions are no where near as dire as reported - and that major soverign budget issues will be resolved and settled in time. Continued liquidation will accelerate prevailing negativity and lower confidence levels. Positive confidence levels are critical in these credit fueled dependent days. With any luck central banking types recognize their key and integral role. Honest and concerted book balancing efforts would go a long way to settle much of the uncertainty and insecurity. Politically motivated grandstanding and brinkmanship days need to come to an immediate end in order to secure long term world growth and progress.
No comments:
Post a Comment