Canada Market Cheat Sheet (January 31, 2011)

Monday, January 31st, 2011

Canadian Equity Market Cheat Sheet (January 31, 2011 )

Strengths

• Corporate earnings are set to rise in 2011, according to the Conference Board of Canada’s leading indicator of industry profitability, which in December posted its largest one-month gain since 2001, an advance of 0.6 per cent. It is the third straight positive month for the indicator, which had fallen in the previous six months. [Canada.com]

• Canada’s Dollar Falls Most in 3 Months as BOC’s Carney Notes Strength. Canada’s dollar retreated the most in almost three months against its U.S. counterpart as Bank of Canada Governor Mark Carney said “persistent strength” in his country’s currency is a threat to economic expansion. [Bloomberg]

• Canada’s Economy Grew the Fastest in Eight Months in November. Canada’s gross domestic product grew at the fastest pace in eight months in November on increased oil production, wholesaling and retailing. [Bloomberg]

• Walmart Canada, a unit of the world’s biggest retailer Wal-Mart Stores, plans to open 40 more supercenters in the country that has been seeing stronger retail sales growth than its southern neighbor.The third-largest employer in Canada with 85,000 associates expects the new supercenters to generate more than 9,200 store and construction jobs. [Reuters]

• Canada’s annual inflation rate rose less than expected in December despite pressure from rising energy prices, underscoring the view that the central bank will hold interest rates steady in the near term. [Reuters]

Weaknesses

• Canada Hasn’t Yet Recouped Recession’s Job Losses. Canada’s statistics agency cut its job-creation estimate and erased an earlier finding the economy recouped losses from the last recession, bringing fresh calls from opposition lawmakers for Prime Minister Stephen Harper to rework his stimulus plan. [Bloomberg]

Opportunities

• U.S. stimulus to lift Canadian exports: agency. Canada’s struggling exporters can thank the Obama administration’s extended tax cuts for an expected bounce in cross-border sales this year, just in time to prop up the sagging recovery, according to a report. [Reuters]

• Canada Bears Tripling Bets as Carney Says Loonie too Strong for Exporters. The Canadian dollar’s 22 percent surge against the U.S. currency has become such a threat to the economy that central bankers and chief financial officers are encouraging the loonie to weaken. [Bloomberg]
• The “capitulation” in gold that drove the metal to its worst January in 14 years may be ending as escalating violence in northern Africa spurs demand for a haven and after a key technical indicator held. [Bloomberg]
• The western Canadian province of Manitoba, a key producer of wheat and canola, will see major spring flooding if weather conditions continue as expected, the provincial government said on Monday. [Globe and Mail] This could lead to shortages.

• Imperial Oil [Commodity Producers] profits [to be] boosted by commodity prices. Imperial Oil Ltd (IMO.TO) said on Monday its fourth-quarter profit rose 50 percent, mainly due to improved margins in its downstream business and higher crude oil prices. The company, Canada’s No. 2 oil producer and refiner, said net income in the quarter rose to C$799 million, or 94 Canadian cents a share, up from a year-earlier profit of C$534 million, or 62 Canadian cents a share.

Threats

• The western Canadian province of Manitoba, a key producer of wheat and canola, will see major spring flooding if weather conditions continue as expected, the provincial government said on Monday. [Reuters]

• Harper Pressured to Scrap Corporate Tax Cuts as Canadian Lawmakers Return. Canadian Prime Minister Stephen Harper will be under pressure from opposition lawmakers to reverse corporate tax cuts and extend government stimulus as a condition for keeping his government in power when Parliament reconvenes today. [Bloomberg] [CTV]

• Higher prices for petroleum and metals lifted Canadian producer prices and raw materials prices slightly more than expected in December, according to Statistics Canada data released on Monday. The industrial product price index rose 0.7 percent in the month, topping market forecasts of a 0.6 percent gain and accumulating a 2.9 percent increase on the year. [Reuters]

• Canada’s dollar strengthened the most in a week against its U.S. counterpart as oil prices gained and the nation’s economy expanded in November at the fastest pace in eight months. The Canadian dollar rose after dropping 0.8 percent last week after Bank of Canada Governor Mark Carney said the currency’s strength is a threat to economic expansion. The loonie, as the currency is known for the image of a waterfowl on the C$1 coin, increased against the U.S. dollar as stocks advanced.

