₪ David Pescod's Late Edition 9/15-9/19/08
To receive the Late Edition and be on our daily circulation simply e-mail Debbie at Debbie_lewis@canaccord.com and give your address, phone number and e-mail and we’ll have you on the list tonight.
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David Pescod's Late Edition September 15, 2008
S&P/TSX COMPOSITE: 12254.03 -515.55
MERRILL LYNCH (US:MER) $18.37 +1.32
LEHMAN BROTHERS (US:LEH) $0.19 -3.46
AMERICAN INTL. GROUP (US:AIG) $5.18 -6.96
WASHINGTON MUTUAL (US:WM) $2.02 -0.71
On a day like this with the markets being absolutely battered and trashed, someone has to try and find some good news. So we will try and do that for you and the answer is to be found in the source of the crisis in the first place and that was the housing and the brokers and bankers that financed it.
Two, three and four years ago everyone wanted to get into the real estate game in the United States and you saw TV shows like “Flip this House” appealing to everyone’s greed. Way too many people got onto the real estate bandwagon and of course the bankers and brokers financed it and then parcelled up those cute little debt packages and sold it to other banks and financial players around the world. It has resulted in a three quarter trillion dollar kiss so far and undoubtedly more to come.
So what’s the good news? Well CNN Money hosted a real estate symposium last week where some of the rather significant economists and real estate-types got together and came up with a rather interesting conclusion...that the real estate market in the United States will probably bottom next summer. There is some debate as to whether there’s another 5% or 10% left to fall, but the assumption was (and it was unanimous) that next summer would be the bottom. Part of their encouragement according to the CNN Money article was that real estate has already dropped 20% and all of a sudden, housing is now affordable in a lot of jurisdictions that it simply wasn’t not too long ago. They point to places such as Boston, Chicago, Denver and Orange County where affordability has been restored and those markets have stabilized.
Sooner or later, if and when people realize that housing prices which are most people’s biggest source of equity have stabilized and there is a future, the rest of the world might somehow recover. So it’s nice to see some hope in that vein.
In the meantime, even commodity bulls such as Don Coxe suggest that until the banks in the United States are recapitalized, we will be in a bear market. So the question is, for how long will the big banks continue to create negative news.
Over the weekend, there was good news for Merrill Lynch as it was rescued and bad news for Lehman Brothers as it is in the process of disappearing. What next for insurance giant AIG or the one big bank that still has questions raised—Washington Mutual remain to be seen.
Meanwhile, there are still a lot of hedge funds that we don’t know what could happen with them next, but if housing (which created the crisis) is closer to putting in a bottom
(and the markets always do look about six months ahead for some sort of a lead as to what the next game is) we may well have a little more ugliness, but it is still amazing to see how badly the hit has been around the world. In China, where you have had the background of the American credit crunch, it has mainly been a “Made in China” stock market bubble that has been burst and their stock market is now down as much as 60%.
In Russia, with the American credit crisis in the background, they have suffered as well because of their little incursion into Georgia, creating a lot of angst from international investors who suddenly don’t want to be in Russia. The Russian market is down more than 40% in the last two and a half months.
For the rest of the world, their markets are down from anywhere between 20% and 40% and the only good thing about times like this is that in the long range, these times tend to be buying opportunities...if only one knew when the bottom would actually be.
In the meantime, there is one index that has also been battered and bruised that probably deserves the bruising less than anyone and that’s the Emerging Markets, where many companies based in those jurisdictions are having historically large revenue gains, are making historically high profits and yet whose exchanges have been hit as hard as anyone’s.
POTASH CORP. (T-POT) $164.97 -7.25
While some of the hard commodities such as gold, silver and oil have definitely retreated in the last while and we can rightfully be concerned that the next couple of months might not be the joy we expected in commodity based markets, there are still some examples that make you scratch your head. Potash is still going for $1000/ton if you can get it and demand from Asia continues to grow.
Having said that, the chart on Potash Corp. shows you that it is going the same way as other commodity-based stories these days and the amazing thing is that Potash has so much cash and is making so much profit, there are having trouble finding out how to spend their money...and have decided to increase their re-purchase program so they will be buying 31 million shares of their own stock out of the market. That’s a huge number...do the math!
We note some analysts, still think $350 should be the target for Potash - the stock.
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David Pescod's Late Edition September 17, 2008
GOLD $871.00 +90.50
GOLDCORP INC. (T-G) $32.80 +3.16
BARRICK GOLD (T-ABX) $35.31 +4.44
YAMANA GOLD (T-YRI) $9.99 +0.69
Unless you were hiding in the hillside of Tibet somewhere, you’ll notice that there’s a panic going on in financial circles that extends worldwide.
