HudBay CEO exit reopens M&A debate
ANDY HOFFMAN
HudBay Minerals Inc. abruptly parted ways with its long-time chief executive officer Peter Jones, naming chairman Allen Palmiere to the top job, a shakeup sources said was a result of a conflict over the miner's strategic direction.
The Winnipeg zinc and copper producer has sat on the sidelines amid a frenzy of merger and acquisition activity in the mining sector. Record metal prices have swelled the company's cash position to an estimated $800-million.
Some shareholders, including a Monaco-based hedge fund controlling 16 per cent of the company's stock, have been agitating for a special dividend or major share repurchase.
A plan, announced in December, to buy back up to 9.5 per cent of the company's stock disappointed some investors as too small.
"Peter and the board have been at loggerheads for some time," said an industry source familiar with the situation.
Despite its large war chest, HudBay has been unsuccessful in attempts to close a major transaction. The company is understood to have held talks with several potential partners including Breakwater Resources Ltd., Lundin Mining Corp. and Inmet Mining Corp. Sources said it also discussed deals with Aur Resources and EuroZinc Mining before both those companies were taken over.
Widely lauded as one of the best mining operators in the business, Mr. Jones, CEO since 2002, has demonstrated a cautious approach to deal making and is wary of overpaying in what could be the market peak, sources said.
"The evidence is clear. They didn't acquire anything and there were plenty of chances to do so. Allen [Palmiere] is not a technical guy, he's a big-picture guy. He'll probably be in a better position to understand what's required to do a deal," a source said.
On a conference call, Mr. Palmiere refused to discuss the reasons for Mr. Jones' sudden departure as a HudBay director as well as president and CEO. In a press release, the company said Mr. Jones had chosen to retire.
Mr. Palmiere is expected to bring a more forceful approach to HudBay's merger and acquisition activity. An accountant who has held a series of executive jobs in the mining sector, he could also increase initiatives to return cash to shareholders through share buybacks or dividends.
"Given the current turmoil in the marketplace, there are significant opportunities potentially being created on the acquisition front, and I think like any company, we will have to continue to be, and perhaps be more aggressively focused, on opportunistic investment opportunities," he said.
HudBay shares jumped 9 per cent in heavy trading on the TSX. Before yesterday's gains, the stock had lost 18 per cent this year.
In a note to clients, Wellington West analyst Catherine Gignac said the management changes could signal that HudBay is "in play" and might be receptive to a takeover.
"The aggressive current merger climate in the mining sector suggests that HudBay could be acquired in this weakened status with its high cash position," she said.
HUDBAY (HBM-T)
Close $17.50, up $1.45.
Copyright 2001 The Globe and Mail
Saturday, January 26, 2008
Friday, January 25, 2008
investors appear set to wrap it up on a positive note.
Stocks appear set to end week in positive territory
RTGAM
After a grim and bloody start to the week, investors appear set to wrap it up on a positive note.
Asian and European Stocks are higher and U.S. stock index futures also are up, although down from higher levels overnight.
Among the developments contributing to the move are the afterglow of a strong forecast and much better fourth-quarter results reported late Thursday by tech giant Microsoft, and a British news report that U.S. billionaire Wilbur Ross may buy Ambac Financial Group, one of several "monoline" bond insurers that are the latest focus of concern in the fallout from the subprime mortgage debacle.
In Asia, Japan's Nikkei index is up 4 per cent, Hong Kong's Hang Seng is up more than 6.7 per cent, Shanghai is up 0.93 per cent and Bombay's Sensex 30 is 6.62 per cent ahead. In Europe, the Dow Jones Euro Stoxx 50 is up 1.35 per cent, Britain's FTSE 100 is ahead by 1.12 per cent and Germany's DAX index is up 1.8 per cent.
As for U.S. stock futures, the March contract on the Dow Jones industrial average is up about 70 points, which the S&P 500 and Nasdaq 100 contracts are up 9.3 and 20 points, respectively.
Among the positive signs for Canadian equities today are that oil prices have pushed back above $90 (U.S.) a barrel, helped by the U.S. stock market rally and the economic stimulus plan agreed upon yesterday by Congress and the Bush administration.
"Oil's move up is in step with what's happening in equity markets," Global Insight analyst Simon Wardell told Reuters. "Seems like there is a turn in the view that the year ahead isn't going to be so bleak in terms of the U.S. economy and this has knock-on effect on oil."
As well, gold prices soared to a new record of $923.40 an ounce before slipping back to $921.80 in late morning in Europe, driven partly by oil's rise, along with the belief more U.S. interest rate cuts are on the way, but also by a power crisis which has shut down several mines in South Africa.
Copyright 2001 The Globe and Mail
Thursday, January 24, 2008
AN INTERVIEW WITH ANDY GUSTAJTIS
AN INTERVIEW WITH ANDY GUSTAJTIS
OIL & GAS ANALYST WITH DOMINICK AND DOMINICK
(As of January 22, 2008)
When times were a little bit better, no one had a hotter
hand in the oil and gas game than Andy Gustajtis, picking
some of the hottest winners over the last year. Now the
market isn’t nearly as generous and some of Andy’s stars
have waned just a bit, so it’s time to hear his view on the
economy and the markets.
David Pescod: So Andy, first of all, what’s going to happen
with the economy? Is it a recession we are facing? Is it
stagflation? Is Asia big enough that it doesn’t matter and
demand over there will carry us all?
Andy Gustajtis: David, I think it is the latter. I think we are
into a multi-decade bull market in commodities. I think the
analogy we can draw in 2008 is very similar to what we saw
back in the 1950’s and the 1960’s as the OEDC countries
began to industrialize post the Second World War. We had
essentially 20 years of growing demand for fundamental
commodities and I think we are very much in the same picture.
India and China are just beginning to industrialize
and I don’t think that’s going to get aborted.
I don’t know if there is going to be a recession in the U.S.
The indications are that the housing market is going to be
under severe pressure for a considerable period of time
and that has been a large driver of the U.S. economy. Also,
the US Consumer is pretty heavily leveraged, so it’s possible
we will see a slow down.
If there is a US recession, I just don’t see a huge decline in what I care most about –
OIL. We in North America are not going abandon our automobiles, demand for oil will not cease.
There will be some softness but common sense tells us demand will continue
to grow. There may be a slow down but the way Canadian
oil and gas stock have been hammered is down right silly!
Besides that, the big drivers are Asia and China and I don’t
see that changing.
Natural gas has been a big problem in North America in the
past 12 months. A recession would probably not bode well
for natural gas prices recovering much from where they are
now, but they are not that bad!
Gas prices are $1.00 per mcf higher than they were a year
ago and in historical terms, gas prices are certainly better
than we saw many years ago. There is a problem out
there in terms of drilling demand; the service companies
I think are all whining. I have been talking to a number of
companies and they are being offered rigs today for
prices they haven’t seen for three or four years. So the
costs of getting your wells drilled will certainly help the
E&P companies.
I think the oil and gas business in Western Canada is
overcapitalized and I have felt that way for pretty much of
the last decade and I think we are going to continue to
see rationalization. I have seen this week four companies
merge. We saw Talisman taking over a small company
RSX Energy Inc. and I suspect that consolidation
will continue throughout 2008. As a result we may see
far fewer companies at the end of 2008 which I feel will
be healthy and it will represent a more rational allocation
of capital to this resource basin.
The real opportunities in Western Canada are in heavy oil, tar sands and unconventional
gas – they will attract capital, perhaps at a
slower rate than we’ve seen in the last few years, but the
returns should continue to be attractive especially if
costs come down.
D.P: Now trying to predict where oil and gas prices will
be, what kind of parameters are you looking at for let’s
say the next year? Is it between $80 and $100, or higher
or lower?
A.G: I have been a big proponent of the peak oil theory
for pretty much the last ten years and I think we are beginning
to see the evidence of the peak oil scenario unfold.
I believe oil will be triple digits for a considerable
period of time. I feel, once the price breaks through that
$100 psychological barrier it will stay above that for
many years.
D.P: Having said all this, do you still like some of the big
international plays much more so than Western Canada?
A.G: If you look at the opportunities in Western Canada
in conventional oil and gas, I think you’ve got to expect a
very mediocre rate of return. Generally, you are going to
find small fields and small pools, but most companies in
this basin are not going to be involved in companymaker
discoveries. Having said that, there is always an
exception to all rules and somebody may stumble along
and find a 50 million barrel oil pool in Western Canada,
but they are going to be pretty rare.
D.P: Now let’s get to some specific names, particularly
names that your name has been associated with such as
Corridor Resources, which was an exciting discovery and
who would have thought natural gas in New Brunswick?
It had a huge run. What would be your latest take on a
stock that’s been halved, like many other stocks of late?
Petrolifera Petroleum
Arise Technologies
A.G: I’m disappointed in terms of what’s happened to
stock price, but in light of what the overall markets have
been doing, I guess it’s not unexpected. I am of the opinion
that McCully, the gas field in New Brunswick that
Corridor discovered, will in the fullness of time prove to
be a multi-TCF discovery. So far, they have drilled 23
successful wells in the upper portion of that field known
as the Hiram Brook Sands. The Company has just released
their budget and guidance for 2008. I am hoping
this is an exercise of under-promise and over-deliver.
