Once again the ugly and terrifying European sovereign debt monster has reared it's ugly head. Combined with pending end of US QE II and related US debt ceiling woes - equities and commodities around the globe are pricing & bracing for worse case scenario possibilities.
For the past few months banking experts and financial pundits have been split over the 'contagion effect' of a Greek default and a bond market 'brush cut.' The dire situation in the Mediterranean is rapidly becoming obvious. 3 year Greek bonds trade with an effective yield of almost 30% and an explosive CDS derivative domino market just itching to be triggered. A full blown Greek default has already been effectively 'baked' into the Baklava cake! Greece is over 300 billion Euro in debt and it's budget deficit is more than 4 times the Euro zone 'limit' at 14+% of GDP. The Greek economy has only marginally delevered to this point. Credit to the Greek government has actually increased recently. Credit ratings have hit the rock bottom 'CCC' (avoid at all costs) level. Our happy-go-lucky friends at Moody's Investor Service's is 'warning' ALL lenders remotely connected to the Greek debacle. Three key French banks (Soc Gen, BNP Paribas, & Credit Agricol) with significant credit exposure are the latest candidates to get the Moody evil eye.
Since last May when IMF and Euro zone members reluctantly coughed up an additional 110 billion Euros in a bailout/rescue package along with associated hard core austerity programs social unrest and protest has been the order of the day. To this point Greece has not taken their 'belt tightening' as hard as losing the 7th game of a Stanley Cup final - but discontent and anger will certainly grow during the long hot summer months.
Since then unemployment in Greece has grown almost 5 % to the current 16.5% level. Under 24 year old unemployment exceeds a crushing 40+%! One in three Greek workers are 'currently' employed by the government. The 'reshuffling' Greek government continues to spend almost 50% of it's GDP - an obviously unsustainable pace which will ultimately result in accelerated job loss. To make matters worse another 60 billion Euro infusion is needed by the middle of next month. The big US banks have been generously supporting European banks having lent almost 30% from their 'books' over the past 2 years & with over $US40+ billion of total exposure.
The ECB currently holds 190 billion Euros of Greek IOU's against a total net equity capital base of 82 billion Euros. A 50% Greek bond market 'haircut' would therefore effectively wipe out the ECB and sink the central bank. The contagion effect would be catastrophic to say the least. The top 3 directly exposed countries to Greece are Germany (26b Euro), France (20b Euro) & UK (3.2b Euro). Adding basket cases Portugal & Spain and possibly heavy weight Italy to this toxic mess makes this 'structual' challenge more than 'transitory' in nature. It is the toughest test of the resolve and discipline of the Euro zone in it's short history. Should Euro financial heavy weights Germany and France fall out of love the resulting divorce would be messy indeed and make a world wide economic 'double dip drubbing' a certain reality.
In the US, fixed income Guru and newly minted Treasury bond bear, Bill Gross, who manages over $1.2 trillion in assets, told CNBC Monday that the US is 'actually' in worse shape financially than Greece after all entitlements are factored into the equation. Pimco has no intention of buying any treasury bonds after the Federal Reserve spends the last of the $US600 billion bailout bonanza. His tone and demeanor was dire to say the least. Definitely not a great way to start the week.
The aptly named 'Misery Index' which is the sum of unemployment and inflation (CPI) rates has hit a fresh 28 year high. Almost as miserable as a Vancouver hockey fan! The index has risen significantly since BHO took office from 7.8% to 12.7% Google searches for 'Double Dip Recession' have returned to bearish levels of this time last year! Fragile consumer confidence threatens consumption levels for the summer and back to school months. American households are quickly losing their sense of humor and patience.
On the plus side, total household financial burdens have eased considerably since Sept '07 reflecting businesses and individuals actively adjusting to changing circumstances. Housing starts are flat (which is better than negative) despite significant inventory supply. US Corporations are flush with capital and strong profits continue to roll out throughout much of this uncertainty. Retail cash registers are ringing for the time being and we are beginning to enjoy some of Al Gore's global warming at last!
The DJIA and S&P both sit 7% below recent recovery highs in early May. They are both consolidating in critical moving average territory and slightly above long term weekly up trend lines. They both 'feel' like they could quite easily retest the lower early March and Jan 1st levels of another 3-4% lower. Sharply lower recent crude oil prices should add significant support to those levels and fatter consumer's wallets.
In the commodity sector, Brent-Cushing spread levels have hit record levels of over $US20/bbl. Markets look to be well supplied in the short run despite rising world wide consumption levels. Crude oil has broken a recent short term congestion distribution range and will find significant support in the $US88-92 range. The break at the 'pumps' will be welcome news for American drivers this summer. Natural Gas looked all set to breach the $5/mcf level recently but has settled back into the $US4.50 range based on lower crude prices.
Gold refuses to correct below the $US1,500/oz level and looks to break out into new all time high territory should credit issues accelerate. The 'gold barometer' is clearly signalling anticipated increased inflation levels and possibly QE III expectations. Silver continues to compress in the mid $US34-6 range still feeling the ill effects of recent crushing CME margin pressure.
In the Agra sector the grains have corrected recent strength primarily based on current prevailing economic 'slow down' concerns and anticipated credit contraction. Growth and economy sensitive Copper futures has rallied into key over head resistance and potential break out territory of $US4.25/lb.
In Canada, the 'Forest Slump' misadventure fiasco appears to have spread throughout the entire TSX resource sector. Selling has accelerated recently with the TSX a full 10% + below recent recovery high territory. Beleaguered shares of SinoForest have broken $CD4/sh this week in a stunning fall from institutional grace. Lower than expected earnings were reported compounded by accelerated 'non-recurring' write downs based on new international accounting standards. It will be an additional 3 months before an 'independant' analysis is complete. At minimum, it will give a little more time for the trees to grow! Until that time 'CasinoForest' remains a highly uncertain unquantifiable speculation at best. Should the 'worst case' scenario emerge for TRE it could unfortunately tarnish current resource excitement and reduce upside for a whole chunk of related sectors.
In the misery loves company category, RIM has also disappointed investors and analysts with lower than expected earnings and sharply lower future guidance. This bad news has resulted in a stock price below 2007-08 end-of-world levels. RIM has been a key bell weather for the TSX for many years and it's negative effect could quite easily mute sector and index upside for the summer months. Based on current earnings, low single digit P/E, and cash flush treasury RIM will be an ideal candidate for potential merger or takeover activity for those hoping to do battle with the Apple communications behemoth.
Bottom Line: It is almost impossible for equity/commodity markets to deal with the steady flow of dire/tragic 'macro' related issues and events that we receive on almost a daily basis. Most major indexes have mapped out short term distribution type topping patterns primarily based on significant assorted economic head winds. Strong bottom up micro corporate fundamentals are in place for concerted upside once the major sovereign credit and debt issues are realistically and effectively addressed.
For those of the bullish ilk who may need reminding or to be cheered up a little;
the world is growing (3.2%); the US is growing (2%); floods/tornadoes/tsunamis are not permanent; debt is transitory; IPO conditions are vibrant; companies are loaded with cash ($US1.9 T); bargain Fed interest rate policy appears to be locked in until after the 2012 election; key blue chip companies are well into the black and attractively valued, and most importantly almost everybody is braced for the downside.
Look for major equity and resource markets to move from 'risk aversion' to 'liquidity conversion' before long!
Friday, June 17, 2011
Friday, June 10, 2011
Week Ending June 10th/2011 - Correction II
North American major markets are 'correcting' for the second time in 2011.
In normal circumstances major North American market indexes correct approximately 4 times a year. This year's first DJIA and S&P correction (mid Feb-mid March -6%) bounced perfectly off its 200 dma (11,700) before rallying into new post credit crisis high territory and a shade under 12,900. This most recent 6 week DJIA and S&P 8% capitulation feels much more intense having wiped out the lions share of the 2011 gains for the year. The DJIA is enduring it's worst weekly losing streak since 2002! And that's saying something when one considers what we've been through since then!
The TSX has dropped almost 9% since the early April double top level (14,300) led by the heavily weighted financials and having lost all of it's 2011 gains. Major moving averages and key uptrend lines have been violated this week which is often a red flag for long positions.
The TSX Venture Index has dropped a whopping 20+% from its early March high of 2,450. It currently sits under 1,950 and 300 points below the January 1st/2011 opening levels.
This most recent North American swoon accelerated primarily due to the uncharacteristically dour comments from Helicopter Ben and his steroid consuming band of financial quantitative easers. His depressing economic comments and projections sounded like a QE III rehearsal speech to me. Bernake's sour analysis was supported by the Fed's Beige Book reports of 'growing but slowing' US economic activity. Only Dallas Tx reported upbeat growing stats - a possible indication of a looming NBA Mav upset over the Terrific Trio of the Miami Heat. Gentle Ben will have his hands full convincing a surly Congress during looming debt limit 'roid rage' debates to provide financial markets with yet another 'quick fix' to stimulate beleaguered tax payers!
This week's critical major US bond auction went smoothly with the bell weather 10 year bond rate dropping below 3%. The November 2010 'Pre-QEII' 10 year bond yield low was 2.636%.
The level of investor bearish sediment has rapidly increased to almost 50% - the same level as just prior to the November start of the QEII. Let's hope this is not an indication that glass is only half full!
Nasty unemployment stats continue to be reported for most credit challenged Euro zone jurisdictions. It is beyond me how Greece with 16% and Spain with 21% unemployment (and each with a whopping 40+% unemployment for those under 24) will ever deal with their bloated debt balance sheets. The slight .06% drop in German industrial output is equally as concerning considering they effectively finance most of the dysfunctional Euro debt freeloaders. Moody's has become very moody lately with their 'downgrade-a-day' doomsday threats to any fiscally challenged jurisdiction. China suggests they may take their foot off the interest rate accelerator but seem to be more concerned about US financial budget challenges. Thankfully sweltering temperatures in the Middle East have temporarily halted significant internal political and social hostilities for the time being!
In the US the unemployment line has stretched back to a hair over 9% in spite of very positive record levels of exports, rapidly improving personal balance sheets, powerful corporate profit momentum, and a very friendly interest rate/spread environment. Household net worth has increased $US10T in the least 2 years!
Financial pundits are growing increasingly 'gloomy and doomy' in spite of our bikini friendly summer temperatures. Second quarter GDP growth does not appear likely to build significantly on the moribund 1.8% stats reported in the first quarter. 'Stimulative' interest rates cannot drop any lower unless lenders are prepared to start paying borrowers instead of collecting.
The key under valued housing sector is groping for a meaningful bottom like a New York Democratic Representative on Facebook. Merciless waves of fresh foreclosures are bloating already over supplied conditions. R.Shiller (Case-Shiller Index) suggests that residential values may drop yet another 10-25% before the ultimate bottom is hit. That reality would suggest conditions far worse than the devastating carnage of the 'Dirty 30's!' And this after the value of household real estate has already lost $US6.6T from the 2007 peak. I'm not sure a US bank will be left in business if residential house prices drop another 25% from current depressed levels. Currently US Banking balance sheets are being mercilessly 'capital tested' by the Fed while their associated equities try to deal with substantial liquidation and nose diving stock prices.
Prevailing powerful corporate earnings reports are being systematically revised downward reflecting an anticipated drop in world wide economic growth. I hope I'm not cheering you up too much?
Although I'm not planning to cut my personal consumption levels any time soon - the equity markets and economic experts are suggesting otherwise! My wife will not be pleased if they are right and I am wrong!
In the commodity sector widespread 'bubble' proclamations ring out but are not reflected in the current strong price levels so far. The Agra sector is showing renewed strength with Corn futures hitting life of the contract high levels based on reports of reduced planting, lower than expected yields, and weather issues. Soybeans are on the verge of following the lead of corn needing only marginal upside to significantly break out on the upside. Wheat has been the lovable laggard of the group and rests on solid support at $US7.50/bu.
The International Energy Agency released a report calling for a 'Golden Age' for Natural Gas - my personal favorite commodity. Although - I'm not looking forward to increased levels of personal natural gas in my golden age. (Sorry but I had to throw that one in). The thrust of the IEA report is based on Japan's tragic nuclear disaster with Nat Gas being a relatively cheap, pleantiful, and safe substitute. I'm not quite that positive but I think Nat Gas can easily rally to the mid $US6/mcf level - the average break even cost of production. Nat Gas currently is on the verge of a significant intermediate break out through the $US4.90/mcf level on a closing basis. Hot summer temperatures will go a long way to burn off Natural Gas inventory excesses.
Gold has impressively absorbed any significant selling to this point and is consolidating near the May 2nd all time high level of $US1,557. Despite recent short term US$ strength - Gold remains within a crisp freshly printed $US20 bill of new record high closing levels. Short term technical negative relative strength divergence is a mild concern for Gold at current levels and may suggest a pull back to $US1,475 support.
