Tony Blair: Power is moving East

Saturday, May 31st, 2008

In his recent speech at Yale Class Day, Tony Blair had the fol­low­ing to share with stu­dents. The speech is well worth read­ing on many fronts, but if you're an investor, then you'll be inter­ested in know­ing what one of the great lead­ers of the free world has to say about what this cen­tury holds for both the West and the East. 

For the first time in many cen­turies, power is mov­ing East. China and India each have pop­u­la­tions roughly dou­ble those of Amer­ica and Europe combined.

In the next two decades, these two coun­tries together will undergo indus­tri­al­i­sa­tion four times the size of the USA’s and at five times the speed.

We must be mind­ful that as these ancient civil­i­sa­tions become some­how younger and more vibrant, our young civil­i­sa­tion does not grow old. Most of all we should know that in this new world, we must clear a path to part­ner­ship, not stand off against each other, com­pet­ing for power.

The com­plete speech can be read here:

The Office of Tony Blair — Yale Class Day Speech

Tags: China, Euro, India, Markets, philosophy, risk, tony blair, wisdom, Yale Class Day
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Whitney: Credit Crisis Will Run Into 2009

Wednesday, May 28th, 2008

Liz Moyer, Forbes

Bank ana­lyst Mered­ith Whit­ney says the credit cri­sis will extend well into 2009, if not beyond. This means more pres­sure on finan­cial stocks and bank bal­ance sheets; banks have added $25 bil­lion to loss reserves so far, but face mount­ing con­sumer credit losses in a sec­ond wave of the cri­sis that some bank exec­u­tives have acknowl­edged will be worse than the first, which has cost hun­dreds of bil­lions of dol­lars in write-downs and losses.

Wall Street's originate-to-distribute model, designed to mit­i­gate risk by spread­ing it around, actu­ally exac­er­bated those risks. It encour­aged banks to loosen lend­ing stan­dards because more loan vol­ume meant higher prof­its; then it led to over-leverage, and finally to com­pla­cency. More and more paper dol­lars were cre­ated for trad­ing on the assump­tion that hous­ing prices would always go up. The first wave of the cri­sis affected trad­ing books, but the sec­ond will hit lend­ing. As long as hous­ing val­ues were ris­ing, bor­row­ers could refi­nance in per­pe­tu­ity to avoid default. Losses mounted when the refi­nanc­ing option dis­ap­peared. Banks relied too heav­ily on the secu­ri­ti­za­tion mar­kets to boost lend­ing to con­sumers, par­tic­u­larly in the form of mortgages.

In time, some lend­ing will return, but the sky-high rev­enues of recent years will be hard to reclaim, says Whit­ney. The bank­ing sector's pull­back in lend­ing will cause fur­ther painful losses. Whit­ney believes banks will have to reserve an addi­tional $170 bil­lion through the end of next year just to keep up with esti­mated loan losses. "New and unfore­seen strains on con­sumer liq­uid­ity will push more con­sumers into pre­car­i­ous credit posi­tions and cause con­sumer credit losses to be far worse than what is cur­rently esti­mated, even by the most dra­con­ian of investors," Whit­ney says.

http://www.forbes.com/2008/05/20/whitney-banks-credit-biz-wall-cx_lm_0520banks_print.html

Hat Tip: BMS Inc.

Tags: Banks, CIBC, Credit, Credit Crisis, Credit Market, Dollar, Economy, financial stocks, liquidity, Markets, Meredith Whitney, Mortgage, Oppenheimer, Trading, Value, Wall Street
Posted in Credit Markets, Markets | Comments Off

Bill Gross: Hmmmm? (Investment Outlook June 2008)

Monday, May 26th, 2008

May 26, 2008 — Pimco's Bill Gross makes a most humor­ous analy­ses, draw­ing par­al­lels that the hordes are march­ing on the new Rome (Amer­ica), and that its time to act. Make sure you read this must read, the June 2008 Invest­ment Out­look, by Bill Gross. At the end, Gross puts forth his recommendations.

