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David Fuller's Free (Abbreviated) Comment of the Day.
Friday 25th July 2008 Pring Turner Capital Group: Time To Be Optimistic - My thanks to a subscriber for this important report. It is posted in the Subscriber's Area but here is the opening: Yes,
the financial news gets worse every day. Yes, the average stock is down more
than 25% over the past thirteen months. Yes, the housing market is still reeling
and foreclosure activity is rising. Yes, the price of gas is skyrocketing. And
yes, this too will pass, and the economy and stock market will begin a new expansion
and sustainable bull market, as all business cycles have. Over our several decades
of investment management experience, we have witnessed many business cycle Considering all the negative financial headlines, is it any wonder investor psychology has reached a gloomy extreme? Legendary value investor and philanthropist Sir John Templeton made a career (and fortune) taking advantage of bargains that showed up during recessionary periods and bear markets. His foremost investment discipline was geared to wait patiently for stock prices to "reach the point of maximum pessimism" and then he invested. It is somewhat ironic that this pioneer of value investing, who began his career in the 1930's, would pass away this month at the age of 95, just when the markets have hit an emotional low point. We know Sir John would be buying stocks during today's financial turmoil. Investor psychology has reached that pessimistic extreme and conversely sets up the year ahead to be a very profitable one. In the remainder of this newsletter, we expand on four potent reasons to support our forward-looking optimism. My
view - This reports shows the diligent research
and prescient analysis of my old friend Martin Pring, who I note will also be
speaking at the Contrary Opinion Forum
in October. Readers considering this event may be interested in this much earlier
report from Time
Magazine in 1983. I think subscribers will be very interested in the informative graphs and table on Bear / Bull Stock Market Cycles in this report. This item continues in the Subscriber's Area.
"Hope all is well. "I know you don't share my view about "Peak Oil" but if I am right in my view that the global supply of oil can't increase much from 85 mb/day and is in fact likely to fall in the years ahead, then I am afraid, the global economy will also contract. The boom of the past 35 years (since gold was removed from the monetary system) was built on easy money and cheap oil. Well, both conditions are now over. The massive boom in the world was brought about by an ever increasing supply of oil - if you superimpose the chart of world GDP and oil consumption, you'll see a direct correlation. Now, if Peak Oil nuts like me are right and if in fact, global consumption of oil declines due to supply shortfalls, then there is no way global GDP will expand (BRIC included) UNTIL we find another source of viable energy to replace our dependence on oil. I am afraid, we have left it too late and there is no other alternative. I am hopeful some genius will find a solution to this historic problem but time is running out. If oil drops to $100-$100 per barrel, I am going to load up the proverbial truck because I am convinced that unless we find a lot of easy oil quickly, prices may eventually go past $250-300 per barrel. I know people believe that high prices will cause demand destruction so prices may never rise to $300 - but if Peak Oil is real and the global supply of oil indeed falls by 3-4% every single year due to depletion, then global supply of 85 mb/day will drop to 75mb/day by 2013-2014 - you can imagine what will happen to the oil price when supply falls by roughly 10 million barrels per day! Needless to say, we can't consume more than we can produce so demand will also have to forcibly drop by 10 mb/day - so not everyone will get oil and the global economy will SHRINK." My view - Thanks for an interesting assessment of what is probably the most important fundamental consideration, today and probably for a number of years - the cost of energy. Fullermoney has been discussing the possibility of Peak Oil for several years (readers interested in reports and comments on this subject can find it easily in the Archives, by using the Search facility upper left). We do think peak conventional oil is a real prospect, and that the cost of crude is in a secular uptrend. However, price spikes such as we saw recently have always resulted in peak demand, until the cost of oil falls back to a more affordable level. This item continues in the Subscriber's Area.
"It
requires very unusual mind to make an analysis of the obvious."
Additional Commentary by Eoin Treacy Russia's RTS Enters Bear Market After Putin Rebukes Mechel - This article by William Mauldin for Bloomberg covers the RTSI's underperformance over the last few weeks. Here it is in full: Russia's dollar-denominated RTS Index fell the most in six months, plunging it into a bear market, after Prime Minister Putin said Russia will investigate steelmaker OAO Mechel. The 50-stock RTS index sank for a fourth day, declining 5.2 percent to 1,960.19 at 2:22 p.m. in Moscow, bringing its decline from a record reached on May 19 to 21 percent. A drop of 20 percent from a peak within a year is the common definition of a bear market. The Micex lost 5.1 percent to 1,494.11, its lowest since November 2006, and the biggest retreat today among equity markets included in global benchmarks. Putin rebuked Mechel's billionaire shareholder Igor Zyuzin for not attending a meeting with steelmakers yesterday and said prosecutors will investigate whether Mechel sold raw materials in Russia at twice the level as abroad. The company's American depositary receipts fell 38 percent yesterday in New York. Mechel said it would release a statement later today. ``It seems that Russia has decided to control everything with centralized oversight,'' said Zina Psiola, who manages $1.1 billion in Russian equities at Clariden Leu AG in Zurich. ``This is the way that Venezuela already took, and we know the outcome: It's
bad for investors and bad for the country.'' Steel
Stocks OAO Rosneft declined 4.2 percent today to 229.88 rubles, heading for a weekly loss of 9.3 percent. Oil prices have declined 13 percent from their July 3 high. The RTS climbed as high as 2,487.92 on May 19, after Putin, who became prime minister after Dmitry Medvedev was elected president, said oil producers would get tax breaks. My view - If Mechel is indeed charging domestic consumers higher prices that those to foreign customers, then the government is more than justified in sanctioning the company for such action. However, if this is simply a ruse by the Kremiln to gain more control over another Russian company, then minority investors are unlikely to greet such action with any enthusiasm. This section continues in the Subscriber's Area.