Silver continues to impressively absorb and consolidate the recent brutal CME margin increases in the
$US36-38 level. It appears that Silver maybe flowing into longer term strong hands from the short term speculative trading accounts. Gold and Silver have recently been reporting interestingly record low 'deliverable' levels of inventory on the CME. Expect increased volatility around key contract expiry dates throughout the summer.
Copper has held the very profitable $US4/lb level to this point and needs a $US4.25+ level on a closing basis to resume upside momentum. Rising interest rates and/or a slowing world economy would challenge Copper to remain significantly above the $US4/lb level. Downside support is at the $US3.60/lb level.
Oil impressively holds the $US95-105 level primarily based on various OPEC member quota differences, very volatile inventory reporting, and the astonishing news that China has already become the #1 consumer of energy in the world! I hope they got Al Gore's permission first! Significant strength in the US$ would pressure Crude Oil prices in the near term. The $US85-95/bbl level looks to offer significant longer term support with $US110-120 being substantial natural resistance. Intermediate and Senior producing oil equities have significantly discounted lower underlying crude oil price levels which I do not think we will see any time soon. Many quality junior TSX-Venture exchange oil exploration/producing/drilling issues have been hit particularly hard in recent days and look very compellingly priced at current levels.
In Canada, the TSX has also been hit particularly hard in recent weeks in no small part due to unsubstantiated accusations of significant irregularities by TSX 60 listed Chinese Timber company Sino Forest. According to the appropriately named short sellers - 'Muddy Waters' - See No Forest has been nothing more than your basic 'Tree Ex' swindle possessing little or no value. Based on very suspect and 'pre-marketed(?)' negative research, the 35 year old former lawyer & upstart Carson Block, alleges that Sino Forest has grossly over exaggerated stumpage reserves and possibly even title and ownership.
The silent response from the otherwise vigilant regulatory community has been deafening. In the process Ontario domiciled Sino Forest, with a significant 'who's who of finance' as shareholders, has been crushed having lost 80% of its recent $US5B market cap. It appears that the compliance community has little concern about loose cannon renegade short sellers who disparage, denigrate, and generally 'muddy the waters' against relatively helpless publicly listed issuers. Since the fireworks of last week almost every North American Chinese RTO completed over the past 10 years has come under intense scrutiny and pressure. The SEC has finally decided to fly into action! Many issues are no longer marginable at the major brokerage houses based simply on this self interest hearsay!
It is mind boggling in this day of the Dot Com 2002 Sarbanes Oxley Auditing Accountability Act and the most recent assorted Dodd-Frank Sub prime regulatory overkill - that anything even close to this kind of financial chicanery can occur! It sure looks like the regulators could use some regulating themselves!
The TSX closes the week a shade below 13,100 almost 1,200 points (9%) below the March and April recent recovery high levels. Key support, moving average, and longer term uptrend levels have been violated in this significant over sold 8 week sell off. The TSX will be limited on the upside without leadership from the Banking & Financial issues.
Bull market corrections can be as deep as 15% - which in this case would definitely surprise me if the price of gold, base metals, and crude oil continue to stay at current high levels. The TSX list of new 52 week lows has grown considerably in the past few weeks and is starting to feature more quality issues which is not a great sign. Breadth on the downside is another nagging negative.
Bottom Line: What initially looked to be a fairly subdued and contained sell off has morphed into a fairly nasty and powerful selling slump. Persistent sovereign debt teeth gnashing and related QE II debt ceiling stress appears to be accelerating. My personal DJIA/S&P/TSX index 'stop loss' levels have been triggered by the end of the week. As a result I am now more of a mild 'stopped out' bull/bison.
Interestingly a significant amount of this selling has occurred without the usual accompanying negative economic hard data points. The quality (volume, breadth, &leadership) of the next rebound rally will be key to determine if this selling leg is more intermediate in nature - and which could be as much as 15% from the recent post credit crisis high levels. 'If so', that would imply that both the DJIA and TSX could fall another 1,000 points back to their respective long term 200 week moving averages.
In today's terms nothing can be ruled out. Strong balance sheet companies with healthy earnings that appear very attractively priced may get cheaper in the short term. Huge pools of liquidity continue to search for growth and yield. Look for the DJIA 11,700 to offer significant support and a potential double bottom opportunity.
Bear market talk is beginning to circulate around momentum driven trading circles and respected financial commentators. Even worse - Bernake will be speaking before the end of the month! Look for entry points during near term extreme oversold conditions.
'Trading this market through the summer months may require healthy doses of sun screen, air conditioning, and the patience of Job.'
In normal circumstances major North American market indexes correct approximately 4 times a year. This year's first DJIA and S&P correction (mid Feb-mid March -6%) bounced perfectly off its 200 dma (11,700) before rallying into new post credit crisis high territory and a shade under 12,900. This most recent 6 week DJIA and S&P 8% capitulation feels much more intense having wiped out the lions share of the 2011 gains for the year. The DJIA is enduring it's worst weekly losing streak since 2002! And that's saying something when one considers what we've been through since then!
The TSX has dropped almost 9% since the early April double top level (14,300) led by the heavily weighted financials and having lost all of it's 2011 gains. Major moving averages and key uptrend lines have been violated this week which is often a red flag for long positions.
The TSX Venture Index has dropped a whopping 20+% from its early March high of 2,450. It currently sits under 1,950 and 300 points below the January 1st/2011 opening levels.
This most recent North American swoon accelerated primarily due to the uncharacteristically dour comments from Helicopter Ben and his steroid consuming band of financial quantitative easers. His depressing economic comments and projections sounded like a QE III rehearsal speech to me. Bernake's sour analysis was supported by the Fed's Beige Book reports of 'growing but slowing' US economic activity. Only Dallas Tx reported upbeat growing stats - a possible indication of a looming NBA Mav upset over the Terrific Trio of the Miami Heat. Gentle Ben will have his hands full convincing a surly Congress during looming debt limit 'roid rage' debates to provide financial markets with yet another 'quick fix' to stimulate beleaguered tax payers!
This week's critical major US bond auction went smoothly with the bell weather 10 year bond rate dropping below 3%. The November 2010 'Pre-QEII' 10 year bond yield low was 2.636%.
The level of investor bearish sediment has rapidly increased to almost 50% - the same level as just prior to the November start of the QEII. Let's hope this is not an indication that glass is only half full!
Nasty unemployment stats continue to be reported for most credit challenged Euro zone jurisdictions. It is beyond me how Greece with 16% and Spain with 21% unemployment (and each with a whopping 40+% unemployment for those under 24) will ever deal with their bloated debt balance sheets. The slight .06% drop in German industrial output is equally as concerning considering they effectively finance most of the dysfunctional Euro debt freeloaders. Moody's has become very moody lately with their 'downgrade-a-day' doomsday threats to any fiscally challenged jurisdiction. China suggests they may take their foot off the interest rate accelerator but seem to be more concerned about US financial budget challenges. Thankfully sweltering temperatures in the Middle East have temporarily halted significant internal political and social hostilities for the time being!
In the US the unemployment line has stretched back to a hair over 9% in spite of very positive record levels of exports, rapidly improving personal balance sheets, powerful corporate profit momentum, and a very friendly interest rate/spread environment. Household net worth has increased $US10T in the least 2 years!
Financial pundits are growing increasingly 'gloomy and doomy' in spite of our bikini friendly summer temperatures. Second quarter GDP growth does not appear likely to build significantly on the moribund 1.8% stats reported in the first quarter. 'Stimulative' interest rates cannot drop any lower unless lenders are prepared to start paying borrowers instead of collecting.
The key under valued housing sector is groping for a meaningful bottom like a New York Democratic Representative on Facebook. Merciless waves of fresh foreclosures are bloating already over supplied conditions. R.Shiller (Case-Shiller Index) suggests that residential values may drop yet another 10-25% before the ultimate bottom is hit. That reality would suggest conditions far worse than the devastating carnage of the 'Dirty 30's!' And this after the value of household real estate has already lost $US6.6T from the 2007 peak. I'm not sure a US bank will be left in business if residential house prices drop another 25% from current depressed levels. Currently US Banking balance sheets are being mercilessly 'capital tested' by the Fed while their associated equities try to deal with substantial liquidation and nose diving stock prices.
Prevailing powerful corporate earnings reports are being systematically revised downward reflecting an anticipated drop in world wide economic growth. I hope I'm not cheering you up too much?
Although I'm not planning to cut my personal consumption levels any time soon - the equity markets and economic experts are suggesting otherwise! My wife will not be pleased if they are right and I am wrong!
In the commodity sector widespread 'bubble' proclamations ring out but are not reflected in the current strong price levels so far. The Agra sector is showing renewed strength with Corn futures hitting life of the contract high levels based on reports of reduced planting, lower than expected yields, and weather issues. Soybeans are on the verge of following the lead of corn needing only marginal upside to significantly break out on the upside. Wheat has been the lovable laggard of the group and rests on solid support at $US7.50/bu.
The International Energy Agency released a report calling for a 'Golden Age' for Natural Gas - my personal favorite commodity. Although - I'm not looking forward to increased levels of personal natural gas in my golden age. (Sorry but I had to throw that one in). The thrust of the IEA report is based on Japan's tragic nuclear disaster with Nat Gas being a relatively cheap, pleantiful, and safe substitute. I'm not quite that positive but I think Nat Gas can easily rally to the mid $US6/mcf level - the average break even cost of production. Nat Gas currently is on the verge of a significant intermediate break out through the $US4.90/mcf level on a closing basis. Hot summer temperatures will go a long way to burn off Natural Gas inventory excesses.
Gold has impressively absorbed any significant selling to this point and is consolidating near the May 2nd all time high level of $US1,557. Despite recent short term US$ strength - Gold remains within a crisp freshly printed $US20 bill of new record high closing levels. Short term technical negative relative strength divergence is a mild concern for Gold at current levels and may suggest a pull back to $US1,475 support.
Silver continues to impressively absorb and consolidate the recent brutal CME margin increases in the
$US36-38 level. It appears that Silver maybe flowing into longer term strong hands from the short term speculative trading accounts. Gold and Silver have recently been reporting interestingly record low 'deliverable' levels of inventory on the CME. Expect increased volatility around key contract expiry dates throughout the summer.
Copper has held the very profitable $US4/lb level to this point and needs a $US4.25+ level on a closing basis to resume upside momentum. Rising interest rates and/or a slowing world economy would challenge Copper to remain significantly above the $US4/lb level. Downside support is at the $US3.60/lb level.
Oil impressively holds the $US95-105 level primarily based on various OPEC member quota differences, very volatile inventory reporting, and the astonishing news that China has already become the #1 consumer of energy in the world! I hope they got Al Gore's permission first! Significant strength in the US$ would pressure Crude Oil prices in the near term. The $US85-95/bbl level looks to offer significant longer term support with $US110-120 being substantial natural resistance. Intermediate and Senior producing oil equities have significantly discounted lower underlying crude oil price levels which I do not think we will see any time soon. Many quality junior TSX-Venture exchange oil exploration/producing/drilling issues have been hit particularly hard in recent days and look very compellingly priced at current levels.
In Canada, the TSX has also been hit particularly hard in recent weeks in no small part due to unsubstantiated accusations of significant irregularities by TSX 60 listed Chinese Timber company Sino Forest. According to the appropriately named short sellers - 'Muddy Waters' - See No Forest has been nothing more than your basic 'Tree Ex' swindle possessing little or no value. Based on very suspect and 'pre-marketed(?)' negative research, the 35 year old former lawyer & upstart Carson Block, alleges that Sino Forest has grossly over exaggerated stumpage reserves and possibly even title and ownership.
The silent response from the otherwise vigilant regulatory community has been deafening. In the process Ontario domiciled Sino Forest, with a significant 'who's who of finance' as shareholders, has been crushed having lost 80% of its recent $US5B market cap. It appears that the compliance community has little concern about loose cannon renegade short sellers who disparage, denigrate, and generally 'muddy the waters' against relatively helpless publicly listed issuers. Since the fireworks of last week almost every North American Chinese RTO completed over the past 10 years has come under intense scrutiny and pressure. The SEC has finally decided to fly into action! Many issues are no longer marginable at the major brokerage houses based simply on this self interest hearsay!
It is mind boggling in this day of the Dot Com 2002 Sarbanes Oxley Auditing Accountability Act and the most recent assorted Dodd-Frank Sub prime regulatory overkill - that anything even close to this kind of financial chicanery can occur! It sure looks like the regulators could use some regulating themselves!
