A.L. Waters Capital, LLC

Morning Call

0 CommentsWednesday • November 11, 2009 • by alwaters

“Silence is one of the great arts of conversation.”
Cicero

Morning Call
November 11, 2009

Gold Update

Nothing like waking up to your morning coffee and a new record high for gold. We expect a rather quick move to the $1200 level. Some fluctuation on the Dollar index, may limit the steepness of the move this morning, but as the Dollar begins to pull back later today or tomorrow, expect a sharp move higher for gold.

What to Buy

We will see another strong day for gold and the shares of mining companies such as Newmont (NEM), Eldorado Gold (EGO) and others. It is important to note, however, that many of the miners are running along at seriously inflated P/E ratios based on optimism that gold will continue to climb. Common sense dictates that this may reach a peak where, even with gold climbing, the rise in mining shares will, or should anyway, begin to level off. For, now, we can still expect another 3-5% upside for our favorite miners.

Market Outlook

After a strong day on Monday, we would have to expect a leveling off day yesterday. The Dow did, in fact, swing high and low during the day and finished with a gain of 20 points. Today is really the follow up day to the 200 point upside on Monday and futures suggest that the markets will make another strong move to the upside. The setting this morning is a lot like that of Monday with the exception being that the Dollar is slightly stronger in the early hours. Globally, stocks are trending higher as China’s industrial production soared 16 percent from a year ago and orders for Japanese machinery surged 10 percent from the previous month, signaling the recovery is accelerating in the world’s second- and third-biggest economies. Bank of England Governor Mervyn King stated that he has an “open mind” on further bond purchases, signaling officials aren’t ready to withdraw stimulus yet. King did also go on to say that “We’re not seeing any great expansion of credit. Indeed if we could see credit growing more rapidly that would be a very welcome step. No central bank in the world is saying that it intends to carry on this policy forever.”
Most of the Asian indexes barely moved overnight with the exception of China where the Hang Seng climbed by 1.6%. Most of the high volume trades, however, were to the upside and included a wide variety of sectors, including the banks. Trading in Europe this morning is a little stronger with the major indexes higher by an average of well over 1%. Specific trading, however, has been considerably mixed within sectors. Pre-market activity in the US suggests that it is the financial sector that may lead the way today.

Commodities are also strong this morning. Oil is up by about a half Dollar, well above the $79 mark. Back at $40, we believed that oil would return to the $75-80 range and get stuck there for some time and that certainly appears to be the case. For now, oil traders are forced to work with small moves in either direction. Gold, as expected, to a slight breather yesterday and has, once again, reached new highs this morning. With another $10 gain in early trading, gold is now at $1116. The Dollar is a little more mixed today with gains on the Pound and Yen and a continued slide against the Euro.

Investors will have little in terms of economic news to digest this morning. Scheduled earnings reports will include Applied Materials, Computer Sciences Corporation, Macy’s, RailAmerica, Progressive, and a few others.

Investors appear willing to buy into the rally; at least for a little longer. Several concerns still remain regarding the global economy and joblessness. Banks need to lend, and consumers need to spend, otherwise it is all for naught. World Bank president Robert Zoellick warned Wednesday that untamed U.S. unemployment threatens to trigger loan defaults and drag on consumption, thus hindering the strength of economic recovery. “You’re going to have problems with delinquencies of credit card loans, consumer loans, people won’t be able to pay their mortgages,” he told reporters in Singapore. “Some banks are going to continue to be troubled by bad loans.” While Zoellick concedes government stimulus spending will fuel growth through the middle of 2010, he’s worried what happens afterward: “What’s the other source of demand?” In other words, the Central Banks and policymakers certainly avoided what could have been a much worse scenario during the height of the financial crisis, but it all still caused a fundamental shift in our perceptions. Most consumers still think the worst may be ahead for them and they are, therefore, planning accordingly. Even if the specter of unemployment could be magically lifted, consumers may have learned a lesson that could become a generational shift in how we spend and utilize credit. This creates an entirely new norm for which the global economy may need years to adjust to.

Morning Call

0 CommentsMonday • November 9, 2009 • by alwaters

“Risk — If one has to jump a stream and knows how wide it is, he will not jump. If he doesn’t know how wide it is, he’ll jump and six times out of ten he’ll make it.”

Persian Proverbs

Morning Call
November 9, 2009

Gold Update

We see no reason for the current trend to change. Gold has acted more predictably than many other asset classes in the past several weeks. We test new highs, pull back slightly and then move to the next level. Remember that $2000 gold would bring the precious metal in line with its inflation adjusted price. That doesn’t even take into account the largest of institutions and sovereign nations are buying it up more than ever. Paper currencies will face a long and difficult road ahead and this will only add to gold’s luster well beyond the current rally.

What to Buy

All eyes are on gold once again. We should see some strong moves for drillers such as Diamond Offshore (DO) and Union Drilling (UDRL) with oil heading higher. The strongest buy, however, continues to be the miners. A slight pullback on Friday for Eldorado (EGO) and Jaguar Mining (JAG) make them a good buy as gold reaches record levels once again.

Market Outlook

After a lackluster Friday, the Dow is poised to open sharply higher this morning. Globally, stocks rose, sending the MSCI World Index higher for a fourth day, and commodities rallied after the Group of 20 nations agreed to maintain measures to boost economic growth. Australia has already raised its rates twice, and India is said to be looking at measures to withdraw stimulus, but the US, UK, EU, and Japan all formally stated that it’s too early to withdraw spending intended to revive growth. Treasuries slid as the U.S. prepared to sell a record $81 billion of 3-, 10- and 30-year debt this week. The yield on the 10-year note rose 2 basis points to 3.52 percent. The week’s sales begin today with $40 billion of three-year notes. The Treasury is scheduled to sell $25 billion of 10-year debt tomorrow and $16 billion of 30-year bonds on November 12.

