Take it to the bank: A new bull market is here

Bill Carrigan is an independent stock-market analyst.

As of mid-week our new bull market seems to be alive and well after passing some important stress tests. I know this doesn't feel like a new bull but that is quite normal because new bulls are always accompanied by fear and loathing.

Why a new bull market?

Because bear markets usually trade to new lows about every 12 to 18 weeks in a series of lower highs and lower lows. We technicians call that a down trend.

In the U.S., as of mid-week, only three of the 10 Standard & Poor's stock sectors have violated their 2008 October through November lows of more than 20 weeks ago and so far, the large cap benchmark S&P 500 and the small cap Russell 2000 have not violated their 2008 October through November lows.

In our local market the TSX composite, the TSX mid cap and the TSX small-cap indexes have all held at or above their 2008 October through November lows.

At this time the only technical argument the bears can table is the new lows posted by the Canadian and U.S. financial sectors. There is no doubt that if we have a new bull we need the participation of the financials and we need it now.

This observation creates a money management problem in that we need to manage risk exposure by the careful selection of non-correlated stock groups or sectors

My best low-risk returns tend to occur when I take large positions in the early stages of a rising stock sector and hold for about six to nine months. When this position is sold the proceeds are "rotated" into a new and different emerging stock sector.

At this time to two stock sectors with the greatest inverse correlation are the gold stocks and the financial stocks. It could be the next big trade would be to get the timing right on the switch from those hot gold stocks into those cold bank stocks.

Believe it or not, there is growing evidence that reducing exposure to some of the gold stocks and increasing exposure to some of the financial stocks may be a prudent decision.

Technically, at mid-week, many gold stocks over extended on the upside and many financial stocks over extended on the downside. For example, Eldorado Gold (TSX-ELD) is sitting about 35 per cent above its 200-day moving average and Bank of Nova Scotia (TSX-BNS) is sitting about 35 per cent below its 200-day moving average.

These are at historical extremes.

As an Eldorado shareholder I did not welcome the Feb. 23, 2009 news that Eldorado Gold was intending to raise approximately $275 million through a public offering of common shares. The offering was cancelled the next day but the damage was done. If the management thinks the time is right to sell maybe I should also be a seller.

Now, let's consider a bullish case for the Bank of Nova Scotia.

Most investors know that the TSX financial group has lost about 55 per cent in value since its price peak in May 2007. Over the same period the U.S. SPDR financial sector has lost a stunning 80 per cent of its value.

CNBC host Jim Cramer claims that the UltraShort Financials ProShares ETF (NYSE-SKF) is the culprit. The fund is supposed to be a play on the financials' decline. As the Dow Jones U.S. financials index goes down, the two-times levered SKF shares go up. Cramer argues that what this ultra-short fund really offers is the chance to sidestep the SEC's margin restrictions.

Short sellers are now double the threat they once were, and their exchange-traded fund-enabled positions are hammering down the financials, hurting common-stock shareholders and the markets as a result. In Cramer's words, "it is a manipulator's dream come true."

On the flip side, any recovery in the U.S. financials could trigger a bearish stampede out of the SKF resulting in a stunning rally in the North American financial stocks.

Our chart this week is that of the daily closes of the Bank of Nova Scotia plotted above the daily closes of Eldorado Gold. The inverse correlation is obvious.

Some exposure to both stocks would be a prudent way to reduce the volatility in your portfolio.

 

Bill Carrigan is an independent stock-market analyst.

 

Talisman Energy Inc. Earns Net 1.2 Billion Dollars

The Canadian Press

March 5, 2009 at 6:23 AM EST

CALGARY — — Talisman Energy Inc. [TLM-T] said Thursday it managed to book strong profits for both the final quarter and full fiscal year of 2008, despite plunging commodity prices that marked the final months of the year.

The Calgary-based oil and gas company reported net earnings of $1.2-billion, or $1.18 per share, for the quarter ended Dec. 31, 2008, up sharply from a year-earlier profit of $656-million, or 64 cents per share.

Talisman's quarterly cash flow jumped to $1.6-billion from $1-billion reported during the same period in 2007.