The TSX closes the week a shade below 13,100 almost 1,200 points (9%) below the March and April recent recovery high levels. Key support, moving average, and longer term uptrend levels have been violated in this significant over sold 8 week sell off. The TSX will be limited on the upside without leadership from the Banking & Financial issues.
Bull market corrections can be as deep as 15% - which in this case would definitely surprise me if the price of gold, base metals, and crude oil continue to stay at current high levels. The TSX list of new 52 week lows has grown considerably in the past few weeks and is starting to feature more quality issues which is not a great sign. Breadth on the downside is another nagging negative.
Bottom Line: What initially looked to be a fairly subdued and contained sell off has morphed into a fairly nasty and powerful selling slump. Persistent sovereign debt teeth gnashing and related QE II debt ceiling stress appears to be accelerating. My personal DJIA/S&P/TSX index 'stop loss' levels have been triggered by the end of the week. As a result I am now more of a mild 'stopped out' bull/bison.
Interestingly a significant amount of this selling has occurred without the usual accompanying negative economic hard data points. The quality (volume, breadth, &leadership) of the next rebound rally will be key to determine if this selling leg is more intermediate in nature - and which could be as much as 15% from the recent post credit crisis high levels. 'If so', that would imply that both the DJIA and TSX could fall another 1,000 points back to their respective long term 200 week moving averages.
In today's terms nothing can be ruled out. Strong balance sheet companies with healthy earnings that appear very attractively priced may get cheaper in the short term. Huge pools of liquidity continue to search for growth and yield. Look for the DJIA 11,700 to offer significant support and a potential double bottom opportunity.
Bear market talk is beginning to circulate around momentum driven trading circles and respected financial commentators. Even worse - Bernake will be speaking before the end of the month! Look for entry points during near term extreme oversold conditions.
'Trading this market through the summer months may require healthy doses of sun screen, air conditioning, and the patience of Job.'
Thursday, June 2, 2011
Week Ending June 3rd/2011 - Brinkmanship
Brinkmanship is defined as the technique or practice of maneuvering a dangerous situation to the limits of tolerance or safety in order to secure the greatest advantage, especially by creating diplomatic crises. International politicians are famous for escalating military tensions primarily for political advantage and strategic concessions. The practice of international 'economic' brinkmanship is just as lethal but a considerably more dangerous practice. At minimum, it definitely creates an annoying and toxic investment atmosphere. It is not a wise or healthy 'game' for world economies and the business environment.
Widespread uncertainty, fear, and doubt is currently being generated throughout the world by dysfunctional Central Banking types who threaten contagion risks with looming financial Armageddon. Unfortunately many of the dudes who are trying to solve these complex debt issues are the sames culprits who created this mess.
Greece who entered the European Union (1981) based on a 'fudged' financial resume threatens the world with a return back to bankrupt independence. It is now clear that the EU 'merger of equals' was anything but! Greece with almost US$ one half trillion in debt obviously borrowed considerably more than they could afford. For the past 2 years they have demonstrated zero fiscal discipline or budgetary restraint. The thought of austerity, and the necessary 30% drop in living standard, has brought the masses back into the streets in aggressive protest. It has become clear they have little or no interest in repaying a single Drachma if they can help it. Credit ratings agencies have had no alternative but to lower ratings to default levels in the dismal Caa1 category.
And as the various sovereign sabres rattle, Central Euro Bankers are frantically attempting to engineer further irresponsible 'short term' lending which Greece will also never repay. Ultimately various banks will be on a very tenuous Greek hook for a combined US$100 billion - if not more! In for a penny ... in for a pound I guess?
It may be unfair to blame the problem on a small singular defenceless country which represents less than 1% of the world's GDP (#45 per capita). Iceland has recently disavowed any financial responsibility. Portugal is closely monitoring Greece's reaction to the latest blackmail package. Spain and Italy wait anxiously in the wings for similar largess. One wonders how much bailing Germany and France can or wants to do? Trying to hold 'unaccountable' jurisdictions accountable looks to be the ultimate challenge in this bizarre international financial Ponzi scheme.
In the US - the same dangerous game of brinkmanship is on daily display in Congress and the Fed in mindless debt ceiling rhetoric and irrational deficit financing masterminding. Public service unions use any opportunity to dip into an already massively over extended public trough. Learned & fearless leadership are fully convinced that it would be 'totally irresponsible' for the taxpayer NOT to get deeper 'into the glue!' Talk of perpetual bailouts, zero interest rate policies, and multi trillion dollar deficits roll of their lips far too easily.
The US Federal Government has spent US$5+ trillion of borrowed dough over the past four years to generate less than US$800 billion in GDP - and they think that's a good thing! They want to do more!
Minor currencies have become one of the few harbors of capital safety. Decades of shameless and reckless fiscal and monetary mismanagement has obviously come to a difficult and painful crossroad. It is time to pay the piper and for this nonsense to end! It is definitely time to regulate the regulators!
Finding leadership with the character to realistically address responsibilities will be another matter altogether. Knowing who to trust and/or believe may be more difficult.
Combining fresh negative US employment, housing, and manufacturing data this week it is hardly a wonder that equity markets have stumbled out of the gate this month. This past 2 year S&P/DJIA bull market has been difficult, unloved, and under owned. Outstanding export and earnings growth data gets little or no respect. It appears that market participants are searching for reasons not to own equities as opposed to searching for opportunities. Past negative news gets repetitively recycled and has effectively kept the major North American equity markets within 5% of the opening Jan 1st level - but also within 5% of their three-year high levels recorded at the end of April. Markets are keenly more sensitive and reactive to negative than positive reports.
Negative housing hysteria has hit a fevered pitch in spite of being 3 years old! Double dipping Case-Shiller stats indicate that home ownership and prices have returned to early 2000 levels - the beginning of the 'accelerated madness.' A veritable tsunami of foreclosed homes are about to hit a weak marketplace. More importantly - on an inflation and a gold adjusted basis (number of ounces of gold to buy an average home) US housing prices have returned to 1980 levels - a period of mid teen interest rates and very difficult economic circumstances. US homes have never been more affordable as compared to income - or cheaper on a square footage basis. Needless to say - it's a little late to get too negative on housing prices now even considering pending foreclosures and a major FNMA reorganization. With over US$1.5 trillion sitting in idle bank reserves my bet is that the worst is over.
In the commodity sector the negative effect of stressful currency and sovereignty issues have been much more muted. Gold persistently holds the US$1.535/oz level and is only $20/oz away from all time high closing levels. Silver continues to consolidate in the mid US$30/oz level and looks to be more of a range bound trading vehicle in the US$32-39/oz level. A break over US$40/oz would imply a retest of all time high levels of US$50/oz.
The grain complex looks very positive with Soy Beans and Corn on the verge of a major break to the upside and into new recovery high territory. Wheat prices are lagging based on recent fundamentals but will more than likely rally with the group.
My favorite Natural Gas is breaking out of a multi-week & multi-month long term consolidation pattern at US$4.75/mcf. Nat Gas crossed through the positive 'golden cross' of the 50 dman passing through the 200 dma on the upside. NG looks to possibly rally quickly to the long term cost of production of US$6+ /mcf. The long term Natural Gas chart looks very interesting with a positive risk to reward ratio. Most negative 'over supply' NG news appears to have been built into current consolidated price levels. With the prospect of a long hot summer air conditioners will be pressed to the limit and excess NG supplies will be reduced.
Crude Oil continues to hold the $100/bbl level and also looks to be more of a range bound trading vehicle in the US$95/bbl to 105/bbl range.
Copper looks a little more dicey - but continues to hold the US$4/lb level in spite of a well publicized 'potential' world wide economic slow down threat. A break of the US$4.25/lb level would imply a retest of the recent all time high levels.
It appears that the overall commodity complex is discounting the possibility of a modified QE III stimulus package looking past the current QEII program.
In Canada the TSX continues to consolidate in the frustrating 13,400 to 14,200 level. Canadian Banks have reported generally improved but lower than anticipated earnings. A few expected dividend increases were announced but it appears than much of the good news has been factored into current prices. The heavily weighted TSX Financial index rests on critical support levels and at it's 200 dma. It may be a tad early to suggest that the full effect of the North American 'low to neglibile' interest rate policy has been fully baked into Cdn bank equity prices - but any meaningful intermediate upside does appear to be limited.
RIM has broken into new multi year low territory breaking the $40 level after almost 6 months of selling. Negative Nokia research reports of pending low inventory turn over and tightening margins have contributed to the RIM malaise. It seems that no competing tech company has avoided the destructive 'Apple Effect!'
Many senior resource stocks and sectors appear to be very attractively priced based on their relatively strong commodity prices. Higher underlying prices would be the catalyst for resource sector leadership this summer.
Bottom Line: Hardly a day goes by without the major North American equity markets having to deal with a nasty economic or ugly political event.
Central Banking types have clearly demonstrated that they do not possess the determination or will to deal with key fiscal or difficult monetary issues. They seem to be a collective group of 'can kickers' who are happy to kick their problems 'down the road.' It appears their current low interest rate & easy monetary policies will continue to be the status quo for the foreseeable future. Let's just hope that all of their collective posturing and self serving idle Brinkmanship threats remain idle.
I do believe that the world wide economy is a lot stronger than is being advertised. I think that earnings will continue to grow and that employment conditions will improve faster than expected. Recent impressive IPO and M&A activity looks to accelerate considerably.
Most key stock prices are fairly to attractively priced on most key metrics. They appear to be considerably under owned and unwanted relative to liquidity and capital levels. It would be unusual to see a meaningful topping process with a majority braced and expecting significant downside liquidation.
Considerable external geo-economic risk does indeed exist - but I will not be surprised if markets are consolidating for a more positive summer investment season than has been announced & expected. I maintain long held stop levels of DJIA 12,000, S&P 1,300, and TSX 13,250 just in case push comes to shove! Or if the can doesn't kicked!
Widespread uncertainty, fear, and doubt is currently being generated throughout the world by dysfunctional Central Banking types who threaten contagion risks with looming financial Armageddon. Unfortunately many of the dudes who are trying to solve these complex debt issues are the sames culprits who created this mess.
Greece who entered the European Union (1981) based on a 'fudged' financial resume threatens the world with a return back to bankrupt independence. It is now clear that the EU 'merger of equals' was anything but! Greece with almost US$ one half trillion in debt obviously borrowed considerably more than they could afford. For the past 2 years they have demonstrated zero fiscal discipline or budgetary restraint. The thought of austerity, and the necessary 30% drop in living standard, has brought the masses back into the streets in aggressive protest. It has become clear they have little or no interest in repaying a single Drachma if they can help it. Credit ratings agencies have had no alternative but to lower ratings to default levels in the dismal Caa1 category.
And as the various sovereign sabres rattle, Central Euro Bankers are frantically attempting to engineer further irresponsible 'short term' lending which Greece will also never repay. Ultimately various banks will be on a very tenuous Greek hook for a combined US$100 billion - if not more! In for a penny ... in for a pound I guess?
It may be unfair to blame the problem on a small singular defenceless country which represents less than 1% of the world's GDP (#45 per capita). Iceland has recently disavowed any financial responsibility. Portugal is closely monitoring Greece's reaction to the latest blackmail package. Spain and Italy wait anxiously in the wings for similar largess. One wonders how much bailing Germany and France can or wants to do? Trying to hold 'unaccountable' jurisdictions accountable looks to be the ultimate challenge in this bizarre international financial Ponzi scheme.
In the US - the same dangerous game of brinkmanship is on daily display in Congress and the Fed in mindless debt ceiling rhetoric and irrational deficit financing masterminding. Public service unions use any opportunity to dip into an already massively over extended public trough. Learned & fearless leadership are fully convinced that it would be 'totally irresponsible' for the taxpayer NOT to get deeper 'into the glue!' Talk of perpetual bailouts, zero interest rate policies, and multi trillion dollar deficits roll of their lips far too easily.
The US Federal Government has spent US$5+ trillion of borrowed dough over the past four years to generate less than US$800 billion in GDP - and they think that's a good thing! They want to do more!
Minor currencies have become one of the few harbors of capital safety. Decades of shameless and reckless fiscal and monetary mismanagement has obviously come to a difficult and painful crossroad. It is time to pay the piper and for this nonsense to end! It is definitely time to regulate the regulators!
Finding leadership with the character to realistically address responsibilities will be another matter altogether. Knowing who to trust and/or believe may be more difficult.