With the failure of biggie Lehman Brothers, the rescue of Merrill Lynch, the federal government in the United States saving the world’s biggest insurer AIG, with some many banks on the watch list because of the housing crisis in the United States, things are getting crazy.
Today things even got worse in some areas of the world as the Russian stock market fell as much as 10%, meaning that in only three days, the Russian stock market has lost 25%! And today, they had to loan their three biggest banks $44 billion.
How scared is money out there today? Three month T-Bills in the United States which traditionally offer safety are now trading at the lowest rates since 1954.
So how come with this crisis going on, gold (which was supposed to offer everyone safety or some form of safe haven) has done sweet tweet? Well, it looks like today people caught on to that tidbit and gold took flight despite the fact that it looked like it was falling asleep and falling from $1000 an ounce.
Today it has a big move, it’s up over $90.00 and the gold stocks, many of which have lost 50% of their value in the crisis, are starting to attract attention again. Is this the start of a trend?
UTS ENERGY (T-UTS) $1.57 -0.83
Much has been said over the last few weeks and months about the ever-increasing costs of the big oil sands projects near Fort McMurray, Alberta. Suddenly, some of the companies involved are saying that they need $80, $85 or $90 a barrel to get an appropriate return on their money and considering where oil currently is, that’s suddenly not so far away.
An unpleasant surprise today as UTS Energy, with a 20% working interest; Petro Canada with a 60% working interest; and Teck Cominco, one of the world’s biggest miners with a 20% working interest announced that cost estimates on their massive Fort Hills Energy partnership have increased 50% from those announced in June of 2007. In other words, the partnership will need an additional roughly $18 billion or $3.5 billion from UTS for its share.
More importantly, in this kind of environment with oil weakening and costs for everything from materials to labor going through the roof, will this project proceed?
There is a bit of good news in all of this to all the different projects looking forward to development in Fort McMurray in that there’s been too many projects talked about and there’s not enough skilled trades or material available. With oil heading down, suddenly we suspect a lot of these projects might see many projects delayed, cancelled and those that do go ahead might suddenly find available materials and skills at more reasonable prices.
STERLING RESOURCES (V-SLG) $1.51 -0.09
There are a lot of junior oils that have good stories, good management, good projects that are getting clobbered in the current financial upheaval as margin calls seem to be the only things that keeps brokers busy these days.
Sterling Resources announces another successful result on their Ana-2 appraisal well which is 750 metres northwest of the Ana-1 exploration well in Romania.
Analyst Richard Wyman of Canaccord suggests “preliminary indications are that the resources in the Doina complex in Romania are larger than previously thought.” That good news is probably the explanation why the stock was down on the day.
For those looking for the report on Sterling, just e-mail Debbie at debbie_lewis@canaccord.com.
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David Pescod's Late Edition September 18, 2008
COXE COMMODITY STRATEGY FUND (T-COX.UN) $8.05 -0.16
For many years Don Coxe was one of the chief advocates of the ongoing commodity bull market and for many of those years was ahead of the herd in predicting what next for which commodities will be the story of the day, be it precious metals, oil or agricultural products.
While he wrote a lot about the mess Wall Street created by the housing bubble in the United States and all the mortgages printed by the bankers/brokers and the likes that are now of questionable value and have created this financial mess, he amongst many, didn’t give it the appropriate concern. Now with the panic on Wall Street being dealt with, maybe we are getting closer to the bottom.
On Coxe’s latest conference call (he has a conference call to corporate clients every Friday) he’s suggesting that this banking/financial mess is bigger and worse than he had expected and that there will be a pause in the commodity boom to “allow the banks to heal themselves.”
In the meantime, he suggests that the most prominent theme for this decade will still be commodities. Hopefully he’s right that they are only taking a breather, but the question is, how long that breather might be.
In the meantime, it’s always interesting to know what his top ten holdings might be and below, as of September 9th, are his holdings:
It’s a little ironic that both Eric Sprott of Sprott Securities and Don Coxe raised money and went public with issues that turned out to be very close to the top of the commodity boom...at least so far. Those who bought into the Sprott Securities issue have seen their holdings clobbered, down almost 50%, but then many gold and a lot of decent oil and gas stocks are down 50% as well. Coxe has fared much better and having as much cash in his fund as he does, will allow him to make for interesting moves down the road, we assume.
NATURAL GAS $7.93 -0.26
This is suddenly starting to feel like one is reading the “Farmers Almanac” or something just as silly...but just in case there is something to it, the fans of Don Coxe have noticed that he’s written about something called “Sun Spots” and now if you’ve been watching Business News Network, you’ve heard Gavin Graham, whose chief investment officer with Guardian Group of Funds also talking about sun spots.
