The S&P 500's magic number is 1,007.51 and The Dow Jones number is 9,794.37.
Until that time, Vialoux and other technical investors will look to pick up "little bits and pieces" on weakness.
TORONTO -- Canadian stocks on Friday ended another rough week on a sour note as investors took profits from Thursday's 400-point rally and embraced tighter their fears that recession will cut oil demand and starve earnings in the oilsands.
The S&P/TSX composite index closed down 296.82 points, or 3.17 per cent, at 9,055.96. On the week, Canada's main exchange was down 540.25 points, or 5.5 per cent.
The TSX Venture lost 11.98 points Friday, or 1.47 per cent, to close at 801.68, while the Canadian dollar closed at 81.6 cents US, down 94 basis points.
For technical investors, the week proved important as North American stocks retested their October lows.
Chartered market technician Don Vialoux said investors can now look forward with more confidence to markets retesting their highs in the next little while.
"Historically, when you've gone through a capitulation stage, markets will go sideways for four to six weeks," he says. "Ultimately the market will break on the upside. And when it does break, that's the fun part of the market, and stocks go up very, very strongly for a good period of time."
Vialoux said the magic "breakout" number for the S&P/TSX is 10,199.78.
The S&P 500's magic number is 1,007.51 and The Dow Jones number is 9,794.37.
Until that time, Vialoux and other technical investors will look to pick up "little bits and pieces" on weakness.
Crude oil prices fell to $57.04 US a barrel, down $1.20. A record drop in U.S. retail sales in October refreshed concerns that a prolonged recession will curb demand for oil. Energy stocks went lower with EnCana Corp., Canadian Natural Resources Ltd. and Suncor Energy Inc., the three biggest companies in the S&P/TSX energy sub-index falling six, four and three per cent, respectively.
Gold stocks also fell on the day, despite a big climb in gold prices to $742.50 US an ounce, up $37.50. Goldcorp. Inc. was down six per cent, while Barrick Gold Corp. fell five per cent.
Research in Motion Ltd. fell close to a 52-week low, declining almost eight per cent as rival Nokia Oyj cut its estimate of industry-wide phone shipments.
U.S. retail numbers, which showed sales declining 2.8 per cent last month, also played havoc on U.S. stocks. The Dow Jones industrial average closed down 337.94 points, or 3.82 per cent, at 8,497.31. The Nasdaq was down 79.85 points, or five per cent, to 1,516.85, while the S&P 500 Index lost 38 points, or 4.2 per cent, to 873.29.
Consumer stocks were hit hard, led by Sears Holdings Inc., down 14 per cent, and Home Depot Inc., down seven per cent. Motorola also fell hard on Nokia's estimate cut, dropping 10 per cent.
Sunday, November 16, 2008
the magic "breakout" number for the S&P/TSX is 10,199.78.
Saturday, November 15, 2008
How low can oil go?
The energy-focused hedge fund managed by Alex Ruus has lost 45 per cent of its value over the past six months — dreadful, but not so bad compared with the performance of many of its peers.
Fund manager makes case for rebound in price
November 15, 2008 Tyler Hamilton Energy Reporter
Toronto fund manager Alex Ruus was taken aback when a young broker in Calgary told him the price of oil was heading toward levels not seen in a decade.
It was late October, a month marked by a record 35 per cent plunge in the price of crude futures and Ruus was out meeting clients on a routine tour of Canada's oil capital.
"We were talking about what's happening in energy and this broker, a fairly young guy with no oil and gas experience, says oil is going to $10 (U.S.) a barrel," recalls Ruus, who manages the Northern Rivers Global Energy Fund.
He couldn't believe such an extreme view. "It just underlined to me the panic going on in this market. It's just totally unrealistic. Canada would shut down as an oil producer at those prices."
As the global economy sags, oil has staged a dramatic nosedive, falling from a record $147 a barrel in early July to its close in New York yesterday at $57.04. Ruus's fund has taken a beating – down about 45 per cent in the six-month period ending Oct. 31, compared with a loss of about 33 per cent on the S&P/TSX Composite Index.
Dreadful, sure, but not bad when measured against similar funds in the market that have been hit with the double punch of plunging crude prices and a credit crunch. DeltaOne Strategic Energy is down 60 per cent, Sprott Energy is down 58 per cent and Ark Aston Hill Energy Class is down 51 per cent during the same period.
