The upside is limited

The recent turmoil in the market has turned off retail investors. I do not see sideline money coming to the equity market. The market is mainly traded by hedge funds and traders so it is more technical based. The cash level in mutual funds is very low right now. S&P will trade between 1020 to 1120. TSX will trade between 10800 to 11800.

BP's impact on the market has been under-appreciated. It is quite possible that BP will cut dividends and its bonds will be downgraded. The liability can run to tens of billions dollars. There is a slight chance that BP can file chapter 11 to limit its liability.

the market how low can oil go

In the beginning of this year, my prediction for crude oil is between 60-85. I have not changed my position yet. The reason is simple, the economy for offshore oil and oil sand will disappear when oil is below 60. So you will not have long period time for oil trade below 60. The fundamental change may happen when electric cars become viable.

The market is in panic and will last for a while. There are facts and noises in the market. Facts: Global economy will be slower than expected because of European situation; China property is cooling down which means the base metal prices is levelling off; U.S real estate market has stabilized and will improve because of the low price and low martgage rates; Low oil price will benefit consumers; Federal reserve is very dovish; High U.S exchange rate will decrease corporate earning for global companies. Noises: potential breakup of Euro (it is not going to happen any time soon); Big U.S. banks have lots of stress due to European debt (most big Bank's balance sheet are much stronger than a year ago and will make lots of money because of the yield curve).

BP's liability

If you still own BP, you should think again. The liability will exceed 10 billion dollar. the 75 million cap is irrelevant because there are safety issues violations. The dividend is in danger. I would not touch it until the spill is stopped and you have a clear picture of the liability.

shopping list

Today the market is in free fall and may give you some opportunities. If you want to put orders in, please put them way down of the market. Also do some switches.
In Canada:
BCE should be sold over 31. List of buy: CNR @55. TA@19.20; HSE@24.50; TCK.B@29.80; POT@98.

In U.S.
BAC@15; V@68; INTC@19.80; CSCO@22; CHL@44 and IBM@120.

a rebound is close

The market is close to 10% correction and a rebound is likely. I bought 100 shares of TCK.B @31.50 C$ (around 30 U$ for TCK). My target is 34 C$. I also put an order in for 100 POT @C$101 or U$96.

When the market bounce, it should be sold to.

summary for May18, 2010

The market wanted to go lower. So it is a good time to establish some positions. I have not got the shares I wanted yesterday. But I will continue to put the same order in.

I have not update my portfolio for a while. This is the updates

Portfoilio 1 (Cash, 400 INTC, 200 CYB, 200 BRCD and 1000 C): U$113,369
Portfolio 2 (Cash, 400 HSE and 100 TD): C$81925

the market is in correction and build some positions

The market is in serious correction for the first time in a year. I will slowly to build some positions. I will put an order for 100 shares of TCK.B for 31.5 or TCK (in U.S.) for 30.50. 100 shares of POT at 100 C$ or 97 U$. 200 BAC at 15.

another interesting Weekend

Last weekend, EU central bank decided to buy governments' bonds. It gave a lift to Greece and other EU countries bond a lift at the expenses of Euro. You may see next week EU may intervene in the Foreign exchange market, with the help with FED.

In Asia, Thai is in deep trouble. The protesters and government is in war. Investment community so far is ignoring the risk but I can see it become a bigger problem next week. China is still trying to engineer a soft landing on property prices.

The gulf oil spill is still going on after 3 weeks. It is much longer than expected. If they can not stop the flow this weekend, the damage will show up on shore next week.

Be cautious on the market. I can see the market correct another 5%.

oil sand play

China is investing 800 million into Penn west energy in Canada. The is the second investment by China in oil sand in 2 months. Given the difficulty in deep sea drilling, Canadian oil sand is becoming More attractive. I can see big American and European oil companies coming into this space as well. Husky is trading at a very attractive level. It probably will be taken over in 12 months.

Is the rescue in Europe going to work

The success of European 1 trillion dollar rescue depends on two things: The first is whether Germany is willing to subsidize its southern neighbours. The government may not have other options but the voters may revolt. The second question is whether PIIGS countries willing to accept the deficit cutting measures. They are going to be painful.

The UK new coalition government is not stable. Cameron can not compromise too much.

Chinese economy will slow down (but not crash down). The property market has shown signs of cracking. The stock market in China has corrected more than 20% which is a good indicator.

European ease

Just as I expected, EU is doing QE big time. It starts to buy governments' bonds and transfer the risk of PIIGS to whole Europe. Germany, over long term, is a victim. It seems the governments all around world will not tolerate any pains necessary to control the deficits. The market, whether it is bond market or stock market, is being distorted by the government actions. In short term, it is going to pop up the market. But over long run, it is going to create lots of problems. If printing money can solve all problems, then, life is so much easier.

the target for the stocks I bought last week (INTC and HSE) are: 23.5 for INTC and 29.50 for HSE.

The market is panicking

The uncertainty in Europe is reaching climax today. The day of EU central bank intervene in the market is approaching. My expectation is early next week. The market was overvalued as I suggested many times. However, some stocks presented opportunities today. I bought back 200 INTC @ 20.50 (sold @22.50 a month ago) and 200 HSE @ 26.75 (sold @30.50 3 weeks ago). I also closed my HXD @ 12.45.

I will be interested in buying POT @ 95 (U$) and TCK.B @32 (C$).

The positives of Greek problem

I have wrote many pieces of the negatives of Greek and Equropean problems. The market is start to reflect these problems. But there are some positives for North American market:
1. keep interest rate low.
2. keep commodity price low
3. capital inflow to safe heaven

I will put an order in for buying HSE @27 (C$) and 200 INTC @21.75

European's options are limited.

The bailout of Greece did not prevent the speculation on other PIIGS. The risks are spreading. As I discussed last week. The only option will be QE (quantitative easing). Central banks will start to buy governments' bond. This will sure anger Germany and induce high inflation.

the profit margin is peaking

The profit margin expansion story is over. PPI is going up quickly but CPI is not which means the profit is being squeezed. Labour cost is at the bottom and start to pick up as well. Interest rate will move up regardless fed's action. All these suggest the P/E expansion is over. If the market wants to go up, the earning has to go up another 10% next year. It is possible but unlikely.

The ompact of oil spill could be bigger

The impact of oil spill is devastating to the environment but people are underestimating the economic impact. The cost to clean up could add up to 5 billion dollars.The impact on travel and fishing industries could be another 5 billion dollars. The shut down on several nearby off shore drills and the impact on oil shipping route will increase crude price by 2-5 dollars which will cost economy in U.S. another 50 billion dollars/year. If BP can not handle it or its insurance is not adequate, then it will have huge impact on U.K economy. BP has over 8 billion dollars in cash and 34 billion in debt. Its ability to generate 27 billion dollar cash flow is in jeopardy right now. I will not be surprised that its bond rating will be cut. Some hedge funds and banks will be hurt by all these.