Sun sports for Pete sakes? What’s that got to do with natural gas? Well there is this theory out there that weather might be more affected in North America by the activity on the sun than anything to do with environmental change, greenhouse gas or all that silly environmental stuff. The suggestion is that with more activity on the sun, there’s more heat that’s radiated to our dear planet. Conversely, if there are no sun spots, that suggests that things are relatively quiet and we could have a cold winter.
Natural gas has been clobbered of late because of the drop in the price of oil and also more than expected production coming out of some of the shale plays in the southern United States. If you are betting on natural gas or a natural gas stock, you are betting on a cold or normal winter. And/or an extremely strong economy.
So there are more than a few people now suggesting that this year being that there are very little sun spot activity lately, we could be looking at a cold winter. Like we say, this is stuff out of the Farmers Almanac-type stuff!
CONSTELLATION ENERGY (US:CEG) $24.17 -0.60
One thing about the financial markets given the current crisis/panic, suddenly the stock market is getting a lot of attention. Heck, we were featured on CNN last night with lots of commentary.
They even spent some time with Suze Orman who talks a lot about things financial, has her own books and columns and is widely quoted. She was suggesting that the good thing about panic and crisis is that it gives you opportunity to pick up that wonderful $80 stock that is now $10, that you just know is going to go back up. She forgot to tell us the name of that stock she might have had in mind!
In the meantime, if panics are great, does that mean we should have one every week or two? I don’t think so.
Meanwhile, for those who sit back with tons of dough for market crashes such as this to pick up bargains cheap, it always seems to be familiar names that are able to take advantage of a tough situation. Warren Buffett, the world’s richest man through Berkshire Hathaway and a subsidiary takes over Constellation Energy in a $4.7 billion deal and the chart tells you he’s getting it at a heck of a deal, don’t you think?
So what deal are you looking at?
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David Pescod's Late Edition September 19, 2008
DOW JONES INDUSTRIAL AVERAGE: 11,389.75 +370.06
S&P/TSX COMPOSITE INDEX: 12,841.56 +776.99
CRUDE OIL: $102.64 +5.10
MEXICO BOLSA INDEX: 25,692.35 +1114.45
BRAZIL BOVESPA STOCK INDEX: 52,914.49 +4491.74
We might have mentioned it a couple of times over the last few weeks that we are in historical times...that you will be able to tell your grandchildren that you hopefully survived this as well.
The credit crisis/panic created by bad mortgages that funded a housing bubble in the U.S. has created a worldwide financial panic from Australia to Russia. Today it looks like some of the folks at the Fed and their suggestion of a “Resolution Trust” which will take over those bad assets and put them in a separate entity (much like what was done for the Savings and Loan crisis 30 years ago) might finally put an end to the ugliness and uncertainty.
Today the markets around the world have a relief rally of a size never before seen as Indexes around the world have a party. I’m sure this weekend you are going to reading a lot of positive comments, but first why don’t we make some other points.
Economist David Rosenberg of Merrill Lynch in the U.S. one of the few who kept harping on the potential for the credit crisis (but his own firm never listened) warns us that the last time we had a Resolution Trust set up, it took a year for the stock market to bottom, two years for the economy to bottom and three years for the housing market to bottom.
Today, Don Coxe on his conference call remains so concerned because of this suddenly sky-high debt levels in the U.S., that he lowers his equity exposure. He’s still gung-ho on commodities, particularly for some of the agricultural commodities such as corn and soy bean and for gold, which he says has to be maintained in a portfolio, but he also mentions oil could drop to as little as $80 a barrel. He’s looking for solid money to be put into the banking system to shore up banks balance sheets before he becomes a believer and maintains that we are still in a hurricane season with potential for more ugliness down the road.
Meanwhile, with so many decent junior oil and gas companies at half price and some much cheaper, for the next week or so, we are going to take a look at a few—just in case they might be bargains.
Those are for people with expectations that for Christmas 2009, oil will still be at $100 a barrel.
Names like Pan Orient Energy, Coastal Energy (CEN), Oilexco (OIL), Bankers Petroleum (BNK), etc.
HITLER GETS A MARGIN CALL!
There’s been little joy and just about no humor to be had in the financial markets in the last couple of weeks, although that just might change.
Particularly hurt in the last while have been the gold bugs who have seen gold retreat and many gold stocks halved, at a time of crisis and panic when gold is supposed to perform at its best. Incredibly disappointing.
Then of course, with the huge sell offs in the market for those who have been playing too aggressively, that terrible event...a margin call.
If you are looking for something a little humorous and we mean, really humorous, go to www.youtube.com and in the search menu, type: Hitler gets a margin call. This piece from You Tube as a take off on Hitler being a gold bug and getting a margin call is an absolute hoot.
You have to see this!
To receive the Late Edition and be on our daily circulation simply e-mail Debbie at Debbie_lewis@canaccord.com and give your address, phone number and e-mail and we’ll have you on the list tonight. |