Sources: Globe and Mail, Bloomberg, Toronto Star, Canoe.ca

For more, visit us at http://advisoranalyst.com.

Tags: Annual Inflation Rate, Bank Of Canada, Bank Of Canada Governor, Canadian Equity, Canadian Exports, Canadian Market, Conference Board Of Canada, Corporate Earnings, Currency, energy, Gold, Industry Profitability, Leading Indicator, Mark Carney, Opposition Lawmakers, Prime Minister Stephen Harper, Profitability Index, Retail Sales Growth, Rising Energy, Southern Neighbor, Statistics Agency, Supercenters, Wal Mart Stores, Walmart, Walmart Canada
Posted in Canadian Market, Energy & Natural Resources, Gold, Markets, Oil and Gas | Comments Off

Oil ETF Call Trades Soar to Record, Crude Futures Back Near Highs; What Will Next Week Bring?

Monday, January 31st, 2011

by Michael ‘Mish’ Shedlock

In light of firebombings, riots, and anarchy in Egypt, coupled with social unrest in Yemen, Jordan, Algeria, and Saudi Arabia, call options of those betting on higher oil prices soared to seven times normal activity on Friday.

This weekend we saw the closing of Egyptian banks and the announced closing of Egyptian stock markets on Monday. However, it is hard to know what will happen next week.

To help understanding the possibilities, please consider this analysis of Friday’s crude action.

Bloomberg reports Oil ETF Call Trades Soar to Record Amid Egypt Unrest

Trading of bullish options on an exchange-traded fund tracking crude futures soared to a record as oil surged the most since September 2009 after unrest in Egypt raised concern that protests would spread to major oil- producing parts of the Middle East.

Almost 242,000 calls to buy the U.S. Oil Fund changed hands today, seven times the four-week average and almost five times the number of puts to sell. The most-traded contracts were the February $38 calls, which rose sixfold to 48 cents. The ETF gained 4.6 percent to $37.58.

“Bullish players are binging on call options across several expiries,” Caitlin Duffy, an equity-options analyst at Greenwich, Connecticut-based Interactive Brokers Group Inc., wrote in a report. “The massive upswing in demand for the contracts helped lift the fund’s overall reading of options implied volatility.”

Oil for March delivery increased $3.70 to settle at $89.34 a barrel on the New York Mercantile Exchange. The contract has risen 0.3 percent this week. Oil volume in electronic trading on the Nymex was 1.36 million contracts as of 3:18 p.m. in New York. That’s the highest level since April 13, when volume for both electronic and floor trading reached a record 1.42 million barrels on the Nymex.

Volume totaled 1.01 million contracts yesterday, 50 percent above the average of the past three months. Open interest was 1.52 million contracts.

Crude 15 Minute Chart

click on chart for sharper image

Hedging Plays Push Crude Prices Higher

I was watching crude futures Friday morning (3:00AM Central) and the futures were essentially flat. Friday morning, however, as oil future call buying began, followed by equity call buying on OIL ETFs, oil shot up nearly $4.

What happened is options sellers (the market makers on the other side of those trades), cannot risk being naked short those oil calls and had to hedge by buying futures.

To hedge those short calls, the market makers bought crude futures. This delta hedging activity drove up the price of oil this morning as everyone plowed into the “oil might go to the moon” trade.

No one wanted to be naked short over the weekend. (In a similar fashion, I do not believe JPM is naked short silver futures either, but I wish they would come out and prove it).

If nothing happens over the weekend (which so far appears to be a disproved idea already), oil futures could easily sink next week as the trade unwinds. On the other hand, should unrest spring up in Iran or expand in Saudi Arabia crude prices could soar.

Given that a collapse of the Egyptian government seems likely, and unrest in other areas picking up, if crude prices cannot break north here, then look out below. A short or intermediate-term top is likely in.

For more on the crisis in Egypt, please see …

Egyptian Police Disappear in Widespread Chaos, Vigilantes Defend Homes; Egypt Video With a Message “We Will Never be Silenced!”