What this coun­try needs is either a good 5 cent cigar or the rein­car­na­tion of an Illi­nois "rail-splitter" will­ing to tell the Amer­i­can peo­ple "what up" -"what really up." We have for so long now been will­ing to be enter­tained rather than informed, that we more or less accept major­ity opin­ion, per­pet­u­ally shaped by rat­ings obsessed media, at face value. After 12 months of an end­less pri­mary cam­paign bar­rage, for instance, most of us believe that a candidate's preacher — Demo­c­rat or Repub­li­can — should be a sig­nif­i­cant fac­tor in how we vote. We care more about who's going to be elim­i­nated from this week's Amer­i­can Idol than the dete­ri­o­rat­ing qual­ity of our health­care sys­tem. Alter­na­tive energy dis­cus­sion takes a bleacher's seat to the lat­est foibles of Lind­say Lohan or Brit­ney Spears and then we won­der why gas is four bucks a gal­lon. We care as much as we always have — we just care about the wrong things: enter­tain­ment, as opposed to informed choices; trivia vs. hard­core ide­o­log­i­cal debate.)

It's Sun­day after­noon at the Col­i­seum folks, and all good fun, but the hordes are cross­ing the Alps and headed for mod­ern day Rome — bet­ter edu­cated, harder work­ing, and will­ing to sac­ri­fice today for a bet­ter tomor­row. Can it be any won­der that an esti­mated 1% of America's wealth migrates into for­eign hands hands every year? We, as a peo­ple, are over­weight, poorly edu­cated, overindulged, and imbued with such a sense or self impor­tance on a geopo­lit­i­cal scale, that our allies are drop­ping like flies. "Yes we can?" Well, if so, then the "we" is the crit­i­cal ele­ment, not the leader that will be cho­sen in Novem­ber. Let's get off the couch and shape up-physically, intel­lec­tu­ally, and institutionally-and begin to make some informed choices about our future. Lin­coln didn't say it, but might have agreed, that the worst part about being fooled is fool­ing your­self, and as a nation, we've been doing a pretty good job of that for a long time now.

Bill Gross — Invest­ment Out­look — June 2008 — "Hmmmmm"

Tags: Bill Gross, BRICs, Emerging Markets, energy, EUM, Fixed Income, Hordes, inflation, Investment Wisdom, Markets, philosophy, PIMCO, risk, Value
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Moody’s 'AAA' Mistake

Wednesday, May 21st, 2008

FT Alphav­ille exclu­sive: Moody’s error gave top rat­ings to debt products

Moody’s awarded incor­rect triple A rat­ings to bil­lions of dol­lars worth of a type of com­plex debt prod­uct due to a bug in its com­puter mod­els, an Finan­cial Times inves­ti­ga­tion has discovered.

Inter­nal Moody’s doc­u­ments seen by the FT show that some senior staff within the credit agency knew early in 2007 that prod­ucts rated the pre­vi­ous year had received top-notch triple A rat­ings and that, after a com­puter cod­ing error was cor­rected, their rat­ings should have been up to four notches lower.

News of the cod­ing error comes as rat­ings agen­cies are under pres­sure from reg­u­la­tors and gov­ern­ments, who see fail­ings in the rat­ing of com­plex struc­tured debt as an inte­gral part of the finan­cial cri­sis. While cod­ing errors do occur there is no record of one being so significant.

Moody’s said it was “con­duct­ing a thor­ough review” of the rat­ing of the con­stant pro­por­tion debt oblig­a­tions — deriv­a­tive instru­ments con­ceived at the height of the credit bub­ble that appeared to promise investors very high returns with lit­tle risk. Moody’s is also review­ing what dis­clo­sure of the error was made.

The prod­ucts were designed for insti­tu­tional investors. In the recent credit mar­ket tur­moil, those who still hold the prod­ucts will have suf­fered some paper losses while oth­ers who have bailed out have lost up to 60 per cent of their investment.

On dis­cov­er­ing the error early in 2007, Moody’s cor­rected the cod­ing glitch and insti­tuted method­ol­ogy changes. One doc­u­ment seen by the FT says “the impact of our code issue after those improve­ments in the model is then reduced”. The prod­ucts remained triple A until Jan­u­ary this year when, amid gen­eral mar­ket declines, they were down­graded sev­eral notches.

