Squawk Box Europe – Bill McLaren

LET’S LOOK AT THE S&P 500 INDEX DAILY CHART

There is a chance, a probability for a high today or Monday. When the July “False Break” low was hit I indicated three probabilities. A new leg up running to a minimum 1247 in 90 to 99 calendar days, a secondary high or fast rally that exhausts before a new high usually 7/8 of the range down in 60 to 65 calendar days. Or a lower double top and this is where the index is now located. So as the index moves into these time window we need to look at the wave structure, volume, price level and the pattern of the trend to confirm the probability. The index is at the “OBVIOUS” resistance of the previous high and now within the time window at 180 days.

There is a 5 wave structure up (5 or 3of 3), volume has been decreasing but not unusual if the trend were up at this stage, but the pattern of trend is not setting up well. Notice how small the daily ranges have become. High points and tops tend to have some volatility. Notice the expansion of ranges during the January top and the April top and in this case the ranges are narrowing. If there is a move down it is possible to see just one to three days down and resumption of the trend due to the resistance being “obvious.”

Running out cycles from the July low has 45 days on the 15th and if a low could indicate a 90 day move up. If this is a counter trend rally in a down trending market the highest probability is to run out 60 to 65 days or out to the first week in September. If there is a high point now it should not exceed 1134. I don’t like the odds for a top due to the small range days and the probability the move down could be a small counter trend down. The small range days leaves a possibility of a large spike up. If today can not advance following yesterday’s reversal up and a daily low is broken I’ll consider a short term move down to trade but I doubt the trend reversal. I hate those small range days as it usually indicates support coming in at high levels and an exhaustion up might be necessary to eliminate the buyers.

GOLD

The two weeks ago I said gold would go to 154 to 157 for a low at 50% of the last leg up. We are now looking for this rally to fail and confirm a downtrend into one of the major support. The move down to 50% of the last leg up to consolidated that leg up. I felt the entire trend since 2008 needed to be consolidated so we are looking for this rally to fail and run down to ¼ of the major range which is the minimum move down to correct or consolidate a major trend or 1122. Once gold establishes a downtrend there is a fast rally as occurred in this uptrend as noted with arrows and this occurs in almost all up trends. So we are looking for evidence this rally will fail at a price above 1212 and possibly on the 12th of August at 1220. If the index runs past 12 trading days there is no high in place and a new high is likely. The pattern of the downtrend was weak so we need solid evidence to conclude a lower high is in place. But that is what we are looking to occur.

Source: McLaren Report

Richard Russell: “A hard rain lies ahead”

Love him or hate him, 85-year old Richard Russell is the doyen of investment letter writers – having been at it for more than half a century – and his views as expressed in his daily Dow Theory Letters always make for stimulating reading. The paragraphs below summarize the R man’s “big picture” view of the U.S. stock market.

“I want to say that I have a number of reasons for being convinced we have been in an upward correction [referring to the rally that commenced in March 2009] in an ongoing primary bear market. Some of this is based on my interpretation of the 50% Principle, plus my analysis of the very poor action of the “internal market” [i.e. market breadth] over recent weeks.

“I envision the Dow dropping to test, and possibly violate, the 6,547 level. I don’t know whether this will take place this year, but I wouldn’t be shocked if it does. It would not surprise me if the Dow tests the 6,547 level. And if that happens, I can almost guarantee the US will have sunk into the much-feared “double-dip” recession.

“If the US begins to shrink into a double-dip recession, I expect the Obama administration to go ‘wild’ with new stimuli and ‘make-work’ programs, all of which will be financed with higher taxes (‘soak the rich’) and a further major expansion of the Federal Reserve balance sheet. I would also expect every central bank in the world to simultaneously open their money-printing spigots wide, wide, wide.

“Conclusion in a nutshell: the secret of the forthcoming picture lies with the action of the U.S. stock market. Again I’ll remind my subscribers that the function of the stock market is to discount the future, not to mirror the present. All news is history. Or as Wall Street puts it, “news known is news discounted”.

“One of the biggest mistakes amateurs make is to think something they know is unknown and not already discounted by the market. Despite this, the media insist on describing every move of the stock market as being a reaction to some current event or some new government statistic. They couldn’t be further off the mark. As I read it, the poor action of the current stock market is telling us that the future for the U.S. is bearish and a hard rain lies ahead.

“At this juncture, sophisticated, wealthy people are not concerned with increasing their fortunes, rather they are searching for ways to conserve what wealth they have.”

Source: Dow Theory Letters, July 19, 2010 & http://www.investmentpostcards.com/2010/07/21/richard-russell-%E2%80%9Ca-hard-rain-lies-ahead%E2%80%9D/

Guildford Coal Limited (GUF) – Listing Today

Guildford Coal Limited (GUF) is due to list today (22-July) at 11:00am.

Company Overview

Guildford has established a portfolio of coal exploration tenement areas in Queensland, Australia. Guildford’s tenements cover an estimated area of in excess of 21,000 square kilometres and are defined within project areas as follows:

• Hughenden Project (Galilee/Eromanga Basins);
• Sierra Project (Bowen Basin);
• Comet Project (Bowen Basin);
• Sunrise Project (Surat/Bowen Basin);
• Monto Project (Nagoorin Graben); and
• Maryborough Project (Maryborough Basin).

