Barrick and gold

Something becomes very clear: gold prices will rise. The biggest miner, Barrick, is offering shares – the biggest inCanadian history – in order to elminate all of his fixed hedges and partly its floating hedges.
This is telling us that they are serious this time about a rising gold price.
How?
The Chinese, my dear Watson….

From the FT:

Barrick Gold said on Thursday that proceeds from its pending equity offering will total around $4bn, making the stock sale the biggest in Canadian history, reports Reuters. The world’s top gold miner said underwriters exercised in full their option to purchase an additional 14.21m shares at a price of $36.95. The offering is expected to close on or about Sept 23. Barrick announced an equity sale of at least $3bn on Tuesday, to be used to eliminate all of its fixed-price gold hedges and a portion of its floating hedges.

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We want our money back

The US is starting to pare back its emergency support for banks and financial markets, Treasury secretary Tim Geithner said on Thursday, announcing that the state guarantee for the $2,500bn money market mutual fund industry will expire on schedule this month. Nearly a year after the collapse of Lehman Brothers helped tip the world into recession, Geithner said it was time to move from crisis response to recovery. He also backed a review by the FDIC bank regulator that is likely to end or restrict funding guarantees for banks.

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Inspiration

This one comes from Dave Rosenberg and resuming perfectly the current environment:

1. This remains a hope-based rally in the equity markets (with strong technicals). What we are seeing transpire is without precedent - the magnitude of the employment slide versus the magnitude of the market advance.

2. Companies have not really been beating their earnings estimates - only the very final estimates heading into the reporting quarter.

3. Valuation is a poor timing device but even on “normalized” trailing 10-year earnings, the S&P 500 is trading near 18x, which is now above the historical average of 16x.

4. All the growth we are seeing globally this year is due to fiscal stimulus.

5. While Mr. Market may be pricing in a fine future for the U.S., but when the 3-month Treasury-bill yield is 13bps north of zero, you know that there are still substantial fundamental imbalances that need to be worked through.

Looking for some ideas?

• S&P 500 hits 11-month high after a 53% surge since March... still 34% below October '07 peak. • Semiconductor rally continues... giants Broadcom, ASML, Marvell, and others make fresh highs.

• Brazil ETF (EWZ) climbs 8.5% so far this month, retests 11-month highs.

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Cadbury

We have an unusual chart about what the market is thinking about the 16 bln USD cash and stock offer from Kraft for Cadbury. The credit default swap spread for Kraft in the 5 years is jumping. A normal reaction to new that an already indebted company plans to load his balance sheet with even more debt. This spread will only widen because Kraft will be pushed to sweeten the offer or to tolerate another bidder.

Who could that be? The CDS market gambles on Hershey rather than on Nestlé, even though Nestlé has seen as the most viable alternative bidder.
Intriguing.

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Van der Moolen

Van der Moolen, the Dutch market maker and broker that unsuccessfully tried to transform itself into a high frequency trading shop after being muscled out of the US market by increasingly algorithmic-focused competition, on Thursday filed for bankruptcy.

The bankruptcy of VDM can be attributed to a combination of factors that appeared in a period of a number of years: big losses in the US, unsuccessful new initiatives like Online Trader, decreasing revenues in connection due to the financial crisis and a cost pattern that structurally exceeded the benefits.

Adieu

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Dollar and stocks: any logic?

Stock market and dollar act completely uncoupled now. The dollar we measure through the DXY ETF. Some-one should tell these computers they have to go the other way around.

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Warren Buffett and housing

Warren Buffett is positioning Berkshire Hathaway Inc. (NYSE: BRK-A) to profit when the housing and property market returns to more normal levels. Now, he is teaming up with what many investors consider a “Buffett rival.” Berkshire Hathaway Inc. (NYSE: BRK-A) is teaming up with Leucadia National Corp. (NYSE: LUK) to acquire the North American mortgage and servicing operations of Capmark Financial Group Inc. Interestingly enough, a company affiliated with Buffett and Berkshire Hathaway called HomeServices of America made a real estate firm acquisition in Chicago earlier this week.

Berkshire Hathaway probably has $50 billion that can be used for deals in the near-term and intermediate-term.

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Inspiration

From the FT:

The dollar fell to its lowest level in almost a year on Tuesday as a rally in gold prices above $1,000 an ounce and fresh concerns over its reserve status weighed on the US currency. Derek Halpenny at Bank of Tokyo-Mitsubishi UFJ said the dollar's near-term prospects did not look particularly encouraging. "Gold has just broken through the $1,000 level and this along with the dollar index approaching its lows may well encourage another wave of speculative dollar selling," he said. The dollar index, which tracks its progress against a basket of six major currencies, fell to a low of 77.398, breaking through the lows it hit in early August to fall to its weakest level since September 30 2008.