Combining fresh negative US employment, housing, and manufacturing data this week it is hardly a wonder that equity markets have stumbled out of the gate this month. This past 2 year S&P/DJIA bull market has been difficult, unloved, and under owned. Outstanding export and earnings growth data gets little or no respect. It appears that market participants are searching for reasons not to own equities as opposed to searching for opportunities. Past negative news gets repetitively recycled and has effectively kept the major North American equity markets within 5% of the opening Jan 1st level - but also within 5% of their three-year high levels recorded at the end of April. Markets are keenly more sensitive and reactive to negative than positive reports.
Negative housing hysteria has hit a fevered pitch in spite of being 3 years old! Double dipping Case-Shiller stats indicate that home ownership and prices have returned to early 2000 levels - the beginning of the 'accelerated madness.' A veritable tsunami of foreclosed homes are about to hit a weak marketplace. More importantly - on an inflation and a gold adjusted basis (number of ounces of gold to buy an average home) US housing prices have returned to 1980 levels - a period of mid teen interest rates and very difficult economic circumstances. US homes have never been more affordable as compared to income - or cheaper on a square footage basis. Needless to say - it's a little late to get too negative on housing prices now even considering pending foreclosures and a major FNMA reorganization. With over US$1.5 trillion sitting in idle bank reserves my bet is that the worst is over.
In the commodity sector the negative effect of stressful currency and sovereignty issues have been much more muted. Gold persistently holds the US$1.535/oz level and is only $20/oz away from all time high closing levels. Silver continues to consolidate in the mid US$30/oz level and looks to be more of a range bound trading vehicle in the US$32-39/oz level. A break over US$40/oz would imply a retest of all time high levels of US$50/oz.
The grain complex looks very positive with Soy Beans and Corn on the verge of a major break to the upside and into new recovery high territory. Wheat prices are lagging based on recent fundamentals but will more than likely rally with the group.
My favorite Natural Gas is breaking out of a multi-week & multi-month long term consolidation pattern at US$4.75/mcf. Nat Gas crossed through the positive 'golden cross' of the 50 dman passing through the 200 dma on the upside. NG looks to possibly rally quickly to the long term cost of production of US$6+ /mcf. The long term Natural Gas chart looks very interesting with a positive risk to reward ratio. Most negative 'over supply' NG news appears to have been built into current consolidated price levels. With the prospect of a long hot summer air conditioners will be pressed to the limit and excess NG supplies will be reduced.
Crude Oil continues to hold the $100/bbl level and also looks to be more of a range bound trading vehicle in the US$95/bbl to 105/bbl range.
Copper looks a little more dicey - but continues to hold the US$4/lb level in spite of a well publicized 'potential' world wide economic slow down threat. A break of the US$4.25/lb level would imply a retest of the recent all time high levels.
It appears that the overall commodity complex is discounting the possibility of a modified QE III stimulus package looking past the current QEII program.
In Canada the TSX continues to consolidate in the frustrating 13,400 to 14,200 level. Canadian Banks have reported generally improved but lower than anticipated earnings. A few expected dividend increases were announced but it appears than much of the good news has been factored into current prices. The heavily weighted TSX Financial index rests on critical support levels and at it's 200 dma. It may be a tad early to suggest that the full effect of the North American 'low to neglibile' interest rate policy has been fully baked into Cdn bank equity prices - but any meaningful intermediate upside does appear to be limited.
RIM has broken into new multi year low territory breaking the $40 level after almost 6 months of selling. Negative Nokia research reports of pending low inventory turn over and tightening margins have contributed to the RIM malaise. It seems that no competing tech company has avoided the destructive 'Apple Effect!'
Many senior resource stocks and sectors appear to be very attractively priced based on their relatively strong commodity prices. Higher underlying prices would be the catalyst for resource sector leadership this summer.
Bottom Line: Hardly a day goes by without the major North American equity markets having to deal with a nasty economic or ugly political event.
Central Banking types have clearly demonstrated that they do not possess the determination or will to deal with key fiscal or difficult monetary issues. They seem to be a collective group of 'can kickers' who are happy to kick their problems 'down the road.' It appears their current low interest rate & easy monetary policies will continue to be the status quo for the foreseeable future. Let's just hope that all of their collective posturing and self serving idle Brinkmanship threats remain idle.
I do believe that the world wide economy is a lot stronger than is being advertised. I think that earnings will continue to grow and that employment conditions will improve faster than expected. Recent impressive IPO and M&A activity looks to accelerate considerably.
Most key stock prices are fairly to attractively priced on most key metrics. They appear to be considerably under owned and unwanted relative to liquidity and capital levels. It would be unusual to see a meaningful topping process with a majority braced and expecting significant downside liquidation.
Considerable external geo-economic risk does indeed exist - but I will not be surprised if markets are consolidating for a more positive summer investment season than has been announced & expected. I maintain long held stop levels of DJIA 12,000, S&P 1,300, and TSX 13,250 just in case push comes to shove! Or if the can doesn't kicked!
Thursday, May 26, 2011
Week Ending May 27th/2011 - June Swoon?
In spite of the recent 'social media' excitement North American equity markets have struggled somewhat in the notorious month of 'Sell in May.' Not a day has gone by without a key negative headline reporting potential sovereign debt insolvency, rising inflation in emerging growth economies, domestic budgetary failures, threat of substantial higher interest rates, a slow down in world wide growth prospects, and most significantly - no NFL next year! (Can you imagine the beer and chicken wing surplus?)
The only real 'investor' exuberance has been generated in the high flying Internet social media space.
LindedIn has held it's initial IPO first day 'double return' and currently trades over $90/sh & almost $10b in market cap. LinkedIn, along with it's negligible earnings, has a total valuation greater than a third of the S&P 500 in it's first week of trading! The initial 110% LNKD 'pop' on the first day actually pales in comparison to other 'dotcom era' first day explosions. T Petruno financial columnist of the LA Times in a recent article recalled what real 'foam and froth' looks like in his list of the top ten biggest 'single day' jumps in that wild and painful era. They are:
#1 VA Linex (698%), #2 Exodus Communication (637%), #3 Theglobe.com (606%), #4 Foundry Networks (525%), #5 webMethods (508%), #6 MarketWatch.com (505%), #7 FreeMarkets (483%), #8 Cobalt Networks (482%), #9 Akamai Tech (458%), #10 CacheFlow (427%).
Not every issuer was happy during this extraordinary period. 'Formerly listed' Internet darling EToys.com actually sued their sponsoring broker Goldman Saks for having under priced their 'quality' issue. I wonder if they settled out of court before they went out of business?
I am not trying to downplay the current 'Internet Bubble 2.0' - but Russian Internet search engine Yandex was 'only' 17 times oversubscribed and posted a paltry 45% first day stock price increase with a very 'sociable' US$12 billion market cap. Heck, that was only 100 times trailing earnings and 28 times trailing gross ad sales! Yandex dominates the Russian search business with almost almost a 70% domestic market share along with a few other Baltic countries. 'Non earnings' enterprise Zynga (my favorite name) Game Network founded in 2007 is soon to be sold to the the public at a very healthy $10b market cap. Founder M Pincus named Zynga after his late dog (definitely a red flag IMO). I hope this one doesn't have fleas! Zynga has over 250 million users per month playing addictive time consuming/wasting games (CityVille & FarmVille) on Facebook. Zinga has tapped into the 30+ year old female market who flock to the site much to the consternation of their employers. I have yet to waste some time 'playing' either of them but I'm sure they must be fun.
The over worked and over paid corporate finance types are anticipating another 400+ various significant IPO deals to be done in North America before the year ends covering all major industries.
Headline media continues to focus on the negative 'non tech' aspects of the economy. It doesn't help that US GDP came in a tad lower today and the associated unemployment rolls unexpectedly ticked higher. The fear, loathing, and dread in the domestic US housing market makes me more bullish than ever. Recent rumblings of a potential Italian credit issue implosion that would certainly 'Rock the Casbah!' All eyes are on the debt ceiling(s) and the grand finale of a 'dry docked' QE II and related bond market turbulence. The President has called for the debt ceiling mess to be 'cleaned up' by next week. Translation: 'More no strings borrowed cash please and thank you.' I read that no currency has a long term future other than 'whipping boys' gold and silver. I've stopped keeping track of the reasons to be 'short' the market and 'long' the dry goods and ammunition.
Fortunately the stock market is healthy and appears to have a future. Most major markets are within an eye lash of recent high territory. Utilities and Transports continue to shine and out perform. Interest Rates couldn't be friendlier even if they tried. The recent commodity 'crash' has been more of a mild & orderly sell off & consolidation. The recent positive corporate earnings season and reasonable equity valuations sure do impress me. I'm not certain that this 'market pause' will translate into a 'June to the Moon' breakout - but I'd be surprised to see it turn into the seasonal 'June Swoon' that we have grown to expect.
In the US the DJIA and S&P look to complete a normal one month 2-3% orderly sell off. Corporate stock buy backs and dividend increases have been positive. Early Tarp repayments have been even more impressive. GM has surprisingly and suddenly reasserted itself as the #1 car company in the world. Basic material, energy, and cyclical companies are firing on all cylinders. The agricultural sector has probably never been healthier. All of a sudden being a farmer has become a 'cool and sexy' thing!
On the minus side of the ledger - former President W. Clinton calls for a 'small' short term default on US debt payments with the hopes of injecting some reality into the Congressional 'leadership' proceedings. They sure won't like those bothersome calls from the credit card companies looking for repayment!
Business Insider ranks the top 21 countries most 'likely to default' (according to the intraday CDS cost to insure each countries debt) with the good old 'US of A' failing to make the grade.
For those who like top 10 lists as much as I do these are the 'top' 10 countries likely to welch:
#1 Greece (57%)- in spite of Dr. N Roubini (formerly Dr. Death) reporting today that the Greece's half trillion in debt problem is 'overblown' (bad word); #2 Venezuela (52%) - number two but trying harder; #3 Ireland (43%) -who have recently 'manned up' to face the music (must be the Guinness); #4 Portugal (40%); #5Argentina (34%)- two time losers; #6 Ukraine (27%) - my homies; #7 Dubai (24%) - surprised to see these dudes here; #8 Lebanon; #9 Iraq (21%) - surprised to see that they pay for anything; and last but not least #10 Egypt (20%).
In commodities - other than Silver - most sectors have experienced a moderate and orderly correction this month. Gold holds US$1,500/oz, Oil US$100/bbl, and Copper US$4/lb. Natural Gas continues to consolidation in it's mid range of $4.50/mcf in spite of reports of massive surpluses.
China is now the #1 holder of Gold in the world snapping up more gold in the first quarter of 2011 than ever & over taking India the perennially champ! China's investment demand more than doubled to 90 metric tons in the first 3 months as compare to India's 85 metric tons consumption. China now accounts for 25% of gold investment demand and India is a close second at 23% in the world. A short ten years ago China consumed almost zero gold! As the middle class growth in China and India continues to explode these consumption numbers look to expand significantly. I figure these two behemoths will be slugging it out for top spot for a long time to come! Silver held the low $30 level as expected and looks to challenge recent all time high levels before long. My view was that on the move to US$50/oz for Silver shorts got well squeezed and well 'wrung out!' More than likely we have returned to a 'normalized' but growing Silver consumption market.
In the AGRA sector I continue to be very interested in the grains (corn, soy beans, and wheat) with break out potential into new recovery high territory for the trio. Changing detrimental weather patterns could easily contribute to the upside potential along with consistently higher real World consumption growth. The seed and fertilizer stocks are reasonably and attractively priced with very positive earnings profiles. The recent Glencore Euro listing had none of the 'internet social media' frenzy and trades slightly below cost price. That was a bit of a surprise considering that Glencore is primarily a leveraged trading facility with very volatile earnings and levered growth potential.
In Canada the TSX held the critical 13,250 level and it's 200 day ma. The volatile TSX Venture exchange held the important 2,000 level following a significant 3 month 15% very over sold correction.
From the 'Why can't we be friends department?' the Maple Group (Banks) have officially gone 'hostile' after been stood up by the TMX group. It will be difficult for the shareholders not to accept the over 20% higher Cd$3.6 billion Maple offer. Somehow the Toronto Stock Exchange and the London Stock Exchange will have to 'sweet talk' and come up with an improved offer their 'shareholders can't refuse!' I must confess I'm not cheering for the Banks but I guess it would only be right if the owned everything? A sharp tongued wag in the weekend paper called a bank owned stock exchange in Canada a 'monopolistic silo!'
Speaking of that largess -the Banks earnings are beginning to roll in higher but slightly below 'elevated' expectations. Bank of Montreal disappointed based on lower 'influential' trading earnings and a softer quarter for TSX securities. National Bank increased their dividend 8% and the Royal Bank is expected to follow on Friday. A few of the lesser Financials may increase their payouts also. Most of the Financials are fully priced in my opinion with dividend increases (or not) well baked into their prices.