In a state­ment to the FT, Moody’s said: “Moody’s reg­u­larly changes its ana­lyt­i­cal mod­els and enhances its method­olo­gies for a vari­ety of rea­sons, includ­ing to reflect chang­ing credit con­di­tions and out­looks. In addi­tion, Moody’s has adjusted its ana­lyt­i­cal mod­els on the infre­quent occa­sions that errors have been detected.

“How­ever, it would be incon­sis­tent with Moody’s ana­lyt­i­cal stan­dards and com­pany poli­cies to change method­olo­gies in an effort to mask errors. The integrity of our rat­ings and rat­ing method­olo­gies is extremely impor­tant to us, and we take seri­ously the ques­tions raised about Euro­pean CPDOs. We are there­fore con­duct­ing a thor­ough review of this matter.”

Credit rat­ings are hugely impor­tant within the finan­cial sys­tem because many investors — such as pen­sion funds, insur­ance com­pa­nies and banks — use them as a yard­stick either to restrict the kinds of prod­ucts they buy, or to decide how much cap­i­tal they need to hold against them.

The world’s other major credit agency, Stan­dard and Poor’s, was the first to award triple A sta­tus to CPDOs but many investors require rat­ings from two agen­cies before they invest so the Moody’s involve­ment sup­plied that cru­cial sec­ond rating.

S&P stood by its rat­ings, say­ing: “Our model for rat­ing CPDOs was devel­oped inde­pen­dently and, like our other rat­ings mod­els, was made widely avail­able to the mar­ket. We con­tinue to closely mon­i­tor the per­for­mance of these secu­ri­ties in light of the extreme volatil­ity in CDS prices and may make fur­ther adjust­ments to our assump­tions and rat­ing opin­ions if we think that is appropriate.”

 
Related links: CPDOs expose rat­ings flaw at Moodys — FT.com

Tags: Banks, Blog, CDS, Credit, Credit Bubble, Credit Market, Dollar, Economy, Euro, Financial Times, Fixed Income, FT.com, Market Declines, Markets, oil
Posted in Credit Markets, Energy & Natural Resources, Markets, Oil and Gas, Outlook | Comments Off

Chart of the week: Gold vs. DJIA

Wednesday, May 21st, 2008

May 21, 2008 — Cour­tesy: Nick Bar­ish­eff, Bul­lion Man­age­ment Group -  Bul­lion Man­age­ment Group man­age the Bul­lion Fund, a Cana­dian mutual fund that invests in Gold, Sil­ver and Plat­inum bul­lion directly. The Bul­lion Fund trades at net asset value, and in the case of the pre­cious met­als them­selves, at spot price. The fol­low­ing chart tells an impor­tant story about the value of diver­si­fi­ca­tion in chang­ing markets.

Many investors believe the myth that gold is a risky invest­ment, while blue chip US stocks are safe invest­ments. The table above, which shows the per­for­mance from Jan­u­ary 2000 to March 2008 of the indi­vid­ual stocks that made up the Dow Jones Indus­trial Aver­age in Jan­u­ary 2000,clearly refutes this myth. The table shows that many of the blue chip giants, such as GE and Microsoft, have lost over 70% of their value in US dol­lars. On the entire port­fo­lio of Dow stocks, the equity loss has aver­aged 24.5%. For Cana­dian or Euro­pean investors, addi­tional cur­rency exchange losses of 45% and 35% would have to be added to the equity losses. These losses are higher than the Index itself, which showed a slight increase of 6.7%, as eight of the orig­i­nal stocks have been replaced and the Index is weighted accord­ing to mar­ket cap­i­tal­iza­tion. Unlike the Index, many investors with a buy-and-hold strat­egy would not have been in a posi­tion to sim­ply replace the stocks. The pic­ture for the NASDAQ Com­pos­ite Index is even worse. While the Index itself is down by over 50% from its March 2000 high, the aver­age per­for­mance of the actual stocks that made up the NASDAQ is even more dis­mal. Many of the 3,032 NASDAQ stocks that made up the Index in 2000 have lost all of their value, and have been replaced. Those who lost all of their invest­ments with these stocks can­not sim­ply replace them as the Index does. An allo­ca­tion to "risky" gold, which can never decline to zero, would have at least mit­i­gated these losses through the pos­i­tive returns of over 224% that it gen­er­ated over the same period.