Both their production and cash flow guidance were about
30% less than I am hoping for. After discussing this guidance
with the Company one gets the sense that their intentions
was to give a very solid base of 25 mmcfpd for
their net interest but my target of 35 mmcfpd is not unreasonable.
D.P: Their production numbers so far have been a little
bit disappointing, but what kind of a number should this
company be worth at that production number and of
course, the big question is, the Dawson Settlement – the
deep stuff. Seismic says if it’s there, it could be enormous.
A.G: Before we get down to the Dawson Settlement I
guess we have to find out how big this Frederick Brook
shale is and what kind of commerciality they are going to
get out of that. They are drilling a well now with the intention
of trying to get down to the Dawson Settlement,
but there is also a lot of interest in terms of trying to
prove up the Frederick Brook shale. The company has a
December year-end and they began producing gas commercially
in the third calendar quarter of 2007 and I am
anticipating that for 2007 they will have a modest cash
flow of about $13 million or $14 million. I am expecting
their cash flow for 2008 to be somewhere in the range of
$50 to $70 million (the $50 million is the Company’s guidance
the $70 million is my estimate) per share this is
$0.60 to $0.85.
That would give a cash flow per share
multiple to the company in the range of 10 to 7X. Corridor
has not been a stock that you’ve been able to buy on
a cash flow multiple up until now, but getting down to
$6.00, this stock is trading at a pretty respectable multiple
considering that I think this gas field is going to last
for 20 years.
D.P: Wow! So, what would be your target?
A.G: If the Frederick Brook shale proves to be commercial,
the potential resource would be multi-TCF of natural
gas and TCF of natural gas is worth a couple of billion
dollars so you see the prize is huge.
If the Dawson Settlement is gas charged and we may
have something to talk about at the end of March that
would be incremental.
D.P: Based just on the Hiram Brook Sands, would $10 be
do-able?
A.G: I think the Hiram Brook which is where all the gas
to date has been found will justify over 100 drillable locations
and I think in the fullness of time, that this zone
alone will probably support such a share price.
D.P: Connacher Oil and Gas is one of the plays in the
heavy oil business that you’ve been following and I suspect
we are all a little bit disappointed. Does it surprise
you that it’s taking so long to get production going?
A.G: No, I think everything is pretty much on schedule.
Their Pod-1 was constructed in 300 days, they started
steaming for 90 days and are getting bitumen production
as we speak. Production will be ramping up through
2008 and I can see them reaching design capacity by the
end of 2008 with possible cash flow north of $140 million
for 2008 with a fourth quarter of over $50 million or over
a $1 per share annualized..
D.P: And then of course, hopes for Algar or Pod-2?
A.G: That’s another 10,000 barrels a day so within18-24
months from now this company conceivably could be
producing 20,000 barrels a day of bitumen and probably
another 3,000 barrels equivalent of gas and conventional
oil with possible cash flow of about $300 million a year.
D.P: You had some pretty lofty targets a while ago?
A.G: I think in terms of the resource market, all we’ve
had is a correction in an upward trending bull market. I
have very little reason to want to move off my very bullish
longer-term outlook for resource stories. I think Connacher
certainly could be a double-digit stock within the
next 12-24 months.
D.P: Good. We are always glad to hear that! Now, an
associated company is Petrolifera Petroleum, and it seems
every analyst from Warren Verbonac to Malcolm Shaw at
Wellington West – are all aware of Petrolifera and their
targets in Peru and the enormity of that. Now with Petrolifera
trading at almost a third of where it was, your
thoughts on Petrolifera?
A.G: It’s a cheap stock. I liked it at $15.00. Oil prices in Argentina are capped at $42 a barrel, but even at that oil price
given the fact that the company should be able to get up to 14,000 or 15,000 barrels a day in Argentina, they should
have a cash flow of $2.00 a share. The stock is trading essentially at three times cash flow.
D.P: Now how big are these targets in your estimation?
A.G: Camisea, which Hunt is developing, are multi-TCF world-class type targets. The oil prospects that they’ve got
on the northern block are upwards of a couple hundred million barrel-type targets. So it’s somewhere between 200
million barrels for the oil and multi-TCF for the gas.
D.P: They got a shot at it sometime in the second half of this year, correct?
A.G: I don’t think they’ve announced the spud date but I do believe they’ve been able to get a suitable rig and I think their plan is to either try and see if they can drill a well before the end of this year or early part of next. But I haven’t seen or I don’t recall having seen an actual commitment on their part when they are going to spud.
D.P: I guess it comes time to the favorite question…if you could only buy one stock today in the oil and gas sector, what would it be for timeliness now?
A.G: I can’t help but think the way that Connacher has gotten beaten up here with all the stars lining up. They are totally funded right through to development of Pod-2. They don’t have to raise any equity. I am of the view that oil prices will stay upwards of $100 for a considerable length of time. In Pod-1 it looks like it’s a great project, all the early indications are that he’s got an extremely attractive SAGD project there. I just think that the Connacher looks to me like a pretty good bet.
D.P: Thank you so much for your time Andy!
I enjoy speaking with you David and you have been very kind to myself but I want to say that D&D Securities is an IDA and CIPF Member and the comments I have made I believe reliable but I can not represent that such information is accurate or complete and it should not be relied on as such. I no longer consider myself an analyst and actively work at investment banking. Any opinions
expressed herein reflect our judgment at this date and are subject to change. D&D Securities and/or employees from time to time
may hold shares, options or warrants on any issue included in this interview and we have actively participated in financing Corridor,
Connacher and I have participated in Petrolifera financing in a prior firm.
Thanks Ann B.
OIL & GAS ANALYST WITH DOMINICK AND DOMINICK
(As of January 22, 2008)
When times were a little bit better, no one had a hotter
hand in the oil and gas game than Andy Gustajtis, picking
some of the hottest winners over the last year. Now the
market isn’t nearly as generous and some of Andy’s stars
have waned just a bit, so it’s time to hear his view on the
economy and the markets.
David Pescod: So Andy, first of all, what’s going to happen
with the economy? Is it a recession we are facing? Is it
stagflation? Is Asia big enough that it doesn’t matter and
demand over there will carry us all?
Andy Gustajtis: David, I think it is the latter. I think we are
into a multi-decade bull market in commodities. I think the
analogy we can draw in 2008 is very similar to what we saw
back in the 1950’s and the 1960’s as the OEDC countries
began to industrialize post the Second World War. We had
essentially 20 years of growing demand for fundamental
commodities and I think we are very much in the same picture.
India and China are just beginning to industrialize
and I don’t think that’s going to get aborted.
I don’t know if there is going to be a recession in the U.S.
The indications are that the housing market is going to be
under severe pressure for a considerable period of time
and that has been a large driver of the U.S. economy. Also,
the US Consumer is pretty heavily leveraged, so it’s possible
we will see a slow down.
If there is a US recession, I just don’t see a huge decline in what I care most about –
OIL. We in North America are not going abandon our automobiles, demand for oil will not cease.
There will be some softness but common sense tells us demand will continue
to grow. There may be a slow down but the way Canadian
oil and gas stock have been hammered is down right silly!
Besides that, the big drivers are Asia and China and I don’t
see that changing.
Natural gas has been a big problem in North America in the
past 12 months. A recession would probably not bode well
for natural gas prices recovering much from where they are
now, but they are not that bad!
Gas prices are $1.00 per mcf higher than they were a year
ago and in historical terms, gas prices are certainly better
than we saw many years ago. There is a problem out
there in terms of drilling demand; the service companies
I think are all whining. I have been talking to a number of
companies and they are being offered rigs today for
prices they haven’t seen for three or four years. So the
costs of getting your wells drilled will certainly help the
E&P companies.
I think the oil and gas business in Western Canada is
overcapitalized and I have felt that way for pretty much of
the last decade and I think we are going to continue to
see rationalization. I have seen this week four companies
merge. We saw Talisman taking over a small company
RSX Energy Inc. and I suspect that consolidation
will continue throughout 2008. As a result we may see
far fewer companies at the end of 2008 which I feel will
be healthy and it will represent a more rational allocation
of capital to this resource basin.
The real opportunities in Western Canada are in heavy oil, tar sands and unconventional
gas – they will attract capital, perhaps at a
slower rate than we’ve seen in the last few years, but the
returns should continue to be attractive especially if
costs come down.
D.P: Now trying to predict where oil and gas prices will
be, what kind of parameters are you looking at for let’s
say the next year? Is it between $80 and $100, or higher
or lower?
A.G: I have been a big proponent of the peak oil theory
for pretty much the last ten years and I think we are beginning
to see the evidence of the peak oil scenario unfold.
I believe oil will be triple digits for a considerable
period of time. I feel, once the price breaks through that
$100 psychological barrier it will stay above that for
many years.
