World financial markets contracted severely this week based primarily on the desperate, delusional, and dysfunctional workings of a damaged and destructive US political process.
The needs and concerns of very nervous and vulnerable entrepreneurs and investors have taken a back seat to the 'Armageddon' threats issues by the fearless meddling leadership. This 'last and final battle between the forces of good and evil' before the Aug 2nd judgement day has deteriorated into nothing more than repulsive self serving partisan pre-election grandstanding.
The 500+ point sell off which Dem. Rep. Nancy Pelosi shockingly suggested might be necessary to 'focus the attention' of her Republican counterparts became a fear driven disgusting reality this week. Her latest latest pearl of wisdom in response to investor debt angst is the mind numbing proclamation that, 'We're trying to save life on this planet as we know it today.' One does wonder which planet she originated from?
This incredibly dangerous and desperate ideological battle for control over the tax payers purse strings and the role of government in American society better end before whatever little confidence remains totally and permanently evaporates. The fundamental divisions over the role of government, the extent of state involvement in the economy, and the extent of the welfare state burden desperately needs to be settled probably by others more qualified and disciplined than are currently in charge!
The diseased and infected DC political swamp needs to be drained!
In the US, an already weak and jobless economy reported tepid/dismal GDP economic growth statistics (1.3% in Q2) primarily as a reflection of the lack of confidence which domestic industry has in the current administration and political process. Considering the various fear tactics which Washington has employed for the past 3 months it is not surprising that the domestic economy cooled and contracted. The 'flight of capital' and continued corporate 'disinvestment' is a by product of ongoing substandard and incompetent leadership. A coherent mission statement would be a good start!
Heavily indebted and leveraged nations need a positive program of growth and wealth creation. It's all about getting back to the basics - hopefully!
The CDS cost of insuring Treasury's spiked 50+% this week based primarily on the annoying political stalemate and the real possibility of a 'non' AAA rating.
Earnings continue to be the silver lining in a very dark cloud with over 50% of S&P companies reporting of which 75+% exceeded expectations. Almost 70% of S&P companies are now global which enjoy a historically low interest rate structure and a weak US dollar policy.
The DJIA has lost the 'Pelosi 500' points (-3.75%) this week with both the S&P and NASDAQ also both down 3+% - and all breaking their 200 dma's which sure gets my 'attention!' 12,750 now represents formidable DJIA resistance and the S&P needs to decisively break 1,350 before any significant upward bullish momentum occurs. A clear break below11,900 on the DJIA would constitute a major intermediate term negative signal. Longer term support levels are in the 11,750-12,000 range - should push 'come to shove!' Let's hope cool heads prevail during the dog days of August! The fragile residential housing market is trying valiantly to bottom and needs all the help it can get!
In commodities, the obvious sovereign inflationary debt strategy solution has tacked $US50/oz onto the price of Gold and record all time highs of $US1,650/oz. The potential exists for an accelerated rally into my target level of $US1,750/oz should the political types continue to mastermind! This is definitely the environment to hold/buy/trade Gold! Silver solidly holds $US40/oz and measures to retest the $US47/oz level over the next few weeks. Copper ignores all suggestions of an economic slowdown and threatens to breakout of $US4.50/lb resistance to my long term target of $US5/lb in fairly short order. Natural Gas continues to be range bound ($4-4.50/mcf) trading at $US4.15 based on expanding inventories and despite persistently hot North American temperatures. I have expected Natural Gas to act better in this environment and remain mildly positive until further notice. Crude Oil has weakened from it's recent $US100/bl and looks likely to retest the end of June $US90/bl level. The Agra markets remain poised for new life of the contract highs based on a deteriorating US dollar and inflationary pressures. Corn would need to break $US7/bu and Soybeans $US14.25/bu. Wheat has been the laggard of the group and needs to break $US7.25/bu to turn short term bullish with a possible run at the $US9 May high level.
In Canada, the TSX has also been hit hard this week in sympathy to the various US debt challenges and sovereign uncertainty. The TSX/S&P has lost over 4% (550+ points) in broad based selling of financial and resource issues. The TSX index stopped cold at the critical level of 13,500 and is now within less than 2% of the recent end of June low of 12,800. Canada's monthly GDP growth for May came in well below expectations and at a slowing -0.3%. Housing prices managed yet another 1.3% increase in the month of May and a new (stunning) record all time high. Wild and woolly SinoForest newly minted largest shareholder, billionaire R. Chandler, now holds 15% of the beleaguered company. SeeNoForest has rallied over 400% from the recent panic sell off lows. Resource earnings have been mixed based on a number of currency and inflationary head winds. Relative divergences between the resource equity price levels and their underlying commodity prices are getting stretched to compelling table pounding levels. The TSX index has considerable support in the 12,500 level should poke come to punch!
Bottom Line, the latest 4 month political deal deal saga is mercifully coming to an end and hopefully some kind of logical and pragmatic conclusion. I am a tad surprised that equity markets have waited until the 11th hour to stage a mini sell off panic which should be contained by support levels 3-5% lower.
It appears to be as much of a buyers strike as it is concerted liquidation. It feels more like a 'bid pulling' process as opposed to a heavy selling exercise.
The annoying and painful political 'debt compromise process' has been met with as much disgust as it has been fear and loathing.
My long term bullish inflationary view remains intact and reinforced by the mindless and uninspired rhetoric emanating from the political types of all stripes.
Friday, July 29, 2011
Monday, July 25, 2011
Week Ending July 22/11 - Post Crises
Despite the media generated debt ceiling hysteria, capital markets are looking beyond any tortuous political 'resolution' toward a 'reprice' based on rapidly improving fundamentals and a very positive earnings season. Equity markets have even seemed to discount President BH Obama's desire not to allow the half of Americans who pay no taxes to bear the burden of the other half who aren't paying their fair share! The great debate of : 'more taxes vs less spending' has morphed into a mindless 'less filling vs tastes great' dialogue.