Egypt Closes Banks, Stock Market; Protests Spread to Saudi Arabia, Jordan; Saudi King Backs Mubarak; Reflections on Misguided US Policy

Mubarak’s Acts of Cowardice; Obama Calls Mubarak for 30-Minutes; Cell Service, Internet Total Shutdown; Anarchy in Cairo; How Long can Mubarak Last?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Tags: Call Options, Crude Futures, Egyptian Banks, Electronic Trading, Equity Options, ETF, ETFs, Exchange Traded Fund, Greenwich Connecticut, Interactive Brokers Group, Interactive Brokers Group Inc, Michael Mish, Mish Shedlock, New York Mercantile, New York Mercantile Exchange, Nymex, Oil Etf, Oil Prices, Options Implied Volatility, Silver, Social Unrest, Stock Markets, York Mercantile Exchange
Posted in Energy & Natural Resources, ETFs, Markets, Oil and Gas, Silver | Comments Off

WSJ: John Paulson Bests $4B Gains of 2007, with $5B Year in 2010

Monday, January 31st, 2011

by Trader Mark, Fund My Mutual Fund

We’ll leave the societal discussions of our currently structured financial incentives for another day [Apr 8, 2008: Hedge Fund Manager - Good Work if You can Get It], but the WSJ reports that John Paulson has surpassed his legendary 2007 haul of $4B, with a $5B payday in 2010.  As we’ve outlined in the past, after betting against the mortgage market, Paulson turned around and bet with the government big time, as moral hazard is the new way to gain epic generational riches.  What is interesting is the largest hedge funds have now grown so immense in size, [Mar 8, 2010: List of Largest Global Hedge Funds] they don’t even have to have exceptional performance to create once unheard of wealth.  Indeed, the average hedge fund in 2010 lagged the S&P 500′s performance – by about a third.   And lagged the average mutual fund by nearly half. Indeed, once you become a certain size it becomes increasingly difficult to beat the market.  [Mar 29, 2010: Are John Paulson's Hedge Funds Now Too Big to Outperform]  Whatever the case, with this incentive program, expect a continued march of the country’s best and brightest minds into this one niche field.

Via WSJ

• Hedge-fund manager John Paulson personally netted more than $5 billion in profits in 2010—likely the largest one-year haul in investing history, trumping the nearly $4 billion he made with his “short” bets against subprime mortgages in 2007.  Mr. Paulson’s take, described by investors and people close to investment firm Paulson & Co., shows how profits continue to pile up for elite hedge-fund managers.
• Appaloosa Management founder David Tepper and Bridgewater Associates chief Ray Dalio each personally made between $2 billion and $3 billion last year, according to investors and people familiar with the situation. James Simons, founder of Renaissance Technologies LLC, also produced profits in that range, say investors in his firm.
• Mr. Paulson and his fellow managers seldom take much of their profits in cash. Some of the profits are so-called paper gains, which reflect the rising value of their firms’ holdings, and could erode if those investments sour. Other gains come from selling investments, and most of those are rolled back into their funds.
• Assets managed by hedge funds have grown to a near-record $1.92 trillion, up 20% over the past year. Assets jumped almost $150 billion in the fourth quarter alone, the largest quarterly growth on record, according to Hedge Fund Research, Inc.
• Still, the average fund gained just 10.49% last year. That’s well below the 15% gain of the Standard & Poor’s 500 stock index, including dividends, and the 19% return of the average stock mutual fund, raising questions about whether the industry can profitably invest the influx of new cash.
• Indeed, the enormous gains by Mr. Paulson and the other managers resulted from solid, though not spectacular, performance. Their personal gains came in part from the sheer scale of assets under their control. The largest hedge fund in Mr. Paulson’s $36 billion investment portfolio, Advantage Plus, grew 17% last year, while another big one rose 11%, falling below returns for the broader stock market.
• Part of Mr. Paulson’s more that $5 billion profit came from his firm’s 20% cut of his funds’ profits, known in the industry as the “performance fee.” Those fees amounted to roughly $1 billion last year, according to a person familiar with the matter. An added plus for Mr. Paulson: A chunk of those profits are treated as long-term capital gains and taxed at a far lower rate than the standard income-tax rate. More than $4 billion came from gains on Mr. Paulson’s investments in his funds.
• The performance last year…..paled in comparison to his 2007 returns, when Mr. Paulson made a huge wager against subprime mortgages and his funds scored gains of as much as 590%.
• The hedge-fund business now is so big that some managers are hinting they’ll return money to clients instead of investing it. Handling so much cash can make it hard to generate big gains in some trading strategies.
• Mr. Tepper, for example, has told some investors to expect to receive some cash back in 2011. He returned $500 million to investors last year. This year, he may return several billion dollars, according to people close to the matter.  Other firms, such as Paulson & Co., have closed certain funds to new investors, but are actively raising new money for other funds.