D.P: Having said all this, do you still like some of the big
international plays much more so than Western Canada?
A.G: If you look at the opportunities in Western Canada
in conventional oil and gas, I think you’ve got to expect a
very mediocre rate of return. Generally, you are going to
find small fields and small pools, but most companies in
this basin are not going to be involved in companymaker
discoveries. Having said that, there is always an
exception to all rules and somebody may stumble along
and find a 50 million barrel oil pool in Western Canada,
but they are going to be pretty rare.
D.P: Now let’s get to some specific names, particularly
names that your name has been associated with such as
Corridor Resources, which was an exciting discovery and
who would have thought natural gas in New Brunswick?
It had a huge run. What would be your latest take on a
stock that’s been halved, like many other stocks of late?
Petrolifera Petroleum
Arise Technologies
A.G: I’m disappointed in terms of what’s happened to
stock price, but in light of what the overall markets have
been doing, I guess it’s not unexpected. I am of the opinion
that McCully, the gas field in New Brunswick that
Corridor discovered, will in the fullness of time prove to
be a multi-TCF discovery. So far, they have drilled 23
successful wells in the upper portion of that field known
as the Hiram Brook Sands. The Company has just released
their budget and guidance for 2008. I am hoping
this is an exercise of under-promise and over-deliver.
Both their production and cash flow guidance were about
30% less than I am hoping for. After discussing this guidance
with the Company one gets the sense that their intentions
was to give a very solid base of 25 mmcfpd for
their net interest but my target of 35 mmcfpd is not unreasonable.
D.P: Their production numbers so far have been a little
bit disappointing, but what kind of a number should this
company be worth at that production number and of
course, the big question is, the Dawson Settlement – the
deep stuff. Seismic says if it’s there, it could be enormous.
A.G: Before we get down to the Dawson Settlement I
guess we have to find out how big this Frederick Brook
shale is and what kind of commerciality they are going to
get out of that. They are drilling a well now with the intention
of trying to get down to the Dawson Settlement,
but there is also a lot of interest in terms of trying to
prove up the Frederick Brook shale. The company has a
December year-end and they began producing gas commercially
in the third calendar quarter of 2007 and I am
anticipating that for 2007 they will have a modest cash
flow of about $13 million or $14 million. I am expecting
their cash flow for 2008 to be somewhere in the range of
$50 to $70 million (the $50 million is the Company’s guidance
the $70 million is my estimate) per share this is
$0.60 to $0.85.
That would give a cash flow per share
multiple to the company in the range of 10 to 7X. Corridor
has not been a stock that you’ve been able to buy on
a cash flow multiple up until now, but getting down to
$6.00, this stock is trading at a pretty respectable multiple
considering that I think this gas field is going to last
for 20 years.
D.P: Wow! So, what would be your target?
A.G: If the Frederick Brook shale proves to be commercial,
the potential resource would be multi-TCF of natural
gas and TCF of natural gas is worth a couple of billion
dollars so you see the prize is huge.
If the Dawson Settlement is gas charged and we may
have something to talk about at the end of March that
would be incremental.
D.P: Based just on the Hiram Brook Sands, would $10 be
do-able?
A.G: I think the Hiram Brook which is where all the gas
to date has been found will justify over 100 drillable locations
and I think in the fullness of time, that this zone
alone will probably support such a share price.
D.P: Connacher Oil and Gas is one of the plays in the
heavy oil business that you’ve been following and I suspect
we are all a little bit disappointed. Does it surprise
you that it’s taking so long to get production going?
A.G: No, I think everything is pretty much on schedule.
Their Pod-1 was constructed in 300 days, they started
steaming for 90 days and are getting bitumen production
as we speak. Production will be ramping up through
2008 and I can see them reaching design capacity by the
end of 2008 with possible cash flow north of $140 million
for 2008 with a fourth quarter of over $50 million or over
a $1 per share annualized..
D.P: And then of course, hopes for Algar or Pod-2?
A.G: That’s another 10,000 barrels a day so within18-24
months from now this company conceivably could be
producing 20,000 barrels a day of bitumen and probably
another 3,000 barrels equivalent of gas and conventional
oil with possible cash flow of about $300 million a year.
D.P: You had some pretty lofty targets a while ago?
A.G: I think in terms of the resource market, all we’ve
had is a correction in an upward trending bull market. I
have very little reason to want to move off my very bullish
longer-term outlook for resource stories. I think Connacher
certainly could be a double-digit stock within the
next 12-24 months.
D.P: Good. We are always glad to hear that! Now, an
associated company is Petrolifera Petroleum, and it seems
every analyst from Warren Verbonac to Malcolm Shaw at
Wellington West – are all aware of Petrolifera and their
targets in Peru and the enormity of that. Now with Petrolifera
trading at almost a third of where it was, your
thoughts on Petrolifera?
A.G: It’s a cheap stock. I liked it at $15.00. Oil prices in Argentina are capped at $42 a barrel, but even at that oil price
given the fact that the company should be able to get up to 14,000 or 15,000 barrels a day in Argentina, they should
have a cash flow of $2.00 a share. The stock is trading essentially at three times cash flow.
D.P: Now how big are these targets in your estimation?
A.G: Camisea, which Hunt is developing, are multi-TCF world-class type targets. The oil prospects that they’ve got
on the northern block are upwards of a couple hundred million barrel-type targets. So it’s somewhere between 200
million barrels for the oil and multi-TCF for the gas.
D.P: They got a shot at it sometime in the second half of this year, correct?
A.G: I don’t think they’ve announced the spud date but I do believe they’ve been able to get a suitable rig and I think their plan is to either try and see if they can drill a well before the end of this year or early part of next. But I haven’t seen or I don’t recall having seen an actual commitment on their part when they are going to spud.
D.P: I guess it comes time to the favorite question…if you could only buy one stock today in the oil and gas sector, what would it be for timeliness now?
A.G: I can’t help but think the way that Connacher has gotten beaten up here with all the stars lining up. They are totally funded right through to development of Pod-2. They don’t have to raise any equity. I am of the view that oil prices will stay upwards of $100 for a considerable length of time. In Pod-1 it looks like it’s a great project, all the early indications are that he’s got an extremely attractive SAGD project there. I just think that the Connacher looks to me like a pretty good bet.
D.P: Thank you so much for your time Andy!
I enjoy speaking with you David and you have been very kind to myself but I want to say that D&D Securities is an IDA and CIPF Member and the comments I have made I believe reliable but I can not represent that such information is accurate or complete and it should not be relied on as such. I no longer consider myself an analyst and actively work at investment banking. Any opinions
expressed herein reflect our judgment at this date and are subject to change. D&D Securities and/or employees from time to time
may hold shares, options or warrants on any issue included in this interview and we have actively participated in financing Corridor,
Connacher and I have participated in Petrolifera financing in a prior firm.
Thanks Ann B.
PDP Jan 15 2008 News Reminder
| STOCHASTICS: | Oversold |
| RSI: | Oversold |
| MACD: |  |
CALGARY _ Petrolifera Petroleum Ltd. (TSX:PDP), a Calgary-based company with operations in South America, said Tuesday it is one step closer to drawing oil from one of its fields in Argentina.
The company said it has activated its waterflood pressure maintenance project at Puesto Morales North in Argentina‘s Neuquen Basin, which will help the company recover crude oil from the ground in about six months.
The company estimates that it will take 18 months for the site to reach its optimal production level.
“The activation of the water injection plant is a significant milestone for Petrolifera. It was constructed against a back of energy and equipment shortages in Argentina and its completion is a credit to the company‘s operational staff and external advisers and consultants,‘‘ the company stated.
“More importantly, it is anticipated the waterflood will consequently impact on Petrolifera‘s light crude oil production in Argentina during 2008 and beyond.‘‘
Last month the company, which also has operations in Peru and Colombia, said a well on that site tested light gravity crude oil at a rate of about 1,500 barrels a day.
Petrolifera shares were down by about two per cent, or 17 cents on the Toronto Stock Exchange Tuesday, closing at $8.40
Europe Markets Soaring- Our Markets next?
European stocks soaring, U.S. futures mildly positive
RTGAM
Well, as long as it was fraud and not more subprime shenanigans, who cares?
European investors appear to have shrugged off the revelation by French bank Societe Generale that it has been defrauded of the equivalent of $7.14-billion (U.S.) by an alleged rogue trader.
Key European indexes are still surging ahead in early afternoon trading across the Atlantic, feeding on the startling rebound in U.S. and Canadian equity markets late yesterday, apparently sparked by rumblings that a rescue package may be in the works for bond insurers.
The Dow Jones Euro Stoxx 50, for instance is up more than 5.6 per cent, Britain's FTSE 100 4 per cent and Germany's DAX more than 5.8 per cent.
As for U.S. stock index futures, they were still pointing towards at least a mildly positive opening shortly after 7.30 a.m. (EST), although they have been slipping from earlier highs.