Thursday's announcement of a final 'potential' Greek resolution is now turning the financials market attention from the macro issues (debt) to micro matters (earnings/growth). The bold freshly minted $US148b/108b Euro package extends maturities at 'AAA' interest rates for an effectively bankrupt country. Effectively a precedence has been set for further Euro debt restructurings The itchy trigger finger of Moody's has lowered Greece's rating a notch above default but without the usual histrionics or hysteria.
A huge debt can has been kicked a lot further down the Grecian hodos. Yields for all distressed Euro jurisdictions quickly collapsed and Spanish regulators are breathing a huge sigh of relief. World equity markets are now looking past debt issues including the consternation coming out of Washington and the infamous gun slingling 'Gang of Six.' Neither US political party wants to be responsible for a Moody's rating downgrade. Expect a 'face saving' shorter term compromise. The critical drivers of interest rates, growth, and earnings appear to be the dominant theme for the remainder of the fiscal year. European woes and US debt wrangling notwithstanding, equities continue to show significant resilience with the MSCI AC World index returning an impressive 3.4% this month. A move into new recovery DJIA and S&P highs appears likely before temperatures return to double digit levels.
In the US, 25% of corporations have reported so far with 75% beating estimates. US corporate activity is firing on all cylinders. Earnings for the S&P companies look to break above $US1 and are sitting on piles of under utilized capital. The DJIA, S&P, and Nasdaq rallied 1.68%, 2.08%, and 2.00% respectively for the week. The NASDAQ sits impressively at 10+ year high territory. Weekly charts are on the threshold of breaking into new recovery highs in the short term. Global demand for US assets rose $US23.6b in the month of May, housing starts reported 5 month highs in June, and the Philly Fed Manufacturing index rose to 3.2% from minus 7.7% the month earlier. Earnings are expanding at a 17% pace with 91 out of 120 companies soundly beating expectations. Profit margins are expanding dramatically with revenues up 10% vs 17% for net operating income. These are ideal and optimal conditions for equity out performance and significant P/E expansion.
In commodities, broad based strength is reflected in a rapidly improving CRB Index. Gold and Silver continue to hold recent high levels. Gold maybe vulnerable in the short term based on an inevitable US debt deal despite the new all time highs currently being registered. Short term indicators are reading over bot but not yet over extended. A concern about a CME margin 'surprise' also exists. I maintain my long term target of $US1,750/oz for Gold and $US60/oz for Silver. Continued South American copper supply disruptions bolsters a longer term price structure above the very profitable $US4/lb level. Crude oil is testing the high $US90/bl level above short and longer term moving average resistance. Any significant supply disruption could potentially result in significantly higher prices. Do not rule out a retest of last April's $US110/bl level before the driving season ends. US Treasury bonds continue to consolidate with 10 year money yielding a paltry 3.02% despite 'unstimulated' debt challenges. A move below the end of June lows would be worrisome and should be watched closely. The possibility of a higher interest rate restructure has moved to the highly likely category. The Agra sector is set to report another strong season with prices in the higher end of their ranges on a weekly basis. Key crop reports are set to announce the effect which the hot weather has had on nation wide supplies and yields.
In Canada, the TSX closed 1.62% higher on the week and is only a handful of points higher year to date. The energy and materials group showed the best improving relative strength this week. Reported inflation levels dropped with core CPI showing it's biggest monthly decline since April 2003 on a seasonally adjusted basis - a whopping 2.5 standard deviation move. Foreign investors continue to be attracted to Canadian bond issues allowing an easy financing of a growing federal deficit. Half of recent bond purchases have been for federal government bonds with the balance being a mix of corporate and provincial offerings. The Bank of Canada kept rates at the historically low rate of 1% with a possible increase as soon as September. A Canadian Dollar move to $US1.10 appears likely sooner than later. China's biggest offshore oil producer (Cnooc) agreed to purchase the beleaguered oil sands assets of Opti Canada for $US2.1b and also pledge to purchase more energy assets globally. RIM's market share struggle continues with the news of an 11% employee layoff and an executive restructuring. A glimmer of positive news for RIM was the 'exclusive' approval of their playbook by the US government. Many key TSX senior gold issues report next week and should set the tone for a positive upgrades and revaluations. The TSX index has rallied about 50% since the March 2011 top of 14,300. The TSX sits at a key resistance level of 13,500 and any move above implies a re challenge of those yearly highs.
In closing, the post sovereign debt crises environment looks quite positive and promising from my perch despite my concerns of higher short term lending rates. Equity and capital markets are quickly refocusing on what they care about the most: revenues, earnings, and dividends. Key financial institutions are flush with unemployed capital and many investment funds are braced for downside disaster - the key combination for a further price gains and potential P/E expansion. Many key US corporations are lean, mean, and well positioned for improving economic conditions. Very little (if any) froth or excess has been built into large cap valuations. I would not rule out a retest of the DJIA 14,000 frenzy high during the memorable over leveraged 2006-07 era before this recovery is over!
Either that, or the heat and humidity is finally getting to me!
Thursday's announcement of a final 'potential' Greek resolution is now turning the financials market attention from the macro issues (debt) to micro matters (earnings/growth). The bold freshly minted $US148b/108b Euro package extends maturities at 'AAA' interest rates for an effectively bankrupt country. Effectively a precedence has been set for further Euro debt restructurings The itchy trigger finger of Moody's has lowered Greece's rating a notch above default but without the usual histrionics or hysteria.
A huge debt can has been kicked a lot further down the Grecian hodos. Yields for all distressed Euro jurisdictions quickly collapsed and Spanish regulators are breathing a huge sigh of relief. World equity markets are now looking past debt issues including the consternation coming out of Washington and the infamous gun slingling 'Gang of Six.' Neither US political party wants to be responsible for a Moody's rating downgrade. Expect a 'face saving' shorter term compromise. The critical drivers of interest rates, growth, and earnings appear to be the dominant theme for the remainder of the fiscal year. European woes and US debt wrangling notwithstanding, equities continue to show significant resilience with the MSCI AC World index returning an impressive 3.4% this month. A move into new recovery DJIA and S&P highs appears likely before temperatures return to double digit levels.
