“A national debt, if it is not excessive, will be to us a national blessing.” Alexander Hamilton (1755 - 1804)
Dissecting Surprises:
It was only a week ago, when talks of asset bubbles were a growing concern for global policymakers. Similarly, buyers were looking for ways to protect annual profits. Two years ago, a unified asset appreciation preceded the sharp decline ahead of the 2008 crisis. Keeping that in mind, it takes us to last Friday, where Dubai’s decline symbolized and reinforced the danger of excessiveness. For some, it was not surprising. In fact, some might argue that this macroeconomic shock was overdue. Interestingly, Gold and stocks appeared to desperately seek a catalyst to serve as an excuse to sell. Veteran observers echo similar messages, in which reversals require news flow to cause a reaction. In the past week, this is strongly supported by the low levels of volatility along with asset appreciation. Basically, odds were increasing for short-term pullbacks, which are yet additional reasons for managers to hedge winning holdings and avoid major bets with year-end approaching.
Headline discussions can paint few reasons to stay cautious in extended assets, such as Gold and China. In term of actionable moves, to panic or claim a selling frenzy is rather early. Even a 6-8% broad market correction might be a natural pattern that’s much needed in the current cycle. Those heavily invested in elevated metals and emerging markets are reevaluating their risk relative to other areas. Those who thought they missed the metal rally might have time work in their favor. A Bloomberg survey showed 94% bullishness in Gold among investors, which is, perhaps, a scary signal of overly optimistic sentiment. This paints the mood and psychology heading into this first week of December. For months, the low interest rates policy has encouraged a shift towards risky assets. Basically, low rates confirm that unemployment is rising and that growth is weak. However, assuming this trend will continue without turbulence might be costly.
Looking Ahead:
Larger and more stable companies in developed markets stand to benefit as an alternative to speculative and elevated groups. In looking ahead to 2010, technology and healthcare in US presents relatively cheaper value and growth opportunities. Again, this rotation is slowly taking place, and it has yet to fully materialize. Again, most await a unified pullback as a chance to revisit ideas at a bargain. Importantly, observers are looking for non-synchronized movements to distinguish upcoming leaders and least liked groups. These actions, along with currency responses and policymakers’ thoughts, will be digested by investors.
Specific Ideas:
WTR (Aqua America) presents a long-term investment consideration for investors seeking price appreciation and yield which is relatively attractive given current market landscape, while offering favorable entry points. For portfolios, this fits the infrastructure theme and presents a positive exposure, water related investment. Previous chart patterns suggest a closer look for buyers, especially when stock nears $16 per share.
BBOX (Black Box Corp) is a distributor and manufacturer of communication products and infrastructure solutions. A four month bottoming process in stock price. Recent cash dividend announcement, new strategic alliance, and low valuation suggest an upside move for months ahead.
Article Quotes:
"A lot of things in China carry a whiff of excess. The cost of garlic is among them: wholesale prices have almost quadrupled from March. A halving of the planting area last year, and belief in the bulb's powers to ward off swine flu, provide some justification for the surge. But anecdotes of unbridled trading activity in Jinxiang county, home to China's largest garlic plant, suggest that the most likely cause is the most obvious - the abundant liquidity swilling through the system. New Loans in China may top Rmb10,000bn this year, double the run-rate of the preceding years; 2010 should bring another Rmb7-8,000bn." (Financial Times, November 24, 2009)
"Corporate profits from current production rose 10.6% in the third quarter, following a revised 3.7% gain in the second quarter. From a year ago, corporate profits fell 6.7%, the first single-digit decline after three straight quarters of significantly weaker profits. Corporate profits of the financial sector advanced 36.4% in the third quarter and made up the larger share of corporate profits. Corporate profits of the non-financial sector increased only 2.0%. The financial sector's performance is artificially boosted by the support programs in place." (Northern Trust – November 24, 2009)
Levels:
S&P 500 [1091.49] Upside run stalling between 1100-1080 in the near-term. Next key points on downside moves include 1080 and 1060
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Crude [$76.05] Barely holding above 50 day moving average of $75.44. One moth downtrend developing since late October given a nearly 12% decline.
Gold [$1166] The commodity is 20.43% removed from its 200 day moving average. Poised for a sharp correction, while maintaining its uptrend.
DXY– US Dollar Index [75.02] Staying steady within a narrow range of 75-75.50. Basically, currency traders are eagerly awaiting a macro event.
US 10 Year Treasury Yields [3.20%] Rates continue to decline after peaking at 3.57%. Downtrend appears clear, and a rise in rates is not fully clear.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