The March contract based on the Dow Jones industrial average was up 29 points at 12,301 having been 43 points ahead about half an hour earlier, while the S&P 500 contract was up 3.60 points to 1,345.10, down from an earlier gain of 8.20 points. And the Nasdaq 100 March contract was up 8 points at 1,815, down from a 12.25-point gain earlier.
Meanwhile, in developments that could bode well for the resource-heavy Canadian stock market, base metals prices have rallied a little overnight and crude oil, too, has climbed back a little.
At noon GMT, U.S. crude was up $1.43 (U.S.) to $88.42 a barrel, and Brent crude was up $1.46 to $88.08.
Copyright 2001 The Globe and Mail
RTGAM
Well, as long as it was fraud and not more subprime shenanigans, who cares?
European investors appear to have shrugged off the revelation by French bank Societe Generale that it has been defrauded of the equivalent of $7.14-billion (U.S.) by an alleged rogue trader.
Key European indexes are still surging ahead in early afternoon trading across the Atlantic, feeding on the startling rebound in U.S. and Canadian equity markets late yesterday, apparently sparked by rumblings that a rescue package may be in the works for bond insurers.
The Dow Jones Euro Stoxx 50, for instance is up more than 5.6 per cent, Britain's FTSE 100 4 per cent and Germany's DAX more than 5.8 per cent.
As for U.S. stock index futures, they were still pointing towards at least a mildly positive opening shortly after 7.30 a.m. (EST), although they have been slipping from earlier highs.
The March contract based on the Dow Jones industrial average was up 29 points at 12,301 having been 43 points ahead about half an hour earlier, while the S&P 500 contract was up 3.60 points to 1,345.10, down from an earlier gain of 8.20 points. And the Nasdaq 100 March contract was up 8 points at 1,815, down from a 12.25-point gain earlier.
Meanwhile, in developments that could bode well for the resource-heavy Canadian stock market, base metals prices have rallied a little overnight and crude oil, too, has climbed back a little.
At noon GMT, U.S. crude was up $1.43 (U.S.) to $88.42 a barrel, and Brent crude was up $1.46 to $88.08.
Copyright 2001 The Globe and Mail
Tuesday, January 22, 2008
TSX roars back
TSX roars back
RTGAM
A dramatic, sudden move by the U.S. Federal Reserve Tuesday in chopping its key funds rate by three-quarters of a percentage point to avert a recession sent the Toronto stock market surging and saved New York markets from the mauling experienced on other global indexes on Monday.
The Bank of Canada announced Tuesday that it, too, was cutting rates.
The central bank is cutting its key rate by a quarter-point to 4 per cent to help shield the Canadian economy from what many fear could be a full-blown recession in the U.S.
Toronto's S&P/TSX composite index surged 508.75 points to 12,640.88, led by a runup in the battered financial sector, clawing back most of Monday's staggering 605-point loss.
After a U.S. holiday Monday, New York's Dow Jones industrials came back from an early 457-point deficit, to close down just 128.11 points, or about 1 per cent, to 11,971.19.
That was far better than the 4 to 7 per cent tumbles experienced Monday by global markets.
But analysts cautioned about reading too much into the rate cuts and the effect on stock markets.
"The worry I have is the markets - given their performance in recent weeks and days - are clearly clamouring for, hoping for, an essentially easy and painless path back to asset price growth and general economic vigour," said David Wolf, head of Canadian economics and strategy at Merrill Lynch Canada.
"And I think what we're likely to find is, even if the Fed continues to cut aggressively, that it's simply not going to be enough to avoid recession and to reinvigorate growth in the near term. Even the Fed doesn't have a magic bullet out of this."
The TSX Venture Exchange was up 75.41 points to 2,465.93.
New York's Nasdaq composite index fell 47.75 points to 2,292.27 while the S&P 500 index moved down 14.69 points to 1,310.5. The Canadian Press
Copyright 2001 The Globe and Mail
RTGAM
A dramatic, sudden move by the U.S. Federal Reserve Tuesday in chopping its key funds rate by three-quarters of a percentage point to avert a recession sent the Toronto stock market surging and saved New York markets from the mauling experienced on other global indexes on Monday.
The Bank of Canada announced Tuesday that it, too, was cutting rates.
The central bank is cutting its key rate by a quarter-point to 4 per cent to help shield the Canadian economy from what many fear could be a full-blown recession in the U.S.
Toronto's S&P/TSX composite index surged 508.75 points to 12,640.88, led by a runup in the battered financial sector, clawing back most of Monday's staggering 605-point loss.
After a U.S. holiday Monday, New York's Dow Jones industrials came back from an early 457-point deficit, to close down just 128.11 points, or about 1 per cent, to 11,971.19.
That was far better than the 4 to 7 per cent tumbles experienced Monday by global markets.
But analysts cautioned about reading too much into the rate cuts and the effect on stock markets.
"The worry I have is the markets - given their performance in recent weeks and days - are clearly clamouring for, hoping for, an essentially easy and painless path back to asset price growth and general economic vigour," said David Wolf, head of Canadian economics and strategy at Merrill Lynch Canada.
"And I think what we're likely to find is, even if the Fed continues to cut aggressively, that it's simply not going to be enough to avoid recession and to reinvigorate growth in the near term. Even the Fed doesn't have a magic bullet out of this."
The TSX Venture Exchange was up 75.41 points to 2,465.93.
New York's Nasdaq composite index fell 47.75 points to 2,292.27 while the S&P 500 index moved down 14.69 points to 1,310.5. The Canadian Press
Copyright 2001 The Globe and Mail
Looking back:Turnabout coming, Zinc producer says
Breakwater suffers 'vagaries of the marketplace'
Turnabout coming, Zinc producer says
Peter Koven, Financial Post
Published: Friday, November 23, 2007
George Pirie can only watch as investors push his stock lower and lower amid a crumbling zinc market. But he is confident the selling won't last.
He is chief executive of Breakwater Resources Ltd., a Toronto-based metal producer that has been hit as hard as almost anyone by the sinking zinc price which has plunged more than 20% in the past 30 days, and 50% this year. Breakwater shares closed at $1.65 yesterday, and are down by more than half since mid-October because of falling prices and operational problems.
"Because zinc is ubiquitous and used everywhere, it's a bit of the 'canary in the gold mine' type of vehicle," Mr. Pirie said in an interview. "It'll be the first to suffer the consequences of a nervous market."
Zinc prices are falling because the global supply picture is improving, with lots of projects coming online or ramping up production. While there are no consistent numbers available, institutions have forecast surpluses of hundreds of thousands of tons of refined zinc in the next three years. Increasing supply, along with general market turbulence, has pushed the zinc price down to US$1 a pound, after it hit highs above US$2 early this year.
Zinc industry executives see this as a temporary setback.
"We're going through a bit of a weak period here because there are overlays on oncoming production over the next year or two. But at the end of the day I think zinc prices will strengthen over the next three to four months," said Colin Benner, vice-chairman of Lundin Mining Corp. and former CEO of Breakwater.
The tricky thing about the zinc market, experts said, is it is extremely difficult to follow. While nickel and copper are produced by large companies that provide a lot of information, the zinc market has more smaller players like Breakwater. For largest players, zinc is essentially a byproduct. And the biggest producing country is China, which does not always provide the most reliable numbers.
With less public information available, zinc can be more susceptible to what Mr. Pirie calls "the vagaries of the marketplace. It lends itself to huge speculation with hedge funds. And they can take massive short positions and drive the price down where the fundamentals don't support it."
One reason he feels the market could quickly turn around is China. The government is talking about eliminating a 5% export rebate on certain kinds of refined zinc and slapping on an export tax in its place, a move that would slow growth in a polluting industry. The Chinese have made a similar intervention in the lead industry, and prices soared afterwards.
The other thing that encourages industry players is the demand picture is still looking strong. Canaccord Adams is forecasting consumption growth of 4.1%, 4.2%, and 5.4% in the next three years.
pkoven@nationalpost.com
And This
Analyst says this may be ideal time to buy copper and zinc stocks
Peter Koven, Financial Post He points out that the intermediate copper and zinc producers in the UBS coverage universe are down about 19% in the past month. The primarily zinc equities like Hud-Bay Minerals Inc. and Breakwater Resources Ltd. have been particularly hard hit. "We find the current valuation metrics for the highly zinc levered names (Breakwater) and (HudBay) to be particularly attractive at current levels," he wrote in a note to clients. "These equities appear oversold relative to the move in the commodity and appear to be discounting zinc prices significantly below current spot levels." He also points out that takeover activity in this space remains a strong possibility as the base metal companies stockpile cash. Mr. Lesiak estimates that the base-metal firms UBS covers will hold an estimated 22% of their current market cap in cash at the end of next year. HudBay is the standout with a whopping 42%, according to his calculations. Mr. Lesiak also revised his estimates on a number of stocks to reflect changes in the forward curve pricing for zinc, copper, nickel and gold. He cut his target on Hud-Bay (HBM/TSX) from $30.50 to $28 a share, and Breakwater (BWR/TSX) was lowered from $3.25 to $2.50 a share. On Friday, HudBay shares closed at $21.50, while Breakwater shares ended the week trading at $1.79.