In the US, 25% of corporations have reported so far with 75% beating estimates. US corporate activity is firing on all cylinders. Earnings for the S&P companies look to break above $US1 and are sitting on piles of under utilized capital. The DJIA, S&P, and Nasdaq rallied 1.68%, 2.08%, and 2.00% respectively for the week. The NASDAQ sits impressively at 10+ year high territory. Weekly charts are on the threshold of breaking into new recovery highs in the short term. Global demand for US assets rose $US23.6b in the month of May, housing starts reported 5 month highs in June, and the Philly Fed Manufacturing index rose to 3.2% from minus 7.7% the month earlier. Earnings are expanding at a 17% pace with 91 out of 120 companies soundly beating expectations. Profit margins are expanding dramatically with revenues up 10% vs 17% for net operating income. These are ideal and optimal conditions for equity out performance and significant P/E expansion.
In commodities, broad based strength is reflected in a rapidly improving CRB Index. Gold and Silver continue to hold recent high levels. Gold maybe vulnerable in the short term based on an inevitable US debt deal despite the new all time highs currently being registered. Short term indicators are reading over bot but not yet over extended. A concern about a CME margin 'surprise' also exists. I maintain my long term target of $US1,750/oz for Gold and $US60/oz for Silver. Continued South American copper supply disruptions bolsters a longer term price structure above the very profitable $US4/lb level. Crude oil is testing the high $US90/bl level above short and longer term moving average resistance. Any significant supply disruption could potentially result in significantly higher prices. Do not rule out a retest of last April's $US110/bl level before the driving season ends. US Treasury bonds continue to consolidate with 10 year money yielding a paltry 3.02% despite 'unstimulated' debt challenges. A move below the end of June lows would be worrisome and should be watched closely. The possibility of a higher interest rate restructure has moved to the highly likely category. The Agra sector is set to report another strong season with prices in the higher end of their ranges on a weekly basis. Key crop reports are set to announce the effect which the hot weather has had on nation wide supplies and yields.
In Canada, the TSX closed 1.62% higher on the week and is only a handful of points higher year to date. The energy and materials group showed the best improving relative strength this week. Reported inflation levels dropped with core CPI showing it's biggest monthly decline since April 2003 on a seasonally adjusted basis - a whopping 2.5 standard deviation move. Foreign investors continue to be attracted to Canadian bond issues allowing an easy financing of a growing federal deficit. Half of recent bond purchases have been for federal government bonds with the balance being a mix of corporate and provincial offerings. The Bank of Canada kept rates at the historically low rate of 1% with a possible increase as soon as September. A Canadian Dollar move to $US1.10 appears likely sooner than later. China's biggest offshore oil producer (Cnooc) agreed to purchase the beleaguered oil sands assets of Opti Canada for $US2.1b and also pledge to purchase more energy assets globally. RIM's market share struggle continues with the news of an 11% employee layoff and an executive restructuring. A glimmer of positive news for RIM was the 'exclusive' approval of their playbook by the US government. Many key TSX senior gold issues report next week and should set the tone for a positive upgrades and revaluations. The TSX index has rallied about 50% since the March 2011 top of 14,300. The TSX sits at a key resistance level of 13,500 and any move above implies a re challenge of those yearly highs.
In closing, the post sovereign debt crises environment looks quite positive and promising from my perch despite my concerns of higher short term lending rates. Equity and capital markets are quickly refocusing on what they care about the most: revenues, earnings, and dividends. Key financial institutions are flush with unemployed capital and many investment funds are braced for downside disaster - the key combination for a further price gains and potential P/E expansion. Many key US corporations are lean, mean, and well positioned for improving economic conditions. Very little (if any) froth or excess has been built into large cap valuations. I would not rule out a retest of the DJIA 14,000 frenzy high during the memorable over leveraged 2006-07 era before this recovery is over!
Either that, or the heat and humidity is finally getting to me!
Monday, July 18, 2011
Week Ending July 15/2011 - Fear
'Government is the great fiction through which everybody endeavors to be at the expense of everybody else.'
Frederic Bastiat (1801-1850)
The President B.H. ODrama led US debt spectacle has culminated into an Aug 2nd
$US2+ trillion standoff pitting the political priorities of 2 self serving poll watching party hopefuls and a pitiful threat of 'non payment' to retired social security holders. Part of the 'non' strategy included BHO 'walking out' on critical discussions and negotiations in an 'enough is enough' hissy fit! Potus Obama followed that act with the incredulous proclamation that 80% of US citizens crave paying the Federal government more taxes for an enhanced spending recovery. Presumably 100% of that 80% want the remaining 20% to be the ones that actually pay more. Next week the US House plans to vote on a measure that would raise the government's debt by $US2.4 trillion along with spending cuts, a cap on government expenditures, a proposal on a balanced-budget constitutional amendment, and a partridge in a pear tree.
At least all the critical details for the Presidents extravagant August 4th. $US35,000/couple 50th birthday bash are firmly in place ensuring a successful champagne and chardonnay swilling glittering soiree.
Mr. 'Gold is Not Money' B Bernake continues to shrug his shoulders with a frightening casual indifference. Former house speaker N Pelosi (Dem) flippantly suggested that a 500+ point DJIA might be necessary to get the attention of the stubborn Republicans. What an incredibly dangerous 'game' is being 'played' by incompetent and unworthy leadership!
Rating experts Moody's have watched patiently for decades as US Federal indebtedness rose from $US2 trillion to the current mind boggling $US14+ trillion. They now figure it is now prime time to make a move on the coveted 'AAA' rating. An ill timed move that should have been made many years and trillions of
dollars ago. As European banks fail stress tests both US political parties dither over corporate jets and delusional 'adjustments' in the tax payer's balance sheet.