"There's been nowhere to hide," said Ruus, 44, a mechanical engineer who in a previous life worked for Chevron Corp. supervising rig operations and construction projects in Canada's oil patch. "Everybody is handling it a different way. There are some firms shutting down because they can't deal with it and they're too stressed out.
"And it has been a stressful year. It's the worst market I've seen in my career, and you can't help but worry about stuff."
Calgary-born Ruus has boyish looks and no grey hairs – yet. A large map detailing Alberta's tar sands resources hangs on a wall in his office. Paper documents lay in neat piles on the floor and counter. On his desk sits a chrome-plated drill bit that was once used in a field he supervised. It now functions as a penholder.
Experience in the patch may explain Ruus's somewhat optimistic outlook and unruffled demeanour as he describes the stomach-churning volatility of the past few weeks. Ruus doesn't completely rule out oil falling to $40, even $30 a barrel as the global economy continues to slow.
Indeed, a rush of options trades on the New York Mercantile Exchange this week valued oil for February delivery at just $30 a barrel.
Ruus, however, predicts that over the next 18 months prices are destined to skyrocket again. Mergers and acquisitions are inevitable. Many oil and gas exploration and development companies, large and small, are being seriously undervalued and, if you can spot them, represent huge buying opportunities, he argues.
And the market, he adds, has already priced in a global recession for 2009.
"The stock market is down 40 per cent, but there are stocks that are down 75 and 90 per cent. The babies are getting thrown out with the bath water now," Ruus said. "Some of this stuff should go to zero, but there is also stuff getting thrown out today with fantastic management teams and decent balance sheets, and those stocks are going to come roaring back."
He's not alone in that optimism. Jeff Rubin, chief economist at CIBC World Markets, said last week that equities markets were "nearing a bottom." A week earlier he said the positive effect of $60 oil should start boosting the economy over the next six months, the same way $140 oil helped sparked the recession. That will cause crude prices to once again start climbing.
A hint of that thinking can be found in the price of oil futures contracts for delivery in three years. Those contracts have been holding firm above $80 a barrel. "Oil is still the best play on recovery, when temporary market fears of demand destruction should quickly morph into more lasting fears of supply destruction," Rubin said.
He pointed to the $90 a barrel marginal cost of new oil-sands projects and how the precipitous decline in oil prices has slashed more than $30 billion in investments from Canadian projects.
"Ditto for the investments in the Brazilian offshore, Gulf deepwater and many other sources of tomorrow's expected supply. Investors are likely to find that oil demand can be turned back on a lot easier than bringing back supply," Rubin argued.
Meanwhile, many of the world's conventional oil fields continue to struggle. For example, Mexico's state oil monopoly Pemex has failed over the past few years to replace the oil it extracts with new reserves even with annual production down considerably since 2004.
Output from Pemex's Cantarell Field, one of the largest oil fields in the world, is expected to fall to 700,000 barrels per day by the end of 2009 amid a loss of pressure – a decline of 25 per cent from today's daily output, the company's production chief said last week.
Earlier this month, the normally cautious International Energy Agency warned that triple-digit oil prices are poised to return as the economy starts to rebound and worsening production supply constraints, related to resources as well as investment, become more apparent. The agency went so far as to predict that the average price of oil will exceed $100 per barrel between now and 2015.
Ruus admits, like most analysts, economists and fund managers, that he was caught off guard by how low oil has fallen. "We didn't believe it was going to stay at $145, but I can't believe it's gone to under $65. That's the real shocker."
But his clients, who when joining agree to lock in their minimum $25,000 investment for at least two years, are looking long term. Ruus and Northern Rivers' principals are also heavily invested in the fund. "It makes clients feel a lot happier, because they know, in a bad year like this, that we're feeling the pain as much as they are."
With that long-term outlook, they're also taking advantage of a fearful market. "The average retail guy right now is looking at his portfolio down 40 per cent and saying, oh God, it's going to be down another 40 per cent so I better get out. Whereas the smart long-term investor is saying, wow, I can buy the same assets I could have bought a year ago for 40 per cent less."
It's the difference, explains Ruus, between a sophisticated investor and the average retail investors.
