The Copp Comment - October 17, 2008 Edition

Good Morning All,

Yet another dull week in markets was typified yesterday by an 800 point afternoon rally in New York. The beaten down TSX, temporarily sleeping, managed only a late recovery measuring half that amount. Ho hum we wonder, what will today bring? More of the same would be a proper guess.

Some of you may have caught the joint appearance of McCain and Obama last night at the Alfred E Smith foundation dinner. It appears that John McCain finally had a victory on both the humour side and strangely on the serious side as well, when his final words at the podium seemed to reflect a more decent view of the campaign than we have become used to of late. It even sounded somewhat like a concession speech. Too bad the election isn't this coming Tuesday and the inauguration the following day because the conclusion to this event will go a long way toward reinvigorating America and reassuring the world whose minions rank among Obama's greatest supporters. Instead, due to an outdated constitutional practice we shall be stuck with George Bush and a lame duck congress until mid January.

Although this has been a particularly grinding week, better times lie shortly ahead as it must always be remembered that the markets are discounting mechanisms. I was reminded too of yet another market axiom last night during an enlightening interview with Jim Kinnear, the CEO of Pengrowth, on the Scully show seen on Vermont PBS, when he alluded to the two tenets of great companies and potential acquisitions...."cash and cash flow". There will be much such looking around in the mergers and acquistions world during the coming weeks and months.

The Copp Comment - October 16, 2008 Edition

Good Morning All,

The market giveth and the market taketh away or so said the lord of volatility. In our letter of yesterday it was suggested that some profit taking off the early week's sudden and sizeable rise would be both normal and by definition...healthy. What was not expected was the breadth and depth of the decline as disintegrating hedge funds advantaged themselves of perceived market strength to get ahead the next spate of redemptions. To wit, the bottoming process is rarely a one day event and in circumstances as unusual as this, much to..ing and fro..ing is inevitable. I believe, for whatever it is worth, that the bottom-bottom is in and the tests of its validity will end before October does. Remember that anti biotics take more than a day to work.

The Canadian dollar has been extraordinarily weak this past month as its petro base appears to have disintegrated with the falling commodity prices. It may be time to convert any spare U.S. dollars you may have into buying Canadian banks and the incredibly oversold oil sector thereby benefiting from a rise in both. We repeat, PetroCanada is trading at 3 times earnings and yielding 3% effectively discounting its oil, gas, cash and real estate holdings to nothing. Others such as Encana and Imperial Oil are in similar straits. Aecon, an infrastructure play now 7$, has been irrationally beaten down likely due to mutual fund redemptions, remember how popular these thin market plays were a year or so ago.

Even though Asia encountered a train wreck overnight and Europe has been nervous, I would look for a serious rally to end the week, taking markets up to a positive finish.

If anyone seriously thinks that John McCain would make a better President than Barack Obama, they just aren't listening. More on politics tomorrow. Thank you all for your input, it is always welcome.

The Copp Comment - October 15th 2008 Edition

Good Morning All,

Our wish list for the week appears to have been fulfilled and its only Wednesday as New York and Toronto markets respectively gained 950 and 1700 at their best Monday,Tuesday levels, not quite matching our plus 1000 and 2000 predictions of Monday morning but close enough considering the fact that we were likely alone in the world in suggesting such an explosion. These rises were naturally met with serious profit taking as both markets gave up some of their gains as the day wore on, a condition that will predominate today's trading as well. Although we also won our political wish as the Canadian electorate in its infinite wisdom prevented a Harper majority, I was still left to wonder how a plurality of my fellow citizens could vote for a bunch of Bush apologists who have likely become converted "Palinistas".

Initial reaction aside, the market judgement of the restoration package will be withheld for the near term as major investors watch LIBOR and the TED spread in order to monitor its "on the ground" effect. You need not pay too close attention to such intricacies as the indexes will quickly explain any good or bad news. The numbers will speak.

An article appearing in yesterday's New York Times by Tommy McCall described the performance of stock markets under Republican and Democrat administrations beginning in 1929. If you do not include the crash incumbent Herbert Hoover the business friendly Republicans had a plus 4.7% record versus a positive 8.9% for the "socialist pinko" Dems. If Hoover's 4 years are included the free enterprising GOP slips to a marginally positive 0.4 %. Don't bother working out the compounding effect of the comparison just google the chart.

Tonight's debate will likely be as dull as the others, barring a crash and burn performance by either candidate. Maybe its just because I am so strongly pro Barack that I have such a melancholic foreboding of these final campaign weeks or maybe I am justifiably fearful of nasty Republican tactics and redneck Joe Six Packs armed to the teeth and smitten by Sarah.