The (inevitable) loss of the critical US AAA bond rating, soaring interest rates, and a potential brutal long term global financial crisis hangs in the delicate balance. China's Foreign Ministry recent one line plea: 'We hope that the US government adopts responsible policies and measures to guarantee the interests of investors,' looks to be the lone voice of reason and sanity in an otherwise disgraceful political process.
As the political sabers rattle critical consumer confidence plunges, gold breaks through $US1,600/oz, and European economic heavy weight Italy becomes the sovereign whipping country of the month. Goldman Sachs has moved quickly to reduce expectations for US economic growth based on this current gloomy and negative atmosphere. The real tragedy in this never ending spending/budget saga will be if the decades of combined fearless political leadership has cooked the 'golden goose!'
In the US, the DJIA, S&P, and Nasdaq fell 1.68%, 2.38, and 2.84% respectively over the week. Fed Chief B Bernake suggested that more 'stimulus' is available if needed. Fed officials are divided on the need of further stimulus. Bernake said he has no plans for bond purchases anytime soon. Jobless claims declined more than forecasted and industrial factory production rose .2%. US consumer prices fell slightly as a result of lower fuel costs. Slower expansion suggests that the Fed is unlikely to tighten credit until June 2012 - the longest static period since the government forced the central bank to buy Treasuries during the 1940's. Corporate America continues to fire on all cylinders led by blow out numbers from Google on Thursday of a mind boggling $US9b of revenue for the quarter. The US earnings season is off to a good start with many positive surprises in earnings and sales for a majority of the S&P constituents reported. So far less than 5% of companies have reported with EPS up over 23% with 8.9% positive surprises. Key earnings next week include IBM, Apple, Goldman, Bank America, Wells Fargo, Chipotle, Intel, GE, Caterpillar, Microsoft, Ford, McDonalds, and Yahoo. To this point the US Treasury market has acquitted itself very well under difficult circumstances but conditions can change very dramatically in today's world credit markets.
In commodities the faithful Gold bulls/bugs have been vindicated and rewarded with all time highs of $US1,600+/oz prices. Despite Bernake's interesting thoughts, Gold sure is looking like money to me and the ultimate currency in this volatile and fearful environment. Gold measures to the mid $1,650/oz level in the short term. Support levels are $US1,525/oz (50 dma), $US1,425/oz (200 dma), $US1,050/oz (2010 low and India's 200 tonne purchase), and finally $US680/oz the 2008 low (very unlikely to be visited any time soon). Gold has now made new all time highs in Euro, Pounds, and US Dollars based primarily on the threat of systematic currency and credit risk, A quick run to $US1,700/oz would be short term over bot and overextended. More than likely commercial gold producers will be inclined to rebuild short positions at these very profitable levels locking in handsome profits.
Silver looks to have consolidated it's recent severe CME margin increases and has doubled bottomed at the $US34/oz level. A move to the mid $US40 level has been expected with a run and retest back into recent psychological resistance. The gold/silver ratio remains at a neutral 40x's reading. Senior silver equities look like they have finally bottomed and have accelerated out of recent low levels this week.
The price of Crude Oil continues to thrash in the mid $US90/bbl level but is vulnerable to a significantly softening world wide economy. Natural Gas remains range bound between $4.25-4.75/mcf.
Copper demand remains robust above $US4/lb and looks to retest the recent high territory of almost $US4.75/lb. Supply threats dominate current price levels.
The Agra/grain markets has responded to weather and currency concerns with a sharp rally back into recent high territory. The potential exists for 'life of the contract' highs before the end of the summer.
All eyes will be fixed on the Canadian Dollar as it approaches the $US1.05 and the potential of a significant breakout to significantly higher levels. My target is $US1.10 for the Canuck Buck by September.
The bullish potential of the commodity market may be best explained by fully invested financial guru Jim Rogers : 'If the world economy gets better I'm going to make a lot of money in commodities because of shortages, and if the world economy doesn't get better I'm going to make a lot of money in commodities because governments are going to print a lot more money.'
In Canada, the RIM annual meeting proceeded without any significant pink slip blood letting. Rim stock is struggling to double bottom in the low $US25 level. Sharply higher Apple's earnings next week might be another nail in the RIM growth story. Tuesday's Bank of Canada interest rate looks to remain unchanged despite fairly strong relative economic conditions. The TSX remains locked in a 4 month downtrend primarily as a result of recent weakness in the heavily weighted financial sector. I am watching the TSX 13,500 level as an entry level - a key moving average and downtrend area. I expect further takeover and consolidation momentum to continue in the junior resource sector with significant premiums paid for many significantly undervalued assets.
In closing, it appears to me that equity markets are being restrained by the threats and intimidation of dysfunctional governmental meddling and mismanagement. The fear and loathing which is currently circulating throughout the financial media has paralyzed indexes into a near term trading range consolidation.
I believe that many of these concerns have been discounted in deeply discounted equities in many of the major sub-sectors. The possibility for new recovery highs in North American equity markets exists should spending, tax, and debt issues resolve themselves quicker than expected combined with the prospect of continuing accelerated earnings.
Perhaps we would all be better off if we headed the prophetic words of constitutional father Thomas Jefferson who stated: 'To compel a man to furnish a contribution of money for the propagation of opinions which he disbelieves and abhors is sinful and tyrannical.'
A very nice call!
Frederic Bastiat (1801-1850)
The President B.H. ODrama led US debt spectacle has culminated into an Aug 2nd
$US2+ trillion standoff pitting the political priorities of 2 self serving poll watching party hopefuls and a pitiful threat of 'non payment' to retired social security holders. Part of the 'non' strategy included BHO 'walking out' on critical discussions and negotiations in an 'enough is enough' hissy fit! Potus Obama followed that act with the incredulous proclamation that 80% of US citizens crave paying the Federal government more taxes for an enhanced spending recovery. Presumably 100% of that 80% want the remaining 20% to be the ones that actually pay more. Next week the US House plans to vote on a measure that would raise the government's debt by $US2.4 trillion along with spending cuts, a cap on government expenditures, a proposal on a balanced-budget constitutional amendment, and a partridge in a pear tree.