For more information, please visit http://www.guildfordcoal.com.au/

1929 Peak versus 2000 Peak?

In a post yesterday, we questioned whether the Dow was really in the midst of repeating a pattern it went through in the early part of the Great Depression.  The post got a few comments suggesting that we make a different comparison:

• You should really plot what Louise Yamada has been saying for a long long time. She says that the entire market episode from 1928 to 1945 is being repeated all over again if you start your clock in 1999. By that count, the current year corresponds to 1939. It will be great if you could plot these charts. If Louise is right, and past is the prelude, then we are in for choppy market action for another five or six years.
• I agree with the comment about Louise’s assessment, especially if you use the Nasdaq composite from 1999 vs the Dow from 1929. I believe it’s a fairer comparison as our economy today is more technology based, whereas it was industrial based in the 30′s.
• You’re comparing the wrong time frames. Compare starting at DOW at 1929 and DOW at 2000, then look at the chart.

For those that asked for the charts with the new comparisons, here you go:

Source: http://www.bespokeinvest.com/thinkbig/2010/7/20/1929-peak-versus-2000-peak.html

Jeremy Grantham: “I am merely fearful”

Jeremy Grantham has become a familiar and very popular face on this site. For those treasuring his insight, wisdom and prescient calls, the co-founder and chief investment strategist of Boston-based GMO has just published the July edition of his quarterly newsletter entitled “Summer Essays”.

Here are a few excerpts from Grantham’s newsletter.

“I am still committed to my idea of April 2009 that there would be a ‘last hurrah’ of the market, supported psychologically by a substantial economic recovery but then, after a year or so, that this would be followed by a transition into a long, difficult period that I called the ‘seven lean years’. I had, though, supposed that the economic reflex recovery – how could it not bounce with that flood of governmental help to everyone’s top line? – would last longer or at least not slow down as fast as we have seen in the last few weeks. And with unexpectedly strong fiscal conservatism from Europe and perhaps from us, this slowdown looks downright frightening. I recognize that in this I agree with Krugman, but I can live with that once in a while. However, where I am merely fearful, he is talking about another ‘Depression’.

“Despite growing nervousness and despite a slowing economy, I am so impressed by the power of low rates and Greenspanism (for lack of a better or shorter description) that I would still put odds of 45% (down from 50% last quarter) for the market to rise to over 1400 (down from 1500 to 1600 last quarter) by October of next year, accompanied by a speculative spin. On the other hand, I also have to recognize that the 21% I put on a quick and rapid decline to fair value looks even more likely today, perhaps closer to 30%.

“If the market does indeed continue down the current sell-off path, it should result in some unusual movement in the Russell 2000 (small cap index) and possibly even the junky stocks, which might give up their unusual relative strength in a real hurry. I can imagine a situation, for example, where the Russell 2000 gives up a relative 10% in two to three weeks as the aggressive investment world finally has second thoughts on the wisdom of continuing to speculate and changes its mind in its usual rapid way. (Remember, you read it here first.) High quality is perhaps not so promising in this respect, but could still win by several percentage points if the world becomes more circumspect. It would be more typical for quality to outperform over several years.”

Click here for the full report (registration is required).

Source – http://www.investmentpostcards.com/2010/07/20/jeremy-grantham-%e2%80%9ci-am-merely-fearful%e2%80%9d/

Booming Mac sales drive Apple’s best-ever quarter

NEW YORK (CNNMoney.com) — Record Macintosh and lighting-fast iPad sales made Apple’s latest quarter its best ever, the company said Tuesday.

Sales for the Cupertino, Calif.-based company rose to a record $15.7 billion, 61% higher than Apple’s sales in this quarter last year. Net income rose to $3.25 billion, up 78% from a year ago.

Apple sold 3.27 million iPads, which hit the market on April 3, and it sold 3.47 million Macintosh computers — more than it has ever sold before in a three-month stretch.

Read full article at http://money.cnn.com/2010/07/20/technology/apple_earnings/index.htm

Optimism on U.S. Wanes as Growth Outlook Drops, Merrill Says

Bloomberg – Investors were the most bearish on U.S. stocks in at least four years as money manager scaled back their outlook for global growth and raised their cash holdings, a BofA Merrill Lynch Global Research survey showed.

A net 14 percent of respondents, who together manage about $530 billion, said the U.S. was the region they would most like to have under-represented in their investments, a level not since November 2006. Last month, the same amount said America was the region on which they would most like to have an overweight stance.

Read Complete Article

12 Stocks Ready to Rip After Intel’s Huge Earnings

Intel reported monster earnings yesterday, and its shares are already rallying in the pre-market.

Then again, so are other key tech names as well.

Here are the key stocks to watch ahead of today’s market open.

