storm ahead

The worries in the market, whether they are European banks balance sheet problem, BP's credit impacts or governments' deficits problems are justified. I expect the market to trade down 3-5% at least.

I may close out my HXD @ 12.6.

financial regulation

The agreetment has been reached for Fin-reg. It is going to impact on long term profit for banks on one hand but reduce risks on the other hand. The market is going to rally because the uncertainty is gone. I expect the market to trade around 1100 for S&P 500 before it falls again. Take profit if you can.

rethink risk

If an oil spill accident can almost wipe out BP, we have to rethink the risks involved in investing in oil companies. When investing in oil and gas companies, analysts and investors usually consider the risk of commodity prices, exploration, access to capitals and political (country) risk. But given the accident in BP, I doubt any insurance companies would be willing to insure deep sea drilling given the unlimited liability.

The government needs to work with industry to set up a reasonable cap on liability (5-10 billion dollar range) in order for deep sea drilling to continue. Before that happens, I will be very cautious to invest in large oil and gas companies.

reality check

The market has finally realized that economy is slowing down and governments all over the world are hitting a debt wall. Stimulus are gone and slow growth is the new norm. The stock market will be range bound for a while. One last push high for the bulls may come from the finacial regulation. If finreg is watering down then, financials may get a strong bounce. Use it as an opportunity to take profit if it happens.

China moves on currency

China is moving to loose the control of its currency and the market is getting excited. Personally, I believe the impact will be small and some positives and some negatives:

Positives:
1. reduce pressure on inflation in China and lesson the chance of interest rate moving up.
2. Some positive impact on commodity prices.

Negatives:
1. reduce profits for exporting companies in China
2. small increase in inflation pressure in U.S. due to higher Chinese products prices.
3. more questions on U.S Global reserve currency status.

I am cautious on the market

another stimulus package?

U.S. economy is stalled. The growth in the second half of this year would be below 2%. Obama is looking for 2nd stimulus but was met by strong resistance from congress. The stock market will be much more difficult in the next few months. I sold my TD bank today @ 73.25.

Fedex and BP

Today, Fedex reduced its earning expectation for next year. Its excuses is the higher expenses because of strong business. I do not buy it. How can you have higher revenue but lower earnings? If marginal revenue can not cover marginal cost, then, stronger business is a negative.

BP is going to set up a 20 billion fund to pay claims. I do not believe the 20 billion is enough. The stock is having a rally but not its bonds. if you own the stock, you should switch to bonds.

The market is performing quite good among all the bad news. I do not think it can last much longer.

BP bond being downgrade

BP's bond is being downgrade. It is more serious than market's reactions. Many hedge funds and financial institutions have to adjust their valuations because of the downgrade. The market is trading artificially today because of option expiration week.

I will buy 300 HXD (short TSX) @C$12.72.

crude oil

I expected that the oil spill in Gulf would have increased prices of crude oil but it did not over the last month. The crude is trading in the lower range of my target for this year. I still believe that oil will probably go up because of the long term supply concern.

The market is up today but I still expects a trading range between 1030-1130 for S&P 500 and 10800-11800 for TSX. The European debt crisis, BP oil spill and exhausted stimulus spending have made the current situation much worse that 2 months ago.

energy stock is rebounding

Energy stocks are rebounding strongly just as I expected yesterday. The market may rally for a couple days but I do not expect it to exceed my range (1000-1100 for S&P500).

British Government is going to get involved in BP dealing with U.S. government soon as I predicted a week ago. The market is also bringing the liability number to 40 billion as I predicted 3 weeks ago. I do not expect BP to go bankrupt. It will pay out the damage through future cash flow. The stock will be depressed for long time but there maybe opportunity in its bond. Wait until the bond to be traded under 50 cents on the dollar.

trading range

The market is still in a trading range. 1000-1100 for S&P500 and 10800 to 11800 for TSX. Energy stocks are due for a rebound (not BP). Chinese property market is cooling off dramatically. Major cities are seeing 60-80% down in sales.

Gold is becomging a new reserve among developing countries. It will trade between 1050-1300 this year.

BP in the news again

Finally, the news media and the market started to think the possibility of BP bankruptcy. New York times published an article about BP today to speculate the worst case scenario. I actually pointed this possibility in my blog on May 1 and May 21st. I would like to discuss the the most likely outcome. Since BP is a UK company and the failure of BP will cause panic and market crash in U.K., U.K government probably will negotiate a deal with U.S. on behalf of BP. It will be structured like a tobacco liability deal. BP will pay 10-20 billion dollar a year for next 5-10 years. BP will avoid bankruptcy and U.S. government and legal compensations will be paid.

wealth impact

The stock market decline will have a negative impact on economy. I would be very cautions on Canadian market because of exposure to commodities. I read that Chinese steel companies for the first time this year lowered their steel prices. This is not a good sign for mining companies. U.S. Market may perform better in short term because of lower energy price, low interest rates and continuous of deficit spending. But over long term, there are many negatives: higher taxes, higher energy prices because of supply situation in deep sea drilling, and higher interest rates due to budget pressure.

The market is in deep trouble

The employment number is not good. Europe problem is spreading and oil spill is not contained. The market is in trouble today. I will not be surprised if the market goes down 250 points. I will put an order in for 100 TCK.b @30 and 200 BAC@14.80

BP's attemp

BP has put the cap on. But from the live feed, I can see the oil spill has increased at least 50%. The cap is not tightly fit and oil is coming out from sides. I do not think BP can contain more than 50% of the oil.

a critical day for BP and the market

Today BP is going to try cap the leak. If successful, BP probably will survive and the market will have a relief rally. (There will still be problem if the hurricane season is active. Oil can not be collected if a hurricane forces out collecting ship).

If the cap fails. I doubt BP can survive. BP is spending 30 million dollars a day right now. It will be 3 billion dollars for 100 days. The additional cleaning cost will be at least 10 billion dollars. The legal and economic compensation costs will not be cheap. My guess the total cost will be at least 40 billion dollar.

Take some profit if the market goes up today.

BP and The market is in trouble

Just as I predicted, BP is in deep trouble. I will not be surprised that BP goes to bankruptcy protection if the new cap method fails. It will have a huge impact on U.K banks and the whole market.

I sold 100 TCK.B @35.50 today. (bought @31.50 2 weeks ago).