At least all the critical details for the Presidents extravagant August 4th. $US35,000/couple 50th birthday bash are firmly in place ensuring a successful champagne and chardonnay swilling glittering soiree.
Mr. 'Gold is Not Money' B Bernake continues to shrug his shoulders with a frightening casual indifference. Former house speaker N Pelosi (Dem) flippantly suggested that a 500+ point DJIA might be necessary to get the attention of the stubborn Republicans. What an incredibly dangerous 'game' is being 'played' by incompetent and unworthy leadership!
Rating experts Moody's have watched patiently for decades as US Federal indebtedness rose from $US2 trillion to the current mind boggling $US14+ trillion. They now figure it is now prime time to make a move on the coveted 'AAA' rating. An ill timed move that should have been made many years and trillions of
dollars ago. As European banks fail stress tests both US political parties dither over corporate jets and delusional 'adjustments' in the tax payer's balance sheet.
The (inevitable) loss of the critical US AAA bond rating, soaring interest rates, and a potential brutal long term global financial crisis hangs in the delicate balance. China's Foreign Ministry recent one line plea: 'We hope that the US government adopts responsible policies and measures to guarantee the interests of investors,' looks to be the lone voice of reason and sanity in an otherwise disgraceful political process.
As the political sabers rattle critical consumer confidence plunges, gold breaks through $US1,600/oz, and European economic heavy weight Italy becomes the sovereign whipping country of the month. Goldman Sachs has moved quickly to reduce expectations for US economic growth based on this current gloomy and negative atmosphere. The real tragedy in this never ending spending/budget saga will be if the decades of combined fearless political leadership has cooked the 'golden goose!'
In the US, the DJIA, S&P, and Nasdaq fell 1.68%, 2.38, and 2.84% respectively over the week. Fed Chief B Bernake suggested that more 'stimulus' is available if needed. Fed officials are divided on the need of further stimulus. Bernake said he has no plans for bond purchases anytime soon. Jobless claims declined more than forecasted and industrial factory production rose .2%. US consumer prices fell slightly as a result of lower fuel costs. Slower expansion suggests that the Fed is unlikely to tighten credit until June 2012 - the longest static period since the government forced the central bank to buy Treasuries during the 1940's. Corporate America continues to fire on all cylinders led by blow out numbers from Google on Thursday of a mind boggling $US9b of revenue for the quarter. The US earnings season is off to a good start with many positive surprises in earnings and sales for a majority of the S&P constituents reported. So far less than 5% of companies have reported with EPS up over 23% with 8.9% positive surprises. Key earnings next week include IBM, Apple, Goldman, Bank America, Wells Fargo, Chipotle, Intel, GE, Caterpillar, Microsoft, Ford, McDonalds, and Yahoo. To this point the US Treasury market has acquitted itself very well under difficult circumstances but conditions can change very dramatically in today's world credit markets.
In commodities the faithful Gold bulls/bugs have been vindicated and rewarded with all time highs of $US1,600+/oz prices. Despite Bernake's interesting thoughts, Gold sure is looking like money to me and the ultimate currency in this volatile and fearful environment. Gold measures to the mid $1,650/oz level in the short term. Support levels are $US1,525/oz (50 dma), $US1,425/oz (200 dma), $US1,050/oz (2010 low and India's 200 tonne purchase), and finally $US680/oz the 2008 low (very unlikely to be visited any time soon). Gold has now made new all time highs in Euro, Pounds, and US Dollars based primarily on the threat of systematic currency and credit risk, A quick run to $US1,700/oz would be short term over bot and overextended. More than likely commercial gold producers will be inclined to rebuild short positions at these very profitable levels locking in handsome profits.
Silver looks to have consolidated it's recent severe CME margin increases and has doubled bottomed at the $US34/oz level. A move to the mid $US40 level has been expected with a run and retest back into recent psychological resistance. The gold/silver ratio remains at a neutral 40x's reading. Senior silver equities look like they have finally bottomed and have accelerated out of recent low levels this week.
The price of Crude Oil continues to thrash in the mid $US90/bbl level but is vulnerable to a significantly softening world wide economy. Natural Gas remains range bound between $4.25-4.75/mcf.
Copper demand remains robust above $US4/lb and looks to retest the recent high territory of almost $US4.75/lb. Supply threats dominate current price levels.
The Agra/grain markets has responded to weather and currency concerns with a sharp rally back into recent high territory. The potential exists for 'life of the contract' highs before the end of the summer.
All eyes will be fixed on the Canadian Dollar as it approaches the $US1.05 and the potential of a significant breakout to significantly higher levels. My target is $US1.10 for the Canuck Buck by September.
The bullish potential of the commodity market may be best explained by fully invested financial guru Jim Rogers : 'If the world economy gets better I'm going to make a lot of money in commodities because of shortages, and if the world economy doesn't get better I'm going to make a lot of money in commodities because governments are going to print a lot more money.'
In Canada, the RIM annual meeting proceeded without any significant pink slip blood letting. Rim stock is struggling to double bottom in the low $US25 level. Sharply higher Apple's earnings next week might be another nail in the RIM growth story. Tuesday's Bank of Canada interest rate looks to remain unchanged despite fairly strong relative economic conditions. The TSX remains locked in a 4 month downtrend primarily as a result of recent weakness in the heavily weighted financial sector. I am watching the TSX 13,500 level as an entry level - a key moving average and downtrend area. I expect further takeover and consolidation momentum to continue in the junior resource sector with significant premiums paid for many significantly undervalued assets.
In closing, it appears to me that equity markets are being restrained by the threats and intimidation of dysfunctional governmental meddling and mismanagement. The fear and loathing which is currently circulating throughout the financial media has paralyzed indexes into a near term trading range consolidation.
I believe that many of these concerns have been discounted in deeply discounted equities in many of the major sub-sectors. The possibility for new recovery highs in North American equity markets exists should spending, tax, and debt issues resolve themselves quicker than expected combined with the prospect of continuing accelerated earnings.