http://www.bmsinc.ca/images/graphs/dowstockvsgold-l.jpg

Tags: Barisheff, Bullion, Canadian Market, Chart, Currency, DJIA, Dollar, Euro, Gold, Market Cap, Markets, Metals, Platinum, precious metals, Silver, US Dollar, US Stocks, Value
Posted in Canadian Market, Gold, Markets, Silver, US Stocks | Comments Off

Derek Webb Interview, Part 2 — Earning Superior Income (safely) in a Range Bound Market

Tuesday, May 13th, 2008

May 12, 2008 — GreenLightAdvisor.com recently inter­viewed [Part 2] Derek Webb, Port­fo­lio Man­ager, Webb Asset Man­age­ment. Here are some excerpts from Part II, in which Mr. Webb shares his strat­egy for earn­ing supe­rior invest­ment income in volatile and range bound mar­kets while min­i­miz­ing down­side risk. Here are some excerpts:On the invest­ment income dilemma…

When you look at Cana­di­ans, they love their income; but where is the income com­ing from? Most funds are get­ting around this now by pay­ing you back your own cap­i­tal, so there it is. They offer 6–8%; the real­ity is noth­ing out there yields more than 5% and it costs 2% to run a fund plus an advi­sor gets 1%. The math just doesn’t add up. On top of that we have infla­tion. You don’t want that in a fund – where peo­ple are just pay­ing you back your own money. To me it’s like invest­ing in a util­ity where they have to sell a power plant each year to pay you your dis­tri­b­u­tion. You would never invest in that com­pany because long term the price of the stock is com­ing down.

How do we get around this? How do we do it? We spent a lot of time look­ing at this and the solu­tion that we came up with is the fol­low­ing: Objective:

• Pro­duce some decent high yields – we divided our strat­egy into 4 silos or buckets.
• Struc­ture it so that it is tax efficient

Port­fo­lio Strat­egy - For the full expla­na­tion, please read the com­plete interview:

Bucket #1 – Income Trusts

Income trusts have got­ten a bad rap, but they are not bad espe­cially if…

Bucket #2 – Earn­ings Dri­ven Stock Buy Writes

We are buy­ing the earn­ings dri­ven stocks that we own in our hedge fund. How do we get income out of these stocks?

Bucket #3 – Value Stock Buy Writes

Bucket #3 is com­prised of stocks that are not earn­ings related, but rather are washed out names, like banks. Let’s say banks trade side­ways for the next 3 years…

Bucket #4 – Writ­ing put options against short positions

Legally in Canada, we are allowed to be 20% short in a mutual fund and we are always 20% short because we have a very good short model. It’s very pre­dic­tive, mean­ing simply,…

DW: It’s def­i­nitely lower than own­ing the stocks out­right, and lower than a div­i­dend fund.

Its lower risk than if you own a bank stock straight out vs. writ­ing the call options on the same bank stock. Let’s say you own the bank at 100 and you write calls at 105…

GLA: Would you con­sider this suit­able for a retired investor?

DW:  Yes, cer­tainly. Per­son­ally I think this is great for any­body, uni­ver­sally. It’s great for some­body who wants to grow cap­i­tal, and it is great for some­body who wants a tax pre­ferred income in retirement.

Down­load: Part II: Derek Webb Inter­view PDF File, May 2008, GreenLightAdvisor.com.

Visit Webb Asset Man­age­ment for more information.

