Morning Call

0 CommentsWednesday • November 4, 2009 • by alwaters

“It is not because things are difficult that we do not dare, it is because we do not dare that things are difficult.”
Seneca

Morning Call
November 4, 2009

Gold Update

Every time that gold reaches a record high, the phone rings. Many ask whether this is it and is it time to get out. At the present level, it would be productive to take profits on a small portion of gold holdings, but the rest should stay in place for the ride to $1500. It is very likely that we will see $1100, although profit taking could delay the process. India’s Central Bank obviously understands the value of the yellow metal, as it bought half of the 403 Metric Tons that the IMF sold off yesterday.

What to Buy

The banks are poised to move higher this morning, but we still consider this entire sector to be too risky in the long view. Record highs for gold will certainly benefit the mining sector, but gains of 608% for most of these stocks may mean a more modest upside today. Eldorado Gold (EGO) is still one of the strongest picks within this sector. Let us not forget the less glamorous of the precious metals: silver. Silver relies a little more on industrial growth, but has also been moving in step with gold. Our favorite silver play has always been Silver Wheaton (SLW), which gained 9.5% yesterday and is up by more than 2% again in pre-market trading this morning.

Market Outlook

A volatile day of trading yesterday left the Dow down by a small margin, while the S&P and NASDAQ finished slightly higher. Futures this morning point to a strong start based on the assumption that the Federal Reserve will maintain rates for a prolonged period. The formal announcement is due today. Specific wording from the decision will be analyzed closely for indications of the long term view. What this all means is a boost for equities and commodities even more so.

The Hang Seng led the way in Asia with a gain of 1.76%. The Nikkei and other exchanges finished higher by only a small margin. High volume trades, however, were strongly to the downside with the banks and technology stocks among the worst performers. Stocks in Europe this morning are higher by well over 1% on most indexes. The financial sector, by contrast, is higher in Europe, as are many technology and consumer stocks. A look at pre-market activity in the US shows positive movement for the banks, energy, and mining stocks.
Weakness on the Dollar today means strength for commodities. Oil is up by nearly 1%, having moved above the $80 mark once again. Gold is also pushing higher, with a gain of more than $5 this morning to $1090. The Dollar, for its part, is higher only against the Yen and showing weakness elsewhere.

For economic news today, we will have Mortgage Applications, the Challenger Job Cuts Announcement, the Non-manufacturing Index, and the Fed’s formal decision on interest rates. For earnings news today, we will have reports from Allied Motion Technologies, American Railcar Industries, Baker Hughes, Becton Dickinson, Cisco Systems, Comcast, Devon Energy, Linn Energy, Molson Coors, News Corporation, Pulte Homes, Qualcomm, Time Warner, and several others.

Most of the economic and earnings news today should fall in line with expectations and support positive movement in the broader markets. The ongoing concern, however, is that stocks are already priced ahead of reality. What this means is that positive news may not move the market as much as one would expect. If anything, equities traders are counting on the economic picture to catch up with P/E ratios as opposed to the other way around. Signs of distress, on the other hand, could quickly lead to a major selloff.

Morning Call

0 CommentsTuesday • November 3, 2009 • by alwaters

“One must not tie a ship to a single anchor, nor life to a single hope.”

Epictetus

Morning Call
November 3, 2009

Gold Update

Despite some strength on the Dollar this morning, gold has managed to add $3 to $1062 this morning. The upward trend is supported by gold’s appeal as a safe haven as equity traders develop the jitters. Movement in the Dollar is likely to lose steam by tomorrow and this will further feed the rally in gold. Expect new highs by morning.

What to Buy

Gold miners should benefit from the rise in gold prices this morning. The best prospect among them is Eldorado Gold (EGO) which is trading at a lower P/E than most of its peers. Buying Puts on the major banks or on a short financial ETF such as SKF is also a good bet for the rest of this week.

Market Outlook

The Dow managed to take back 76 points to start the new trading week yesterday. Futures this morning, however, are lower by 100 points and falling. Much of the negative sentiment appears to be centered on the belief that the market has already priced in a more robust recovery than most economists expect will happen. Some negative news from European banks has also added to the pessimism worldwide. Royal Bank of Scotland Group and Lloyds Banking Group will receive $51 billion in a second bailout from the U.K. taxpayer as the two banks agreed to cap bonuses. The rescue will bring the government closer to full ownership over RBS, while Lloyds will escape government control, for now. Adding to jitters for global markets, the Reserve Bank of Australia kicked off a busy week for central banks, lifting interest rates for the second time in two months by a quarter of a percentage point to 3.5%, matching economists’ expectations. The central bank also hinted of further rate hikes in the future.

Stocks in Asia fell overnight. The major indexes lost an average of about 2% by the end of day. Industrial stocks fared the worst and banks moved lower as well. European equities have also fallen sharply with the major indexes now lower by an average of 2% across the continent. The story is much the same as in Asia, but with more dramatic losses for the financial sector. Lloyds is lower by over 8% at mid-day. The US banks are also moving lower in pre-market trading this morning.

With the exception of gold, commodities are also suffering this morning as economic optimism declines. Oil has fallen by $1 to $77 in early trading. Gold, on the other hand, has gained $3 on the session to reach $1063. As investors seek safety and move away from equities, gold appears ready to test new highs today. Holding it back slightly will be the relative strength on the Dollar today, which is higher against the major currencies.