Perhaps we would all be better off if we headed the prophetic words of constitutional father Thomas Jefferson who stated: 'To compel a man to furnish a contribution of money for the propagation of opinions which he disbelieves and abhors is sinful and tyrannical.'
A very nice call!
Friday, July 8, 2011
Week Ending July 8/2011 - Post QE II
Evidently life goes on after the end of economic stimulus, quantitative easing, and
other various selective banking accommodations.
US treasury bond yields are rising and bond prices are contracting/adjusting in an orderly manner so far. A move above 4% in the 10 year treasury yield could reverse a very long 30+ year downtrend in interest rate levels. A sharply higher interest environment would create significant economic challenges and head winds.
Attention is now turning to current debt ceiling limit discussions - minus much of the earlier fear mongering and emotional histrionics. A constructive reality may be finally setting in or it just might be getting harder to spook markets? Could Federal spending fatigue finally be setting in? Odds are now 80% that a debt ceiling agreement will happen before the cupboard is bare. However, the odds of getting out of the hole by digging deeper are much less!
The Greek debt drama also appears to be playing out without the doom, gloom, and anticipated middle class revolution to this point. EU periphery player Greece is quickly becoming an after thought on the world's financial stage. Sovereign issues are now perceived as banking challenges. Currently a third of the 91 Euro banks are undergoing public stress tests to determine the level and extent of external support necessary to balance their books. This year's 8% flight of Greek deposits from their banking system has not helped matters. Thankfully it does not appear like it will be a full fledged accelerated run on their financial system. All that really remains to be decided is the level and distribution of the pain and punishment. Could such austerity measures mean the end of Italian President Silvio Berlusconi's bunga bunga parties too!?
This week's stringent Moody's downgrade of Portugal by four levels to junk status has been met with a palpable disdain by Germany and Euro zone members. The EU called the downgrade a biased 'USA' based maneuver which only fuels speculation in the financial markets. The ECB quickly and stunningly announced that they are suspending rating requirements for Portuguese (and mostly likely Spanish and Italian) collateral in a preemptive move to lend against insolvent paper. Not great news for the Goldman Sachs messenger!
Major equity markets around the world hardly batted an eyelash while seemingly looking past most of these current nagging assorted sovereign credit/debt issues - if that is at all possible!
Chinese and the ECB Central Banks once again fractionally raised their interest rates to 3.5% and 1.5% respectively to either attract funds, cool housing speculation, or combat inflation threats. Benchmark rates are now 'almost' reflecting the 'real' rates of inflation in both of these jurisdictions. Nice to see the financial 'ying' being brought into line with the economic 'yang!'
The Bank of England preferred to maintain it's interest rate status quo of 0.5% despite having the worlds highest CPI (excluding food & energy) level of 4.0+% this year. I doubt that the Brits will be able to maintain that accomodative interest rate policy for very much longer.
In the US, rapidly improving internal economic stats led by a 6.5% increase in June same store retail sales and positive employment expectations have ignited a very impressive rally from very over sold conditions.
The seasonal '2 market days before June month end to 5 market days after Independence Day celebration rally' was triggered right on schedule.
This short term broad based 8% rally was not held back by Presidents BHO's golf club rattling town hall twittering threats corresponding to the failure of not reaching an increased debt ceiling level accord. Can you imagine what might have happened if he spoke about the problems associated with the failure of 'not' cutting spending?
Friday's disappointing employment numbers of only 18,000 nonfarm payrolls job created should inspire short term liquidation and position squaring before the weekend. The recent short term rally needs to be corrected and consolidated before a new up leg into new recovery highs are attempted.
The DJIA is only about 2% from a new 'recovery' high at just under 12,900. It will be very interesting to see if a 'run to get back into equity markets' ensues if new recovery highs are made. Trillions of freshly printed idle US dollars are on the side lines braced for various worse case financial scenarios.
Despite a significant 10% rebound in the price of crude oil the DJ Transports have registered an especially impressive new 'all time' high triggering another Dow Theory buy signal. I tip my cap to Warren Buffet for his $US44b purchase of Burlington Northern Santa Fe Corp railway almost two years ago and his 'all-in' wager on the economic future of the United States. The DJ Transport index is up almost 50% since then! That is what I call, 'pinning the tail on the donkey!'
Residential housing markets/prices may have finally 'flattened' (poor word choice) - with rapidly increasing reported sales gains and marginally higher prices in selected regions.
The June ISM manufacturing index increased almost 2% from a month earlier. Both the employment index and new factory orders increased almost 3% from the month of May. Corporate revenues, earnings, and their respective balance sheets have rarely been in better shape. US export business continues to fire on all cylinders.
The S&P looks to report over $90 earnings this year at a reasonable 15x's p/e ratio. The economically sensitive NASDAQ index is on the verge of new 10+ year high territory.
In commodities, the crude oil market easily handled the release of 60m bbls from the strategic petroleum reserves and is within a 'toonie' of the $US100/bbl mark. The 3 month 20% downtrend looks to have reversed with crude oil now above both it's 20 and 50 dma's. Goldman Sachs and Morgan Stanley expects oil to reach $US130/bbl within the year. The 'anticipated' decrease in world wide consumption appears unlikely any time soon.
Gold continues to assert itself as the world's #1 currency and is within a $US20 bill of major break out territory. Silver appears to have effectively consolidated much of the CME generated margin requirement liquidation. A move above $US38/oz would signal a potential break out back to mid $US40 level. World consumption of Silver bullion and coins continues at a consistently increasing record pace. Speculators continue to dominate the Silver markets trading over 800 million of ozs per day in April/May on the COMEX. The entire Silver industry will only produce 900 million ozs from mines and scrap this year! The current Gold-Silver ratio of 42x's suggest that Silver may outperform Gold on the next leg up. Gold & Silver Guru Eric Sprott recently stated prices would go 'bonkers' should a QE III be necessary. I suspect he does.