Tags: Banks, Canadian Market, covered options, Derek Webb, Earnings, Earnings Discipline, earnings driven, Excerpts, Hedge Fund, high yield, inflation, Information, interview, Investment Strategy, Markets, option premium, option yield, strike price, Value, wamfunds.com, Webb Asset Management
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Derek Webb Interview, Part 1 — Outlook and Investment Strategy

Tuesday, May 13th, 2008

May 12, 2008 — GreenLightAdvisor.com recently inter­viewed [Part 1] Derek Webb, Port­fo­lio Man­ager, Webb Asset Man­age­ment. Here are some excerpts from Part 1, in which Mr. Webb shares his out­look and his thoughts about how he trades in volatile and range bound mar­kets. Here are some excerpts:

Regard­ing the Fed’s recent moves…

Any­time the Fed puts this much liq­uid­ity in to the sys­tem it’s like blow­ing into a pipe; all that pres­sure has to go somewhere—When the Fed drops hay bails of money out of the heli­copter, those hay bails of money are like mol­e­cules. They have to attach them­selves to something.

When you look at the huge amount of money put into the sys­tem because of the Long Term Cap­i­tal Melt­down and Russia—now that liq­uid­ity event cre­ated the inter­net bub­ble. This is no different.

All of this liq­uid­ity is going to find a home. I’ll tell you that I think it’s find­ing its home right now. Fun­da­men­tally I am very bull­ish because of all this liquidity.

On his invest­ment focus…

Through our quan­ti­ta­tive home­work we found that the delta or change in earn­ings is the only thing that’s pre­dictable in terms of deter­min­ing the direc­tion of a stock’s price. That’s all we focus on; that’s all our research focuses on. So, where is that delta accel­er­at­ing right now—it’s in com­modi­ties. Agri­cul­ture is num­ber one, Oil and gas are num­ber two, some base met­als num­ber three, like copper—The shine has kind of come out of pre­cious met­als in the short run, but I don’t think that trade’s over, I think it’s more of a sea­sonal thing right now.

On when to sell:

[Firstly], If we saw one ana­lyst lower EPS fore­casts for Potash, for exam­ple, WE WOULD BE OUT. Ana­lysts are out there doing site vis­its. They’re doing their home­work – as long as they’re rais­ing their num­bers we’re going to be long. As soon as we would see them hold steady or lower their num­bers we would be out.

Sec­ondly, if the earn­ings them­selves just start to de-accelerate, mean­ing we are look­ing at a smooth line of earn­ings, not to get com­pli­cated, but we look from 3 quar­ters ago out to the next quar­ter and if that rate of change de-accelerates were out.

Thirdly, one neg­a­tive earn­ings sur­prise and we’re out.

And lastly, if the rel­a­tive strength indi­ca­tor of the stock de-accelerates were out.

We’re ruth­less on all our positions.

And lastly, if the rel­a­tive strength indi­ca­tor of the stock de-accelerates were out.

PART 1: Derek Webb Inter­view, GreenLightAdvisor.com.

Visit Webb Asset Man­age­ment for more information.

Tags: Agriculture, bifurcation, Commodities, Derek Webb, Earnings, Excerpts, Fed, Focus, Information, interview, Investment Strategy, liquidity, Long Term Capital, Markets, Metals, Mining, Monetary Policy, oil, Oil and Gas, precious metals, Russia, wamfunds.com, Webb Asset Management
Posted in Commodities, Energy & Natural Resources, Markets, Oil and Gas, Outlook | Comments Off