Advanced Micro Devices (AMD)

Source: Google Finance

Texas Instruments (TXN)

Source: Google Finance

Microsoft (MSFT)

Source: Google Finance

Motorola (MOT)

Source: Google Finance

Taiwan Semi (TSM)

Source: Google Finance

Applied Materials (AMAT)

Source: Google Finance

Read more: http://www.businessinsider.com/12-tech-stocks-to-watch-today-after-intelss-huge-earnings-2010-7#ixzz0tjK1lf2l

Commodity Snapshot

Below we highlight our trading range chart for ten major commodities.  In each chart, the green shading represents between two standard deviations above and below the commodity’s 50-day moving average.  Moves to the top or bottom of this range are considered overbought or oversold.

As shown, oil is trading pretty much in neutral territory at the moment after bouncing off of oversold levels a month and a half ago.  Gold has moved down from overbought levels over the last week, and the metal is now closer to the bottom of its range than the top.  Silver and platinum are in similar situations.  Natural gas has pulled back some after moving into overbought territory a few weeks ago.  Looking at some of the agricultural commodities, corn is attempting to break out of a long-term downtrend, while wheat already did so after spiking recently.  Both coffee and orange juice have done pretty well lately.

Source: http://www.bespokeinvest.com/thinkbig/2010/7/7/commodity-snapshot.html

Doug Kass: Stocks Have Hit Bottom For the Year

New York City is in the midst of a serious heat wave, but on Wall Street the stock market is on a major cold streak. Stocks are down 9 of the past 11 sessions. Even Tuesday’s higher close was still well off the highs of the day.

Doug Kass of Seabreeze Partners, famous for calling the market bottom in March 2009, isn’t worried. In fact, he’s bullish. “I think we’ve seen the lows of the year,” he tells Tech Ticker guest host Jon Najarian of OptionMonster.com. “The market’s are traveling on a path of fear and share prices have significantly disconnected from fundamentals,” he says.

Kass predicts stocks will rise 10%-12% by year’s end on the back of strong earnings and a better-than-expected economic recovery. He says positive trends in the ISM manufacturing and non-manufacturing index and improved labor market conditions point to “moderate domestic economic expansion, not a double dip.”

Trading at around 11 times earnings, stocks are fairly inexpensive, says Kass. He notes stocks generally trade at around 15 times future earnings, and even higher in periods of tame inflation and low interest rates, as we’re currently experiencing.

It may not be a V-shaped rally like that of 2009, but Kass says we’ve just started building a base, which could lead to a fundamentally stronger and longer-lasting rally in the future.

Source: http://finance.yahoo.com/tech-ticker/doug-kass-stocks-have-hit-bottom-for-the-year-517083.html

Learn Basics of Elliott Wave Analysis — FREE

Ralph Nelson Elliott discovered the Wave Principle in the 1930s. Over the decades, his discovery was kept alive by a handful of individuals. A few of those, such as Bolton, Prechter and Frost, educated investors on how to use pattern analysis in financial markets.

To help out Elliott Wave International’s readers in learning the basics of the method, we put together a free 10-lesson online tutorial. Here’s an excerpt. To get it in full, look for details below.

EWI’s Basic Elliott Wave Tutorial
Lesson 1, excerpt

At that time [of his discovery], with the Dow in the 100s, R. N. Elliott predicted a great bull market for the next several decades that would exceed all expectations at a time when most investors felt it impossible that the Dow could even better its 1929 peak. As we shall see, phenomenal stock market forecasts, some of pinpoint accuracy years in advance, have accompanied the history of the application of the Elliott Wave approach.

Under the Wave Principle, every market decision is both produced by meaningful information and produces meaningful information. Each transaction, while at once an effect, enters the fabric of the market and, by communicating transactional data to investors, joins the chain of causes of others’ behavior. This feedback loop is governed by man’s social nature, and since he has such a nature, the process generates forms. As the forms are repetitive, they have predictive value.

The market…is not propelled by the linear causality to which one becomes accustomed in the everyday experiences of life. Nor is the market the cyclically rhythmic machine that some declare it to be. Nevertheless, its movement reflects a structured formal progression. In markets, progress ultimately takes the form of five waves of a specific structure.

Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4, as shown in Figure 1-1. The two interruptions are apparently a requisite for overall directional movement to occur.

At any time, the market may be identified as being somewhere in the basic five wave pattern at the largest degree of trend.

Read the rest of this 10-lesson Tutorial and see multiple charts now, free! All you need is to create a free Club EWI profile.

Read the rest of this 10-lesson Basic Elliott Wave Tutorial online now, free! Here’s what you’ll learn:

• What the basic Elliott wave progression looks like
• Difference between impulsive and corrective waves
• How to estimate the length of waves
• How Fibonacci numbers fit into wave analysis
• Practical application tips for the method
• More

Keep reading this free tutorial today.