Published: Saturday, December 01, 2007
With copper and zinc prices under pressure and the equities selling off dramatically, this could be an ideal time to increase exposure to those stocks, according to UBS analyst Tony Lesiak.
Fed announced an emergency rate cut of 75 basis points to 3.5 %
Banks slash rates as markets crash
John Morrissy, CanWest News Service
Published: Tuesday, January 22, 2008OTTAWA_- With world stock markets reeling at the prospect of a sharp downturn in the U.S. economy spreading around the globe, the Bank of Canada and the U.S. Federal Reserve both slashed interest rates on Tuesday.
Before markets opened, the Fed announced an emergency rate cut of 75 basis points to 3.5 per cent. It also lowered the discount rate it charges on direct loans to banks by 75 basis points to four per cent.
Meanwhile, the Bank of Canada reduced its key lending rate 25 basis points to four per cent.
An Indian broker reacts while trading at a stock brokerage firm in Mumbai, January 22, 2008. Shares from Sydney to London sank for a second day on Tuesday, dragging commodity prices with them and promising similar falls for Wall Street as investors abandoned assets exposed to the risk of a global economic slowdown.
Reuters
News of the Fed rate cut failed to stave off sharp declines in U.S. stock markets, with the Dow Jones Industrial Average falling 302.80 points, or 2.47 per cent to 11801.54, by 9:51 a.m.
The Toronto Stocks Exchange rallied however, up 263 points to 12,395, after suffering a 600-point loss the day before.
The Canadian dollar rose 67 basis points to 97.48 cents US.
"Financial market conditions have deteriorated since October,"_the bank said in an accompanying statement, "leading to a tightening of credit conditions in industrial countries. Given this, and a deeper, more prolonged decline in the U.S. residential housing sector, the 2008 outlook for the U.S. economy is now significantly weaker" than forecast in October.
While the bank said it expects domestic demand to remain strong in Canada, it projects weaker growth in 2008 than previously forecast. It said it expects somewhat stronger growth in 2009. It has also slashed its inflation expectations, saying both core and total inflation should fall below 1.5 per cent by the middle of this year before returning to the two per cent target by the end of 2009.
"In line with this outlook, the bank has decided to lower the target for the overnight rate and further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to return inflation to target over the medium term."
The larger U.S. rate cut "is the first rate cut of this magnitude since Oct. 2, 1984, and the first inter-meeting cut to the fed funds rate since September 17, 2001 (just after 9/11)," said Eric Lascelles, chief economics and rates strategist for TD Securities.
"The magnitude of the action suggests that the Fed now treats both the economic and financial market conditions with a great deal of seriousness, and that the Fed was either well behind the curve or believes that the magnitude of the situation is the most serious in several decades."
The Bank of Canada move, one of the last by outgoing governor David Dodge, comes as a rout of global markets continued to dash value from stock values. The Nikkei stock average closed down 5.65 per cent and Hong Kong's Hang Seng index lost 8.65 per cent a day.
European markets recovered after falling more than 4.4 per cent, with the pan-European FTSEurofirst 300 index up 0.6 per cent at 1,287.92 points after the Fed's announcement.
The subprime mortgage market downturn, largely blamed for much of the global liquidity crisis, wreaked more damage Tuesday on U.S. bank earnings. Bank of America Corp, the second-largest U.S. bank, said on Tuesday that its fourth-quarter profit was hurt by more than $7 billion of losses tied to poor trading decisions and mounting credit woes.
Wachovia Corp. said profit fell 98 percent to its lowest since 2001 after write-downs for bad loans and mortgage-backed securities.
Oil markets were not spared as crude was off $3.31 to $87.26 as expectations of slowing industrial demand sent the contract for light, sweet crude for February delivery down $3.31 to $87.26 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe.
Shanghai copper and zinc futures fell by their four per cent daily limit as fears that the risk of a U.S. recession could eat into global growth
Market rout continues, while investors pray for big rate cuts
Market rout continues, while investors pray for big rate cuts
RTGAM
Investors appear to be praying for a little black magic from central banks to help staunch the tsunami of red ink rolling through global equity markets.
European markets, which had tanked again overnight, following Asia's lead, have recovered some of the lost ground on rumours of possible concerted action by central bankers.
Some strategists are theorizing that the Bank of Canada, which is due to unveil its latest interest rate setting at 9 a.m. (EST), may try to restart the Canadian stock market's heart by chopping a full half percentage point from its benchmark overnight rate, double the more standard quarter-point increment. There's also renewed speculation that the U.S. Federal Reserve Board may step in today with an unscheduled rate cut to try to stem the flow.
"It's rumour central," Mark Priest, a trader at TradIndex in London told Reuters. "We've heard rumours all morning. We've heard of a 75 basis point cut in the States (and) a co-ordinated cut by the Bank of England, Federal Reserve and the European Central Bank," he added.
"It's crazy that these markets all opened down 250-300 points and within an hour they're in positive territory ... Rate cuts are the only thing that are going to kick this market back up."
The rumblings about rate cuts scheduled or otherwise helped bring U.S. stock index futures back a touch, but they are still deep, deep in negative territory. This suggests, of course, that equity markets south of the border will plunge at the opening bell, catching up with the global rout that unfolded yesterday while U.S. investors were forced to stand on the sidelines for the Martin Luther King holiday.
At last count, the March futures contract on the Dow Jones industrial average was down 539 points or 4.4 per cent to 11,567, having earlier fallen as far as 11,456, while the S&P 500 contract is off 65.7 points or nearly 5 per cent to 1,259.6, up from a low of 1,255.3.
As for the March contract based on the Nasdaq 100, it is off 84 points or 4.5 per cent to 1,765.5, having earlier hit a low of 1,744.5.
"We're in a meltdown and it seems the global financial markets have gone mad," Peter Cardillo, chief market economist at Avalon Partners in New York told Reuters. "The only thing that could save this market is if [Federal Reserve Chairman Ben] Bernanke immediately cut interest rates by 100 basis points, perhaps that could reverse market psychology."
As for Europe, at about 8 a.m. (EST) the Dow Jones Euro Stoxx 40 was down 1.25 per cent, Britain's FTSE 100 was off just 0.2 per cent, and Germany's Dax was down a little more than 2 per cent.
But Asia had already finished another day of record losses. Japan's Nikkei 225 plunged 5.65 per cent, Hong Kong's Hang Seng 8.65 per cent, Shanghai's SE composite 7.2 per cent, Taiwan's Taiex 6.51 per cent and Bombay's Sensex 30 4.97 per cent.
Copyright 2001 The Globe and Mail
Monday, January 21, 2008
Friday, January 18, 2008
Bush fails to soothe markets
Bush fails to soothe markets
RTGAM
North American stock markets extended their losing streak Friday on fears that the U.S. President's $145-billion (U.S.) stimulus plan will not be enough to prevent the U.S. economy from slipping into a recession.
The Dow Jones industrials average closed Friday's session at 12,115.64, off 43.57 points or 0.36 per cent. The S&P 500 lost 6.70 points to 1,326.55 while the Nasdaq closed down 10.99 or 0.47 points at 2,335.91.
President George W. Bush unveiled a relief package Friday that he said must include tax incentives for business investment and "direct and rapid" tax relief for individuals.
Charmaine Buskas, a senior economics strategist for TD Securities Inc., said the Bush plan should boost gross domestic product by about 1 per cent.
"But with few details and narrow expectations that anything can get passed in short order, the package seems like it is too little, too late and ultimately weighed on already weakened markets," she said.
U.S. stock markets are off to their worst yearly start on record: In the 13 trading sessions of 2008, the Dow has lost nearly 9 per cent, while the S&P has fallen 9.75 per cent and the Nasdaq nearly 12 per cent.
(U.S. stock markets will be closed on Monday for the Martin Luther King Day holiday.)
In Canada, the S&P/TSX tumbled 135.27 points, or 1.06 per cent, to 12,660.36, with metal, mining, energy and financials all falling.
The index officially entered correction mode on Wednesday, having lost around 12 per cent since its Oct. 31 high. It has dropped more than 1,000 points in the last four sessions.
With files from wires.
Copyright 2001 The Globe and Mail
RTGAM
North American stock markets extended their losing streak Friday on fears that the U.S. President's $145-billion (U.S.) stimulus plan will not be enough to prevent the U.S. economy from slipping into a recession.
The Dow Jones industrials average closed Friday's session at 12,115.64, off 43.57 points or 0.36 per cent. The S&P 500 lost 6.70 points to 1,326.55 while the Nasdaq closed down 10.99 or 0.47 points at 2,335.91.
President George W. Bush unveiled a relief package Friday that he said must include tax incentives for business investment and "direct and rapid" tax relief for individuals.
Charmaine Buskas, a senior economics strategist for TD Securities Inc., said the Bush plan should boost gross domestic product by about 1 per cent.