The economic calendar today includes some Retail Sales figures, Factory Orders, New Motor Vehicle Sales, and the EIA Petroleum Status Report. Earnings reports today will be coming from Archer Daniels Midland, Cognizant Technologies, Emerson Electric, Frontier Communications, Kraft Foods, Marathon Oil, MasterCard, Medco Health, Pitney Bowes, Ralph Lauren, Viacom, and several others.
The markets are on edge today and many investors have their fingers on the trigger. The fact that stocks are overpriced based on the near term economic scenario. The only question is whether equities will trend sideways for a while until the economy catches up, or if they will fall in line with a more modest outlook for the coming year. There may be certain stocks that will rise on their future prospects, but as a whole the indexes are likely to deflate over the next few weeks. The only solid upward trend that we see developing is in gold.

Morning Call

0 CommentsMonday • November 2, 2009 • by alwaters

“Aut viam inveniam aut faciam.”

Latin

Morning Call
November 2, 2009

Gold Update

Last Friday we called the pullback to about $1035 to be a good buying opportunity. This morning investors woke up to a sharp rise in gold to the present level of $1055. The charts suggest this will be an orderly climb for gold prices today, perhaps reaching about $1065 later today or tomorrow.

What to Buy

Just to recap some of our current positions, Motorola (MOT) is up by 5% in pre-market trading, Silver Wheaton (SLW) has gained 3% as has several of the mining companies such as Newmont (NEM) and Kinross Gold (KGC), and Eldorado (EGO). Analysts may have also underestimated Union Drilling (UDRL) which reports earnings today. After a 5% gain on Friday for Union shares, investors are ready to take some profits, but a positive earnings report could easily send this stock even higher today.

Market Outlook

A slow and steady decline on Friday left the Dow lower by 250 points. This morning futures are higher, but only by a small margin ahead of the latest economic news. So far, the various news buts over the weekend have offered a mixed picture. Nine more banks were closed; bringing the year total to 115. This is now officially a worse year for bank than during the so-called Savings and Loan crisis. As for some of the big banks, Citigroup and JP Morgan have been a topic of discussion as the two giants have reportedly been hoarding cash at unprecedented levels. Some see this as a smart move to bolster confidence in the banks, while others see it as a sign that the large institutions are cushioning themselves for another crisis. Either way it does not bode well for investors, who are unlikely to see any growth in assets as the banks seek liquidity instead. It is also a sign that lending will not thaw any time soon.
Also, in news that didn’t really surprise anyone, CIT Group has filed for Chapter 11 bankruptcy protection. The filing came after bondholders rejected a debt swap that would have trimmed $5.7 billion of CIT’s debt. The lender funds about 1 million businesses such as Dunkin’ Brands Inc. in Canton, Massachusetts, and Eddie Bauer Holdings Inc., the bankrupt clothing chain based in Bellevue, Washington. CIT also provides financing to about 2,000 vendors supplying 300,000 U.S. retailers, according to a July statement from the National Retail Federation.

On a more positive note, Ford Motor beat estimates for earnings and shares have climbed by more than 6% in pre-market trading. General Electric and Proctor and Gamble have also gained in European trading. Earnings reports for many major companies have given investors some hope. Wall Street analysts are forecasting S&P 500 earnings will increase 25 percent in 2010, the fastest growth in two decades.

It was a negative day in Asian trading overnight. The Hang Seng lost less than 1% during the session but the Nikkei and others fell by nearly 2.5%. The financial sector was mostly negative in Asia and several technology stocks also retreated. Stocks in Europe this morning are mostly flat but are slowly moving to the upside. Trading has been very mixed within sectors. Although, for the most part bank stocks were sold off and industrial stocks were slightly higher. Pre-market trading in the US shows very little movement amongst the high volume trades.

Commodities are mostly higher this morning, with both oil and gold gaining ground. Crude prices have risen by about 1% to just under $78 thus far today. Gold has shown strong momentum in early trading; gaining $11 thus far to $1055. The Dollar has moved lower against the Yen and Euro but is still positive against the woeful Pound.

Economic news today will include Construction Spending, the Purchasing Managers Index, Pending Home Sales, and the FOMC will hold a meeting regarding interest rates. On the earnings side, we will hear from Anadarko Petroleum, Chesapeake Energy, Clorox, Consolidated Edison, Dean Foods, Loews, Sysco, Union Drilling, and several others. We should begin to see some strong numbers among the energy companies.

Investors like to look at what insiders are doing at any one company as a gauge on how they feel about the company’s prospects for the future. If a CEO is buying his or her own shares, things must be OK. If they are selling, they must think that things are as good as they will get in the near term or, perhaps get worse. So how should one look at the fact that the big banks are holding on to cash and stockpiling their reserves? It seems unlikely that they are simply “doing the right thing” and leaving some breathing room for a rainy day. It is more likely that the big institutions are preparing for a storm. They would like us to believe that they are in good shape, but if that were truly the case then they should be looking toward growth. What they really understand, but don’t discuss out loud is that a large part of their balance sheets are fluffed up with assets that are in trouble. They are preparing for losses, including commercial lending write-downs, that they won’t be able to hide forever with smoke and mirrors.