Jesse Livermore: Sitting Tight

Monday, May 12th, 2008

Quotable – A les­son from Liv­er­more we keep re-learning 

It was the change in my own atti­tude toward the game that was of supreme impor­tance to me. It taught me, lit­tle by lit­tle, the essen­tial dif­fer­ence between bet­ting on fluc­tu­a­tions and antic­i­pat­ing inevitable advances and declines, between gam­bling and spec­u­lat­ing. I think it was a long step for­ward in my trad­ing edu­ca­tion when I real­ized at last that when old Mr. Par­tridge kept on telling the other cus­tomers, "Well, you know this is a bull mar­ket!" he really meant to tell them that the big money was not in the indi­vid­ual fluc­tu­a­tions but in the main move­ments that is, not in read­ing the tape but in siz­ing up the entire mar­ket and its trend. And right here let me say one thing: After spend­ing many years in Wall Street and after mak­ing and los­ing mil­lions of dol­lars I want to tell you this: It never was my think­ing that made the big money for me. It always was my sit­ting. Got that? My sit­ting tight! It is no trick at all to be right on the mar­ket. You always find lots of early bulls in bull mar­kets and early bears in bear mar­kets. I've known many men who were right at exactly the right time, and began buy­ing or sell­ing stocks when prices were at the very level which should show the great­est profit. And their expe­ri­ence invari­ably matched mine that is, they made no real money out of it. Men who can both be right and sit tight are uncom­mon. I found it one of the hard­est things to learn. But it is only after a stock oper­a­tor has firmly grasped this that he can make big money. It is lit­er­ally true that mil­lions come eas­ier to a trader after he knows how to trade than hun­dreds did in the days of his ignorance.

- Jesse Livermore

Cour­tesy of Vic­tor Adair 

Tags: Bear Market, Bear Markets, Dollar, Jesse Livermore, Markets, Rally, Trading, Trading Advice, Wall Street
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Jerome Booth: Global Rebalancing to Favour Emerging Markets (FT.com)

Monday, May 12th, 2008

May 12, 2008 — Jerome Booth, Head of Research at Ash­more Invest­ment Man­age­ment, UK, has writ­ten an insight­ful arti­cle for FT.com, Insight: A Global Rebal­anc­ing Act, May 12, 2008. Here are a few excerpts:

Gross national sav­ings are over 30 per cent of GDP on aver­age in emerg­ing coun­tries, and for a decade pri­vate and offi­cial savers in these coun­tries have been invest­ing over­seas – in the US and Europe – under the impres­sion that these were safer mar­kets than at home. Yet the dol­lar is far from the safest cur­rency and not the store of value it was. US Trea­suries are not zero risk – the implicit myth in the term “the risk-free rate”. Trea­suries have cur­rency, curve and volatil­ity risks. Investors in triple A struc­tured credit got a shock when they realised their invest­ment was risky.

Like­wise emerg­ing mar­ket savers are get­ting a shock about Trea­suries and other US and Euro­pean assets. The money is return­ing home, and the move is struc­tural, not cycli­cal.  The global imbal­ance of a neg­a­tive US per­sonal sav­ings rate on the one hand being financed by high emerg­ing sav­ings on the other is start­ing to reverse. 

With this rever­sal, or rebal­anc­ing, is com­ing, we believe, a cur­rency realign­ment and a series of invest­ment booms across emerg­ing economies as invest­ment focus shifts. Rather than using “decou­pling” in describ­ing the impact of the credit crunch on emerg­ing mar­kets, we should use “neg­a­tive correlation”. 

The pol­icy asym­me­try between the US and emerg­ing mar­kets is that the emerg­ing mar­kets, with under­val­ued cur­ren­cies, have an addi­tional degree of free­dom. They have the choice to mess up (do noth­ing) or con­trol infla­tion (let the cur­rency rise, raise inter­est rates). In our view, emerg­ing mar­ket cen­tral banks will largely pass this test and do the sen­si­ble thing, though this is not what the mar­ket appears to have priced in yet.

As recently as ten years ago, emerg­ing mar­kets still held their hands out for devel­op­ment loans and for­eign aid. Today, their fis­cal pru­dence and wealth has put them in the posi­tion of bail­ing out the west­ern bank­ing system.

Why are investors tak­ing so long to real­ize this crit­i­cal dis­tinc­tion and its meaning?