"But with few details and narrow expectations that anything can get passed in short order, the package seems like it is too little, too late and ultimately weighed on already weakened markets," she said.
U.S. stock markets are off to their worst yearly start on record: In the 13 trading sessions of 2008, the Dow has lost nearly 9 per cent, while the S&P has fallen 9.75 per cent and the Nasdaq nearly 12 per cent.
(U.S. stock markets will be closed on Monday for the Martin Luther King Day holiday.)
In Canada, the S&P/TSX tumbled 135.27 points, or 1.06 per cent, to 12,660.36, with metal, mining, energy and financials all falling.
The index officially entered correction mode on Wednesday, having lost around 12 per cent since its Oct. 31 high. It has dropped more than 1,000 points in the last four sessions.
With files from wires.
Copyright 2001 The Globe and Mail
Bush calls for quick, temporary tax relief to spur economy
Bush calls for quick, temporary tax relief to spur economy
- Story Highlights
- NEW: Democratic leaders express general support for President Bush's remarks
- President calls for broad-based tax relief for consumers, businesses
- Bush says he's encouraged by talks with Congress, hopeful of agreement
- Bush says his tax cuts due to expire in 2010 should be made permanent
WASHINGTON (CNN) -- President Bush on Friday proposed a temporary, broad-based tax relief package aimed at spurring the nation's slowing economy.
During remarks at the White House, Bush, flanked by economic advisers, said the nation's economy is at risk for a downturn and Congress must act to head off trouble.
"This growth package must be big enough to make a difference in an economy as large and dynamic as ours," Bush said.
"By passing a growth package quickly, we can provide a shot in the arm to keep a fundamentally strong economy healthy, and it will help keep economic sectors that are going through adjustments, such as the housing market, from adversely affecting other parts of our economy."
It should equal about 1 percent of the nation's gross domestic product, or roughly $140 billion, he added. Bush said the economy will continue to grow but at a slower rate.
House Speaker Nancy Pelosi, D-California, expressed agreement with Bush on "the need to provide assistance immediately," saying in a statement that "we must invest our resources in such a way that injects confidence and consumer demand, promotes economic growth and creates jobs."
Senate Majority Leader Harry Reid, D-Nevada, said, "I also agree that our focus must be on finding temporary measures that will do the job effectively."
Sen. Edward Kennedy, D-Massachusetts, agreed that "we must act swiftly to boost the economy" but stressed the need to help families who "are struggling every day to pay their bills, heat their homes and pay their mortgages."
The president offered no specific details of the proposed package, but he did insist that it include tax incentives for business, "including small businesses, to make major investments in their enterprises this year." Bush also said the economic package must include "rapid income tax relief" for consumers to "lift our economy at a time when people otherwise might spend less."
Bush's remarks came a day after talks on the subject with Democratic and Republican lawmakers, and following Federal Reserve Chairman Ben Bernanke's call for a fiscal stimulus package to help an economy beset by plummeting stock prices and a credit and mortgage crunch.
Bush said Friday he was encouraged by his discussions with lawmakers. "I believe there is enough broad consensus that we can come up with a package that can be approved with bipartisan support."
Existing income tax cuts supported by the Bush administration are due to expire in 2010, and the president called on Congress to make them permanent.
"Unless Congress acts, the American people will face massive tax increases in less than three years," Bush said. "This tax increase would put jobs and economic growth at risk." 
Watch experts explain how to goose the economy »
Sen. Charles Schumer, D-New York, said he was disappointed that Bush did not include stimulus-spending measures aimed at helping the disadvantaged such as extending unemployment benefits. Schumer said such spending initiatives would jump-start the economy faster than tax cuts alone.
"I think if we avoid any of the ideological fights, we could actually pass something so that it would take effect on March 1," Schumer said.
The proposed stimulus package comes as a leading gauge of future economic activity was released Friday by the Conference Board. The December report showed a decline for a third straight month for the U.S. leading index -- down two-tenths of a percent. The report cited housing permits for the largest negative contribution to the index. 
See chart showing Americans' recession fears »
On Thursday, the Dow Jones industrial average of stock prices dropped more than 300 points after reports of slowing growth and massive debt write-offs by Merrill Lynch. The brokerage giant reported a nearly $10 billion loss for the fourth quarter of 2007 and wrote off more than $11 billion in bad mortgage debts.
Former Treasury Secretary Lawrence Summers stressed the importance of whom any relief package would target. "It needs to go to people who are going to spend it," Summers said Friday on CNN's "American Morning." "That means particularly those who rely on tax refunds -- those receiving benefits, those whose incomes have been hurt by the downturn."
Bernanke told the House Budget Committee on Thursday that he does not believe the economy will enter a recession, but he said he expects growth to proceed at a slow pace this year and possibly into early 2009. He said Congress needs to take decisive action to boost the economy.
"To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so," Bernanke said. But he said any package should be "explicitly temporary" to avoid running up the government's long-term debt.
Bernanke stopped short of suggesting that the Bush tax cuts should be made permanent, telling lawmakers he supports "the law of arithmetic."
"What comes in at least has to equal what goes out at some point," he said.
CNN's Kathleen Koch and Deirdre Walsh contributed to this report.
Thursday, January 17, 2008
TSX 3-day losses top 900
TSX 3-day losses top 900
RTGAM
Another day, another rout.
The spectacular selloff on North American stock markets continued Thursday, with Canada's benchmark index now suffering three-day losses of more than 900 points.
The S&P/TSX composite index, which has been hit hard on the notion that a U.S. economic recession will curb demand for Canada's commodities, dropped 279.64 points or 2.14 per cent to 12,795.64. Materials, mining, metals and energy stocks had the sharpest declines, although no sector was immune.
The index officially entered correction mode on Wednesday, having lost around 12 per cent since its Oct. 31st high. It has dropped about 903 points in the last three sessions alone.
Growing pessimism about the prospects for the U.S. economy did most of the damage again, as investors reacted to a U.S. regional report that showed manufacturing activity slowed and comments from Fed head Ben Bernanke, warning that the risks of a U.S. downturn are mounting.
The Dow Jones industrial average tumbled to a 10-month low of 12,159.21, shedding 306.95 points or 2.46 per cent. The S&P 500 composite was off 39.95 points or 2.91 per cent while Nasdaq composite fell 47.69 points or 1.99 per cent.
According to Bloomberg, the U.S. indexes are nearing so-called bear markets levels - declines of at least 20 per cent from highs.
The selling picked up after the Federal Reserve Bank of Philadelphia reported its index of manufacturing activity in the region contracted sharply in January, falling to its lowest reading since October, 2001.
"This is bad," Ian Shepherdson, chief U.S. economist for High Frequency Economics, said of the report. "This is very alarming, because we had pinned our hopes on the relative strength of the corporate sector offsetting some of the housing hit."
Mr. Bernanke added to the gloom by telling Congress that the risks of a recession are increasingly pronounced and that the housing sector will act as a drag for most of 2008. Earlier in the day, a U.S. report showed construction of new homes in December fell to its slowest pace in 16 years.
Economists at Goldman Sachs said Thursday that Mr. Bernanke's comments, along with the extremely weak Fed manufacturing and other economic data, suggest the U.S. central bank will cut rates by 50 basis points at its next meeting.
Credit concerns also dogged Wall Street Thursday after rating agency Moody's Investors Service placed bond insurer Ambac Assurance Corp. on review for a possible downgrade.
With files from wires.
Copyright 2001 The Globe and Mail
RTGAM
Another day, another rout.
The spectacular selloff on North American stock markets continued Thursday, with Canada's benchmark index now suffering three-day losses of more than 900 points.
The S&P/TSX composite index, which has been hit hard on the notion that a U.S. economic recession will curb demand for Canada's commodities, dropped 279.64 points or 2.14 per cent to 12,795.64. Materials, mining, metals and energy stocks had the sharpest declines, although no sector was immune.
The index officially entered correction mode on Wednesday, having lost around 12 per cent since its Oct. 31st high. It has dropped about 903 points in the last three sessions alone.
Growing pessimism about the prospects for the U.S. economy did most of the damage again, as investors reacted to a U.S. regional report that showed manufacturing activity slowed and comments from Fed head Ben Bernanke, warning that the risks of a U.S. downturn are mounting.
The Dow Jones industrial average tumbled to a 10-month low of 12,159.21, shedding 306.95 points or 2.46 per cent. The S&P 500 composite was off 39.95 points or 2.91 per cent while Nasdaq composite fell 47.69 points or 1.99 per cent.
According to Bloomberg, the U.S. indexes are nearing so-called bear markets levels - declines of at least 20 per cent from highs.
The selling picked up after the Federal Reserve Bank of Philadelphia reported its index of manufacturing activity in the region contracted sharply in January, falling to its lowest reading since October, 2001.
"This is bad," Ian Shepherdson, chief U.S. economist for High Frequency Economics, said of the report. "This is very alarming, because we had pinned our hopes on the relative strength of the corporate sector offsetting some of the housing hit."
