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Euro Fears Continue to Push Global Markets
Fear is no doubt controlling the equity markets as the bulls and the bears continue to battle it out. The flight out of the Euro and into the US Dollar over the past couple of months has been dramatic to say the least. This trend could continue until the Eurozone finds a viable solution to its debt problems. The equity markets have been manic with some very dramatic moves from day to day. On a technical basis, equities are oversold at current prices and a bounce is due any time. That being said, markets could experience another wave of panic selling to wash out the “weak hands” before any kind of a summer rally ensues. In preparation for what we believe could be a difficult Fall, we have been recommending clients take a measured investment approach by reducing equity exposure.
One characteristic of any lengthy, grinding bear market is its tendency to be compromised by a series of sharp pullbacks, interspersed with strong rebounds which usually tend to last several weeks. The 1930-32 bear market is probably one of the best examples, in which we had nearly a dozen separate retreats, each of which led to a sharp, short-term surge. Could we be on the cusp of another bear market? The interesting aspect of this type of environment is that the opportunities for the prudent, astute investor are tremendous. Ultimately we believe that the combination of “Tactical Equity” investing and ownership of quality fixed income positions will prove to be a successful portfolio strategy. We will continue to capitalize on the market volatility by buying equities when panic sets in and selling when the headlines are rosy.
Policymakers hold the key to easing investors concerns and it starts with the European banks finding viable solutions to the sovereign debt problems. The proposed global bank tax hardly looks like a pressing need until the European Union can stop the contagion from spreading any further.
- Brothers Anil and Mukesh Ambani have seemingly ended an intense feud that has festered since 2005. Why is this important? The two brothers, who control a massive fortune through their Reliance conglomerate, account for more than 4% of India’s GDP. The announcement that they had put the country’s most colourful and widely-watched family drama behind them moved the stock market higher and boosted optimism throughout the nation. A peace agreement is rumoured to have been brokered by India’s Prime Minister, Manmohan Singh, after repeated visits to court failed miserably. Dhirubhai Ambani passed away in 2002, dividing the family businesses, made up of textiles, petrochemicals, refining and energy into two distinct tranches. Problems arose as the businesses continued to expand and Anil felt he got the short end of the stick.
- It’s always difficult to gauge the size of a natural disaster and the potential impact it could have on the nearby coastline. To provide a little perspective, picture an oil slick stretching from the southern tip of Vancouver Island to Hope. The pipe is pumping out approximately 110,000 barrels of crude per day, forcing a fishing ban that now spans 160,200 square km’s.
- A new survey by Royal LePage Real Estate Services says BC residents identify lifestyle as the chief reason for purchasing recreational property. 49% of potential purchasers are looking to improve their lifestyle while 44% see it as a good investment according to the Angus Reid survey. Those polled sighted waterfront or beach access as the most coveted feature with 44% desiring four-season use. Recreational property in BC is by far the country’s most expensive, with average prices between $345,000 and $1.5 million compared with Ontario at $140,000 to $1,050,000.
Marketwatch – A Look at the Week’s Newsmakers
Copper Mountain Mining Corp (CUM) – is officially on the road to becoming one of the country’s largest copper mines, and is scheduled to be up and running in a year’s time. The fully-permitted operation cleared its last hurdle Monday securing its final tranche of financing to complete development of its mine build-out. Copper Mountain entered into debt-financing agreements worth $322 million USD with Japan’s Mitsubishi Materials Corp, which also owns 25% of the project. Looking out 12 months, Copper Mountain will be Canada’s 3rd largest copper mine, pumping out 40,000 tonnes/yr at a cost of only $1.11/lb.
Gerdau Ameristeel Corp (GNA) – despite the uncertain economic environment we find ourselves in, foreign conglomerates are still trolling North American waters for takeout candidates. The latest is Brazilian steelmaker Gerdau, which is paying a hefty premium for GNA in order to acquire the 33.7% block of shares it doesn’t already own. Gerdau’s $11 CDN offer represented a 53% premium to Ameristeel’s Tuesday close and sent the shares soaring in Wednesday’s trading session. Rio de Janeiro-based Gerdau acquired a majority stake in Ameristeel back in 1999 and seeks to streamline the business and improve cost efficiencies by integrating the two units.
BP Plc (BP) – British Petroleum’s latest effort to tie off the oil gushing into the Gulf was a mild success over the weekend with the firm saying late Sunday that it was capturing approximately 10,000 barrels of crude per day. As fear continues to increase through Louisiana and surrounding coastal states, CEO Tony Hayward said a cap fitted over the leaking pipe some 1600 metres below the ocean surface appeared to be working. The capped crude is being pumped up to a container ship above and being spared from the 15,000 to 25,000 (no one seems to know the correct amount) barrels of oil per day that have been working its way towards the southern US coastline since April 20th. The massive slick now spans a radius of 320 square-km’s, with the bulk of it about 50 km’s off of the Louisiana coast.
“Quote of the Day
“A woman is like a teabag. It’s only when she’s in hot water that you realize how strong she is.” – Nancy Reagan
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This newsletter expresses the opinions of the writers, Marc Latta and Jamie Switzer, and not necessarily those of Raymond James Ltd. (RJL) Statistics and factual data and other information are from sources believed to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. It is not meant to provide legal, taxation, or account advice; as each situation is different, please seek advice based on your specific circumstance. RJL and its officers, directors, employees and their families may from time to time invest in the securities discussed in this newsletter. It is intended for distribution only in those jurisdictions where RJL is registered as a dealer in securities. Any distribution or dissemination of this newsletter in any other jurisdiction is strictly prohibited. This newsletter is not intended for nor should it be distributed to any person residing in the USA. Within the last 12 months, Raymond James Ltd. has undertaken an underwriting liability or has provided advice for a fee with respect to the securities of the Royal Bank of Canada. Raymond James Ltd is a member of the Canadian Investor Protection Fund.