Source: http://www.safehaven.com/article/17423/learn-basics-of-elliott-wave-analysis-free

CNBC Squawkbox Europe

LET’S LOOK AT THE S&P 500 DAILY CHART

This is the trend since the July low one year ago. This move down has shown three thrusts down or the classic Elliott wave configuration for a low. The retracements or rallies have been large during this downtrend indicating the pattern of trend has not been strong even though it has dropped over 15%. When retracements are large false breaks are possible. Fast trends and trend reversals come from “false breaks” or breaks to new highs or lows above or below “OBVIOUS” resistance or support that fail to follow through. In this instance the rally has moved well above the previous swing low and that is bullish. The low was a 1/8 extension down as show last report and that is the normal price for a “false break” low. The normal counter trend in a fast trend is one to four day and this has rallied 3 days with the last day a smaller range indicating some resistance. Exceeding the fourth day is critical. The calculated resistance at 1/3 to 3/8 of the range down is 1080 to 1090 and that is important. Exceeding 4 days of rally will indicate a low is in place and a selloff should produce a higher low. There is a turning point on the 13th and a higher low around the 24th would be bullish. There are still only four alternatives: a 30 or 45 day fast run to a secondary high around 1180 followed by a bear trend; a struggling move up to 1247 for a top in September or October followed by a two year bear trend. A struggling movement that stays inside the last range down creating a distribution pattern with 3 lower highs. Or a new low to around 950 followed by a 6 month rally and then a bear trend.

LET’S LOOK AT GOLD

Two weeks ago we forecast a top in gold between the 28th June and 3rd July and that high occurred on the 28th. We also indicated it would not be any higher in price since the price targets had been hit.

The objectives for a decline are 1122 at ¼ major range which keeps the uptrend in a strong position for another rally so there needs to be caution with that support. Then 1/3 to 3/8 at 1075 though 1051 as the ultimate objective. The only problem with my forecast is the last low was only 3/8 retracement of the last leg and that small retracement does keep the last leg up intact. But I expect that to be broken and test 1157, bounce to around 1183 and resume the downtrend. But it must break this current support which I didn’t believe would stop the move down. Timing dates are July 17, August 4th for a possible trend completion and August 16th.

Source:  http://www.safehaven.com/article/17427/cnbc-squawkbox-europe

Goldman’s Global Leading Inidicator Rolls Over

“Our improved GLI comes at a particularly important time for assessing the cycle. Although our original GLI had not shown a clear peak, we have pointed out for some time that it has been distorted by trending issues in the past few months and that signs ‘under the hood’ have pointed to some slowing in momentum. The improved GLI shows that message more clearly, with a peak now visible there. This suggests that the pace of industrial growth is set to decelerate, although from extremely high levels, an outcome that would be consistent with our GDP forecasts.

Markets are increasingly focused on what this kind of slowing in momentum will mean. As usual at this point in the cycle, the key issue is the extent of deceleration. The acceleration phase in recovery inevitably ends and that point was always likely to come in 2010H1. But, as we show once again, while that shift means a more moderate picture for risk assets, the deceleration is generally only a clear negative event if the slowdown is severe. Although our US forecast is still firmly below consensus, our global forecast does not envisage a sharp slowdown. That said, we will continue to pay close attention to the incoming data on this front, starting with the new release of the GLI tomorrow.”

What does it all mean for the various asset classes?  Not surprisingly, when the GLI is in decline equities tend to under perform, bonds outperform, volatility spikes and credit spreads widen:

“Within equities, the performance differentials between periods when the GLI is rising and falling are on average very large, although of course heavily influenced by the impact of serious downturns and recessions. The differences are strongest in emerging markets (EM) and in cyclical equities (our Wavefront growth basket shows that cyclicals tend to outperform strongly in ‘up’ phases and underperform strongly in ‘down’ phases).

Commodities show a similar pattern. But the relationship is strongest for industrial metals including copper (this is true even if they are excluded from the GLI), and least strong for gold and other precious metals. Interestingly, at least over the sample period here, oil has behaved with a strong cyclical bias too.

Bonds display the opposite behaviour, with a strong tendency for yields to fall when the GLI is falling and significant rises when the GLI is rising. That tendency is largest in the US market (front and back) but visible in other majors. There is also some tendency for the yield curve to steepen more when the GLI is falling.

Unsurprisingly, given the other results, credit spreads and equity volatility (as measured by the VIX) also tend to move significantly higher on average during phases when the GLI is falling and narrow when it is rising. These differences have been extremely pronounced in the recent downturn and—as we have described elsewhere—tend to be most dramatic at the ends and beginnings of cycles.

Experience in FX is more mixed. In general EM FX tend to perform better when the GLI is rising than falling and, within the G10, the commodity currencies are by far the most reliably related on the positive side to phases of the GLI. That said, the GBP, SEK and NOK are all confirmed to be more ‘cyclical’ in this simple analysis than the EUR. On the other side, the CHF is the least cyclical of the G10. Within the G3, the message is more mixed—and more varied over time—but there is a modest tendency over the long term for the USD to do better when the GLI is deteriorating.”

Source: GS – http://www.scribd.com/doc/33861708/GoldmanSachs-Global-Economics-Weekly-20100630

Investment Outlook July 2010 by Bill Gross

Alphabet Soup

Global financial market returns stand at the threshold of mediocrity. With bonds priced not for recession but near depression, most major global bond indices now yield less than 3%, surely a forerunner of returns to come. Stocks, long the volatile vamp of investor optimism, have not yet adjusted to the New Normal of half-size economic growth induced by deleveraging, reregulation, and deglobalization and have low single digit prospects as well. Yet, what has seemed obvious to those of us collectively at PIMCO for several years now is less than standard fare in the trading rooms of institutional money managers. While the phrase “New Normal” has been welcomed into the lexicon of reporters and commentators alike, the willingness of investors to accept its realities is fog-ridden and whispered, or perhaps softly whistled, much like midnight passersby at a graveyard. Our “New Normal” two-word duality seems to resonate more on the “normal” than the “new” to economists whose last names aren’t Roubini, Reinhart, Rogoff, or Rosenberg. It’s as if “R” has been eliminated from the financial alphabet, and “new” from investors’ dictionaries worldwide.

