Monthly Archives: July 2013

31st July 2013 — Are US equities psychologically adjusting to the taper?

We’ve just heard that US GDP in the last quarter grew by 1.7% against a projected figure of 1.1%. Even though the unexpected gain was negated by Q1’s downward revision of 0.7% to 1.1%, this number is still fairly decent. Of course when I say “decent” I don’t mean by historical standards, but rather in comparison to the lacklustre growth witnessed in most of the other OECD nations.

In spite of this reasonably positive news, the benchmark US indices have barely budged. It appears that the market is back to believing good news is bad. With the Federal Open Markets Committee due to release its policy statement in a few hours, the skittishness is understandable. Speculation is rife that the Fed is going to announce plans to start tapering its bond purchasing programme. There is now a two month hiatus in FOMC meetings and the next one is scheduled for September. A consensus has formed that the Committee will take the opportunity with this month’s policy statement to lay out plans to start scaling back its operations by the time of the next meeting.


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31st July 2013 — Why I’ve bought Goldstone Resources

Three weeks ago Tom Winnifrith asked “Goldstone (GRL) drilling results; can it really say this?” At the time Goldstone released less than impressive drill results together with some, how shall I put this…. errr…. “bullish” statements. Fast forward to Friday and, yep you guessed it, Goldstone tapped the market for a heavily discounted placement, 30% lower than the closing price of July 5th.

What makes me a little sad about this is that there is absolutely nothing out of the ordinary about this pattern of events.  If anything it is par for the course on AIM.  This is how this wretched little market works and ultimately this is why this wretched little market will fail.


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30th July 2013 — The re-rating of American GDP is not cheating (honest!)

Tomorrow lunchtime, before the release of the evening’s much anticipated FOMC policy statement, the Bureau of Economic Analysis (BEA) will release America’s GDP figure for Q2. The consensus is that the US economy will have grown by 1% in the last quarter. However, interestingly, the nominal figure for output is likely to expand by between 2.5% and 3%.

Now this may sound like another bureaucratic, sneaky sleight of hand to bedazzle a confused public into believing that all is well, growth is real and things are picking up but, in this instance, the change looks justified and, indeed, quite positive. In short the BEA is going to revise its methodology for calculating GDP to include intangible assets for the first time. This will mean that items such as R&D expenditure and “artistic originals” (e.g. television series or music productions) will be treated as investment rather than expense. Given the real value such items can generate in an economy it seems a sensible step to recognise their contribution in the headline figures.


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27th July 2013 — Frontrunning the Fed (again)

Last month’s meeting of the Federal Open Markets Committee (FOMC) provided an excellent opportunity to go short US stocks. Comments in the FOMC’s policy statement concerning the withdrawal of the bond purchasing programme prompted panic. For many this was a shock, but really the only surprise in the market’s reaction should have been the surprise itself. The Fed has been making hawkish noises for quite a few months now. The economic data set they use have been slowly improving, albeit at a fairly anaemic rate, and “official” inflation remains comfortably in check (as for real world inflation – that’s a different story!).  All in all, the right conditions appear to be in place for the commencement of “policy normalisation”.

The question now is will the FOMC follow through next Wednesday and announce its plans to start tapering QE, possibly as soon as September?


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16th July 2013 — When 5% is the new 6%

Just over a year ago you couldn’t open a financial website or publication without seeing a headline proclaiming that the yields of Spanish or Italian 10 year government debt were above the “unsustainable 6% threshold”.  The popular belief was that these stricken nation states could not afford to service borrowing costs above this level and that this was going to lead to a default, precipitate a wider crash and even destroy the Euro. As the eurozone crisis peaked, all lazy journalists needed to do was a quick check of Bloomberg to get the latest bond prices and the sensationalist copy basically wrote itself… From a reporting perspective, one of the great things about the 6% threshold was that it made it easy to communicate quite how bad the situation was.

As the crisis abated however, the worst fears were not realised, bond yields dropped and the headlines went away. However, this whole issue could be about to reignite unless the European Central Bank (ECB) acts.


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12th July 2013 — Is the smart money buying US stocks?

Earnings season apparently went off with a bang earlier this week as Alcoa “beat” Wall Street expectations.  The overjoyed headlines, which followed, were amplified the next day as market commentators went wild at remarks by Ben Bernanke which apparently suggested his “put” is still in place.  The Dow has stuck on 350 points since Monday and stocks are apparently heading for their best week in 8 months.  You’d be mad not to be buying this market wouldn’t you?!

I can’t deny we are one Fed speech away from busting through all time highs, however scratch away at the surface of this latest euphoria and a different picture starts to emerge, which suggests conditions could be about to get tougher for US stocks.


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11th July 2013 — Overreacting to the Fed

Fighting the tide is one of the contrarian’s toughest dilemmas.  Successfully identifying high and low watermarks can yield the greatest rewards, but putting yourself on the wrong side of the trend is usually a punishing experience.

In the last week I have had to face up to the fact that the tide is against me and this market wants to move higher.  Even though this defies logical sense, there is no point fighting it.  The recent technical strength of the Dow has been pretty clear, albeit on seasonally low volume.  Probably there is an argument for going long.


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4th July 2013 — Carney’s reign begins

Today’s meeting of the Monetary Policy Committee (MPC) marks the first of Mark Carney’s reign as Governor of the Bank of England (BoE).  He has joined the BoE with a stellar reputation as one of a handful of global superstar central bankers.  His supporters point to the success of the Canadian economy during his stewardship, while most of the other OECD nations suffered the worst of the Financial Crisis.  Although questions remain about the extent to which he can claim personal credit for recent Canadian performance (and whether the timing of his move is fortuitous as the outlook for Canada worsens), early impressions that Mr Carney will seek to build on accommodative monetary policy in Britain have apparently been confirmed by the release of this lunchtime’s statement.


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3rd July 2013 — Black Mountain Resources; Ho Ho Ho!

Christmas came early last week for a certain lucky “syndicate of private investors”.

On Thursday morning Black Mountain Resources updated the market with this RNS titled “100oz/tn Samples as Mining Development Ramps Up ”.

In the latest of a series of headline grabbing announcements there was plenty for investors to get excited about as the company reported it was “extremely encouraged by further multiple high grade silver samples of up to 3,452g/t”.   The more you read on the better it sounded.

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2nd July 2013 — Has the tide turned for AIM stocks?

I am not a fan of London’s Alternative Investment Market and have serious doubts if the model can survive in the long run. It is too cannibalistic, the regulatory model is fundamentally flawed and the valuation model relies far more on the manic behaviour of crowds rather than actual growth generated by true company performance.  Worst of all, I fear that as a method of capital allocation, AIM is horrifically wasteful and inevitably destroys shareholder value over time.


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