Market Buzz – Positive Canadian Employment Report Largely Ignored as Market Continues Declines

The TSX Composite closed down 171 points, at 13,084 on Friday, largely on concerns related to the sustainability of the global economic recovery. The week of Friday June 10th, marked the second straight week of declines which have driven the market down 5.2% over the last 10 trading days.

At the forefront of investors’ minds is the employment picture in the U.S. and its impact on global growth. On June 3rd, the U.S. Department of Labour released their monthly employment numbers, reporting 54,000 new jobs created in April, well below economists’ forecasts of 165,000 new jobs. The new data shifts the U.S. national unemployment rate to 9.1% and was the poorest month of job creation since September 2010. The disappointing employment numbers have only added to tensions that have been mounting with respect to the government’s ability and willingness to pay-down their massive growing debt load. Further fuel was added to the fire of global uncertainty when on Friday, China reported issued foreign trade data. While China’s trade surplus did widen to US$13.1 billion, it was still weaker than expectations, with both increasing imports and lower global demand having their impact.

Also on Friday, Statistics Canada published their employment data for the month of May reporting the creation of 22,300 jobs and shifting the unemployment rate to 7.4%, its lowest level in two years. Economists are voicing mixed but moderately positive opinions on the job growth. For the most part, May employment numbers were in line with expectations, but made more positive considering the weak data coming out of the U.S. and the fact that the Canadian economy has slowed in the second quarter. There is also the issue of where the job growth is being created. The manufacturing sector lost 22,500 jobs in May which is a strong indication that the country’s economy is continuing to feel the pressure of a higher Canadian dollar and the impact it has on our ability to produce goods competitively in a global market.

Our outlook has always remained consistent. We continue to believe that there are many obstacles to address as the U.S. economy continues along the road to redemption. In no way do we expect any type of clear indication that the economy is either recovering or sliding back into recession. Although uncertainty will most likely be the theme over the next several years, we see potential opportunities to capitalize on market volatility. By sticking with strong, profitable companies and maintaining a long-term approach to investing, we are better positioned to avoid the ‘noise’ of the markets and focus on efforts on identifying fundamental value and growth.

Looniversity – Financial Statements 101 – Income Statement

The income statement tells investors about the company’s profits and losses for a specific time period. Expenses are subtracted from income to determine a firm’s profit or loss. Accordingly, this statement is also referred to as a profit or loss statement. Unlike the balance sheet, the income statement doesn’t look at the company’s financial health (total net worth). Instead, it’s looking at how much revenue a company is able to create. If you were to think of the balance sheet as an indicator of net worth, you can think of the income statement as a company’s profitability; that is, how much it can make in a given time frame.

You look at a company’s balance sheet to see exactly how much they are worth (remember, this is a book value representation rather than market capitalization) and you look at the income statement to see how profitable they are. Put simply, if a company you are evaluating has a negative net worth (their liabilities are greater than their assets) or if they have a negative income (losses), then the company might not be the best place to invest your hard earned dollars.

Put it to Us?

Q. Hey, I’m 17 and about to start college in the fall. I’m paying my way through college with scholarships, so should I invest the money I had saved? Or should I just wait until after college to start investing?

– Tim Cole; Edmonton, Alberta

A. A. An excellent question. If the money you’ve set aside for college will not be needed at all, then starting an investment plan is an excellent idea. But, if you think you might need some of it for unforeseen expenses, then you might want to keep at least half of it in a traditional bank account or short-term deposit.

But, really, now is the time to start thinking about investing, not after college. And here’s why.

A long time ago, Albert Einstein called compounding “the eighth wonder of the world” because of its amazing abilities. Essentially, compounding is the idea that you can make money on the money you’ve already earned. The best way to take advantage of this is to start early.

KeyStone’s Latest Reports Section

Audio (Transcription Below)

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Exclusive Special Bonus:

David Bensimon’s Latest Research Report on the Major Stock Indexes Email us at info@moneytalks.net for the Exclusive Link and Access Code

Exclusive: David Bensimon on Gold and Silver

Grant Longhurst: I’m joined today by David Bensimon who is here in Vancouver at the Fairmont Pacific Rim. David, just finished up a lunch session and this evening will be covering off the Gold and Silver markets for a private group of investors but Michael had asked me to come down and ask if you could quickly let our Money Talks audience know what your feeling is about the short term timing on the gold and silver markets.