The increases came despite a drop in oil and gas production, which fell to an average of 432,000 barrels of oil equivalent per day from the 446,000 barrels being produced a year earlier.
Talisman Energy

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Talisman said it benefited from the high oil prices that prevailed throughout much of the year, reporting a 69 per cent surge in 2008 profit to $3.5-billion, or $3.46 per share, from year-earlier net earnings of $2-billion, or $2.01 per share.

The company said oil and gas prices, coupled with a $365-million gain on commodity derivatives, helped push full-year cash flow up to $6.2-billion from $4.3-billion reported the year before.

Average production fell to 432,000 barrels a day from a 2007 average of 452,000 barrels.

Talisman also said it paid down $935-million in long-term debt for the year, bringing net debt down to $3.9-billion.

“2008 was a year of change for Talisman,” chief executive John Manzoni said in a statement.

“We set the company in a new strategic direction and realigned major parts of the organization in support of the new strategy. We've also successfully navigated a very dynamic economic environment, posting record financial results despite the collapse in oil and natural gas prices in the fourth quarter.”

Talisman, a Calgary-based energy company with operations around the world, has been paring down its portfolio in order to focus on a few key strategic areas: the U.K. North Sea, North American unconventional natural gas and Southeast Asia.

On Wednesday Talisman announced a $720-million deal to sell assets in Saskatchewan's Bakken oil play to Tristar Oil and Gas Ltd. and Crescent Point Energy Trust.

What Will Markets Do Today???

Help from Asia

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Another day, another attempt by stock markets to break out of their demoralizing losing streak, which has sent major U.S. indexes to 12 year lows amid an unending stream of bleak economic news, bankruptcies and slashed dividends.


Unfortunately, the news wasn't a whole lot brighter on Wednesday morning. The ADP employment report for private payrolls showed that U.S. employers cut their payrolls by 697,000 in February, considerably worse than the 630,000 job cuts that economists had expected. The reports are a prelude to the official numbers, to be released on Friday.


"Every indicator we know tells us that employment is tanking right across the economy, and we doubt any of the numbers have hit bottom yet," said Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a note.


Despite the gloomy employment picture, U.S. stock index futures were higher with about an hour before markets open, suggesting that stocks will rise at the start of trading - part of a global bounce that is being attributed to talk of big new stimulus measures in China, where the government has already pledged $585-billion (U.S.) in spending.


Futures for the Dow Jones industrial average rose 91 points, to 6760. Futures for the broader S&P 500 rose 10 points, to 700.


In Europe, the U.K.'s FTSE 100 was up 1.5 per cent and Germany's DAX index was up 2.6 per cent. In Asia, Japan's Nikkei 225 rose 0.9 per cent and China's Shanghai stock exchange composite index shot up 6.1 per cent.

Copyright 2001 The Globe and Mail

CHRIS WATTIE/THE CANADIAN PRESS

Bank of Canada governor Mark Carney admitted yesterday his forecast for economic growth of 3.8 per cent in 2010 was overly optimistic. (Jan. 22, 2009)

Central bank cuts key interest rate to nearly zero to spur lending, but economist sees limited impact

March 04, 2009

Les Whittington
Star Reporters
Ann Perry

The man responsible for keeping the economy humming pushed the panic button yesterday, reducing the Bank of Canada's key interest rate to nearly zero in hopes of getting consumers buying again.

Governor Mark Carney cut the central bank's trend-setting overnight rate by a half-point to a record low of 0.5 per cent. The move is intended to help revive the struggling economy by encouraging borrowing, spending and investment.

Following the Bank of Canada's lead, the Royal Bank of Canada, Bank of Montreal, Toronto Dominion Bank, CIBC and the Bank of Nova Scotia cut their prime rates – the borrowing rate charged to their most creditworthy customers – by one-half of a percentage point to 2.5 per cent.

Amid a crippling global economic downturn, the Bank of Canada has made a series of rate cuts since December 2007 in an effort to restart the stalled economy.

Now it has little room for further cuts. Some analysts expect Carney to halve the current rate to .25 per cent, as the United States has done. But going all the way to zero would disrupt short-term lending markets for technical reasons, economists say.

"The tank is getting empty," said Toronto economic consultant Dale Orr.

The Bank of Canada's decision came a day after news that Canada's economy contracted at an annual rate of 3.4 per cent in the last three months of 2008, the worst performance since 1991.