Tags: Ashmore Investment Management, Banking System, Banks, BRICs, Central Banks, Correlation, Credit, Currency, Desc, Dollar, Emerging Market, Emerging Markets, Euro, Excerpts, Focus, FT.com, GDP, inflation, interest rates, Investment Management, Jerome Booth, Markets, Savings Rate, UK, Value
Posted in Credit Markets, Emerging Markets, Markets | Comments Off

Douglas Porter: Canada Boasts Low Inflation

Monday, May 12th, 2008

May 9, 2008 – Cour­tesy of BMO Cap­i­tal Mar­kets – Dou­glas Porter, Deputy Chief Econ­o­mist, BMO, from Focus (Eco­nomic Research), May 9, 2008.
Just imag­ine where oil prices would be if the U.S. econ­omy was not in a reces­sionette. Oil gal­loped above $125 this week, more than dou­bling in the short space of a year. Can we all agree that this for­mi­da­ble surge is much more than just a weak US$ story? After all, oil prices are also up 75% in euro terms over the past year and 83% in Cana­dian dol­lar terms.
And, this is a lot more than just due to sup­ply dis­rup­tions in Nige­ria, Venezuela, or Tim­buktu. This lat­est oil shock is a global event, with wide-ranging impli­ca­tions. Here are some of the most impor­tant (in no par­tic­u­lar order):

1) Head­line infla­tion is poised to pop fur­ther glob­ally. The risk for cen­tral bankers is that sus­tained strength in head­line infla­tion may yet alter infla­tion expec­ta­tions.
2) Soar­ing energy prices could put fur­ther upward pres­sure on food costs, aggra­vat­ing an already dire set of cir­cum­stances.
3) Global growth may take a hit, with the U.S., Europe and Japan par­tic­u­larly at risk. Just the run-up in energy prices since Q1 will cost U.S. con­sumers more than $100 bil­lion annually—gobbling up the tax rebates.
4) Sov­er­eign wealth funds, already wield­ing enor­mous power, will become even more pow­er­ful, par­tic­u­larly those from the Mid­dle East and Rus­sia.
5) China’s trade sur­plus should nar­row mean­ing­fully. A rapidly ris­ing import bill for energy and other com­modi­ties, strains in its major export mar­kets (the U.S., Japan and Europe), strong domes­tic demand, and a ris­ing cur­rency all point to a drop in China’s trade sur­plus. Still, its stock of for­eign assets will con­tinue to grow quickly for a while yet.
6) Canada’s trade sur­plus will hold up bet­ter than expected, pro­vid­ing impor­tant sup­port for the loonie. While it hasn’t worked in 2008, the rule-of-thumb is that every $10 rise in oil trans­lates into a 3-to-5 cent gain in the Cana­dian dol­lar. At the very least, record oil prices will keep the CAD from retreat­ing.
7) Canada’s regional imbal­ances will con­tinue to widen. Soar­ing energy costs, a strong cur­rency and a suf­fer­ing U.S. econ­omy spell trou­ble for Ontario and Que­bec with a cap­i­tal T.
8) The rel­a­tive out­per­for­mance of the TSX ver­sus the S&P 500 and other major mar­kets will con­tinue. While most of the world has seen seri­ous set­backs this year, the TSX came within a few points of its all-time high this week. 
9) Inter­est rates are unlikely to come down much fur­ther. The Fed’s lin­ger­ing infla­tion con­cerns will be stoked by record crude, and def­i­nitely ditto for the ECB.
10) First it was food riots in the world’s poor­est coun­tries. Will we now see some seri­ous unrest in coun­tries fur­ther up the chain amid soar­ing energy costs?

Amid surg­ing global com­mod­ity prices, Canada now boasts one of the low­est infla­tion rates in the world at 1.4% y/y. Among major and even semi-major coun­tries, only Japan is now lower at 1.2%, and it is ris­ing rapidly. In fact, among the world’s top 40 economies, Canada is one of only five coun­tries to have recorded a drop in its infla­tion rate from a year ago. And three of those other coun­tries still have infla­tion rates of at least 5.5% (India, Argentina and Turkey). Britain is the other coun­try with lower infla­tion than a year ago, and the BoE is also cut­ting rates. Among the top 40 economies, the median infla­tion rate has vaulted from 2.5% a year ago to 4.3% now (Spain, Aus­tralia, Korea and the U.S. are all fairly close to both those fig­ures). Canada, mean­time, has gone from 2.3% to 1.4%—i.e. from close to the mid­dle of the pack to near the low. Thank you loonie, and with an assist from the GST cut.