David Bensimon: You are absolutely right that there are some very interesting junctures where we are now on gold and silver as well as the other markets, equities, currencies and commodities in general. Your listeners are probably familiar with some of the larger scale forecast that I made and the analysis that were in multi year, if not multi decade advance for gold and silver and copper and other commodities. But within the context the major high anticipated in 2014 for gold and 2015 for oil and the 2016 for silver as well. If the contexts of those larger scale movements, we can recognize that there are tradable turning points of intermediate highs and intermediate lows. We are very close to one of these moderate level turning points. In fact gold has already had a first test of that level of around 1560 and the 1580 area and is poised to retest that level in the very near future. But once it’s done that, it is vulnerable to a moderate pull back between five, eight maybe even 10% towards to the 1400, mid 1400 areas, about $120 drop.

In fact what we could say is on the structure of the movement of gold since the price is low, it has followed a really very nicely laid out pattern adhering to something we call the Lucas Series. This is the mode of the magic number of series that I talk about quite often but here we see in the case of gold that it went up by a certain size out of the bottom 680 in 2008. It had a correction and then had another jump of the same size of $320 and then a correction. Since then it has risen by $520 up to this recent high area which is 1.618, again there is natural relationship on the symmetry of the gold factors. So the expectation is that we will have some consolidation from this 1500, 1600, 1580 area and back to 1440. But then it should grow by $840 up to that $2200 and $2300 area, another consolidation and then culminating in the primary objective which is at $2600. Even just a little bit above 2600 possibly 2680 in 2014. So we are only three years away from this major effect.

Grant: Great, in that time frame do you see something similar happening with silver in that time?

David: Well, the interesting thing is that percentage wise for gold to go from where it was recently, let’s say a 1300 to 2600 is 100% increase in value, a doubling in value. So from current levels at 1500 plus, it’s less than 100% increase in value to get to those final objectives, or the objectives of three years from now. Silver has recently and will continue to outperform gold. Silver has some really extraordinary targets that I’ve spoken about for the last decade where we were down at $4 or $5 and now we went as high as $50 recently which of course was a perfectly natural place to expect some resistance and a pull back, $50 being of course the record high in January 1980. So the next time you touch that very important level, because it went from $50 all the way down to $3.50 the next time you touch that $50 level you can expect it to react and it did in a very short span of time when it collapsed from $50 to $32.

Partly driven by that technical juncture and partly driven virtually the next day by changes in the exchange trade and requirements for margin, this was a really potent affect on the market because everyone who was trading at their limits, capacity constraints, being so confident with these upswing, maybe even really profitably in the positions that they had, but trading with size that at their carrying constraint capacity and then the exchange says you know what, you need to have twice as much margin for every contract. It means that if you are at your capacity you could only have half as many contracts and therefore even though your contracts, your position might be in the money, you are obliged to liquidate some of those positions. The act of liquidating, especially right after reaching a key barrier like $50, starts to create a downswing that generates its own cascading spiral and therefore the original contract, the original sales might still be profitable if you’d bought them a long time ago, but as you sell those who bought into the markets up in the highs and are caught up in the momentum and that bullishness start to lose money and are obliged to liquidate their losing positions that causes an even bigger cascade and spiral so it goes all the way down until it drives itself to 32. My expectation is that the bounce, you know the drop down was $18 which is a Lucas type number rather than a Fibonacci number, but the market bounced back from 32 to 39 which was a $7 bounce retracing three eights of that first slide.

The structure is now vulnerable to another drop from this $39 area to the area around 37 or so and from 39 down to 28 would be $11. That would render the imminent down swing to be five eights of the first bounce which is a very natural kind of corrective relationship and would signal once you get to $28 that you are reaching the end of the correction. The other point of support at $28 is that the total increase after the crisis of was from $8 to $50, it’s a $42 raw gain in points. To drop from 50 back to $28, $29 is a $21 drop exactly half of that total raw increase. So you’ve got some internal relationships that coincide around 28, $29, this doesn’t mean necessarily that the market must fall but in the context of all the other elements that are suggestive of a corrective decline in the near future for equities, for other commodities, for currencies, it would be consistent with having one more dip in silver, but reaching that 28, $29 area would be an excellent place to reacquire raw positions.

Grant: Good news, thank you very much for your time David we look forward to having you on with Mike again soon.

David: You’re most welcome Grant.

More Jim Rogers. This video even better (scroll down). Pay close attention to his comments on oil as he explains the problems we are facing in very simple terms.