Copyright (c) Trader Mark, Fund My Mutual Fund

Tags: 4b, 5b, Appaloosa, Bests, Bridgewater Associates, David Tepper, Financial Incentives, Founder David, Hedge Fund Manager, Hedge Fund Managers, Hedge Funds, Incentive Program, Investment Firm, James Simons, John Paulson, Moral Hazard, Mortgage Market, Renaissance Technologies, Subprime Mortgages, Wsj Reports
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Roubini: Question Marks in the Arab World

Monday, January 31st, 2011

The report below comes courtesy of Nouriel Roubini’s team of analysts at RGE.

Two MENA governments have suffered massive blows in the past week. Extended protests in Tunisia forced long-time ruler Zine El-Abidine Ben Ali to flee the country, while Hezbollah pulled out of the deadlocked Lebanese unity government, causing its collapse. While the Lebanese government’s fall was only the most recent setback in a country that has seen the rise and fall of several governments, the events in Tunisia are reverberating throughout the Arab world. Despite Arab leaders’ insistence on the exceptional nature of the developments in Tunisia, the underlying triggers—weak employment prospects, stagnant incomes, rising prices and a lack of representation—are common in much of the region. Using a selected group of economic, social and political indicators, we assess the resilience of the region’s institutions in our latest MENA Focus.

It is difficult to predict if other regimes will go the way of Tunisia, but the volatile mixture of economic grievances will add pressure to fragile political institutions in the MENA region and could temper investment. Arab leaders’ immediate response of boosting subsidies on food and fuel as well as other social transfers and their hyper-vigilance about protests suggest that these regimes may muddle through. Also, we continue to see strong oil prices in 2011 supporting growth in the MENA region, one of the few in the world where growth will accelerate from the 2010 pace.

However, with commodity prices, especially food product prices, set to rise, we see several linked economic risks across the region. These include the deterioration of fiscal and external balances, financing issues and a clampdown on economic and social liberties, including access by foreign investors. Maintaining expensive subsidy regimes (and adding more government spending) will be particularly detrimental to the fiscal and external positions of oil importers. Some, like Jordan, may turn to bilateral aid. Others, including Tunisia, could face significantly higher financing costs and may be forced to delay international bond issuance and turn instead to local markets, possibly crowding out private investment.

These policies are unsustainable in the medium to long term. Subsidy measures will do little to dampen inflationary pressure, especially if governments pair them with higher public-sector wages and other types of fiscal support to soothe troubled populations. Moreover, as RGE noted in the last MENA Focus, the maintenance of social spending and subsidies may curtail planned infrastructure spending. All of this makes the macroeconomic and investment climate for fuel importers more uncertain. These trends are not consistent across the region, however. We believe that investors will continue to differentiate between the stronger and weaker balance sheets in the region, with oil exporters with ample savings (including US$1.8 trillion managed by the region’s sovereign investors) and more open investment climates continuing to attract the bulk of investment.

The situation in Tunisia remains uncertain, with the new government on the verge of collapse as opposition members have pulled out. Public protests continue, calling for a completely new government. Whatever government finally emerges will need to deal with the economic grievances that triggered the unrest while recovering from the chaos of recent weeks. We assume that the developments will dampen Tunisia’s growth in the current quarter by reducing its ability to attract investment and denting its crucial tourist revenues.

The demonstrative effect of the overthrow of the ruler is clear, as events leading to Ben Ali’s ouster were watched all across the Arab world on Al-Jazeera. Self-immolation, a potent symbol that many say catalyzed events in Tunisia, has been present in Algeria, Egypt, Mauritania and Yemen in a dangerous copycat trend. Failure to respond to the underlying causes could create further issues for rulers and stymie economic development. However, in some of these countries, the combination of continued transfers, strong military presence and political restrictions including limits on voting and public assembly rights could keep the regimes in place for some time.

Source: RGE Monitor, January 19, 2011.