The Obama healthcare overhaul passed a House vote by a narrow margin Saturday (220-215), setting up a debate in the Senate, where Democrats don’t enjoy the same broad majority, this week. The bill would cost $1.05T over a decade to provide health insurance to another 36 Million Americans. It requires most Americans to carry insurance and gives low income earners tax credits to help them pay for it. In an appearance Sunday, Obama said he is “absolutely confident” a healthcare bill will also pass through the Senate.

Stocks in Asia were somewhat mixed, with the Nikkei pulling out a modest gain and China’s Hang Seng rising by 1.73%. Trading within sectors in Asia was also very selective, with no clear winners among groups. Things are a little more clear in Europe this morning with the major indexes higher by an average of 1.5%. The banks are actually outperforming the markets and several tech stocks are also enjoying strong gains. Premarket trading in the US also shows positive movement in the financial sector as well.

Optimism has led to a strong day for commodities as well. Oil is up by more than a Dollar at $78 although natural gas is down slightly. Another strong start for gold this morning with a gain of more than $12 to new highs of $1109. The Dollar is up slightly against the Yen, but is sharply lower on the Euro and Pound this morning.

There will be no further economic numbers to sway the markets this morning. For earnings we will turn to Acadia Pharmaceuticals, Aspen Technology, Electronic Arts, Harvest Energy Trust, Liberty Media, MBIA, New Frontier Media, Priceline, Rockwell, and several others.
With a majority of central banks holding the line on interest rates and stimulus, investors have bought in to the news. The fear was that if the banks pull back too soon, we would see another dip in the global economy. The fact is, however, that History shows stocks have climbed 92 percent of the time in the six months before government borrowing costs began the biggest increases. In other words, despite the fact that investors have worried about rate hikes, it has been historically positive for stocks ahead of such a move. Investors are actually betting that U.S. Federal Reserve Chairman Ben S. Bernanke may start to increase borrowing costs in June, according to Fed funds futures prices. Traders assign a 54 percent chance of an increase to at least 0.5 percent at the end of the Federal Open Market Committee’s meeting on June 23, when the American economy is forecast to be in its fourth straight quarter of expansion. Whatever the case may be, it will be a critical decision when the time comes and the timing will essential. For today, we could see a 200 point day for the Dow once again.

Morning Call

0 CommentsThursday • November 5, 2009 • by alwaters

I cannot teach anybody anything; I can only make them think.
Socrates

Morning Call
November 5, 2009

Gold Update

After a two day run that brought gold to new highs once again, we can expect some consolidation. Some buyers will be looking to get in on the dips, and some will be looking to take profits. This dynamic may lead to a day of little movement for gold, but today’s economic news, and the effect it ends up having in the equities arena, could easily reignite the rally for gold.

What to Buy

A little known stock, but one that we have traded in for two years is Fuel Systems Solutions (FSYS). Fuel Systems designs, manufactures and supplies alternative fuel components and systems for use in the transportation, industrial and power generation industries on a global basis. This stock can be volatile at times, but has been on a strong general trend. More than 70% of available shares are held by institutions and has shown stable growth over the long run.

Market Outlook

The Dow barely held on to positive territory after selling off at the end of the day. This morning, futures are pointing slightly higher, but are essentially non-committal ahead of this morning’s jobless claims announcement. As expected the Bank of England and European Central Bank formally announced they would hold interest rates at their present levels. Other measures, however, have shown a slow move toward withdrawing from certain policies. The Bank of England slowed the pace of bond purchases as signs of an economic recovery give policy makers scope to wind down their money-printing program next year. The pound rose as much as 0.7 percent to $1.6617 after the decision. The European Central Bank may signal it’s moving closer to withdrawing emergency stimulus measures. Investors will be listening carefully to President Jean- Claude Trichet, who holds a press conference at 2:30 p.m., for clues on when the ECB will start scaling back lending to banks.

Stocks in Asia slid overnight by an average close to 1%. Many of the bank stocks held up during the day, but the technology and industrial stocks weighed down the broad indexes. Stocks are also slightly lower in Europe this morning, although the story for the banks is much different, with losses of about 3%. Most US banks are slightly higher in pre-market trading.

Trading in commodities is mixed this morning. Oil is lower by a small fraction, but remains above the $80 mark. Gold has leveled off a bit, but has added $3 to $1090 in early trading. We may see a tight trading range for gold after two strong days in a row. The Dollar is, once again, lower against the major currencies this morning.

Besides the Initial Jobless Claims numbers, we will also have Productivity and Costs and Public debt figures. For earnings news, we will hear from BioLase Technology, BNP Paribas, Blackrock Kelso, Boston Beer, Cardinal Health, CBS Corporation, Cigna, CVS Caremark, Denbury Resources, Dr Pepper, King Pharmaceuticals, NVIDIA, Starbucks, Time Warner, and several others.

Some investors are seeing yesterday’s Fed decision, or lack thereof, as a disappointment. There were no substantive changes to the Federal Reserve’s policy statement today after the central bank concluded two days of deliberation. The markets reacted as one might have expected – the dollar went down and just about everything else went up. Gold moved up about $6 an ounce within minutes. So what we have is a “recovery” in asset prices that looks a lot like the last one. The only thing is that asset prices don’t really start to move until they start raising interest rates – that seems to be many, many months away. We have known for some time that the Central Banks faced their biggest challenge yet in withdrawing at the right time – Not too soon and risk stifling recovery, but not too late to lose control of inflation. Investors are beginning to get a little impatient to hear more specific plans, rather than the same carbon copy statements that amount to nothing.