Mr. Bernanke added to the gloom by telling Congress that the risks of a recession are increasingly pronounced and that the housing sector will act as a drag for most of 2008. Earlier in the day, a U.S. report showed construction of new homes in December fell to its slowest pace in 16 years.
Economists at Goldman Sachs said Thursday that Mr. Bernanke's comments, along with the extremely weak Fed manufacturing and other economic data, suggest the U.S. central bank will cut rates by 50 basis points at its next meeting.
Credit concerns also dogged Wall Street Thursday after rating agency Moody's Investors Service placed bond insurer Ambac Assurance Corp. on review for a possible downgrade.
With files from wires.
Copyright 2001 The Globe and Mail
Peter Grandich On The Markets 2007+2008
Quick Note –
I have a special fondness for Canada (except the Vancouver Canucks, who are once again leading their poor suffering fans to yet another big disappointment come playoff time) and while I believe it’s in much better shape than its neighbors to the south, I don’t think it can escape being impacted by what’s unfolding here. Like it or not, Americans buy more than three-quarters of everything Canada exports, which accounts for nearly a quarter of Canada’s GDP. Yes, it may no longer be true when America sneezes Canada catches cold, but it appears prudent for Canadians to at least put on a sweater and gloves.
CAUTION
The Sub-prime mess and an economy heading toward or already in recession is most likely going to create some headlines like this in the not-too-distant future: “Troubles in the Corporate Debt Market.” Up until this fall, defaults on corporate bonds were at their lowest levels in more than 25 years. But, with an absolute binge of borrowing in this millennium and an economy heading for the dumps, I anticipate heightened concerns going forward in the so-called “high yield” (who buys low-yield bonds, anyway-lol) market. Citigroup’s (yes, they are in trouble themselves) credit research team has issued a warning worthy of heed:
Summary –
The public-at-large, especially those poor souls who watch “TOUT-TV” (CNBC-TV), have no real idea how enormous this crisis is. First and foremost, the debt markets are ten times larger than the stock market yet most investors misunderstand it or watch it - UNTIL NOW!!! Economic life begins and ends with the debt market as financings for governments, companies and pension funds with credit instruments are done there on the belief loans will be repaid on a contracted schedule with interest.
Here’s why I believe history will end up not being kind to former Fed Chairman Greenspan: banks and pensions profited when there was a wide difference between short and long term interest rates. They took in on the short side and loaned/invested out on the long side. But thanks to Greenspan’s allowing rates to fall incredibly low and seeing the yield curve all but disappear, banks and pensions ended up willing patsies for the plethora of exotic instruments Wall Street created at the expense of borrowers who could least afford the risk. Now the time has come to pay the piper in the debt market, and for America to pay for years of living way beyond their means.
I have a special fondness for Canada (except the Vancouver Canucks, who are once again leading their poor suffering fans to yet another big disappointment come playoff time) and while I believe it’s in much better shape than its neighbors to the south, I don’t think it can escape being impacted by what’s unfolding here. Like it or not, Americans buy more than three-quarters of everything Canada exports, which accounts for nearly a quarter of Canada’s GDP. Yes, it may no longer be true when America sneezes Canada catches cold, but it appears prudent for Canadians to at least put on a sweater and gloves.
CAUTION
The Sub-prime mess and an economy heading toward or already in recession is most likely going to create some headlines like this in the not-too-distant future: “Troubles in the Corporate Debt Market.” Up until this fall, defaults on corporate bonds were at their lowest levels in more than 25 years. But, with an absolute binge of borrowing in this millennium and an economy heading for the dumps, I anticipate heightened concerns going forward in the so-called “high yield” (who buys low-yield bonds, anyway-lol) market. Citigroup’s (yes, they are in trouble themselves) credit research team has issued a warning worthy of heed:
Summary –
The public-at-large, especially those poor souls who watch “TOUT-TV” (CNBC-TV), have no real idea how enormous this crisis is. First and foremost, the debt markets are ten times larger than the stock market yet most investors misunderstand it or watch it - UNTIL NOW!!! Economic life begins and ends with the debt market as financings for governments, companies and pension funds with credit instruments are done there on the belief loans will be repaid on a contracted schedule with interest.
Here’s why I believe history will end up not being kind to former Fed Chairman Greenspan: banks and pensions profited when there was a wide difference between short and long term interest rates. They took in on the short side and loaned/invested out on the long side. But thanks to Greenspan’s allowing rates to fall incredibly low and seeing the yield curve all but disappear, banks and pensions ended up willing patsies for the plethora of exotic instruments Wall Street created at the expense of borrowers who could least afford the risk. Now the time has come to pay the piper in the debt market, and for America to pay for years of living way beyond their means.
Breakwater + Metals Report=But Analyst Say Buy
BWR Is Rated A Buy
The base metal complex was indicated lower across the board during London Metal Exchange premarket trade on Wednesday, with the bearish tone set by weak data out of the US and a stocks selloff overnight taking its toll on the commodity spectrum, a trader with an LME ring dealer said. "It's all major panic this morning -- the stocks markets were down yesterday and overnight and even gold is down," he said, suggesting that this softness was not metal-specific. He said the poor retail figures out of the US on Tuesday had caused the Dow Jones to collapse and the uncertainty had a ripple effect across the precious metals, oil and base metals.
"With regard to metals, we saw the reweighting by funds come to an end on Monday evening and since then we have seen lower prices because the funds are not buying," he said.
Basemetals.com analyst William Adams said Wednesday that going forward it does look like the markets are adjusting further for a US recession.
"Especially as the weakness in the housing market seems to have caught up with the consumer judging by yesterday's retail sales data," he said. But Adams said "with the powers-that-be working to prevent a full-scale slowdown in the US, it is likely that they will produce something for the markets to hang their hopes on and that may produce a relief rally which in turn could steady the markets for a while." He said although observers should expect further weakness in the short term, "we need to be on the look out for central bank announcements which may see some value buying return to the metals." Adams noted that overall the wider markets were weak and that was leading to a general selloff with gold now down around $885/oz. "So this resembles the various risk reduction selloffs last year that coincided with equity routs that saw all asset classes suffer as investors reduced exposure across the board," he said.
Meanwhile, bellwether contract copper was down $182 to $6,978/mt, basis three-months, while aluminium had lost $12 from its previous close to $2,471/mt. The trader noted that aluminium was holding its own remarkably well and with the large volumes traded on this contract it tended to be less reactive than the other metals. Lead was indicated at $2,576/mt on Wednesday morning, down $79 from its previous close, while nickel was at $27,700/mt off $700 from its Tuesday close. Tin was bid $200 lower at $16,050/mt, while zinc was down $40 to $2,260/mt. Aluminium alloy was bid $5 lower that its Tuesday floor trade close at $2,325/mt, while North American alloy was indicated at $2,320/mt, unchanged from its last kerb bid.
Source
Commodity Bull: Jim Rogers Says Super Cycle Will Continue In 2008
“A trend in motion, will stay in motion, until some major outside force, knocks it off its course.” After gyrating within a sideways trading range over the past 18-months, the “Commodity Super Cycle,” measured by the Dow Jones-AIG Commodity Index, (DJCI), resumed its upward course in the second half or 2007. Led by the agricultural, energy, and precious metal sectors, the DJCI closed at an all-time high.
According to famed hedge-fund trader Jimmy Rogers, the 20th century has seen three secular bull-markets in commodities from 1906-1923, and from 1933-1955, and 1968-1982, spanning an average of 15-years. The current bull market for the DJCI is now six-years old, and Mr Rodgers thinks the “Commodity Super Cycle” has many more years to run, albeit with some nasty corrections along the way.
Jim Rogers is widely known as one of the most insightful commodities bulls in the market today.
Rogers agrees that the commodities market runs in what might be called “supercycles”; 10-20 year stretches when pent-up demand meets the long lead times required to bring on new supply, sending prices steadily higher. With China, India, wider Asia and other emerging markets growing fast, he thinks the current commodities bull market has plenty of room to go.
Rogers said that "on the basis of historical precedent", he expects that "the lifespan of the current commodities cycle will endure until 2014 to 2022."
Commodities Secular Bull Continues Into 2008 - Many More Years to Run!
Jan 16, 2008 - 09:11 AM By: Donald_W_Don
The rebirth of the secular bull market of commodities beginning in 2000 can be mainly contributed, first to the cresting and eventual decline of the U.S. dollar and second, the mounting economic expansion of China and India. Combined, these two forces have propelled raw material prices into a long-term uptrend.
The current extended rise in natural resources is best measured against a broad equity market. In Chart 1, the Commodity Research Bureau Index (CRB) and the S&P 500 are compared for performance over the past 12 years. During most of the 1980s and all of the 1990s, paper-based equities (S&P 500) greatly outperformed raw materials (CRB).
Bottom line: Bull markets in commodities historically run for 14 to 21 years. As this market has started in 2000, upward growth can be expected for another six years or more.
Investment approach: As the secular bull market in commodities shows no indications of weakening and long-term performance still favours raw materials over the S&P 500, growth portfolios should continue to be overweighted in tangibles and underweighted in paper-based industries.