Friday, November 14, 2008
OIL Houses Wellington And Anonymous Dumping Again
18:12 EST Thursday, November 13, 2008
CALGARY, Nov. 13 /CNW/ - Oilexco Incorporated ("Oilexco" or the "Corporation") (TSX: OIL; LSE: OIL) today announced that it has filed a preliminary prospectus with securities regulators in certain provinces of Canada for an offering of Convertible Senior Unsecured Bonds. The principal amount, conversion price and other terms of the offering will be determined by Oilexco after marketing by the underwriter, Canaccord Capital Corporation.
The net proceeds from the offering will be used to partially repay bank indebtedness, to fund the Corporation's 2009 capital spending program and for general corporate purposes.
The securities offered have not been and will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States unless exemptions from the registration requirements of such Act and applicable state securities laws are available.
About Oilexco
Oilexco is an oil and gas exploration and production company active in the United Kingdom. Oilexco's producing properties, exploration and development activities are located in the UK Central North Sea, specifically in the Outer Moray Firth and Central Graben areas. Oilexco operates in the United Kingdom through its wholly owned subsidiary, Oilexco North Sea Limited, a company registered under the laws of England and Wales. Oilexco shares are listed for trading on the London Stock Exchange (LSE) and the Toronto Stock Exchange (TSX) under the symbol "OIL".
Why a November Rally Probably Is a Head Fake -Tax Loss Selling Next
Why a November Rally Probably Is a Head Fake
Tax-loss selling for 2008 will be the rule the next eight weeks.
Story By Rob Cornelius
Money on the sidelines isn't coming back to the market. Don't expect the cavalry to show up and save us. Money that is out of the market either vaporized as losses, is in "safe" investments, such as U.S. government securities, or capitalizing one of these banks that is begging for deposits.
Preserving capital is critical. Nobody is feeling greedy yet.
Tax-loss selling for 2008 will be the rule the next eight weeks. Investors will sell their losers (and, boy, do we have a bunch of those) to make up for their gains. The pressure on stock prices should continue to be downward. Hedge-fund and mutual-fund redemptions will happen before year's end as well.
Carryover losses will be awesome. Investors have seemed to fear a Barack Obama presidency, and the last 1,500 points of Dow fall appear correlated to his rise in the polls. Some will sell to incur taxable losses; others who have huge assets are trying to get rid of them now to avoid changes in tax laws.
Retirement Plan Disasters
Pensions, charities and endowments will continue to hide behind terms like "unrecoverable losses." Read the daily newspapers and you see that term come up. That simply means losses they were forced to take by selling a devalued asset. There still are plenty more on the books that will have to be taken eventually. Understand that many of those organizations' stocks now need to go up 100 percent to be where they were a few months ago: If you are down 50 percent, you have to go up 100 percent to be even.
As S&P and Moody's do their jobs in coming months, more corporate bonds will be downgraded. More companies adjust earnings estimates down. When they drop below certain ratings thresholds, pension funds will be forced to sell them at market, cascading still further "unrecoverable" losses.
Pension funds were and are handicapped by being slow-moving, committee-driven animals -- late to bull markets and slow to evacuate bad ones. Not active, but reactive. And they are paying for it.
While state pensions have embarrassed all over the country, their corporate or private brethren may be worse; the former have the ability to raise shortfalls via taxes or bigger employee deductions. Ask U.S. Steel or the UMWA where their pension plans will be in a year. They are based on increasing share prices of the underlying company or adding more jobs/members. Neither is happening.
The Federal Pension Benefit Guarantee Corp. is seriously short of money, and a couple of good-sized corporate failures could deplete its kitty. It is like the FDIC for pension plans -- the insurance of last resort.
Someone will be made to take responsibility. In 2010 or 2012, this will be a political tool for un-electing state treasurers or anyone else vaguely responsible of either party.
The only upside of all this may be the fact that inflation, for the short term, is dead. Deflation is the word, as everything shrinks in value, be it homes or tons of coal or barrels of oil. But that said, I can never imagine a scenario when governments reverse cost-of-living-increases to those on the dole. They seem to have little self-interest in shrinkage.
People in many non-Roth IRAs and employee savings plans of all sorts are trapped. Some plans have no way to become un-invested other than money markets, which were shown to be potentially deadly in recent months. Worse still, you have no way to go short or bet against the markets. No sector has been safe for the last 90 days.
