My inbox is a mess. It is currently getting completely unglued with
gold bullion bulls. It is also all confused about where energy is going.
I’ve seen a technical note that XLE should be shorted (the energy ETF)
given its extreme overbought condition (maybe not today or tomorrow,
but very soon). At the same time, the bulls are focused on the decline
in U.S. oil production (what everyone has been waiting for although I
should note it hasn’t dropped yet below nine million boe/day using EIA
data), optimism about the possibility of Russia, OPEC and non-OPEC
players meeting later in the month and three weeks in a row of gasoline
inventory withdrawals (still just 3 per cent off of all time high
levels). Of course, bulls are being energized by the price up 35%+ from
the lows. Gold bulls too.
Stock-wise, one of my favourite analysts
is hugely bullish on Apple but the stock is underperforming the market
year to date and from the February lows. I’m seeing companies miss
earnings but raise dividends (Gildan a few weeks ago and
TransContinental yesterday afternoon). And companies in the oil patch
slash and suspend dividends and the stocks soar (off, of course,
extremely depressed levels). S&P 500 earnings for 2015 have a WIDE
gap between adjusted and reported earnings – what number to use? For
2015, Thomson Reuters carries an operating earnings number of $118.13
while S&P’s operating numbers are $100.44 and reported earnings are
$86.53 – according to Yardeni Research. Yikes (most use a number similar
to Thomson Reuters). Meanwhile, based on new earnings and ebitda
expectations, Scotia slashes its target on Performance Sports from
$12.50 to $3.50(!). Meanwhile, the analyst says that Adidas went through
a similar tough time in 2014 and he’s using Adidas valuation decline
that year to value PSG. Adidas did have a nasty 2014 when the stock
dropped 40% that year to the October 2014 low but has more than doubled
since.
And for all of Donald J. Trump’s bluster about the Chinese
currency manipulation, he might be a little confused. Certainly the
yuan has been weak recently (down 7 per cent from its peak) but the
currency has strengthened 23 per cent over the past 10 years – making
goods from China more expensive. Interestingly, yesterday, Reuters
reported that two out of every three positions taken out by hedge funds
expecting a devaluation of the yuan have been taken off.
And
what’s a birthday party if you’re actually dead? That’s what some are
saying about the bull market celebrations. Did the bull actually die May
21 2015 (its high of this cycle). Only time will tell. We’ll discuss
this morning, plus the market’s relationship with recessions and just
how cheap are U.S. healthcare stocks with Julian Emmanuel from UBS. For
reference, 300 of the S&P 500 companies are up 20%+ from their
52-week lows while 461 components are up 10%+. Short seller Carson Block
calls the rally a dead cat bounce. There are only 13 stocks negative
versus the Feb. 11 lows.
So after all that mess, here’s what’s happening today. Mario Draghi is holding a press conference after the members of the ECB cut rates by 10 basis points
(further into negative territory), raised the buyback to 80 billion
euro per month and also is now adding corporate bonds into the mix (a
surprise given the relatively illiquidity in that market).
We’ll be watching Washington post the meeting between President Obama and Prime Minister Trudeau. In corporate news, we’ll analyze the earnings from companies like Empire having a challenging time integrating Safeway
(for which they paid $5.8 billion and today announced a $1.59 billion
good will write-down) but also Dorel, AG Growth, Canadian Solar,
PennWest, Bankers, Transat and Intertape Polymer. We’ll talk with more
companies from the FirstEnergy conference (Calfrac, Secure Energy, Kelt
Exploration, Tourmaline and Painted Pony), we’ll find out about the VIX
death cross, and about the auto parts business with Linda Hasenfratz
from Linamar. And if you’re interested in what the former CEO of Biovail
Eugene Melnyk is thinking about Valeant Pharmaceuticals (including his
comment that Bill Ackman is “a piece of work”),the full interview is available on bnn.ca.
Markets
are getting a further lift from the ECB news with the Dow futures up
more than 100 points now. Mr. Draghi has said there is “no limit” to
what he will do – and he didn’t hold back today. Be watchful and
careful. The “smart money” is in full-blown bull market stampede. That’s
good as price has a tendency to follow. But watch what you own and if
you felt the quality of your portfolio as poor in early February (when
the markets were collapsing), now is a good time to high-grade