• Gold mining ETF GDX rockets 12%... gold jumps over $1,000 an ounce.
• Teen retailers Gap and Aeropostale hit new highs... Abercrombie drops 12% last week.
• Semiconductor makers extend gains... Silicon Labs, Advanced Semi, and others reach 52-week highs. Sphere: Related Content

The S&P500: it's coming

This are strange times. Whatever perspective you’re looking to these markets, it’s not easy to determine what direction they will go.
As far as stocks are concerned, our lighthouse remains the S&P500. Pressure is building. This is our take: we’re bullish as long as stocks stay within the wedge.But if the S&P 500 breaks below 975, then look out below. It's going to get ugly real fast.

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Flu

Every year it’s time for our shot to protect us against flu.
Ok, even as the flu infects every year 10%-20% of the world population and kills around 500.000 people again and again, no one takes this stuff to seriously.
However, maybe this time it’s different.
Because Mexican flu is still hanging around, this year’s flu could be particularly tricky.
The big pharma companies will see sales increases. Big vaccine makers like GlaxoSmithKline could generate additional revenue due to this phenomenon. But unfortunately it will prove not to be substantial for their 40 bln USD budget.
Smaller companies where flu vaccine sales make up a large portion of total revenue however, can profit handsomely.
Take Dutch biotech company Crucell (ticker: CRXL), the seventh largest vaccine maker in the world. There are estimations sales could translate in an extra 40 million USD in revenue. Nice for a company with 400 mnl USD in sales.
Nice…

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Looking for a job? Hurry up...

From Dave:

While nonfarm payrolls were basically in line with the consensus, declining 216,000 in August, there were downward revisions of 49,000 and the details were simply awful. The fact that 65% of companies are still in the process of cutting their staff loads is quite disturbing — even manufacturing employment fell 63,000 in August, to its lowest level since April 1941 (!), despite the inventory replenishment in the automotive sector and all the excitement over the recent 50+ print in the ballyhooed ISM index. The fact that temp agency employment is still declining, albeit at a slower pace, alongside the flat workweek and jobless claims stuck at 570,000, are all foreshadowing continued weakness in the labour market ahead. Until we see signs of a sustained turnaround in the jobs market all bets are off over the sustainability of any economic recovery

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Looking for a job? Stay out of banking

Labour Day.
And all quiet on the other side of the Atlantic where we assume there are more green shoots than here on the Emerald Isle.

European banks face pressure to issue far more shares in order to meet a tough new global regulatory framework outlined at the weekend by G20 finance ministers which calls for much stronger capital buffers. The move follows criticism that some banks have used complex securities to meet more than half the existing regulatory requirements through the issuance of “hybrid” securities, which are more like debt than equity

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Inspiration

If pigs could fly this place would be a busy airport, says the sign in my local pub.
But the price of gold is flying. And Hong Kong will open a new precious metal depositary at its international airport.

A discussion was started by Michael Lewis and is now getting wings. Also Paul Krugman has written a piece: How Did Economists Get It So Wrong?
If you want to read something this weekend… well here you go

• Huge day for gold and silver miners... majors Goldcorp and Kinross reach new 52-week highs. Jaguar, Eldorado, Goldfields, Minefinders, Silvercorp, and Silver Wheaton at new highs.

• iShares silver surges to new 52-week high.

• Don't forget the bull market in lead... lead ETF at new 52-week high.

Enough said. It's time to switch off the PC and walk to the pub to enjoy a good Guinness and some songs

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Bankers and politicians

The leaders of Europe’s three largest nations, Britain, France and Germany, called on Thursday for “binding rules” to rein in bankers’ bonuses as G20 finance ministers prepared to meet in London this weekend. A joint letter from the UK’s Gordon Brown, Germany’s Angela Merkel and France’s Nicolas Sarkozy signalled that Europe is uniting behind specific proposals to link the size of bonuses to fixed pay and to bank performance over long periods. The three leaders also came out in favour of deferring awards and clawbacks in case of negative outcomes.

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Moodys is toast. Soon.

Berkshire Hathaway is selling more shares of Moody’s. It is clear that rating agencies are the next scapegoat for the financial crisis en Warren wants to get out before Congress is declaring these institutions toast.

A judge decided yesterday that these agencies have no place to hide.

(LA Times, 3/9/09): Credit-rating firms’ shares plunge on subprime-related court rulingInvestors who believe that major credit-rating firms should be held responsible for their disastrously optimistic ratings of subprime-mortgage bonds have won at least an interim victory.U.S. District Judge Shira Scheindlin in New York ruled late Wednesday that Moody’s Investors Service and Standard & Poor’s can’t invoke the 1st Amendment to hide from subprime-related legal challenges.The decision triggered heavy selling of shares of Moody’s parent Moody’s Corp. and S&P parent McGraw-Hill Cos. on Thursday. Moody’s slid $1.84, or 7%, to $24.26. McGraw-Hill’s shares tumbled $3.30, or 10.2%, to $29.01.

No panic, Warren is still sitting on a nice profit because his average purchase price I 10.40 USD.
We’re not there.
Yet.