Tags: Arab Leaders, Arab World, Commodity Prices, Economic Risks, Employment Prospects, External Positions, Food And Fuel, Food Product, Foreign Investors, Hyper Vigilance, Lebanese Government, Mena Region, Nouriel Roubini, Political Indicators, Political Institutions, Question Marks, Social Transfers, Unity Government, Volatile Mixture, Zine El Abidine Ben Ali
Posted in Energy & Natural Resources, Infrastructure, Markets, Oil and Gas, Outlook | Comments Off

Welcome, “Peak Oil”

Monday, January 31st, 2011

The article below is a guest contribution by Puru Saxena of Puru Saxena Wealth Management in Hong Kong, courtesy of The Daily Reckoning.

The day of reckoning is approaching and the world does not have a contingency plan.

The truth is that the world’s output of conventional crude oil peaked in 2005 and global oil exports are also past their prime. Furthermore, the unconventional sources (tar sands, heavy sour crude, ethanol, natural gas liquids, bio-fuels and shale) are struggling to keep up with the ongoing depletion in the world’s largest oil fields. Therefore, it is probable that the world’s current production of total liquids is at or near maximum capacity.

Veteran clients and subscribers will recall that we have been extremely concerned about ‘Peak Oil’. However, for many years, ours was one of the lone voices in the dark. It is interesting to observe that up until 2007, various government sponsored energy agencies were extremely optimistic about their oil production forecasts. In fact, before it commissioned its first field by field analysis in 2008, the IEA used to claim that the world could easily produce over 110 million barrels of total liquids per day! Ironically, other agencies such as CERA and the EIA were even more liberal with their oil production projections and ‘Peak Oil’ was dismissed as a lunacy.

Thereafter, in November 2008, the IEA released its World Energy Outlook 2010 report, which contained a thorough analysis of the world’s 800 largest oil fields. In this study, the IEA admitted (for the first time) that most of the world’s largest oil fields are depleting at a rapid clip and serious capital spending is essential to avoid an energy crunch in 2020. Although this report was a step in the right direction, in our view, the IEA was still painting an unrealistic picture.

Fortunately, it has taken the IEA only two years to realise its mistake and its latest World Energy Outlook 2010 report presents a far more realistic scenario. According to its latest study, the IEA now expects global total liquids production to increase to just 96 million barrels per day by 2035! Bearing in mind the fact that the world currently produces 88 million barrels of total liquids per day, the IEA is now essentially implying that output will only increase by 9% over the next 25 years!

It is notable that in 2009, the IEA stressed the importance of oil for economic growth and concluded that 106 million barrels per day will be required by 2030; representing an increase of approximately 18 million barrels per day above current output. Interestingly, in last year’s report, the IEA predicted that global production will peak at only 96 million barrels per day in 2035! So, within the course of a single year, the energy watchdog for the developed world lowered its production estimate by 10 million barrels per day!

To complicate matters further, the IEA’s latest forecast of 96 million barrels per day of peak production depends on the assumption of finding an extra 900 billion barrels of oil over the next 25 years! However, given the fact that over the recent past, we have managed to discover only 10 billion barrels of oil each year, we cannot help but take the IEA’s rosy forecast with a pinch of salt. Call us skeptics, but at the current rate of discovery, it will take us 90 years to discover 900 billion barrels of oil. Yet, the IEA somehow believes that this task can be accomplished by 2035!

The chart below is taken from the IEA’s World Energy Outlook 2010 report and it does a good job of capturing the sorry state of affairs. As you can see, the IEA now expects the output from the currently producing fields (dark blue area on the chart) to drop from approximately 70 million barrels per day to only 16 million barrels per day by 2035. Furthermore, the IEA also believes that 60% of oil production in 2035 will come from oil fields not yet found (light blue area on the chart) or developed (grey area on the chart)! Once again, call us skeptics, but we do not believe that oil fields yet to be found or developed will somehow succeed in offsetting the ongoing depletion.

It is our contention that the world will struggle to produce more than 91-92 million barrels of total liquids per day and global demand will collide with available supply. Of course, we do not know the exact timing of this event but if global consumption continues to grow by 1.5% per annum, we will get there within the next 2-3 years.

Needless to say, when aggregate demand hits available supply, the price of oil will rise sharply. More importantly, if demand continues to increase in the developed world, there will be a permanent shortage of crude and governments will probably end up rationing petroleum. Furthermore, it is our firm belief that ultimately, oil will only be used for its highest uses (agriculture and aviation).