Main points

– China will have many setbacks but it will keep rising.

– As recently as 1907 the US went bankrupt; China will have big problems too, but they will work through it.

– China has over $3 trillion in reserves; America is the largest debtor in history.

– If your brother-in-law spends all his money over and over someone will tell him to wake up, someone will have to do that for America. The market will do that and do it fairly soon, he suspects within the next five years.

– The result will be the dollar collapsing and interest rates going through the roof. Only way to avoid it is by cutting spending with an axe.

– No country in history has gotten out of the situation America is in without a crisis.

– The Japanese are still no better off by not letting anyone go bankrupt. It didn’t work there and won’t work in the United States either.

– There is too much regulation in the States. That is why you see most new IPOs taking place offshore.

– The American bankers never learn their lesson because they are continuously bailed out. They should have let Long Term Capital Management go bankrupt in 1998 and let the market work. That set a bad precedent that keeps getting repeated.

– In his own portfolio he is long commodities, long currencies and short American tech companies.

– Thinks tech is excessively priced and since he wants to have short exposure he feels this is the best place to be short.

– Is Facebook overvalued? Rogers doesn’t have a clue because he can’t see their financial statements.

– Expects silver to have several sell-offs in the coming years on a long march upwards.

– Gold has been up for 10 years and 10 quarters in a row. Bound to have corrections but sees it continuing up for several years.

– Thinks Bernanke saying quantitative easing hasn’t caused commodity inflation is ludicrous.

– Regarding oil, the EIA is begging people to listen to them; oil production from existing fields are declining 6% every year and we have huge problems in front of us. Nobody is listening to them.

– We don’t have new sources of energy that can come on stream fast enough.

– Supply and demand are out of balance and that is creating the commodity bull market. But all of the money printing is pouring gasoline on the fire.

– The world has a staggering agriculture problem as well. There has been little investment for 30 years in agriculture, neither money or people.

– Expects that politicians will blame the commodity rise on speculators and will tighten regulations and make things even worse.

– Owns US dollars just as a contrarian investment and a trade; long term he is bearish on the dollar.

– If he was paid in US dollars he would move to Asia and get paid in hard currencies.

Here is the video:

Ed Note: Since we are in a dynamic time frame, here’s an issue that every investor needs to think about written by the legendary Richard Russell of Dow Theory Letters

HOPE:  It’s human nature to be optimistic. It’s human nature to hope. Furthermore, hope is a component of a healthy state of mind. Hope is the opposite of negativity. Negativity in life can lead to anger, disappointment and depression. After all, if the world is a negative place, what’s the point of living in it? To be negative is to be anti-life.

Ironically, it doesn’t work that way in the stock market. In the stock market hope is a hindrence, not a help. Once you take a position in a stock, you obviously want that stock to advance. But if the stock that you bought is a real value, and you bought it right — you should be content to sit with that stock in the knowledge that over time its value will out without your help, without your hoping.

So in the case of this stock, you have value on your side — and all you need is patience. In the end, your patience will pay off with a higher price for your stock. Hope shouldn’t play any part in this process. You don’t need hope, because you bought the stock when it was a great value, and you bought it at the right time.

Any time you find yourself hoping in this business, the odds are that you are on the wrong path — or that you did something stupid that should be corrected.

Unfortuneately hope is a money-loser in the investment business. This is counter-intuitive but true. Hope will keep you riding a stock that is headed down. Hope will keep you from taking a small loss and instead, allowing that small loss to develop into a large loss.

In the stock market hope get in the way of reality, hope gets in the way of common sense. One of the first rules in investing is “Don’t take the big loss.” In order to do that, you’ve got to be willing to take a small loss.

If the stock market turns bearish, and you’re staying put with your whole position. and you’re HOPING that what you see is not really happening – then welcome to poverty city. In this situation, all your hoping isn’t going to save you or make you a penny. In fact, in this situation hoping is the devil that bids you to sit — while your portfolio of stocks goes down the drain.

In the investing business my suggestion is that you avoid hope. Forget the siren, hope — instead embrace cold, clear reality.

Source: Richard Russell, author of the world’s longest-running investment letter, Dow Theory Letters went bullish on Gold below $300 in 2002,  has stayed bullish and remains L/T bullish to this day:

Richard Russell has made his subscribers fortunes. One of the best values anywhere in the financial world at only a $300 subscription to get his DAILY report for a year. HERE to subscribe.