The majority of investors in this arena have been heavily influenced by oil and the regression of that commodity into a medium-term correction has had negative repercussions for many commodity related equities, regardless of their exposure to the oil price. Russia profiled above has, of late, been one of the worst performing resources related markets. However, significant draw downs have also been witnessed in Norway, Brazil, Canada, Mexico, Argentina, Peru, Australia and South Africa. Commodities such as natural gas, sugar, and corn among others have also experienced selling pressure. Shares in a host of commodity companies have also come under fire. This section continues in the Subscriber's Area.
"If you look at a weekly chart of the XOI in the US it is just above where it was in 2006 mid year. The Canadian oil index is back to where it was at the beginning of 2006. It is possible the stocks consolidated for two years. spiked up and are now pulling back getting ready to follow New York up? New York turned up March 10th, the Canadian Resources turned up the 20th." My comment - Profiting from oil's advance through equities has been a challenging proposition because investors automatically gravitate towards the biggest oil companies and these have not performed in line with the oil price. This can be explained by the fact that they are not replacing their reserves as quickly as they are being depleting, they are losing resources due to nationalizations and many have written contracts where they have to pay higher royalties to host countries when oil moves above a certain level. The better performers have been smaller producers, more leveraged to the price of oil, with assets in politically secure parts of the world. The services and drilling sector has also done very well. This section continues in the Subscriber's Area.
"Hello. I was interested to see one subscriber's concern regarding the Chart Seminar possibly being pitched to "professionals" and not necessarily to individual investors. I'll point out that I attended TCS in 1990 and there were 85 attendees in total, and only about a half dozen were not associated with any firm, and I'll admit I felt a little out of place. "The seminar is so fascinating that after about 60 seconds I was so absorbed that who the others were and where they were from made no difference whatsoever. Go and learn and enjoy." My comment - Thank you for this generous testimonial. The number of delegates is capped at 50 these days, in order to preserve the workshop environment, Much of what I know about trading and investor psychology I learned under David's tutelage especially at The Chart Seminar. I am delighted to have the opportunity to continue this learning experience through teaching The Chart Seminar and foresee doing so for decades to come. The November seminar is now half full. For those interested in attending, an early booking rate is available at £875 + VAT for those who book and pay before September 30th.
"Do you have any thoughts on the Irish market? "Inflation is running high, real assets are deflating (both property and stocks). Confidence in general has been lost in the Government; The PMI index is very low. Retail sales and exports are slowing. The euro is strong against Sterling and USD, & interest rates have being going in the wrong direction for most people liking... "Nobody wanted the property market and the house of cards that came with it to collapse. There were many stakeholders involved in the game. (Developers, banks, real-estate agents, the government, and even long term house owners) who all cheered as the property market went from strength to strength. The old cliché 'it's different this time' was widely commented in the past number of years. "The stock market has also taken a far hammering in the last 12 months, perhaps unduly so. The banks don't seem to be overly exposed to sub-prime, but does it matter. Perception is everything & sub-prime contagion took hold and the big players took all their money away... "The dreaded "R" word is being bantered about and the banks have pulled up the draw bridge on credit for the foreseeable future. Many young Irish people have a 'tight' rope around their neck for the next 30 years with large mortgages... "& then there was the Lisbon treaty just gone. Two fingers towards Europe means Irelands name will be scratched off its list of favourites. "Please sir can we have some more" might well be ignored next time. "Of course a new house of cards will be built in time; isn't it always! But with the lack of Cash, Confidence and Credit (founding pillars of any new house of cards, ones even with solid foundations) the government seems a bit stumped as to whats next…" My comment - Thank you for this interesting email encapsulating the bearish argument for the Irish market. Contrary to what many commentators believe, exposure to the subprime issue has little to do with the difficulties experienced by the Irish banks and wider economy. A drying up of liquidity globally resulting from the subprime debacle, which has affected just about every bank, coinciding with a peak in domestic property prices has more to do with the current malaise. Most of the growth in the Irish economy came from the construction sector, over the last few years, so with that sector now in recession, the wider economy is feeling the pinch. This section continues in the Subscriber's Area.
Imagine
in the future, driving your hydrogen car into your garage and gassing it up
with your very own home hydrogen fueling station. Sounds pretty out there, doesn't
it? But, as far off as it sounds, there are people right now working to make
this concept a reality.
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