Base Metals Stockpiles & Prices 3 |
"Now the reason I mentioned earlier that most base metals were running tight inverse correlations with their LME stockpile levels is because not all of them are currently doing so. And zinc is one base metal that is exhibiting some peculiar behavior.
Zinc’s major upleg lagged copper’s a bit in that its initial large LME stockpile draw remained on a linear descent through the end of 2006. But this also led to zinc outperforming copper in the second half of 2006 as it didn’t hit its apex until the end of November.
And 2006 was an incredible year for zinc. After rising 64% in 2005, it soared another 142% in 2006. This was of course on the heels of zinc stockpiles that were just obliterated, falling 78% on the year alone. The inverse correlation worked beautifully in 2006.
But 2007 has certainly been a different story. Looking at what the price of zinc has done in 2007 you would think LME stockpile levels were soaring. But this is hardly the case. Now when zinc stockpiles leveled in December 2006 it makes sense that some of the speculative risk premium built into its lofty price would be shed. And this is what we saw. It then also makes sense that when stockpile levels started to fall once again in April 2007 that zinc would rally.
But this rally only lasted for one month before zinc gave up its ghost and started falling to the levels we see today. This has been quite odd price behavior as there never really was a sizeable build in stockpile levels since the flattening one year ago. In fact, from April 2007 to the end of October 2007 LME zinc stockpiles fell another 48% to record lows! At only about 60k metric tons, the markets were faced with the equivalent of only two days of daily global consumption.
And these disturbingly-low stockpile levels don’t seem to phase the zinc market one bit. I honestly cannot figure out why. From a technical perspective we do see a classic head-and-shoulders pattern in this chart. And this type of pattern is typically bearish, usually leading to a trend-reversal pattern. A technician would look at zinc’s price chart and not be surprised to see it decisively break its neckline. But in my experience fundamentals often trump technical noise. Not so with zinc.
But like copper we need to look at zinc in a strategic context. Zinc is still 214% above its 2003 low of $0.34. As for LME zinc stockpile levels, as recent as 2004 they were nearly 800k metric tons! Still below 100k today, they are vastly lower than just a few short years ago. Ultimately I am long-term bullish on zinc, but I am a little worried about its near-term price if there is a big build in its stockpile levels. We’ll have to wait and see."
SourceWednesday, January 16, 2008
TSX slammed again a triple-digit drop for a second session
Market News: After the Bell
TSX slammed again
RTGAM
The Toronto stock market was slammed with a triple-digit drop for a second session Wednesday as investors sold off energy and mining stocks on worries about the degree that demand for commodities will suffer in an economic downturn.
The S&P/TSX composite index closed off the lows of the day, losing 241.92 points to 13,074.86 after losing more than 300 points at one point during the morning.
"We know the stuff is bad, there is likely more to come and it ain't going to be pretty - it's going to be ugly in fact," said Adrian Mastracci, portfolio manager at KCM Wealth Management in Vancouver.
The loss is the latest in a long string of declines this month that have left the TSX just 166 points away from where it started 2007.
The energy sector led the losses, falling 2.88 per cent as oil prices continued to register steep declines.
The February crude contract on the New York mercantile Exchange fell $1.06 (U.S.) to $90.84 a barrel after the U.S. government said crude oil supplies jumped unexpectedly last week.
The gold sector was down 3.55 per cent as the February bullion contract in New York fell $20.60 to $882 on a strengthening U.S. dollar.
The TSX Venture Exchange was down 45.61 points to 2,724.21.
The Canadian dollar was also a casualty of the volatility on equity markets, moving down 0.77 of a cent to 97.6 cents.
New York indexes settled down following steep losses Tuesday even as investors dealt with earnings disappointments from investment bank JPMorgan Chase and chip giant Intel.
They also took in a reading from the Federal Reserve confirming that damage from the contracting housing sector and the credit crisis are making consumers and businesses more cautious.
The Dow Jones industrials slipped 34.95 points to 12,466.16. The Nasdaq composite dropped 23 points to 2,394.59 while the S&P 500 index edged 7.75 points lower to 1,373.2. The Canadian Press
Copyright 2001 The Globe and Mail
TSX slammed again
RTGAM
The Toronto stock market was slammed with a triple-digit drop for a second session Wednesday as investors sold off energy and mining stocks on worries about the degree that demand for commodities will suffer in an economic downturn.
The S&P/TSX composite index closed off the lows of the day, losing 241.92 points to 13,074.86 after losing more than 300 points at one point during the morning.
"We know the stuff is bad, there is likely more to come and it ain't going to be pretty - it's going to be ugly in fact," said Adrian Mastracci, portfolio manager at KCM Wealth Management in Vancouver.
The loss is the latest in a long string of declines this month that have left the TSX just 166 points away from where it started 2007.
The energy sector led the losses, falling 2.88 per cent as oil prices continued to register steep declines.
The February crude contract on the New York mercantile Exchange fell $1.06 (U.S.) to $90.84 a barrel after the U.S. government said crude oil supplies jumped unexpectedly last week.
The gold sector was down 3.55 per cent as the February bullion contract in New York fell $20.60 to $882 on a strengthening U.S. dollar.
The TSX Venture Exchange was down 45.61 points to 2,724.21.
The Canadian dollar was also a casualty of the volatility on equity markets, moving down 0.77 of a cent to 97.6 cents.
New York indexes settled down following steep losses Tuesday even as investors dealt with earnings disappointments from investment bank JPMorgan Chase and chip giant Intel.
They also took in a reading from the Federal Reserve confirming that damage from the contracting housing sector and the credit crisis are making consumers and businesses more cautious.
The Dow Jones industrials slipped 34.95 points to 12,466.16. The Nasdaq composite dropped 23 points to 2,394.59 while the S&P 500 index edged 7.75 points lower to 1,373.2. The Canadian Press
Copyright 2001 The Globe and Mail
"Keep your emotions out of it. It is going to be a bumpy ride."
Market rout on recession fears
Shareholders dump stocks in face of writedowns, U.S. retail sales fall and mounting fears of recession
January 16, 2008
Madhavi AcharyaTom Yew
Rita Trichur
Business Reporters
Just hang on.
If yesterday's steep stock market slide wasn't quite steep enough for you, there's likely more where that came from, veteran market watchers say.
The market gyrations are just part of investors coming to grips with the sour notion that growth in the behemoth U.S. economy is tapering off.
The latest bit of bad news came yesterday with figures from the U.S. commerce department showing that retail sales fell 0.4 per cent in December – the biggest decline in six months and far below the 0.1 per cent growth that economists had been crossing their fingers for.
Evidence that U.S. shoppers may finally be running out of steam – consumer spending accounts for two-thirds of the economy – came as Wall Street giant Citigroup Inc. became the latest to announce huge losses for the quarter along with a massive writedown to deal with bad subprime mortgage investments.
Brace yourself for more today: Adrian Mastracci, a portfolio manager at KCM Wealth Management Inc. in Vancouver, said he expects more market turbulence because of Intel's earnings announcement, which came after markets closed yesterday.
The semiconductor company's latest quarterly profit rose 51 per cent to $2.3 billion (U.S.) but the results missed Wall Street's expectations.
Following the announcement, Intel shares fell more than 14 per cent during after-hours trading.
"The economics in the U.S. are obviously changing for the worst. The earnings expectations are being reduced as we see the economy stumble here," said Aron Gampel, deputy chief economist at Scotiabank.
In Toronto yesterday, the S&P/TSX composite index lost 381.50 points to end the day at 13,316.78. That's a decline of 2.79 per cent on the day – one of the worst one-day losses ever for the premier Canadian market.
In New York, the blue-chip Dow Jones industrial average closed at 12,501.11, down 277.04 points, or 2.17 per cent.
The market has digested a lot of bad news in recent days, leaving investors rattled, said Irwin Michael, a portfolio manager at ABC Funds.
"A lot that goes on in the market now has nothing to do with fundamental analysis. It is strictly psychological," he said. "The more the market goes down, the more people think it is going to go down. It is like a dog chasing its tail."
Faced with America's deepening subprime crisis and lingering uncertainties surrounding this country's market for non-bank asset-backed commercial paper, people are finding it hard to resist the compulsion to panic, he said. The current chill is the flip side to the "white heat" that overtook markets during the first half of last year.
"Now you are facing the other side of the coin," Michael said. "They are just selling willy-nilly, just to get out."
In Toronto, big bank stocks – particularly that of the Canadian Imperial Bank of Commerce – pulled the benchmark index lower. CIBC shares were down $2.07 (Canadian) to $70 on the announcement the bank will sell shares to raise $2.75 billion to shore up its balance sheet.
"Investors have really rediscovered flying away from risk," Mastracci said. "But the reality is it's the risk part that ultimately delivers a return." Panicky investors, he said, ought to take a longer-term approach instead of bailing out of the market completely, because key indexes will eventually rebound.
"Keep your emotions out of it. It is going to be a bumpy ride."