News of a Hudson's Bay offering will generate considerable interest in this retail friendly environment - even though Lululemon Athletica (LLL-TO) was downgraded today after a monstrous run to over $90/sh, 50x p/e, and a market cap of over Cd$5 billion. This may bring out a few 'shorts'- and I don't mean the 'stretchy' seaweed kind!
Bottom Line: North American markets (including Social Media Tech hysteria) continue to absorb any significant selling pressure irrespective of any calamity - be it natural or engineered or otherwise. Most capital market activity continues to be dominated by large fund flow and 'sophisticated' financial management. The smaller retail investor is still understandable paralyzed by the 2007-08 credit & financial debacle. They appear not to be a factor in current market activity.
I remain positive and look for a significant upside trend to resume early this summer. New recovery recent highs would imply a potential retest of the notorious pre-credit crash all time highs of 2006-08. Key firm stops levels are; DJIA 12,000; S&P 1,275; and TSX 13,250 all on a closing basis should
credit conditions come completely unglued.
More than likely it will take improved sovereign debt and currency issues AND all time highs in all of the major indexes before individual investor 'cocktail talk' turns bullish, confident, or frothy! The 'Darwinian Investment Distribution Theory' suggests that a major cycle is not fully completed until the small individual investor duck starts quacking and get thoroughly fed!
The only real 'investor' exuberance has been generated in the high flying Internet social media space.
LindedIn has held it's initial IPO first day 'double return' and currently trades over $90/sh & almost $10b in market cap. LinkedIn, along with it's negligible earnings, has a total valuation greater than a third of the S&P 500 in it's first week of trading! The initial 110% LNKD 'pop' on the first day actually pales in comparison to other 'dotcom era' first day explosions. T Petruno financial columnist of the LA Times in a recent article recalled what real 'foam and froth' looks like in his list of the top ten biggest 'single day' jumps in that wild and painful era. They are:
#1 VA Linex (698%), #2 Exodus Communication (637%), #3 Theglobe.com (606%), #4 Foundry Networks (525%), #5 webMethods (508%), #6 MarketWatch.com (505%), #7 FreeMarkets (483%), #8 Cobalt Networks (482%), #9 Akamai Tech (458%), #10 CacheFlow (427%).
Not every issuer was happy during this extraordinary period. 'Formerly listed' Internet darling EToys.com actually sued their sponsoring broker Goldman Saks for having under priced their 'quality' issue. I wonder if they settled out of court before they went out of business?
I am not trying to downplay the current 'Internet Bubble 2.0' - but Russian Internet search engine Yandex was 'only' 17 times oversubscribed and posted a paltry 45% first day stock price increase with a very 'sociable' US$12 billion market cap. Heck, that was only 100 times trailing earnings and 28 times trailing gross ad sales! Yandex dominates the Russian search business with almost almost a 70% domestic market share along with a few other Baltic countries. 'Non earnings' enterprise Zynga (my favorite name) Game Network founded in 2007 is soon to be sold to the the public at a very healthy $10b market cap. Founder M Pincus named Zynga after his late dog (definitely a red flag IMO). I hope this one doesn't have fleas! Zynga has over 250 million users per month playing addictive time consuming/wasting games (CityVille & FarmVille) on Facebook. Zinga has tapped into the 30+ year old female market who flock to the site much to the consternation of their employers. I have yet to waste some time 'playing' either of them but I'm sure they must be fun.
The over worked and over paid corporate finance types are anticipating another 400+ various significant IPO deals to be done in North America before the year ends covering all major industries.
Headline media continues to focus on the negative 'non tech' aspects of the economy. It doesn't help that US GDP came in a tad lower today and the associated unemployment rolls unexpectedly ticked higher. The fear, loathing, and dread in the domestic US housing market makes me more bullish than ever. Recent rumblings of a potential Italian credit issue implosion that would certainly 'Rock the Casbah!' All eyes are on the debt ceiling(s) and the grand finale of a 'dry docked' QE II and related bond market turbulence. The President has called for the debt ceiling mess to be 'cleaned up' by next week. Translation: 'More no strings borrowed cash please and thank you.' I read that no currency has a long term future other than 'whipping boys' gold and silver. I've stopped keeping track of the reasons to be 'short' the market and 'long' the dry goods and ammunition.
Fortunately the stock market is healthy and appears to have a future. Most major markets are within an eye lash of recent high territory. Utilities and Transports continue to shine and out perform. Interest Rates couldn't be friendlier even if they tried. The recent commodity 'crash' has been more of a mild & orderly sell off & consolidation. The recent positive corporate earnings season and reasonable equity valuations sure do impress me. I'm not certain that this 'market pause' will translate into a 'June to the Moon' breakout - but I'd be surprised to see it turn into the seasonal 'June Swoon' that we have grown to expect.
In the US the DJIA and S&P look to complete a normal one month 2-3% orderly sell off. Corporate stock buy backs and dividend increases have been positive. Early Tarp repayments have been even more impressive. GM has surprisingly and suddenly reasserted itself as the #1 car company in the world. Basic material, energy, and cyclical companies are firing on all cylinders. The agricultural sector has probably never been healthier. All of a sudden being a farmer has become a 'cool and sexy' thing!
On the minus side of the ledger - former President W. Clinton calls for a 'small' short term default on US debt payments with the hopes of injecting some reality into the Congressional 'leadership' proceedings. They sure won't like those bothersome calls from the credit card companies looking for repayment!
Business Insider ranks the top 21 countries most 'likely to default' (according to the intraday CDS cost to insure each countries debt) with the good old 'US of A' failing to make the grade.
For those who like top 10 lists as much as I do these are the 'top' 10 countries likely to welch:
#1 Greece (57%)- in spite of Dr. N Roubini (formerly Dr. Death) reporting today that the Greece's half trillion in debt problem is 'overblown' (bad word); #2 Venezuela (52%) - number two but trying harder; #3 Ireland (43%) -who have recently 'manned up' to face the music (must be the Guinness); #4 Portugal (40%); #5Argentina (34%)- two time losers; #6 Ukraine (27%) - my homies; #7 Dubai (24%) - surprised to see these dudes here; #8 Lebanon; #9 Iraq (21%) - surprised to see that they pay for anything; and last but not least #10 Egypt (20%).
In commodities - other than Silver - most sectors have experienced a moderate and orderly correction this month. Gold holds US$1,500/oz, Oil US$100/bbl, and Copper US$4/lb. Natural Gas continues to consolidation in it's mid range of $4.50/mcf in spite of reports of massive surpluses.
China is now the #1 holder of Gold in the world snapping up more gold in the first quarter of 2011 than ever & over taking India the perennially champ! China's investment demand more than doubled to 90 metric tons in the first 3 months as compare to India's 85 metric tons consumption. China now accounts for 25% of gold investment demand and India is a close second at 23% in the world. A short ten years ago China consumed almost zero gold! As the middle class growth in China and India continues to explode these consumption numbers look to expand significantly. I figure these two behemoths will be slugging it out for top spot for a long time to come! Silver held the low $30 level as expected and looks to challenge recent all time high levels before long. My view was that on the move to US$50/oz for Silver shorts got well squeezed and well 'wrung out!' More than likely we have returned to a 'normalized' but growing Silver consumption market.
In the AGRA sector I continue to be very interested in the grains (corn, soy beans, and wheat) with break out potential into new recovery high territory for the trio. Changing detrimental weather patterns could easily contribute to the upside potential along with consistently higher real World consumption growth. The seed and fertilizer stocks are reasonably and attractively priced with very positive earnings profiles. The recent Glencore Euro listing had none of the 'internet social media' frenzy and trades slightly below cost price. That was a bit of a surprise considering that Glencore is primarily a leveraged trading facility with very volatile earnings and levered growth potential.
In Canada the TSX held the critical 13,250 level and it's 200 day ma. The volatile TSX Venture exchange held the important 2,000 level following a significant 3 month 15% very over sold correction.
From the 'Why can't we be friends department?' the Maple Group (Banks) have officially gone 'hostile' after been stood up by the TMX group. It will be difficult for the shareholders not to accept the over 20% higher Cd$3.6 billion Maple offer. Somehow the Toronto Stock Exchange and the London Stock Exchange will have to 'sweet talk' and come up with an improved offer their 'shareholders can't refuse!' I must confess I'm not cheering for the Banks but I guess it would only be right if the owned everything? A sharp tongued wag in the weekend paper called a bank owned stock exchange in Canada a 'monopolistic silo!'
Speaking of that largess -the Banks earnings are beginning to roll in higher but slightly below 'elevated' expectations. Bank of Montreal disappointed based on lower 'influential' trading earnings and a softer quarter for TSX securities. National Bank increased their dividend 8% and the Royal Bank is expected to follow on Friday. A few of the lesser Financials may increase their payouts also. Most of the Financials are fully priced in my opinion with dividend increases (or not) well baked into their prices.
News of a Hudson's Bay offering will generate considerable interest in this retail friendly environment - even though Lululemon Athletica (LLL-TO) was downgraded today after a monstrous run to over $90/sh, 50x p/e, and a market cap of over Cd$5 billion. This may bring out a few 'shorts'- and I don't mean the 'stretchy' seaweed kind!
Bottom Line: North American markets (including Social Media Tech hysteria) continue to absorb any significant selling pressure irrespective of any calamity - be it natural or engineered or otherwise. Most capital market activity continues to be dominated by large fund flow and 'sophisticated' financial management. The smaller retail investor is still understandable paralyzed by the 2007-08 credit & financial debacle. They appear not to be a factor in current market activity.
I remain positive and look for a significant upside trend to resume early this summer. New recovery recent highs would imply a potential retest of the notorious pre-credit crash all time highs of 2006-08. Key firm stops levels are; DJIA 12,000; S&P 1,275; and TSX 13,250 all on a closing basis should
credit conditions come completely unglued.
More than likely it will take improved sovereign debt and currency issues AND all time highs in all of the major indexes before individual investor 'cocktail talk' turns bullish, confident, or frothy! The 'Darwinian Investment Distribution Theory' suggests that a major cycle is not fully completed until the small individual investor duck starts quacking and get thoroughly fed!
Thursday, May 19, 2011
Week Ending May 20/2011 - Social Media Mania
It was only a dozen short years ago that the investment world was foaming at the mouth at any COM stock that had a dot before it - and that was a 'click' instead of a 'brick!'
It marked the end of a very short NASDAQ era of wacky valuations and of breath taking extreme volatility. Bright eyed and bushy tailed fresh faced Internet CEO visionaries enriched themselves faster than a chamber maid running down the hall of 5 star New York hotel. (Ed Note: It looks like 'Socialist' Dominique Strauss-Kahn took the US3,000/day Sofitel Hotel's 'room service' option a little too literally?)
Time Warner is still trying to recover from their ill fated star crossed Internet love affair (and subsequent divorce) with AOL. Canadian mining companies which changed their name & business charter to an Internet Dot Com tech based mission had once again become fledgling mining operators. The ultimate survivor and heavy weight champion behemoth of the group, Google, did indeed monetize it's business search model (US$8+ billion revenue/quarter) and is the singular poster child for Internet commerce from that exciting and wild era.
The first Internet Social Media space company in the 'new' generation of 'free service' and 'high growth' tech companies to go public, LinkedIN (LNKD), spun off a wildly over subscribed IPO on the NASDAQ Thursday morning. LNKD sold almost 8 million shares to eager investors at $45/sh for a market capitalization of just over $4 billion. Oh, the joys of being a 20 something billionaire with a skin condition!
The LinkedIn model was launched in 2003 and the 'professional networking' company sports over 100 million users in over 200 countries with over 75 million unique page views per month. Over 3,900 companies are using LinkedIn for hiring (25,000+ users per employer) - and over 30,000 companies are using it's service for direct advertising. Ultimately LNKD bills itself as a 'Corporate Solutions' company. LNKD was cash flow positive in 2010 but to this date in 2011 has only broken even. It appears like the standard valuation for these IPO and related mergers (MSFT-Skype) pricing is $50 per user. LinkedIn opened for first day trading an almost double at $80/share. It had traded as high as a mind boggling $122.46 (a snappy 170% increase for the day less commish & a whopping 600 times 2010 earnings) just prior to lunch hour & heralding bitter sweet memories of the Dot Com car crash of 2000. LNKD looks to close it's first day of trading at a market cap of almost US$10+ billion and will be the yardstick for future similar offerings. Considering the limited industry barriers of entry & and rarefied valuations, this 'new' sector certainly leaves plenty of room for price-earnings 'contraction.'