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Inspiration

A lot is going on.

• Gold surges past $970... moving closer and closer to $1,000.
• Gold stocks enjoy huge spike with gold... big gold stock fund up 7% to reach highest high since early June.
• No rest for natural gas... more miserable new lows for natural gas funds.
• Muni bonds continue amazing rally... scores of muni bond funds reach another round of 52-week highs.
• ECB keeps rate unchanged at 1% and gives money in the one year at 1%. Sphere: Related Content

Dollar

At the same time the gold price is climbing, we observe also strength in the dollar. Sentiment is bearish, but the odds favor more and more the other way.
Everybody thinks the dollar is doomed. However, if the whole planet looks in one direction, the trade is done at the opposite side.

Look to this chart and the wedge.

We like the PowerShares US Dollor Index Bullish Fund ETF (ticker: UUP) tracking the performance of the US Dollar index as a tool to play an eventual break out.

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Gold

Gold shines.
The start of the new month is triggering strange things in this market
From Elliot Wave International we borrow this remarkable chart:

Fascinating, those waves...

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Natural Gas

Good to know: the UNG ETF is not the best way to play the eventual price rebound in natural gas. There is some serious contango in the market (so much so that the current price of $2.73 for Oct is just under 60% of the Dec contract at $4.69). Prior to current month expiry, the UNG ETF “rolls” the contract to the next month. When this roll takes place, they sell the current month at say $2.73 and buy the next month at $3.89 (current price of Nov). When they do this the price of UNG does not change as it ends up buying a higher priced contract for which to trade around (they try and match the percentages of the change in price). Effectively, your cost base gets eaten away by the contango and you lose out on the current contract price. The only way it makes sense to buy an ETF like this is when there is backwardation in the market of the underlying commodity.

Natural Gas is poised for a huge move...

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Baltic Dry Index

The game started.

AP Moller Maersk, the world’s largest container shipping firm, surprised the market on Wednesday with the announcement of a DKK9.2bn ($1.77bn) share placing.
The move was unexpected since the Danish firm had pretty much ruled-out the prospect of any fund-raising on August 21, the day it also announced a loss - its first ever - of $540m.
As Lloyds List reported at the time, chief executive Nils Andersen told investors the shortfall had come despite revenues of $22.7bn, on a major loss to the container division of $961m. While the results were not pretty, investors warmed to the promise of aggressive restructuring measures to come: shares moved 7 per cent higher after Andersen said the group would trim between$1bn-$1.5bn from annual costs.

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Wine

From the FT:

Things are looking up in the world of wine.
The industry’s leading benchmark, the Liv-ex 100 Fine Wine Index, rallied 5 per cent in August compared with the same period a month ago, to 225. The index has risen 10 per cent up year to date, but is 14 per cent down year on year.

This must be what those bankers who have had a ‘good recession‘ are spending their bonuses on. It’s more discreet than getting another car, after all.
What’s more, the 2009 Bordeaux vintage is expected to be another excellent one, following on from a highly rated 2008 and even more lauded 2005. As Decanter reported, the weather in the region has been perfectly warm and dry, and producers are hoping that September doesn’t bring too much rain.

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Correction?

We think that the correction is already over. Investors assume this is a buy opportunity and will act accordingly.
Life can be beautiful while the smell of bears grilled by this move is everywhere around.
This said.
The shake out was heavy in the financial sector. That section of the S&P500 tanked with more than 5% in 2 days. Is there more to come?
Possible. But not sure.

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I kill you later, accumulator....

They are back – the accumulators. A financial product dubbed ‘I kill you later’.

Accumulators oblige investors to buy shares at a fixed price — usually a discount to prevailing market rates — at regular intervals. If the stock’s market price continues to gain, investors can pocket a hefty return; usually, the contracts include a kick-out feature that causes the contract to expire if shares rise above a certain level.

This product caused a lot of pain, especially in Asia. But we learn that UBS, HSBC, Citi and other are offering them again to wealthy investors.
Don’t touch it

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Sweet

Sweet things are happening. Sugar is still heading higher. We talked about this before. The sugar cane output in India is suffering due to a weak monsoon season while in Brazil they have a problem with too much water. Raw-sugar futures in New York have surged to the highest level in 28 years.
Good to know: Brazil and India are the world’s two largest producers

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Baltic Dry Index

China is hitting the brakes. A lot has been opined if this is shown in the Baltic Dry Index, but if this really matters for stocks is another question.
Even better: the action with AIG, Fannie and Freddie has nothing to do with what happens in China.
But everything with the money pushed into the room and used by a small band of traders to move things around.
Not only in the States.
I remember an article stating that 170 bln USD of bank loans where finding their way to the Chinese stock market.
Another thing of course is what happening if China want to buys things these days. They are becoming such heavy weights that they move markets in one or other direction. And apparently the Baltic Dry Index is reacting to this.
The Chinese hand is becoming more visible every day in the markets. Upturn or downturn, they are moving prices.

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