Perhaps the enigma arises from a multi-generational acceptance of debt as common scrip, available for the asking and seemingly forever productive in boosting living standards – until, that is, liabilities became so large that the interest burden and probability of repayment overwhelmed borrower and lender alike in near unison. To understand why debt may have become a burden instead of a boon it is instructive as Philip Coggan points out in a recent Economist article, to ask why people, companies and countries borrow in the first place.

They do so, he intelligently argues, to boost their standard of living, to bring consumption forward instead of languishing in the present. How could almost any of us have afforded a home without a mortgage? By the time we would have saved enough money we’d have been close to retirement with the kids grown and facing a similar predicament. And so we turned to the wizardry of borrowing on time to be able to purchase and then repay in full. Crucially, since debt is a handshake between at least two parties, the lender had to believe that it would be repaid, and that belief or “credere,” was based on several rather rational expectations when observed on a macro level from 30,000 feet.

First of all, capitalistic innovation fostered productivity, and an increasing standard of living through technology and innovation. Debts could be paid back via profits and higher wages if only because of rising prosperity itself. Secondly, the 20^th century, which fathered the debt supercycle, was a time of global population growth despite its interruption by tragic world wars and periodic pandemics. Prior debts could be spread over an ever-increasing number of people, lessening the burden and making it possible to assume even more debt in a seemingly endless cycle which brought consumption forward – anticipating that future generations could do the same.

But while technological innovation – much like Moore’s law – seems to have endless promise, population growth in numerous parts of the developed world is approaching a dead end. Not only will it become more difficult to transfer high existing debt burdens onto the smaller shoulders of future generations, but the overlevered, aging “global boomers” themselves will demand a disproportionate piece of stunted future goods and services – without, it seems, the ability to pay for it. Creditors, sensing the predicament, hold back as they recently have in Greece and other southern European peripherals, or in the U.S. itself, as lenders demand larger down payments on new home mortgages, and other debt extensions.

Aging and population change of course are just part of the nemesis. We could have “saved” for this moment much like squirrels in wintertime but humanity’s free will is infected with greed, avarice and in a majority of instances, hope as opposed to commonsense. We overdid a good thing and now the financial reaper is at the door, scythe and financial bill in one hand, with the other knocking on door after door of previously unsuspecting households and sovereigns to initiate a “standard of living” death sentence.

What is harder to understand in this demographic/psychological/sociological explanation of the crisis is why it should morph into a global phenomenon. There are 6.5 billion people in the world and will soon be 1 billion more. Many of them are debt-free and have never used a credit card or assumed a home mortgage. Why can’t lenders like PIMCO lend to them, allowing developing nations to bring their consumption forward, developed nations to supply the goods and services, and the world to resume its “old normal” path toward future profits, prosperity and increasing standard of living? To a certain extent that is what should gradually happen, promoting more rapid growth in the emerging nations and a subdued semblance of it in the G-7 – a “new normal.”

But they – the developing nations – are not growing fast enough, at least internally, to return global growth to its old standards. Their financial systems are immature and reminiscent of a spindly-legged baby giraffe, having lots of upward potential but still striving for balance after a series of missteps, the most recent of which was the Asian crisis over a decade ago. And so they produce for export, not internal consumption, and in the process leave a gaping hole in what is known as global aggregate demand. Developed nation consumers are maxed out because of too much debt, and developing nations don’t trust themselves to stretch their necks for the delicious leaves of domestic consumption just above.

It is this lack of global aggregate demand – resulting from too much debt in parts of the global economy and not enough in others – that is the essence of the problem, which only economists with names beginning in R seem to understand (there is no R in PIMCO no matter how much I want to extend the metaphor, and yes, Paul _Rugman fits the description as well!). If policymakers could act in unison and smoothly transition maxed-out indebted consumer nations into future producers, while simultaneously convincing lightly indebted developing nations to consume more, then our predicament would be manageable. They cannot. G-20 Toronto meetings aside, the world is caught up as it usually is in an “every nation for itself” mentality, with China taking its measured time to consume and the U.S. refusing to acknowledge its necessity to invest in goods for export.

Even if your last name doesn’t begin with R, the preceding explanation is all you need to know to explain what is happening to the markets, the global economy, and perhaps your own wobbly-legged standard of living in recent years. Consumption when brought forward must be financed, and that financing is a two-way bargain between borrower and creditor. When debt levels become too high, lenders balk and even lenders of last resort – the sovereigns, the central banks, the supranational agencies – approach limits beyond which private enterprise’s productivity itself is threatened. We have arrived at a New Normal where, despite the introduction of 3 billion new consumers over the past several decades in “Chindia” and beyond, there is a lack of global aggregate demand or perhaps an inability or unwillingness to finance it. Slow growth in the developed world, insufficiently high levels of consumption in the emerging world, and seemingly inexplicable low total returns on investment portfolios – bonds and stocks – lie ahead. Stop whispering (and start shouting) the words “New Normal” or perhaps begin to pronounce your last name with an RRRRRRRRRRRR. Our global economy, our use of debt, and our financial markets have changed – not our alphabet or dictionary.