Tags: Australia, BMO, BMO Capital Markets, Canadian Market, Chief Economist, China, Commodities, Commodity, Currency, Dollar, ECB, Economics, Economy, energy, Euro, Fed, Focus, India, inflation, interest rates, Japan, Markets, oil, Oil Prices, Outperformance, Recession, risk, Russia, Setback, Spain, Top 40, UK, upw
Posted in Canadian Market, Commodities, Economy, Energy & Natural Resources, Markets, Oil and Gas, US Stocks | Comments Off

Chart: US M3 Money Supply Growth

Wednesday, May 7th, 2008

May 7, 2008 -  Cour­tesy: Nick Bar­ish­eff, The Bul­lion Buzz Newslet­ter, Bul­lion Man­age­ment Group Inc.

US M3 Money Sup­ply Growth

M3, which is no longer pub­lished by the US Fed­eral Reserve, is the broad­est mea­sure of money sup­ply. It includes M2, as well as cer­tain accounts held by banks and thrift insti­tu­tions (includ­ing bal­ances in money mar­ket mutual funds held by insti­tu­tional investors). Since March 2006, M3b, a recon­structed ver­sion of M3, has grown by nearly $4 tril­lion, from approx­i­mately $10.5 tril­lion to about $14.2 tril­lion. To put this in per­spec­tive, total M3 in 1971, when the US cut the dollar's link to gold, was less than $800 bil­lion. The cur­rent annu­al­ized rate of increase is now about 20%. Since the clas­si­cal def­i­n­i­tion of infla­tion is an increase in money sup­ply that leads to an increase in goods and ser­vices, the price increases we are now expe­ri­enc­ing are des­tined to accel­er­ate. Given these infla­tion real­i­ties, port­fo­lios need to be rebal­anced to ensure that pur­chas­ing power is pre­served. As pre­cious met­als are proven hedges for infla­tion, port­fo­lio hold­ings should be rebal­anced to ensure ade­quate allo­ca­tions are held.

http://www.nowandfutures.com/key_stats.html

Tags: Banks, Barisheff, Bullion, Chart, Currency, Dollar, Economy, Fed, Federal Reserve, Gold, inflation, M3, M3 Money Supply Growth, Metals, Mutual Funds, precious metals, risk, Trillion
Posted in Gold, Markets | Comments Off

Don Coxe: Food Prices and Investment Strategy

Friday, May 2nd, 2008

May 1, 2008 - Coutesy of BNN.ca — Don Coxe, the must-read and must-see, BMO Cap­i­tal Mar­kets Chief Invest­ment Strate­gist, dis­cusses food prices, short­ages, and the appro­pri­ate invest­ment strat­egy in the face of the recent food crisis;

click for video

cour­tesy of BNN

Source:

Mar­ket Morning

Global Port­fo­lio Strat­egy [04–30-08 10:10 AM]

BNN, April 30, 2008

http://watch.bnn.ca/#clip49664

Tags: Agriculture, BMO, BMO Capital Markets, Canadian Stocks, Don Coxe, energy, Food prices, Investment Strategy, Markets, risk, Video
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Oil Stocks vs. Oil

Thursday, May 1st, 2008

May 1, 2008 - Cour­tesy of Bespoke Invest­ment Group - Below we high­light the his­tor­i­cal ratio of the S&P 500 Oil and Gas group ver­sus the price of oil over the last ten years.  When the red line is ris­ing, oil stocks are out­per­form­ing the com­mod­ity and vice versa when the line is declin­ing.  For the last year, the red line has been trend­ing down­ward, mean­ing the com­mod­ity has been out­per­form­ing oil stocks.  The ratio got down to 5 in mid-March, which was the low­est level seen since March 2003.  At these lev­els, the ratio typ­i­cally bounces and heads higher for awhile, mean­ing oil stocks would begin to out­per­form the price of oil.  This could mean oil prices rise less than oil stocks or fall at a faster pace.

Tags: Bounces, Commodities, Commodity, energy, Investment Strategy, Markets, oil, Oil and Gas, Oil Prices, oil stocks
Posted in Commodities, Energy & Natural Resources, Markets, Oil and Gas, US Stocks | Comments Off