For those who are still mad at people who short stocks, it was pension funds that got rich as part of that process. To short a stock, some other investor must loan it to you. In most cases, it was big pensions, such as CALPERS loaning you those shares of Citibank and collecting margin interest on the loan. Like prostitution, it was a mutual agreement of two parties -- one of whom never really expected Citi to fall to $12.
Who Else Can We Blame?
Illegal immigrants and their contributions to the real estate mess will be brought to the forefront to create scapegoats. National reporting states that as many as 5 million home mortgages may have been extended to illegal aliens, many of whom are in worse financial straits than Americans. In big, round numbers, and knowing that more illegals bought more homes in western states (where they are more expensive), say banks lose an average of $100,000 on each of those transactions. You're looking at a loss just there of $500 billion. Maybe that's overstating a dollar number, but protectionism and assessing blame tend to be big in economic disasters.
I cited "losers" and "poor people" as root causes of this crisis when I first started writing about it here on Aug. 9, 2007. That said, they were rational actors empowered by government to take what they knew they couldn't afford. When government told lenders to loosen standards so that anyone who could fog a mirror got a mortgage, these folks took advantage. Having everyone equal may be fine in a co-ed game of soccer among first-graders with no one keeping score. But in real life, some of you are richer/smarter/faster and get more playing time or score more goals. The market should reward that. Not all our children can be above average.
U.S. Dollar is Strong
U.S. Bank government guarantees are bringing every dollar here to federally backed investments. This strengthens our dollar and weakens foreign markets' currencies. The eventual inflection point will be when the rest of the world loses faith in the Treasury to pay back and our rates to borrow suddenly skyrocket. That's when inflation should return. At this point, the best course of action may be to sell as much new debt as possible while rates are super low. As other nations cut interest rates to spur their own economies, the flight to U.S. dollars should intensify further.
Thank God the U.S. didn't make many loans to developing countries, whose currencies are crashing. Typical European banks may have those loans filling 20 percent of their books; the U.S. averages 4 percent. Crashing currencies make it harder to pay back your loans.
The idea of rising interest rates at the same time as deflation is pretty unique in economic history. No one is really sure how to model this crisis after anything else except maybe the American Panic of 1873.
Hard Assets Soften
Cheap energy is a terrible sign for growth and the world economy.
Oil has more room to contract in price, as demand will slow further. The only thing keeping American refiners open is the fact that they can still make money on the middle distillates they refine (heating oil, diesel and aviation gasoline). They ship a lot of those to Europe. They are losing on auto gasolines right now. Once you see the diesel price in West Virginia slim down to maybe a 50-cent premium over regular gasoline, you'll know the refiners are in real trouble.
Low energy prices will destroy whatever progress has been made on alternative energy. Well-capitalized companies will do well as steel cheapens for massive windmills, but most of the solar guys were selling at ridiculous price/earnings multiples.
Ethanol is also dead if wholesale gasoline stays under $2 a gallon. Farmers may shift from corn to soybeans next spring for the sake of profits. Short term, alternative energy will expand only as a direct result of government handouts.
Gold/silver .... paper versus reality. Go to eBay. While gold that trades in the markets is less than $700, you see one-ounce gold coins selling for a three-digit premium to that at $850 or more. The percentage gap is still greater for silver and platinum.
People are hoarding gold and extra bullets it would seem. Central banks are trying to raise U.S. dollars and appear to be dumping physical gold while they can, depressing price. Price is now dropping enough to make mining unprofitable for not just gold but also many of the non-precious metals, such as copper and nickel.
Stop Whining, Learn
Great reads/blogs to scare yourself straight on this topic: calculatedrisk.blogspot.com, globaleconomicanalysis.blogspot.com, nakedcapitalism.blogspot.com ... and pay attention anytime "Dr. Doom" Nouriel Roubini or Oppenheimer analyst Meredith Whitney show up anywhere. Billionaire genius Mark Cuban at blogmaverick.com has been smart and full of good ideas, albeit with no sense of investment timing at all. All seem pretty sure our financial system isn't done with its turn in the spanking machine.
Rob Cornelius of Parkersburg follows energy and the markets for The State Journal.
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