That was the latest in a stream of grim economic news from December, including a record loss of 129,000 jobs, a 47 per cent spike in bankruptcies and a trade deficit of $458 million, the first since 1976.

In a statement yesterday, Carney acknowledged he had been overly optimistic when he predicted in January the Canadian economy would start to recover in mid-2009 and turn in growth of 3.8 per cent next year.

"National accounts data for the fourth quarter of 2008 and other indicators of aggregate demand point to a sharper decline in Canadian economic activity'' in the first half of 2009 than the Bank projected in January, Carney said.

"Potential delays in stabilizing the global financial system'' and a larger-than-expected erosion of business and consumer confidence could delay a recovery until early 2010, he said.

"I think it's quite obvious, even though they didn't put a number on it, that they've scaled back their growth forecast for the economy this year, and likely in 2010 as well,'' said BMO Capital Markets deputy chief economist Doug Porter.

While economists doubt Carney had little choice but to slash rates further, some question whether this traditional central banker's tool for expanding the amount of money circulating in the economy is very useful in the current slump.

"If financial institutions are reluctant to lend and consumers and businesses are reluctant to borrow, then lowering interest rates may not do much to stimulate the economy," said United Steelworkers economist Erin Weir.

Scotiabank CEO Rick Waugh said at his bank's annual meeting in Halifax that the lower interest rate is "a step forward'' for the economy but insisted the No. 1 priority is to stabilize the world financial system.

The central bank said the key overnight rate "can be expected to remain at this level or lower" until there are "clear signs" that the economy is beginning to perform closer to its normal capacity. The next rate-setting is April 21.

But, with its interest-rate ammunition all but spent, the central bank said it will be looking at other measures to ease the credit crunch that caused the Canadian economy to slow so drastically.

With files from the Star's wire services

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Wow, new lows OUCH!

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For a short time on Tuesday afternoon, major North American stock market indexes poked their heads into positive territory, posting their first gains in a long, long time. Alas, that didn't hold: The S&P 500 registered its 11th loss in 12 trading sessions, falling deeper into multi-year lows on waning hopes for an economic recovery any time soon.


Still, perhaps investors can take consolation from the fact that Tuesday's losses were among the slightest of the lengthy losing streak. The S&P 500 closed at 696.33, down 4.49 points, or 0.6 per cent - closing below the 700-point level for the first time since 1996. The Dow Jones industrial average closed at 6726.02, down 37.27 points, or 0.6 per cent.


General Electric Co. fell 7.8 per cent, closing just a penny above $7 (U.S.). Home Depot Inc. fell 5.2 per cent and Coca-Cola Co. - widely considered a defensive stock for being able to weather economic storms - fell 2.2 per cent and touched a new 52-week low.


General Motors Corp. fell 1 per cent after it reported that U.S. auto sales plunged 53 per cent year-over-year in February - though at this point the share price is really just a bet on whether the auto maker survives. Ford Motor Co. fell 3.7 per cent after its February sales fell 48 per cent.


There was some hope that the U.S. administration's release of more details on its plan to buy up distressed assets would remove some uncertainty lingering over the financial sector. It did, sort of: Citigroup Inc. rose 1.7 per cent.


However, investors put greater emphasis on the latest appearance by Ben Bernanke, the U.S. Federal Reserve Chairman, at the Senate banking committee, where he said that the impact of the U.S. administration's stimulus package is subject to "considerable uncertainty, reflecting both the state of economic knowledge and the unusual economic circumstances that we face."


Ugh. As Bob O'Brien, author of Barron's Stocks To Watch Today, put it, saying that the economy won't recover until the banking system improves is "like two drunks locked at the shoulders trying to hold each other up."


In Canada, the S&P/TSX composite index closed at 7631.62, down 55.89 points, or 0.7 per cent, despite aggressive moves by the Bank of Canada to stimulate the economy by cutting its key interest rate to just 0.5 per cent.


An early rally among financial stocks, following upbeat earnings reports from Bank of Nova Scotia and Bank of Montreal, fizzled later in the day. BMO rose 2.4 per cent but Scotiabank ended the day flat; Canadian Imperial Bank of Commerce fell 4.9 per cent and Manulife Financial Corp. plunged 11 per cent, briefly falling below $10 a share.

Copyright 2001 The Globe and Mail