Copper has suddenly and effectively broken out from it's 5 month consolidating down trend in the face of rising interest rates and the threats of slowing economic growth. South American and African supply concerns are contributing to these higher price levels.
The Agra markets appear to be rebounding from short term very over sold conditions. June was a tough month for grains based on a USDA 'over planting' acreage usage report. The Agra markets can be very volatile and most likely will be for the next few months.
The Canadian dollar is trending bullishly and appears to consoldiating for a run at the $US1.06 high level registered in April. The relative strength of the Canadian dollar has been a considerable headwind for US-Can interlisted equities and many other resource issues.
The US treasury market appears vulnerable now that QEII has finally ended and with rising interest rates throughout the world. The US treasury will continue issuing approx. $US166b per month of bonds but the exact source of demand and price has yet to be determined. Noted commodity bull Jim Rogers is current short 30 year treasury issues and is considering selling 10 and 5 year issues also. The days of negative 'real' interest rate returns appear to be ending. Interest rate sensitive stocks such as financials and utilities could be casualties in a higher interest rate environment.
In Canada, the end of an era was marked by the ultimate multi-billion dollar yard sale of Nortel's remaining patent assets. Many remember when giant Nortel ruled the telecommunications market in the wild Internet 1990's accounting for almost 40% of the TSE 300 and a lusty total market capitalization of almost $US400b. Now the lawyers, accountants, and bond holders will wrestle for the remaining $US10b that will be divied up.
Post Canada Day fireworks will be on display next Tuesday when RIM hosts it's annual shareholder meeting. A call for 'reshuffled' management and new leadership will be made but I doubt that would help. The revolving door at the corporate suites of Nortel only made matters worse.
The Ontario Securities Commission has finally decieded it is time to look into the 50+ Chinese TSX and TSX Venture exchange 'back door' reverse takeover listings. Much of the Sinoforset fraud hysteria has subsided as investors wait for the detailed forensic accounting reports. Hedge fund Wellington Management of Boston now controls over 11% of Sinoforest from it's 4% position at the end of May. Averaging down is usually not a recommended or profitable strategy but WM obviously see value at current depressed levels. A move above $US5/sh would be an interesting short term trading speculation.
The TSX has dramatically lagged the major markets of the US this year and is currently 8% lower from the recovery highs in April. The resource sensitive TSX Venture exchange is down over 20% from the highs registered in early March. With pending potential break outs in many key commodities the TSX could very rapidly revalue many over sold sectors. A move above 13,500 for the TSX would be a very positive precursor for a return back to the 14,000+ levels registered in March and April.
In closing, despite the numerous well publicized economic threats and concerns key North American markets are now 'interestingly' positioned for it's continued 'non-seasonal' summer rally. Over the last 7 days the DJIA has rallied powerfully back to 'post credit crash' high territory. Despite the short term over bought condition considerable amounts of non-performing cash remains idle on the sidelines braced for worse case financial scenarios. Key DJ Transport and Nasdaq Tech leadership bodes well for potential new recovery highs and a longer term bullish outlook. Any near term improvements in US residential housing and banking would be the icing on the cake!
As difficult as it may be - we may have to get used to thinking positive about the economy and being optimistic about improving financial conditions for a change!
other various selective banking accommodations.
US treasury bond yields are rising and bond prices are contracting/adjusting in an orderly manner so far. A move above 4% in the 10 year treasury yield could reverse a very long 30+ year downtrend in interest rate levels. A sharply higher interest environment would create significant economic challenges and head winds.
Attention is now turning to current debt ceiling limit discussions - minus much of the earlier fear mongering and emotional histrionics. A constructive reality may be finally setting in or it just might be getting harder to spook markets? Could Federal spending fatigue finally be setting in? Odds are now 80% that a debt ceiling agreement will happen before the cupboard is bare. However, the odds of getting out of the hole by digging deeper are much less!
The Greek debt drama also appears to be playing out without the doom, gloom, and anticipated middle class revolution to this point. EU periphery player Greece is quickly becoming an after thought on the world's financial stage. Sovereign issues are now perceived as banking challenges. Currently a third of the 91 Euro banks are undergoing public stress tests to determine the level and extent of external support necessary to balance their books. This year's 8% flight of Greek deposits from their banking system has not helped matters. Thankfully it does not appear like it will be a full fledged accelerated run on their financial system. All that really remains to be decided is the level and distribution of the pain and punishment. Could such austerity measures mean the end of Italian President Silvio Berlusconi's bunga bunga parties too!?
This week's stringent Moody's downgrade of Portugal by four levels to junk status has been met with a palpable disdain by Germany and Euro zone members. The EU called the downgrade a biased 'USA' based maneuver which only fuels speculation in the financial markets. The ECB quickly and stunningly announced that they are suspending rating requirements for Portuguese (and mostly likely Spanish and Italian) collateral in a preemptive move to lend against insolvent paper. Not great news for the Goldman Sachs messenger!
Major equity markets around the world hardly batted an eyelash while seemingly looking past most of these current nagging assorted sovereign credit/debt issues - if that is at all possible!
Chinese and the ECB Central Banks once again fractionally raised their interest rates to 3.5% and 1.5% respectively to either attract funds, cool housing speculation, or combat inflation threats. Benchmark rates are now 'almost' reflecting the 'real' rates of inflation in both of these jurisdictions. Nice to see the financial 'ying' being brought into line with the economic 'yang!'
The Bank of England preferred to maintain it's interest rate status quo of 0.5% despite having the worlds highest CPI (excluding food & energy) level of 4.0+% this year. I doubt that the Brits will be able to maintain that accomodative interest rate policy for very much longer.
In the US, rapidly improving internal economic stats led by a 6.5% increase in June same store retail sales and positive employment expectations have ignited a very impressive rally from very over sold conditions.
The seasonal '2 market days before June month end to 5 market days after Independence Day celebration rally' was triggered right on schedule.