Watching closely in the wings are a veritable army of other 'social media' phenoms itching to get a piece of that sweet action - which includes the likes of Groupon, Facebook, Yandex (Russian search engine), and Twitter. The corporate finance types who have pools of liquidity at their disposal must think they have died and gone to heaven. This week's front cover of the Economists is already calling Social Media a bubble to avoid or perhaps short?
It may be a tad early to discount this hysteria as almost every Gen X,Y, & Z child has their personal communication devise firmly implanted in hand and with their nose buried in various APP's or websites. The power of social media has changed the 'political' face of the Middle East and looks to transform the way we learn, trade and communicate forever. Accessing this 'new' economic paradigm looks to be a rather expensive & risky undertaking!
In the US, stunning complacency is the order of the day in respect to reported debt ceiling limitations and the end of QE II issues. Tim Geithner sure looked very concerned, sincere, and empty handed just prior to raiding the Civil Service Retirement and Disability Fund for further spending largess.
Most major and broad indexes continue to consolidate impressive weekly gains. The earnings season has ended reporting a very constructive and positive earnings profitability profile. Reported (and revised) employment statistics continue to be lack lustre in spite of very healthy corporate balance sheets. Housing prices and construction are groping for a bottom but may need a full Fanny Mae liquidation to finally end the pain.
The S&P and DJIA appears to have simultaneously discounted both the very bad news of Federal monetary impropriety and the very good news of positive and growing earnings. I'm not sure I've ever seen that! The broad markets appear to be in perfect short term ying and yang balance. IPO activity is approaching 4 year high territory with year to date 124 IPO's filed, 67 priced, and raising a total of US$21 billion. The average return in the IPO market has been 10% compared to a 7% increase on the broad US market indices. The initial financing market appears to be heating up facilitating the excess liquidity which receives little or no treasury market return. It sure does seem that Governments are indeed the primary creators of systemic risk either directly or indirectly.
In the commodity arena gold continues to hold the US$1,500 in spite of the numerous bearish naysayers who for some reason enjoy discrediting the value and purpose of the ultimate currency. Silver looks to hold the low US$30 level and will need time to consolidate the recent ruthless margin increases prior to challenging all time high territory. Copper is trying to hold US$4/lb and has been consolidating for almost 4 months. A concerted move above US$4.35 would reignite some excitement and possibly a new leg higher. An upside move in interest rates would pressure copper back to US$3.50 support levels.
Natural Gas remains range bound and needs a close above US$4.50/mcf to generate meaningful upside excitement. The crude oil market temporarily broke US$100/bbl and looks to hold the important $94/bbl 200 day ma. I'd be surprised to see US$90/bbl broken significantly based on accelerating increasing world demand. I don't think it will be long before the world is consuming 100 million barrels of oil per day. The Oil Industry has taken a significant amount of heat about 'irregular pump prices' in spite of a profit margin ranking of #114 out of 215 total industries (Yahoo!Finance). The Oil Industry reports an average of 6.2 cents profit per US$1 of sales.
The grains look particularly interesting to me with corn, soybeans, and wheat all looking to break out of 3 month positive consolidations to potential new all time high territory. Technical upside price moves for corn measure to US10/bl from the current US$7.50/bl ; Soybeans measure to a breath taking US$20/bu from it's current US$14/bu ; and wheat which has rallied 17% in a week to just over US$8/bu looks to retest the recent US$9.50 - $10 level. Higher grain prices are supported by drought and flood conditions throughout the world.
Increased costs in the grain complex will add unwanted negative political pressure in the 'boiling and roiling' Middle East. Higher costs would/will unfortunately lead to more protest and conflict and misery. Direct beneficiaries would/will continue to be the related seed, fertilizer, and machinery companies.
In Canada, the chartered banks have shown their hand with a 20% increase offer for the TMX group (Stock Exchange) topping the recent LME merger deal of equals. The new Maple consortium has wrapped themselves in the Canadian flag pointing to nationalistic interests and security. In reality, the Canadian financial oligopoly will be more vertically integrated than ever with very dangerous self interest and monopolistic implications. The regulators are left with the unenviable task of trying to decide if a self interest domestic bank led or foreign interest merger would be more appealing and beneficial to shareholders and the capital markets. My bet is that the banks will get 'their way' once again - and will wield an unhealthy grip on almost every aspect of the Canadian financial industry.
The TSX has held it's 200 day ma after almost 3 months of relentess cyclical resource liquidation. Recently the resource-rich TSX Composite and the S&P 500 has developed one of the largest divergences in recent memory. An upside move above 13,750 for the TSX would imply a potential retest of the 14,200 recent multi year high level. Many of the base and precious metal stocks have discounted significantly lower related underlying commodity price levels - which I doubt that they will reach any time soon. Many of the senior oil and gas issues are very attractively priced on an earnings and cash flow basis. The Canadian Banks are tracking positively and are about to report quarterly earnings with the hopes of dividend increases in the offing. Most of the 5 big banks are fairly to expensively priced based on trailing earnings but a new all time high break in the TSX Financial Index out would imply a new bullish leg to the upside. It must be their clean living?
Bottom Line: The momentum of the two year bull market has magnificently consolidated all the various negative financial and political bomb shells thrown in it's direction. Any important index I look at is within 3-5% of it's recent high and appears to have effectively 'cleaned out/consolidated' any significant selling pressure over the past few weeks and months. Combining the recent very strong earnings season, with substantial corporate buy backs, and a newly invigorated IPO and merger environment, the TSX, S&P, and DJIA are on track to make a concerted run at all time high territory. Any really good & significant economic news has the potential of igniting a powerful intermediate rally in stock valuations in my opinion. I look to the US as the main driver of improving economic and corporate conditions. It will be nice to see the creative and powerful US economic engine firing on all cylinders once again!
They say that Bull Markets climb a wall of worry - the past 3 year 'worry wall' makes the Great Wall in China look like a picket fence!
It marked the end of a very short NASDAQ era of wacky valuations and of breath taking extreme volatility. Bright eyed and bushy tailed fresh faced Internet CEO visionaries enriched themselves faster than a chamber maid running down the hall of 5 star New York hotel. (Ed Note: It looks like 'Socialist' Dominique Strauss-Kahn took the US3,000/day Sofitel Hotel's 'room service' option a little too literally?)
Time Warner is still trying to recover from their ill fated star crossed Internet love affair (and subsequent divorce) with AOL. Canadian mining companies which changed their name & business charter to an Internet Dot Com tech based mission had once again become fledgling mining operators. The ultimate survivor and heavy weight champion behemoth of the group, Google, did indeed monetize it's business search model (US$8+ billion revenue/quarter) and is the singular poster child for Internet commerce from that exciting and wild era.
The first Internet Social Media space company in the 'new' generation of 'free service' and 'high growth' tech companies to go public, LinkedIN (LNKD), spun off a wildly over subscribed IPO on the NASDAQ Thursday morning. LNKD sold almost 8 million shares to eager investors at $45/sh for a market capitalization of just over $4 billion. Oh, the joys of being a 20 something billionaire with a skin condition!
The LinkedIn model was launched in 2003 and the 'professional networking' company sports over 100 million users in over 200 countries with over 75 million unique page views per month. Over 3,900 companies are using LinkedIn for hiring (25,000+ users per employer) - and over 30,000 companies are using it's service for direct advertising. Ultimately LNKD bills itself as a 'Corporate Solutions' company. LNKD was cash flow positive in 2010 but to this date in 2011 has only broken even. It appears like the standard valuation for these IPO and related mergers (MSFT-Skype) pricing is $50 per user. LinkedIn opened for first day trading an almost double at $80/share. It had traded as high as a mind boggling $122.46 (a snappy 170% increase for the day less commish & a whopping 600 times 2010 earnings) just prior to lunch hour & heralding bitter sweet memories of the Dot Com car crash of 2000. LNKD looks to close it's first day of trading at a market cap of almost US$10+ billion and will be the yardstick for future similar offerings. Considering the limited industry barriers of entry & and rarefied valuations, this 'new' sector certainly leaves plenty of room for price-earnings 'contraction.'
Watching closely in the wings are a veritable army of other 'social media' phenoms itching to get a piece of that sweet action - which includes the likes of Groupon, Facebook, Yandex (Russian search engine), and Twitter. The corporate finance types who have pools of liquidity at their disposal must think they have died and gone to heaven. This week's front cover of the Economists is already calling Social Media a bubble to avoid or perhaps short?
It may be a tad early to discount this hysteria as almost every Gen X,Y, & Z child has their personal communication devise firmly implanted in hand and with their nose buried in various APP's or websites. The power of social media has changed the 'political' face of the Middle East and looks to transform the way we learn, trade and communicate forever. Accessing this 'new' economic paradigm looks to be a rather expensive & risky undertaking!
In the US, stunning complacency is the order of the day in respect to reported debt ceiling limitations and the end of QE II issues. Tim Geithner sure looked very concerned, sincere, and empty handed just prior to raiding the Civil Service Retirement and Disability Fund for further spending largess.
Most major and broad indexes continue to consolidate impressive weekly gains. The earnings season has ended reporting a very constructive and positive earnings profitability profile. Reported (and revised) employment statistics continue to be lack lustre in spite of very healthy corporate balance sheets. Housing prices and construction are groping for a bottom but may need a full Fanny Mae liquidation to finally end the pain.
The S&P and DJIA appears to have simultaneously discounted both the very bad news of Federal monetary impropriety and the very good news of positive and growing earnings. I'm not sure I've ever seen that! The broad markets appear to be in perfect short term ying and yang balance. IPO activity is approaching 4 year high territory with year to date 124 IPO's filed, 67 priced, and raising a total of US$21 billion. The average return in the IPO market has been 10% compared to a 7% increase on the broad US market indices. The initial financing market appears to be heating up facilitating the excess liquidity which receives little or no treasury market return. It sure does seem that Governments are indeed the primary creators of systemic risk either directly or indirectly.
In the commodity arena gold continues to hold the US$1,500 in spite of the numerous bearish naysayers who for some reason enjoy discrediting the value and purpose of the ultimate currency. Silver looks to hold the low US$30 level and will need time to consolidate the recent ruthless margin increases prior to challenging all time high territory. Copper is trying to hold US$4/lb and has been consolidating for almost 4 months. A concerted move above US$4.35 would reignite some excitement and possibly a new leg higher. An upside move in interest rates would pressure copper back to US$3.50 support levels.
Natural Gas remains range bound and needs a close above US$4.50/mcf to generate meaningful upside excitement. The crude oil market temporarily broke US$100/bbl and looks to hold the important $94/bbl 200 day ma. I'd be surprised to see US$90/bbl broken significantly based on accelerating increasing world demand. I don't think it will be long before the world is consuming 100 million barrels of oil per day. The Oil Industry has taken a significant amount of heat about 'irregular pump prices' in spite of a profit margin ranking of #114 out of 215 total industries (Yahoo!Finance). The Oil Industry reports an average of 6.2 cents profit per US$1 of sales.
The grains look particularly interesting to me with corn, soybeans, and wheat all looking to break out of 3 month positive consolidations to potential new all time high territory. Technical upside price moves for corn measure to US10/bl from the current US$7.50/bl ; Soybeans measure to a breath taking US$20/bu from it's current US$14/bu ; and wheat which has rallied 17% in a week to just over US$8/bu looks to retest the recent US$9.50 - $10 level. Higher grain prices are supported by drought and flood conditions throughout the world.
Increased costs in the grain complex will add unwanted negative political pressure in the 'boiling and roiling' Middle East. Higher costs would/will unfortunately lead to more protest and conflict and misery. Direct beneficiaries would/will continue to be the related seed, fertilizer, and machinery companies.
In Canada, the chartered banks have shown their hand with a 20% increase offer for the TMX group (Stock Exchange) topping the recent LME merger deal of equals. The new Maple consortium has wrapped themselves in the Canadian flag pointing to nationalistic interests and security. In reality, the Canadian financial oligopoly will be more vertically integrated than ever with very dangerous self interest and monopolistic implications. The regulators are left with the unenviable task of trying to decide if a self interest domestic bank led or foreign interest merger would be more appealing and beneficial to shareholders and the capital markets. My bet is that the banks will get 'their way' once again - and will wield an unhealthy grip on almost every aspect of the Canadian financial industry.
The TSX has held it's 200 day ma after almost 3 months of relentess cyclical resource liquidation. Recently the resource-rich TSX Composite and the S&P 500 has developed one of the largest divergences in recent memory. An upside move above 13,750 for the TSX would imply a potential retest of the 14,200 recent multi year high level. Many of the base and precious metal stocks have discounted significantly lower related underlying commodity price levels - which I doubt that they will reach any time soon. Many of the senior oil and gas issues are very attractively priced on an earnings and cash flow basis. The Canadian Banks are tracking positively and are about to report quarterly earnings with the hopes of dividend increases in the offing. Most of the 5 big banks are fairly to expensively priced based on trailing earnings but a new all time high break in the TSX Financial Index out would imply a new bullish leg to the upside. It must be their clean living?