If history is any guide, the price of oil will not rise in a straight line and the secular uptrend will be punctuated by severe economic recessions. After all, the cure for a high oil price is a high oil price! At some point during the course of this business cycle, as the price of oil continues to rise, it will (once again) cause economic pain for the overstretched citizens of the developed world. When that happens, consumption will slow down and we will experience demand destruction in some parts of the world.

In our view, the next economic recession will be caused by yet another spike in the price of oil and during the next business slowdown, crude will get whacked again. This is the reason why we will liquidate all our energy related investments prior to the onset of the next economic recession.

Turning to the current situation, the price of oil is trading around US$90 per barrel and during the course of this business cycle, we expect it to surpass its previous record of US$147 per barrel.

In addition to crude oil, we are also optimistic about the prospects of uranium. As you may know, various nations are scrambling to build new nuclear reactors and this is good news for uranium (raw material used for a nuclear reaction).

As the world approaches ‘Peak Oil’ and crude is conserved, demand for electricity will surge. Either that or the world will go back to horse drawn carriages, which we seriously doubt! Furthermore, given the environmental damage associated with burning poor quality coal, the world will turn to nuclear energy to meets its energy needs. Therefore, worldwide consumption of uranium will appreciate over the following years and this will exert enormous pressure on mined supply.

At the time of writing, the price of uranium has climbed to US$61.5 per pound and it is probable that it will at least double from this level. In the previous cycle, the price of uranium peaked around US$140 per pound and we will not be surprised to see that level exceeded within the next 2-3 years. Such a bullish scenario for uranium is great news for the unhedged uranium mining companies and a modest exposure to these stocks seems like a reasonable bet.

In summary, given the reality of ‘Peak Oil’ and our bullish bias, we have allocated approximately 30% of our clients’ capital to those assets which will benefit from the looming energy crunch. At present, we have exposure to upstream oil companies, integrated energy giants, oil services firms, renewable energy stocks, uranium and electric car/rechargeable battery manufacturers. It is our contention that these businesses will prosper over the following years, thereby rewarding our investors.

Source: Puru Saxena, The Daily Reckoning, January 29, 2011.

Tags: Bio Fuels, Contingency Plan, Conventional Crude Oil, Daily Reckoning, energy, Energy Agencies, Energy Crunch, Global Oil, Lone Voices, Natural Gas Liquids, Oil Fields, Oil Sands, Peak Oil, Production Forecasts, Rapid Clip, Realistic Scenario, Saxena, Step In The Right Direction, Tar Sands, Unconventional Sources, Voices In The Dark, World Energy Outlook
Posted in Energy & Natural Resources, Markets, Oil and Gas, Outlook | 1 Comment »

Sentiment Signals: Bulls and Bears Approach Neutral Levels

Monday, January 31st, 2011

The results of the latest AAII Investor Sentiment Survey show that the bullish and bearish sentiment readings have eased further from the previously extreme levels. For the week ended January 26, 2010, the bulls declined to 42.0% from 50.3% two weeks ago and the bears increased to 34.3% from 29.1%.

Nonetheless, bullish sentiment stayed above its historical average of 39% for the 21^st consecutive week – the second longest streak in the Survey’s history since inception in 1987. Bearish sentiment climbed to its highest level of pessimism since September 2, 2010, marking only the fourth week since then that bearish sentiment has been above the historical average of 30%.

Sources: AAII Investor Sentiment Survey; Plexus Asset Management.

Wheras the AAII Survey focuses on individual investors, the Investor Intelligence Survey deals with financial newsletter writers. This survey measured sentiment over the same period as the AAII and indicated bullish sentiment dropping to 55.1% from 56.0% during the previous week – a reading somewhat below the October 2007 all-time high of 62.0%. The bears were down to 19.1% from 20.9%.

Although I do not have raw data going very far back for the Investors Intelligence series, the combined AAII and Investors Intelligence Surveys nevertheless make for interesting reading.

Sources: AAII Investor Sentiment Survey; Investor Intelligence Survey; Plexus Asset Management.