This short term broad based 8% rally was not held back by Presidents BHO's golf club rattling town hall twittering threats corresponding to the failure of not reaching an increased debt ceiling level accord. Can you imagine what might have happened if he spoke about the problems associated with the failure of 'not' cutting spending?
Friday's disappointing employment numbers of only 18,000 nonfarm payrolls job created should inspire short term liquidation and position squaring before the weekend. The recent short term rally needs to be corrected and consolidated before a new up leg into new recovery highs are attempted.
The DJIA is only about 2% from a new 'recovery' high at just under 12,900. It will be very interesting to see if a 'run to get back into equity markets' ensues if new recovery highs are made. Trillions of freshly printed idle US dollars are on the side lines braced for various worse case financial scenarios.
Despite a significant 10% rebound in the price of crude oil the DJ Transports have registered an especially impressive new 'all time' high triggering another Dow Theory buy signal. I tip my cap to Warren Buffet for his $US44b purchase of Burlington Northern Santa Fe Corp railway almost two years ago and his 'all-in' wager on the economic future of the United States. The DJ Transport index is up almost 50% since then! That is what I call, 'pinning the tail on the donkey!'
Residential housing markets/prices may have finally 'flattened' (poor word choice) - with rapidly increasing reported sales gains and marginally higher prices in selected regions.
The June ISM manufacturing index increased almost 2% from a month earlier. Both the employment index and new factory orders increased almost 3% from the month of May. Corporate revenues, earnings, and their respective balance sheets have rarely been in better shape. US export business continues to fire on all cylinders.
The S&P looks to report over $90 earnings this year at a reasonable 15x's p/e ratio. The economically sensitive NASDAQ index is on the verge of new 10+ year high territory.
In commodities, the crude oil market easily handled the release of 60m bbls from the strategic petroleum reserves and is within a 'toonie' of the $US100/bbl mark. The 3 month 20% downtrend looks to have reversed with crude oil now above both it's 20 and 50 dma's. Goldman Sachs and Morgan Stanley expects oil to reach $US130/bbl within the year. The 'anticipated' decrease in world wide consumption appears unlikely any time soon.
Gold continues to assert itself as the world's #1 currency and is within a $US20 bill of major break out territory. Silver appears to have effectively consolidated much of the CME generated margin requirement liquidation. A move above $US38/oz would signal a potential break out back to mid $US40 level. World consumption of Silver bullion and coins continues at a consistently increasing record pace. Speculators continue to dominate the Silver markets trading over 800 million of ozs per day in April/May on the COMEX. The entire Silver industry will only produce 900 million ozs from mines and scrap this year! The current Gold-Silver ratio of 42x's suggest that Silver may outperform Gold on the next leg up. Gold & Silver Guru Eric Sprott recently stated prices would go 'bonkers' should a QE III be necessary. I suspect he does.
Copper has suddenly and effectively broken out from it's 5 month consolidating down trend in the face of rising interest rates and the threats of slowing economic growth. South American and African supply concerns are contributing to these higher price levels.
The Agra markets appear to be rebounding from short term very over sold conditions. June was a tough month for grains based on a USDA 'over planting' acreage usage report. The Agra markets can be very volatile and most likely will be for the next few months.
The Canadian dollar is trending bullishly and appears to consoldiating for a run at the $US1.06 high level registered in April. The relative strength of the Canadian dollar has been a considerable headwind for US-Can interlisted equities and many other resource issues.
The US treasury market appears vulnerable now that QEII has finally ended and with rising interest rates throughout the world. The US treasury will continue issuing approx. $US166b per month of bonds but the exact source of demand and price has yet to be determined. Noted commodity bull Jim Rogers is current short 30 year treasury issues and is considering selling 10 and 5 year issues also. The days of negative 'real' interest rate returns appear to be ending. Interest rate sensitive stocks such as financials and utilities could be casualties in a higher interest rate environment.
In Canada, the end of an era was marked by the ultimate multi-billion dollar yard sale of Nortel's remaining patent assets. Many remember when giant Nortel ruled the telecommunications market in the wild Internet 1990's accounting for almost 40% of the TSE 300 and a lusty total market capitalization of almost $US400b. Now the lawyers, accountants, and bond holders will wrestle for the remaining $US10b that will be divied up.
Post Canada Day fireworks will be on display next Tuesday when RIM hosts it's annual shareholder meeting. A call for 'reshuffled' management and new leadership will be made but I doubt that would help. The revolving door at the corporate suites of Nortel only made matters worse.
The Ontario Securities Commission has finally decieded it is time to look into the 50+ Chinese TSX and TSX Venture exchange 'back door' reverse takeover listings. Much of the Sinoforset fraud hysteria has subsided as investors wait for the detailed forensic accounting reports. Hedge fund Wellington Management of Boston now controls over 11% of Sinoforest from it's 4% position at the end of May. Averaging down is usually not a recommended or profitable strategy but WM obviously see value at current depressed levels. A move above $US5/sh would be an interesting short term trading speculation.
The TSX has dramatically lagged the major markets of the US this year and is currently 8% lower from the recovery highs in April. The resource sensitive TSX Venture exchange is down over 20% from the highs registered in early March. With pending potential break outs in many key commodities the TSX could very rapidly revalue many over sold sectors. A move above 13,500 for the TSX would be a very positive precursor for a return back to the 14,000+ levels registered in March and April.
In closing, despite the numerous well publicized economic threats and concerns key North American markets are now 'interestingly' positioned for it's continued 'non-seasonal' summer rally. Over the last 7 days the DJIA has rallied powerfully back to 'post credit crash' high territory. Despite the short term over bought condition considerable amounts of non-performing cash remains idle on the sidelines braced for worse case financial scenarios. Key DJ Transport and Nasdaq Tech leadership bodes well for potential new recovery highs and a longer term bullish outlook. Any near term improvements in US residential housing and banking would be the icing on the cake!
As difficult as it may be - we may have to get used to thinking positive about the economy and being optimistic about improving financial conditions for a change!
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