Bottom Line: The momentum of the two year bull market has magnificently consolidated all the various negative financial and political bomb shells thrown in it's direction. Any important index I look at is within 3-5% of it's recent high and appears to have effectively 'cleaned out/consolidated' any significant selling pressure over the past few weeks and months. Combining the recent very strong earnings season, with substantial corporate buy backs, and a newly invigorated IPO and merger environment, the TSX, S&P, and DJIA are on track to make a concerted run at all time high territory. Any really good & significant economic news has the potential of igniting a powerful intermediate rally in stock valuations in my opinion. I look to the US as the main driver of improving economic and corporate conditions. It will be nice to see the creative and powerful US economic engine firing on all cylinders once again!
They say that Bull Markets climb a wall of worry - the past 3 year 'worry wall' makes the Great Wall in China look like a picket fence!
Thursday, May 12, 2011
Week Ending May 13/2011 - Swell in May?
'Sell in May and Go Away' or 'Buy When it Snows and Sell When It Goes' are popular seasonal slogans heard at this time of year.
Jeffrey Hirsch, Publisher of Stock Trader's Almanac offers compelling research which suggests that these maxims indeed produce peak profitable performance. His back tested 60 year prime seasonal indicators suggest that buying in October and selling in May yields optimal long term returns - not to mention the added benefit of long and lazy summer holidays by the seaside!
With markets having produced an exhilarating record stock & commodity 2 year run and a return to the over extended years of 2006-08 it appears that 'seasonality' once again may rule the day. I do believe that markets have somewhat 'normalized' from the recent 'end of the economic world' scenarios - but I also think that long term seasonal cyclical pattern analysis may also be forever changed.
Recent vicious and brutally arbitrary CME margin pressure has forced massive liquidation not only from underlying commodity futures contracts - but also from many of the related ETF and various other Fund accounts. A sudden and severe broad sell off has ensued with bearish pundits prematurely heralding a 'popping' of pre-orchestrated commodity bubble. As a result of this self induced mini-hysteria, proclamations of everything from a world wide economic slowdown to the imminent threat of higher Euro/Asian interest rates have been thrown into a potentially toxic volatility mix!
What we are left with in the carnage & aftermath is an entire host of well capitalized & very profitable resource corporations which sure look really 'Swell in May' to me! At minimum, we will be more than likely be facing at a summer filled with intense and competitive M&A and takeover activity.
Impressive improving seasonal economic performance continues to be announced in the US in spite of a small 'toe stub' in April unemployment claims. Goldilocks porridge isn't quite perfect yet - but the great news and momentum of a record surge in the month of March (US$172b) in the long suffering US manufacturing sector has got to be a major relief. It finally looks like outbound export containers are returning to Asia filled with US products. Job openings have reached a 3 year high and even battered Miami real estate is turning over at an impressive clip.
On the head wind side of the ledger - Greece is trying to figure out how to pay up to 25% in annual interest costs in order to continue to borrow after getting lowered 3 junk levels to 'B.' Evidently getting their fiscal and monetary budget under control is 'Greek to Them?' US Federal finances are also a mess with funds once again being depleted by the weekend. Talk about living pay check to pay check! And I am not sure anyone really knows what a US Dollar is actually worth which also does not engender significant long term economic strength?
Microsoft believes that popular Internet telephone service Skype SA is worth a cool US$8.5 in spite of never having made a nickel. A sweet payday for EBay and Silver Lake Partners. MSFT pays $50 for each of the 170m mostly European users in the hopes that Skype can be profitably vended into their suite of various software products. The purchase takes a 20% chunk out of MSFT's US$50b cash hoard. It does leave enough to take a run at Yahoo again - now that it is worth almost half of the $US47b that MSFT bid 3 years ago.
The DJIA and S&P both continue very strong relative performance having absorbed any selling pressure to date. The DJ Transports are consolidating recent all-time high levels and are usually a fairly reliable precursor to further market strength - especially considering the wild and woolly energy volatility as of late. The attractively valued multi year high NASDAQ also appears to be potentially well positioned for a 'contra-seasonal' summer rally.
The reeling commodity sector is trying to come to grips with the rather severe and shocking recent margin increases. Once again, inexplicably the 'speculator' has become public enemy #1 and has been effectively dispatched and/or cleaned out. All the 'regulatory officials' have accomplished is introduce sharper and more violent volatility in the weeks to come. My intermediate concern is that with the constant over hanging threat of the arbitrary CME, and political regulatory types, the commodity 'golden goose' may have been cooked for the next few months. Long term I have little doubt that significantly higher prices will be paid for almost any basket of goods.
Gold currently outperforms Silver on a short term basis and should find substantial support in the $1,425 area. Silver would represent a low risk & ideal entry level in the mid to low US$30 range. For bargain hunters, the cheapest Gold and Silver can be found on the TSX in the form of producing mining stocks.
Oil has also endured 'margin pressure' and reports of substantial world wide over supply - everywhere but at the gas pump. I will be surprised if crude oil substantially breaks the US$90 support level considering seasonal driving factors and increasing real world wide demand of over 90m bl/day. The senior producing Oil & Gas equities are offered at very compelling and attractive current levels.
Copper is more of a concern having broke US$4/lb and having formed a rather formidable & substantial intermediate top. Copper will find substantial support in the still very profitable US$3.50 area.
My personal favorite - Natural Gas quickly rallied to long term resistance of US$4.75/mcf before folding to rising margin sentiment into the low US$4/mcf range.. I believe that Nat Gas has formed a substantial long term weekly bottom in the US$3.50-4.50 range with upside implications to at least US$6/mcf before the kiddies go back to school.
The Toronto Stock Exchange has been struggling since breaking the key 14,000 level and now faces critical earnings reports from the heavily weighted bank and financial issues. The TSX has successfully tested the key 13,250 level today having corrected 1,000 points (7%) since mid April.
My focus is on the very attractively priced and valued resource and materials sector. I view this spring and early summer as ideal and lower risk accumulation periods for longer term portfolios.
Canadian Tire pays a substantial 50% premium for sporting goods retailer Forzani Group and is a current indication of reasonably priced stock market valuations.
Beleaguered RIM is having to endure a full frontal short selling assault from south of the border and has broken into new multi low territory at Cd$42/sh. RIM should hold long term support of Cd$40 especially considering current valuation and extreme short term over sold conditions. I would imagine management is actively pursuing a significant merger partner as part of their (hopefully) long tern strategy.
Bottom Line: Ample liquidity and outstanding corporate earnings performance has driven North American markets for the past two years to 'normal' and 'reasonable' valuation levels. South of the border markets continue to impressively outperform on a relative basis absorbing excess selling while being contained within 3-5% of recent multi year high levels. North of border the key TSX is fixed at a very critical support level (13,250) and would need to breech 13,750 to resume it's upside potential. Individual 'bottom up' valuations are compelling within a significant portion of the broad based resource sector. Assuming upcoming bank earnings continue to outperform analysts estimates the TSX may garner upside strength once recent commodity 'margin issues' have been settled, the M&A season begins in earnest, and the Stanley Cup finds it's new home!
Jeffrey Hirsch, Publisher of Stock Trader's Almanac offers compelling research which suggests that these maxims indeed produce peak profitable performance. His back tested 60 year prime seasonal indicators suggest that buying in October and selling in May yields optimal long term returns - not to mention the added benefit of long and lazy summer holidays by the seaside!
With markets having produced an exhilarating record stock & commodity 2 year run and a return to the over extended years of 2006-08 it appears that 'seasonality' once again may rule the day. I do believe that markets have somewhat 'normalized' from the recent 'end of the economic world' scenarios - but I also think that long term seasonal cyclical pattern analysis may also be forever changed.
Recent vicious and brutally arbitrary CME margin pressure has forced massive liquidation not only from underlying commodity futures contracts - but also from many of the related ETF and various other Fund accounts. A sudden and severe broad sell off has ensued with bearish pundits prematurely heralding a 'popping' of pre-orchestrated commodity bubble. As a result of this self induced mini-hysteria, proclamations of everything from a world wide economic slowdown to the imminent threat of higher Euro/Asian interest rates have been thrown into a potentially toxic volatility mix!
What we are left with in the carnage & aftermath is an entire host of well capitalized & very profitable resource corporations which sure look really 'Swell in May' to me! At minimum, we will be more than likely be facing at a summer filled with intense and competitive M&A and takeover activity.
Impressive improving seasonal economic performance continues to be announced in the US in spite of a small 'toe stub' in April unemployment claims. Goldilocks porridge isn't quite perfect yet - but the great news and momentum of a record surge in the month of March (US$172b) in the long suffering US manufacturing sector has got to be a major relief. It finally looks like outbound export containers are returning to Asia filled with US products. Job openings have reached a 3 year high and even battered Miami real estate is turning over at an impressive clip.
On the head wind side of the ledger - Greece is trying to figure out how to pay up to 25% in annual interest costs in order to continue to borrow after getting lowered 3 junk levels to 'B.' Evidently getting their fiscal and monetary budget under control is 'Greek to Them?' US Federal finances are also a mess with funds once again being depleted by the weekend. Talk about living pay check to pay check! And I am not sure anyone really knows what a US Dollar is actually worth which also does not engender significant long term economic strength?
Microsoft believes that popular Internet telephone service Skype SA is worth a cool US$8.5 in spite of never having made a nickel. A sweet payday for EBay and Silver Lake Partners. MSFT pays $50 for each of the 170m mostly European users in the hopes that Skype can be profitably vended into their suite of various software products. The purchase takes a 20% chunk out of MSFT's US$50b cash hoard. It does leave enough to take a run at Yahoo again - now that it is worth almost half of the $US47b that MSFT bid 3 years ago.
The DJIA and S&P both continue very strong relative performance having absorbed any selling pressure to date. The DJ Transports are consolidating recent all-time high levels and are usually a fairly reliable precursor to further market strength - especially considering the wild and woolly energy volatility as of late. The attractively valued multi year high NASDAQ also appears to be potentially well positioned for a 'contra-seasonal' summer rally.
The reeling commodity sector is trying to come to grips with the rather severe and shocking recent margin increases. Once again, inexplicably the 'speculator' has become public enemy #1 and has been effectively dispatched and/or cleaned out. All the 'regulatory officials' have accomplished is introduce sharper and more violent volatility in the weeks to come. My intermediate concern is that with the constant over hanging threat of the arbitrary CME, and political regulatory types, the commodity 'golden goose' may have been cooked for the next few months. Long term I have little doubt that significantly higher prices will be paid for almost any basket of goods.
Gold currently outperforms Silver on a short term basis and should find substantial support in the $1,425 area. Silver would represent a low risk & ideal entry level in the mid to low US$30 range. For bargain hunters, the cheapest Gold and Silver can be found on the TSX in the form of producing mining stocks.
Oil has also endured 'margin pressure' and reports of substantial world wide over supply - everywhere but at the gas pump. I will be surprised if crude oil substantially breaks the US$90 support level considering seasonal driving factors and increasing real world wide demand of over 90m bl/day. The senior producing Oil & Gas equities are offered at very compelling and attractive current levels.
Copper is more of a concern having broke US$4/lb and having formed a rather formidable & substantial intermediate top. Copper will find substantial support in the still very profitable US$3.50 area.
My personal favorite - Natural Gas quickly rallied to long term resistance of US$4.75/mcf before folding to rising margin sentiment into the low US$4/mcf range.. I believe that Nat Gas has formed a substantial long term weekly bottom in the US$3.50-4.50 range with upside implications to at least US$6/mcf before the kiddies go back to school.
The Toronto Stock Exchange has been struggling since breaking the key 14,000 level and now faces critical earnings reports from the heavily weighted bank and financial issues. The TSX has successfully tested the key 13,250 level today having corrected 1,000 points (7%) since mid April.
My focus is on the very attractively priced and valued resource and materials sector. I view this spring and early summer as ideal and lower risk accumulation periods for longer term portfolios.
Canadian Tire pays a substantial 50% premium for sporting goods retailer Forzani Group and is a current indication of reasonably priced stock market valuations.
Beleaguered RIM is having to endure a full frontal short selling assault from south of the border and has broken into new multi low territory at Cd$42/sh. RIM should hold long term support of Cd$40 especially considering current valuation and extreme short term over sold conditions. I would imagine management is actively pursuing a significant merger partner as part of their (hopefully) long tern strategy.