Tags: Aaii, Asset Management, Bearish Sentiment, Bullish Sentiment, Bulls, Bulls And Bears, Extreme Levels, Inception, Individual Investors, Intelligence Survey, Investor Intelligence, Investor Sentiment, Investors Intelligence, Newsletter Writers, Pessimism, Raw Data, Reading Sources, Signals, Surveys
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Kathleen Gaffney and Martin Fridson discuss Bond Investing

Monday, January 31st, 2011

This week on Wealthtrack, Consuelo Mack talks to two of the bond world’s brightest top managers on the outlook for fixed-income investments in 2011. Kathleen Gaffney, co-manager of the Loomis Sayles Bond Fund, and Martin Fridson, high yield guru and Global Credit Strategist at BNP Paribas Asset Management, tell us what to buy and what to avoid in bonds in the year ahead.

Note: The transcript of this interview is not available yet, but will be posted here as soon as it arrives.

Source: Wealthtrack, January 28, 2011.

Tags: Bnp Paribas, Bnp Paribas Asset Management, Bonds, Consuelo Mack, Fixed Income Investments, Global Credit, Guru, high yield, Kathleen Gaffney, Loomis Sayles Bond, Loomis Sayles Bond Fund, Martin Fridson, Strategist, Top Managers, Wealthtrack
Posted in Bonds, Markets, Outlook | Comments Off

Gold bullion – Is a Cycle Low Imminent?

Monday, January 31st, 2011

In what is probably an overdue correction after a stellar performance (+29.6%) during 2010, gold bullion has declined by 6.0% since the turn of the year. However, with the turmoil in Egypt as catalyst, the yellow metal sharply reversed course on Friday from an intraday low of $1,308.10 to close the week at $1,335.40.

The question that invariably comes to mind is whether we have seen the worst of gold’s decline. A few comments from Richard Russell, author of the Dow Theory Letters, regarding cycles are of particular interest.

“Analysts are talking about gold correcting down to 1,200 or even 1,000. However, I believe that the more important picture is that the gold bull market has much further to go on the upside. I’ve been reading the McClellan Market report for years. McClellan does a good deal of research on cycles, and I must say some of its cycle studies work out quite well.

“McClellan has discovered that a cycle low appears for gold roughly every 12.5 months. The cycle lows have run as follows: Jan 6, ‘06, Jan 8, ‘07, Jan 7, ‘08, Jan 5, ‘09, Jan. 4, ‘10, Jan. 8, ‘11. McClellan puts the next cycle bottom for gold at February 8, 2011 which means it should arrive at any time between now and February 8, give or take a few weeks before or after that date.

“Interestingly, the McClellan cycle bottom for gold is due to arrive amid a good deal of professional bearishness regarding gold. Thus many traders have traded out of their gold positions, just as we near the date for the McClellan cycle bottom.”

The red arrows in the chart below mark the McClellan cycle lows.

Source: StockCharts.com

Separately, Adam Hewison (INO.com) also provided a brief video analysis on the technical outlook for gold, arguing that a buy signal has not been given but that gold see a pop to the upside. Click here to access the presentation.

Although it is difficult to pinpoint short-term bottoms, I am of the opinion that the gold bull market remains intact, especially with inflation blowing up all around the world. Meanwhile, China and a number of other Asian countries keep adding gold to their reserves. These purchases should provide a floor to price declines – an “Asian put” so to speak.

Tags: 5 Months, Bottoms, Catalyst, China, Decline, Dow Theory Letters, Egypt, Gold, Gold Bullion, Gold Market, Ino, Jan 7, Lows, Mcclellan, Pop, Red Arrows, Richard Russell, Separately, Stellar Performance, Technical Outlook, Turmoil, Video Analysis
Posted in Energy & Natural Resources, Gold, Markets, Oil and Gas, Outlook | Comments Off

U.S. Equity Market Cheat Sheet (January 31, 2011)

Saturday, January 29th, 2011

U.S. Equity Market Cheat Sheet (January 31, 2011)

The figure below shows the performance of each sector in the S&P 500 Index for the week. Three sectors increased and seven decreased. The best-performing sector for the week was energy which rose 1.16 percent. Other positive sectors were materials and technology. Healthcare was the worst performer, down 1.8 percent. Other bottom performers were consumer discretion and consumer staples.

Within the energy sector, the best-performing stock was Baker Hughes, Inc., up 14.11 percent. Other top-five performers were Halliburton Co., Helmerich & Payne, Inc., Massey Energy Co., and El Paso Corp.