Source: http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/Investment+Outlook+Gross+Alphabet+Soup+July.htm

Global investor confidence rises but North Americans remain pessimistic

Global investor confidence has risen by 1.3 points in June to 89.7. European (up 5.4 points) and Asian (up 1.7 points) confidence rose in June, according to the State Street Investor Confidence Index.

North Americans continued to be pessimistic, with confidence levels falling by 6.3 points to 92.2 compared with May’s 98.5

Question marks over the state of the US job market and overall US aggregate demand may have slowed the pace of economic recovery, according to Harvard University professor Ken Froot who together with Paul O’Connell from State Street Associates created the index.

There is “some evidence of stabilisation in risk appetite outside North America,” added O’Connell.

“A look at the underlying data confirms the strongest regional flows are into emerging markets, with the exception of emerging Eastern Europe,” he noted.

Globally, investor confidence has been slowly rising October 2008, after it hit its all time low after the collapse Lehman. Following a slight decrease in April and May 2010, the global increases give an optimistic tinge to the overall sentiment.

The State Street Investor Confidence Index measures investor confidence on a quantitative basis by analysing the actual buying and selling patterns of institutional investors. The index gives a precise meaning to changes in investor risk appetite, the greater the percentage allocation to equities, the high the risk appetite or confidence.

The Index shows the sentiment of institutional investors as it is based on actual trades rather than survey data.

Source: http://www.hedgefundsreview.com/hedge-funds-review/news/1720034/global-investor-confidence-rises-north-americans-remain-pessimistic

Don Coxe – Investment recommendations (June 2010)

The June edition of Donald Coxe’s Basic Points research report (subtitled “Summer’s Storms and Norms”) has just been published. His investment recommendations, as summarized in this document, are listed in the paragraphs below, but I do recommend you also read the full report.

1.  Canadian bonds, equities and bank deposits are excellent investments for investors based in other currencies. Canadians should take advantage of the Loonie’s current weakness to borrow in greenbacks and otherwise hedge any risks they have to the outcome of a new global love affair with the Loon.

2. Resist the urge to buy the Macondo well-related stocks now that BP has somewhat capped the well. US trial lawyers cannot believe their luck: they will be able to sue, for treble damages, everybody involved in the well in the infamous “hellhole” courts of Louisiana and Alabama, where the judges’ electioneering costs are paid by plaintiffs’ lawyers. BP’s $20 billion payment will prove to be just a down payment. This is, for these predators, the equivalent of getting advance advice of the winning numbers in a multi-billion-dollar lottery.

3. The oil sands producers don’t benefit as much as the US trial lawyers from the BP  disaster, but there are two ways their stockholders benefit: firstly, by reminding the public that the large-scale alternatives to oil sands petroleum involve much greater environmental risks, they will take some heat off the beleaguered companies; secondly, an offshore oil boom that might have followed from Obama’s cautious reopening of offshore drilling has become a bust. That frees up investor capital allocated toward oil stocks to buy oil sands producers’ shares as the least-costly way to acquire multibillion-barrel North American exposures.

4. Remain heavily overweight oil compared with natgas. Gas prices have climbed because of the cutoff of expected production from the Gulf, but this should be only a temporary price boost. As Macondo has tragically demonstrated, finding big oil deposits is a high-cost, high-risk business. Finding gigantic natgas deposits is a low-cost, low-risk business. Natgas risks becoming the hydrocarbon equivalent of political hot air: cheap, never-ending and ubiquitous.

5. Gold is more than the Bad News Bear’s New Favorite. It is the completely inverse investment to paper money and complex financial derivatives, making it the multi-millennial belief system to which modern investors can return from the financial system’s current excesses, misrepresentations, and bad politics. In a bull market for gold, the well-managed mines will outperform the bullion. A recommended alternative is the royalty companies.

6. Barring some war in the Korean Peninsula or the Mideast, or the collapse of some major European banks, this stock market pullback should continue to be a correction, not the first chapter in a new horror story. A new crash at a time of zero rates remains an unlikely outcome − but not as unlikely as it seemed two months ago before we found out about where all those trichinositic eurobonds were stashed.

7. Remain invested in companies that produce what China and India need. No matter what happens in the OECD, these economies will continue to grow faster than the US or Europe. Their public employees aren’t paid more than their private sector earns, and they don’t retire young. Their governments are not laden with debts that can only be serviced with economic growth at unachievable levels. In other words, they are doing the big things right − and the OECD collectively is doing them wrong. There is no reasonable doubt about which economies will grow most rapidly, with the lowest recession risk.

The full report follows below. (Click on “Fullscreen” for readable version.)

Don Coxe, Basic Points – June Reflections: Summer’s Storms and Norms 061710

Source: Scribd, June 2010.