Bottom Line: Ample liquidity and outstanding corporate earnings performance has driven North American markets for the past two years to 'normal' and 'reasonable' valuation levels. South of the border markets continue to impressively outperform on a relative basis absorbing excess selling while being contained within 3-5% of recent multi year high levels. North of border the key TSX is fixed at a very critical support level (13,250) and would need to breech 13,750 to resume it's upside potential. Individual 'bottom up' valuations are compelling within a significant portion of the broad based resource sector. Assuming upcoming bank earnings continue to outperform analysts estimates the TSX may garner upside strength once recent commodity 'margin issues' have been settled, the M&A season begins in earnest, and the Stanley Cup finds it's new home!
Thursday, May 5, 2011
Week Ending May 6/2011 - Majority
Stephan Harper and his Conservative Party of Canada - with one mighty swing of the bat - ala 'El Bambino' - pulled off a stunning 'walk off' three run shot in the late innings to win the biggest game of the season. A dream come true for the right wing by gaining a solid/comfortable majority, squashing the once mighty Liberal Party into a pulpy pate, and virtually eliminating the 'anti-confederation' reign of terror BLOC separatist party.
I earlier prognosticated a very slim majority mandate but totally underestimated the resurrection of the reborn wacky, but lovable, NDP crew. Almost half of the New Democratic Party - (and I do mean very New) - freshly acquired seats now reside in schizophrenic Quebec. Ever smiling NDP party chieftain Jack Layton will effectively be the new voice of the 'new' Francophone separatist movement from his home in downtown Toronto. Rene Levesque must be rolling over in his smoke filled grave.
The 'first time' opposition party caucus is riddled with 'almost' university educated 20 somethings & one 19 -who will be filling out their first meaningful T-4 taxation slips ever! One shudders at the thought of a split minority government with the balance of power in the tender tattooed arms of student loan paying idealists. I can hardly wait until Parliament reconvenes. It will be 'sick!'
Speaking of reigns of terror - the world's #1 most wanted felon OBL has finally been unceremoniously silenced while luxuriating in a virtually unprotected 'mansion' in Pakistan. Looks like cave life ain't all what it's cracked up to be? With the head of the chicken cut off - hopefully the soldiers will soon be returning back home to meaningful employment.
The long line at the Sovereign bailout trough is finally beginning to progress. Portugal accepts US$110b to solve their urgent and serious credit problems by getting deeper into debt (?) I tried that once - and it didn't work out so well. Ireland, Greece, and Spain are waiting patiently in line for similar simultaneous debt contraction/expansion treatment.
Is it my imagination or does life seem to change dramatically on a weekly - as opposed to yearly basis now?
In the US the bulk of earnings have been reported with over 70% beating expectations and by an average of 5% plus. Economic statistics (ISM, Construction Spending, & Employment) have been lumpy to negative and somewhat suspiciously supports Congresses freshly demanded debt ceiling expansion for a further US$2T (15% increase) to keep the lights on and the water running. The beleaguered US dollar had no place to hide - and has sadly revisited all time low territory as a result of the obvious fiscal/monetary mismanagement. The US Treasury has announced a full snoot full of quarterly offerings which will raise $72b in new 'fresh' cash and effectively exhausts their borrowing capacity. Further 'credit expansion' will require emergency measures which include dipping into federal employee pension piggy banks - at a time when they should be adding to them.
The DJIA remains solidly above my key 12,000 level with the DJ Transports recently breaking into new all time high territory ( Dow Theory bull signal). The S&P has also constructively consolidated above the key 1,300 level. US markets are fairly priced with very positive liquidity potential. I remain postive until key lower levels are violated.
The commodity sector has been viciously rocked by significant CME margin requirement demands. My earlier 'margin squeeze' comments calling for 'wild and woolly summer volatility swings' remains unchanged. Gold has dropped a 'normal' 7% from recent all time high territory with Silver taking the brunt of the selling dropping almost 30% in a single week! Over the span of 5 days margin requirements were raised 4 times making it a stunning 84% more expensive to trade Silver. The Gold to Silver ratio has rocketed from 30 to 40 times in world record time.
It appears as if the regulators were somewhat over zealous & panicked to 'cool off ' the prices in the precious metals complex. Recent purchasers have received a very expensive and painful education about the hazards of commodity speculation and position squaring. I remain bullish and view this 'shakeout' as an ideal accumulation opportunity for the longer term investor. (Silver US$35-38 Gold US$1,350 -1,425). The Gold and Silver intermediate and senior stocks have never been cheaper relative to lofty underlying metal prices. The lion's share of the 'downside' has been priced into most issues assuming underlying commodity levels remain range bound.
Copper has negatively broken $4 and has formed a rather formidable longer term top. A retest of $3.50-.75 appears to be in the offing.
Crude Oil has also caved into 'margin' pressure and looks to test the 200 d ma of $95 and hopefully somewhat lower prices at the pump. Natural Gas rallied to $4.75 but could not breach January highs as of yet. I continue to believe an Oil to Natural Gas ratio of currently 23 times is excessive.
In Canada markets (TSX 13,500) have been in somewhat of an accumulation/distribution phase for almost 2 months. My earlier concerns of 'good news' having been priced into the issues appears to be reality. The Financials are soon to report and best not disappoint - or all 'heck' might break loose! The Banks remain fully priced relative to current fundamentals but pay tempting and juicy dividends relative to zero one gets in a savings account.
For those who believe in the long run 'irresponsible government' inflation scenario - Cdn Gold and Silver issues corrected significantly prior to the 'margin meltdown' - and now represent 'derisked' and levered opportunities. Recent earnings/dividend growth has been solid and most of these companies will remain profitable and in very strong financial condition.
Senior Oil & Gas issues have broken key support levels in spite of reporting stellar earnings and exceptionally healthy balance sheets. They are also quickly approaching over sold and tempting entry levels for those who choose not to 'sell in May and go away!'
Highly leveraged small and micro cap TSX-Venture resource issues have also corrected significantly and offer very interesting and compelling opportunities for risk taking accounts.
Key TSX level for an upside breakout would be 14,000. A significant downside break of 13,250 would be dicey.
Bottom Line: Prior to the recent "Margin Massacre" commodity markets were certainly over extended and due for a constructive pullback. I am highly suspicious of the magnitude and velocity of this week's very aggressive margin hikes which will effectively move core positions from weak into strong hands.
Very little (if any) has changed in repect to world wide demand, ample liquidity, and outstanding corporate financial conditions to alter my longer term bullish view. The 'Agra' sector will most likely experience another very positive year with ongoing 'supply' concerns at the forefront. North American equities are fairly priced with a number of compelling sector opportunities. Markets will remain nervous and volatile most likely until QE II and debt ceiling issues are resolved. Markets will remain relatively range bound but swings will be sharp and sudden.
In the meantime - we will soon have the special opportunity to listen and learn from the collective wisdom of our 6 newly minted 20 year old 'Honorable Members of Parliament' - just as soon as their parents move all their 'stuff' out of their university residences and 'cash in' their empty beer bottles!
I earlier prognosticated a very slim majority mandate but totally underestimated the resurrection of the reborn wacky, but lovable, NDP crew. Almost half of the New Democratic Party - (and I do mean very New) - freshly acquired seats now reside in schizophrenic Quebec. Ever smiling NDP party chieftain Jack Layton will effectively be the new voice of the 'new' Francophone separatist movement from his home in downtown Toronto. Rene Levesque must be rolling over in his smoke filled grave.
The 'first time' opposition party caucus is riddled with 'almost' university educated 20 somethings & one 19 -who will be filling out their first meaningful T-4 taxation slips ever! One shudders at the thought of a split minority government with the balance of power in the tender tattooed arms of student loan paying idealists. I can hardly wait until Parliament reconvenes. It will be 'sick!'
Speaking of reigns of terror - the world's #1 most wanted felon OBL has finally been unceremoniously silenced while luxuriating in a virtually unprotected 'mansion' in Pakistan. Looks like cave life ain't all what it's cracked up to be? With the head of the chicken cut off - hopefully the soldiers will soon be returning back home to meaningful employment.
The long line at the Sovereign bailout trough is finally beginning to progress. Portugal accepts US$110b to solve their urgent and serious credit problems by getting deeper into debt (?) I tried that once - and it didn't work out so well. Ireland, Greece, and Spain are waiting patiently in line for similar simultaneous debt contraction/expansion treatment.
Is it my imagination or does life seem to change dramatically on a weekly - as opposed to yearly basis now?
In the US the bulk of earnings have been reported with over 70% beating expectations and by an average of 5% plus. Economic statistics (ISM, Construction Spending, & Employment) have been lumpy to negative and somewhat suspiciously supports Congresses freshly demanded debt ceiling expansion for a further US$2T (15% increase) to keep the lights on and the water running. The beleaguered US dollar had no place to hide - and has sadly revisited all time low territory as a result of the obvious fiscal/monetary mismanagement. The US Treasury has announced a full snoot full of quarterly offerings which will raise $72b in new 'fresh' cash and effectively exhausts their borrowing capacity. Further 'credit expansion' will require emergency measures which include dipping into federal employee pension piggy banks - at a time when they should be adding to them.
The DJIA remains solidly above my key 12,000 level with the DJ Transports recently breaking into new all time high territory ( Dow Theory bull signal). The S&P has also constructively consolidated above the key 1,300 level. US markets are fairly priced with very positive liquidity potential. I remain postive until key lower levels are violated.
The commodity sector has been viciously rocked by significant CME margin requirement demands. My earlier 'margin squeeze' comments calling for 'wild and woolly summer volatility swings' remains unchanged. Gold has dropped a 'normal' 7% from recent all time high territory with Silver taking the brunt of the selling dropping almost 30% in a single week! Over the span of 5 days margin requirements were raised 4 times making it a stunning 84% more expensive to trade Silver. The Gold to Silver ratio has rocketed from 30 to 40 times in world record time.
It appears as if the regulators were somewhat over zealous & panicked to 'cool off ' the prices in the precious metals complex. Recent purchasers have received a very expensive and painful education about the hazards of commodity speculation and position squaring. I remain bullish and view this 'shakeout' as an ideal accumulation opportunity for the longer term investor. (Silver US$35-38 Gold US$1,350 -1,425). The Gold and Silver intermediate and senior stocks have never been cheaper relative to lofty underlying metal prices. The lion's share of the 'downside' has been priced into most issues assuming underlying commodity levels remain range bound.
Copper has negatively broken $4 and has formed a rather formidable longer term top. A retest of $3.50-.75 appears to be in the offing.
Crude Oil has also caved into 'margin' pressure and looks to test the 200 d ma of $95 and hopefully somewhat lower prices at the pump. Natural Gas rallied to $4.75 but could not breach January highs as of yet. I continue to believe an Oil to Natural Gas ratio of currently 23 times is excessive.
In Canada markets (TSX 13,500) have been in somewhat of an accumulation/distribution phase for almost 2 months. My earlier concerns of 'good news' having been priced into the issues appears to be reality. The Financials are soon to report and best not disappoint - or all 'heck' might break loose! The Banks remain fully priced relative to current fundamentals but pay tempting and juicy dividends relative to zero one gets in a savings account.
For those who believe in the long run 'irresponsible government' inflation scenario - Cdn Gold and Silver issues corrected significantly prior to the 'margin meltdown' - and now represent 'derisked' and levered opportunities. Recent earnings/dividend growth has been solid and most of these companies will remain profitable and in very strong financial condition.
Senior Oil & Gas issues have broken key support levels in spite of reporting stellar earnings and exceptionally healthy balance sheets. They are also quickly approaching over sold and tempting entry levels for those who choose not to 'sell in May and go away!'
Highly leveraged small and micro cap TSX-Venture resource issues have also corrected significantly and offer very interesting and compelling opportunities for risk taking accounts.
Key TSX level for an upside breakout would be 14,000. A significant downside break of 13,250 would be dicey.
Bottom Line: Prior to the recent "Margin Massacre" commodity markets were certainly over extended and due for a constructive pullback. I am highly suspicious of the magnitude and velocity of this week's very aggressive margin hikes which will effectively move core positions from weak into strong hands.
Very little (if any) has changed in repect to world wide demand, ample liquidity, and outstanding corporate financial conditions to alter my longer term bullish view. The 'Agra' sector will most likely experience another very positive year with ongoing 'supply' concerns at the forefront. North American equities are fairly priced with a number of compelling sector opportunities. Markets will remain nervous and volatile most likely until QE II and debt ceiling issues are resolved. Markets will remain relatively range bound but swings will be sharp and sudden.
In the meantime - we will soon have the special opportunity to listen and learn from the collective wisdom of our 6 newly minted 20 year old 'Honorable Members of Parliament' - just as soon as their parents move all their 'stuff' out of their university residences and 'cash in' their empty beer bottles!
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