Strengths

• The electronic component group was the best-performing group for the week, up 11 percent. Corning, Inc. increased after reporting quarterly earnings. Its Specialty Materials sales increased 24 percent sequentially and 79 percent year-over-year, driven by strong sales in Corning Gorilla Glass, a scratch-resistant glass used in smartphone and tablet computer screens. Amphenol Corp. increased after reporting that its board of directors had approved a stock repurchase program.
• The industrial REITs (real estate investment trusts) group rose 7 percent, led by its single-member, ProLogis. The company and AMB Property Corp. announced they were in discussions regarding a potential merger.
• Two of the top ten groups were in the energy sector (oil & gas equipment & services, up 7 percent, and oil & gas refining & marketing, up 5 percent). These increases were driven by strong earnings reports from Baker Hughes, Inc. and Halliburton Co. in equipment & services, and Valero Energy Corp. in refining & marketing.

Weaknesses

• The automobile manufacturers group was the worst-performing group, losing 9 percent. The group’s single member, Ford Motor Co. reported earnings below the analyst consensus estimate.
• The special consumer services group underperformed, down 9 percent, led by its single member, H&R Block, Inc. This group was the best-performing group last week, so some profit-taking by investors might have occurred.
• The employment services group was down 6 percent. Its single member, Robert Half International, Inc., issued first quarter earnings guidance below the consensus estimate. The firm said it expects a sequential reduction in gross margins in its temporary employment business, mainly hurt by higher state unemployment rates.

Opportunities

• There may be an opportunity for gain in merger and acquisition (M&A) transactions in 2011. Corporate liquidity remains high, thereby providing the means to pursue acquisitions.

Threats

• Should investors’ expectations for an improving economy not come to fruition on a reasonable timeframe, it could be a threat to stock prices.
• Quantitative easing currently being implemented by the Federal Reserve might result in unintended consequences.

Tags: Amb Property Corp, Amp Services, Amphenol Corp, Analyst Consensus, Automobile Manufacturers, Baker Hughes Inc, Consensus Estimate, Consumer Services Group, Consumer Staples, Earnings Reports, energy, Ford Motor Co, Halliburton Co, Massey Energy, Massey Energy Co, Quarterly Earnings, Real Estate Investment, Real Estate Investment Trusts, Stock Repurchase Program, Valero Energy, Valero Energy Corp
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The Economy and Bond Market Cheat Sheet (January 31, 2011)

Saturday, January 29th, 2011

The Economy and Bond Market Cheat Sheet (January 31, 2011)

U.S. Treasuries rallied, driving yields modestly lower. The market chopped around some this week and was roughly unchanged through Thursday, but on Friday the continuing unrest in Egypt and the surrounding region initiated a flight to safe assets such as U.S. Treasuries. Fourth quarter GDP rose 3.2 percent, just under expectations, but underlying trends remain positive. Growth of 3.2 percent is not a bad showing and is about what the economy averaged in the 10 years before the financial crisis.

Strengths

• GDP grew 3.2 percent and reinforces the idea of a sustained economic recovery.
• The Fed announced no change in policy at this week’s Federal Open Market Committee (FOMC) meeting, keeping very stimulative policies in place.
• The National Association for Business Economics sees hiring picking up over the next six months based on its Net Rising Index for employment which hit the highest level since the index was created in 1998.

Weaknesses

• Initial jobless claims rose to 454,000, well ahead of expectations and sending mixed signals on the health of the job market.
• Durable goods orders for December fell 2.5 percent on weak aircraft orders.
• The British economy unexpectedly contracted in the fourth quarter by 0.5 percent.

Opportunities

• The rise in yield on the 10-year Treasury since the October low to levels comparable to those existing in May 2010, may offer an attractive entry point for bonds.

Threats

• The economy appears to be performing better than many expected and could be a threat to fixed income markets as yields move higher in response.

Tags: Aircraft Orders, Bond Market, Bonds, British Economy, Business Economics, Cheat Sheet, Durable Goods Orders, Economic Recovery, Federal Open Market Committee, Financial Crisis, Fixed Income Markets, Fourth Quarter, GDP, Initial Jobless Claims, Mixed Signals, Open Market Committee, Quarter Gdp, Six Months, Treasuries, Unrest
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