The great Berkshire Hathaway index run-up

Now that Berkshire’s Class B shares have joined the Russell 1000, portfolio managers who paid a pretty penny can breathe easy again.

The runup this year in Berkshire Hathaway’s Class B stock (BRKB) is a good reminder of the power of an old kind of index arbitrage: buy high and sell higher, when the index-fund managers get in.

Usually, when fund managers engage in index arbitrage, they’re weighing the value of an index’s different stocks against each other, choosing the leaders and the laggards. But this year, there has been an easier strategy: cleverer hedge-fund managers or short-term investors just lie in wait until the announcement that a big stock will be added to an index; after the announcement, they buy up tons of the stock, driving up the price for the poor index-fund portfolio managers who are required to hold all the stocks in the index – so they pay exorbitant prices to own the shares.

Exhibit A: Berkshire Hathaway’s Class B stock has been zooming up for the past few days, most recently with a nearly 4% jump on Friday to close at $81.90. The reason: As of this morning’s open, Berkshire Hathaway has been added to the Russell 1000 Index. Berkshire is a giant, so it immediately ranked among the top 10 companies on the index, by size. Berkshire’s Class B stock alone will make up 1.1% of the Russell 1000 index. According to Goldman Sachs analyst David Kostin, 17.6% of the Russell 1000 holdings are now in financials, a full percentage point higher than they were before Berkshire joined.

The big jump in Berkshire’s Class B might cause some Russell 1000-following index managers to groan, but it’s probably a big relief to one group of investors: the portfolio managers who bought Berkshire’s class B stock at pretty rich prices after February 12, when it was added to the S&P 500 index. For those investors, who paid roughly $76 a share and up, things looked dark for a while in early June, when the stock dropped to $70 a share. Then, like Christmas in June, there was the announcement mid-month that Berkshire would join the Russell 1000, and all of a sudden the S&P 500 index-followers could breathe easy that the stock was worth something again. Overall, it’s hardly been a bad play: Over the course of seven months, Berkshire’s Class B stock jumped from around $65 a share in late January, around the time the stock took a 50-to-1 stock split, to $81.90 as of Friday’s close.

Of course, none of this could have happened until Berkshire’s leader, Warren Buffett, chose to compromise on his opposition to short-term investing. Buffett always liked to keep his company’s stock an exclusive playground for long-term holders — witness the Class A shares (BRKA) trading at $122,300 each these days — but the 50-to-1 stock split in Class B stock was reportedly spurred by Buffett’s need to find a wider universe of investors to help finance Berkshire Hathaway’s acquisition of the Burlington Northern Santa Fe railroad. The stock split dropped the price of Class B shares from $3,275 each to more like $65 each.

The enormous growth in the trading volume of Berkshire’s Class B shares shows the success of Buffett’s populist move. Before the S&P 500 move, Berkshire’s Class B traded at around 5.5 million shares a day; now, it’s more like 10.18 million shares a day.

These boosts are temporary, of course; as of Monday morning, Berkshire’s Class B already started to pull back, dropping 1% in early morning trading to around $81 a share. Of course, if any of those Russell 1000 index managers find that the Berkshire Class B stock loses even bigger chunks of its pop after the index-buying games are over, they might just have to swallow their hard luck: there aren’t that many more indexes that the stock can list on.

By Heidi N. Moore, contributor – Source: http://wallstreet.blogs.fortune.cnn.com/2010/06/28/the-great-berkshire-hathaway-index-run-up/

Comming Soon – webIress

Guildford Coal Limited (GUF) Share Offer

To access this offer and for a copy of the prospectus including the application form, please contact Eden Hage at eden.hage@stonebridgegroup.com.au or on 07 5504 2141.

INDICATIVE KEY DATES
Prospectus lodged with ASIC 27 May 2010
Opening Date 10 June 2010
Closing Date 11 June 2010
Expected date for allocation of shares 18 June 2010
Expected date for despatch of holding statements 21 June 2010
Expected date for the quotation of the Company’s securities on ASX 24 June 2010

Company Overview

Guildford has established a portfolio of coal exploration tenement areas in Queensland, Australia. Guildford’s tenements cover an estimated area in excess of 21,000 square kilometres and are defined within project areas as follows:

• Hughenden Project (Galilee/Eromanga Basins)
• Sierra Project (Bowen Basin);
• Comet Project (Bowen Basin);
• Springsure Project (Bowen Basin) (acquisition to be completed on the date of successful close of the Offer);
• Sunrise Project (Surat/Bowen Basin);
• Monto Project (Nagoorin Graben); and
• Maryborough Project (Maryborough Basin).

According to the Independent Technical Expert:

“The projects represent a diversified portfolio of genuine coal exploration targets located in the premium coal basins of Queensland with potential for a variety of coals including export thermal, PCI and hard coking qualities. The projects are mostly located close to existing rail infrastructure and present the opportunity to access multiple port facilities. Guildford has proposed a two year program of exploration on each of the areas held by the Company. The program is designed to define the coal resources to at least Inferred status by year one, although in several cases it should be possible that resources may be defined to Indicated and Measured status by year two.”

ASX Stock Report 10-5-10

1. More volatility makes for busier times in the trading business. Last week we had a revision of 6% in our equities market, and today we’ve made back more than a third of those losses. All ords was up 114.8pts, all sectors up across the board with Resources and banks gaining >3% on ASX200.

• ASX200 4599.8 +2.66%

• SPI Futures 4610.0 +3.04%

• DJIA Futures 10,621 +286pts

2. NAB business survey -3pts, to +13 (>l-term average of +7). Business conditions -5pts to +8 and capacity utilisation flat at around 82% in April. Proof the intention of tighter RBA policy coming to fruition in business as well as consumers, putting a halt to prices.

3. ANZ job ads survey -1.2% in April, +14.9% on a p.a. basis.

4. Clearly best performers of the day where those hardest hit from last week RIO +5.69% CBA +4.74% WBC +24.96% LNG +25% BMN +22.73%

5. IPL results today stock was up ~3% by 10.20am. despite falling revenue -27.6%, an ~50% fall in Raw materials and -34% in operating expenses was the reason for the substantial +33% rise in profits (market expected NP $152.8M vs. actual NPAT $132.4M). Over the period a complete turnaround in operating cash flows from -$112.8M to +$79.2M and less capex on PP&E without diluting issued equity points to a successful year for the company financially. They have endured a very strong Australian dollar, lower fertilizer prices, a soft US economy and challenging business conditions. EPS basis the company is better off +22.4% YoY 8.2c HY FY10 vs. 6.7c HY FY09, and then again on a NTA $0.27 HY10 vs. -$0.14 HY09. Fertilizers revenue -21.4% HY10oHY09, explosives -31.9%. IPL has shifted focus and will benefit off leverage into the US market. The focus has changed in primary product from fertilizer to Explosives after their US private subsidiary took over Dyno Nobel, 16th June 2008. Explosives earnings mix 58% vs. 47% over HY10 from HY09. So far the company has projected sustainable earnings for explosives by CY12 US$204M. Currently under their ‘velocity’ program has provided US$96.9M in sustainable revenue. Velocity being the program from acquisition of Dyno Nobel and their strategy to implement a sustainable earnings generating explosives business. For this HY Velocity has returned 43% of US$60M capital injection. Market has on average begun to factor in the US$204M projection with broker consensus upgrades puts the stock back on and up-trend. Market expects impact of Super profits tax on IPL to be a reduction to earnings by ~5% from FY13 on Phosphate Hill mine but still uncertainty resides on any material impact. IPL $3.17 +4.28%

6. Peabody blaming uncertainty around the resources SPT for reducing their Macarthur bid to $5. WHC looks like the market preferred Australian coal producer. Stock has been very resilient to news over the RSPT trading flat over the week from the 3rd of May. WHC $4.96 +2.69% MCC $13.38 -2.26% GCL $11.73 -0.59% COK $0.435 +3.57% CEY $4.51 +2.04%

7. Xstrata has suspended a $30M copper exploration project in central QLD due to the RSPT.

8. Gold Prices getting resistance at US$1200/oz since +US$50/oz last week, slip below US$1200 for the first time since last week. NCM $31.44 -0.16% LGL $3.90 EAU $18.10 +0.22% SBM $0.27 +5.88%.

9. GPT AGM: report >90% occupancy rates at all levels (wholesale & office), gearing Dec 09 23.5%, investing $220M p.a., distributing 3c/share or 80% of realised operating income. No clear guidance given for the FY. Jono Senior (our property analyst) has given a list of diversified office trusts that have compelling price discounts to NTA. CDI $0.53 NTA 69c, DXS $0.79 NTA $1.01, IOF $0.605 NTA $0.80. Given the MGR offer for WOT we may have begun moving out of the discounting cycle for Office REIT valuations. GPT $0.555 +1.83%

10. Transurban group buys rights to Sydney’s Lane Cove tunnel. TCL $4.92; AIO $1.65 +3.13%; CEU $0.40 -1.23% offshore exposure – ITO $1.115 +3.72%; MAP $3.01 -0.99%; TOL $6.56 -2.96%. One can expect that fiscal money injections into infrastructure will only further circulate money in the industry and impact revenues across the board, conditional on the individual company’s performance. TCL in trading halt as they move to give a share purchase plan.

11. Webjet confirmed HY profit guidance, $5.2M. Trades at discount traditionally to industry Wotif PE +20x, however at a premium to market PE FY10 ~15.5x. A very effective entrance to NZ marketplace has put the company in good stead, however to model this for further international expansion would be insufficient as the NZ market would have quite different dynamics to say that of the US. The other concern in the short term would be the revision in discretionary spending; however given a competitive AUD encouraging international travel this may offset such issues. Webjet expects ~$5.197M NPAT for the 2H of this year, by my calculations the stock is trading on a PE 15.75x. This is still a ~21% discount to Wotif. The consensus is that WTF is cheap at FY10 PE 24.9x, & FY11 PE 20.8x. These facts included we can expect the performance of WEB to the end of this FY to remain above $2. WEB $2.14 +3.38% WTF $6.48 +4.01%

12. Rhetoric in the federal budget tomorrow will provide further insight into the government’s intention with business and the overall financial health of the Australian economy. We can expect there to be impacts on future earnings figures post the release of the budget tomorrow.