If any of you wish to opt out of this letter please advise, I shall try to remain unhurt by your choice.

The Copp Comment - October 14 Edition

Good Morning All,

When it became evident over the weekend that the U.S. free marketers led by Hank Paulson were going to be dragged kicking and screaming into a quasi socialist solution to the banking crisis, stock markets in America joined their European counterparts in celebration of the revised plan. As discussed in yesterday's blog this Swedish inspired, U.K. generated solution is considered to be one that addresses the core of the problem rather than its excesses, the base of the inverted pyramid instead of its incomprehensible overhang. Gordon Brown, the British P.M. has been reborn.

We also predicted yesterday that a 1000 point up Dow day would evolve this week and that it would be accompanied by a 2000 point surge on the TSX. We got part one early and catch up in Toronto, after yesterday's Canadian holiday, may make this idea a morning "fait accompli". Japan also made history overnight as it too came off a market closure with a 14% rise. European indexes are up strongly for the second day in a row and New york futures are very powerful in the pre market. The natural rule here would be to sell into strength as the euphoria of the early going presumably turns back into malaise. We will have to watch how this plays out but I believe that a true bottom has been made and that our previous forecast of a 50% retracement of the one year losses is a minimum target by mid January. It could be somewhat greater as the ride back up will be led by banks and techs, sectors which have lately taken losses of huge magnitude. In Canada, the once overowned but now vastly oversold oil, gas and mining sectors should enjoy a major and immediate resurgence from recent lows but they will not be the lasting leaders of the "new" market, at least not until much later in 2009.

The choice for the Canadian electorate today is between tweedledum and tweedledee. It is our hope that the vote leaves us much the same as we were before this ridiculous election was called.In America the choice is of a far different nature and holds the promise for a renewed and better country.

The Copp Comment - October 13, 2008 Edition

Good Morning All,

In Friday morning's letter I promised a positive end to a day that would start out with a depressing tone। A casual observor, or one locked solely into Canadian Markets may have thought that the promise was left undelivered....it was not, as a late day rally in New York took the Dow Jones from minus 500 to plus 300 in less than a Sarah Palin blink। Admittedly it did give up much of its new found trading momentum just a couple of "betchas" later but by then the saving grace nature of the activity had been gratefully established.

Europe, led by a U।K. solution based on a 1990's Swedish model whereby the various governments would guarantee interbank lending as well as deposits in exchange for equity effectively brought an end to 1980's Thatcherism and quite possibly the present crisis. The Swedish experience, although obviously based on a much smaller model, employed four per cent of that country's GDP most of which was recovered within ten years. America is still working out the structure of its recovery package with the appointment of a Neel Kashkari and his team of experts. A tough job indeed for this self styled free market Republican but a good deal more encouraging than the lunatic fringe led by Lou Dobbs who don't want Wall Streeters involved; one would suppose that unemployed grocery clerks and retired autoworkers should take up the baton and solve both the economic and the hyped immigration problems at the same time. Either way it will be very difficult for American "free marketers" to consider serious government equity participation but guess what...they will. Preferred shares and warrants a la Warren Buffett are the recipe.

What a day for credit markets to be closed in the U.S., while open in Europe. Canadian and Japanese stock and bond markets are also closed. This could lead to a major catch up day tomorrow if present price gains in Europe hold and U.S. stock markets keep or expand on the huge gains that futures are indicating. I believe that a 1000 point up day on the Dow is possible this week and a 2000 point one day TSX advance automatic if this should occur. We may not be out of the woods yet but when the leaves fall you can always get a better look at the forest.

Sorry, I cannot get enthused about our Canadian election as too much important stuff is going on elsewhere but I am all for minority government at this stage. In America John McCain is facing an important personal dilemma; he can either lose or win with his honour intact or he can endanger the future of America by allowing if not encouraging his minions to indulge in the politics of division.

The Copp Comment‏ - October 9, 2008 Edition

Good Morning All,

Welcome to the Reagan legacy, you must remember now, how the free market would provide wealth and jobs for everyone if it could only be liberated from the bonds of REGULATION, how the eighties became known as the greed decade wherein business schools, then and since, placed their emphasis on courses about balance sheet alchemy in lieu of economic history and ethics. These are those years folks (as Sarah would say) but stop worrying about them because they will soon be over, the pendulum is swinging back toward a more sane world and we are truly headed toward positive change.We are also witnessing the end of the "oil Presidency" but even as we do oil stocks have overdiscounted the next week, let alone decade. I leave you one example; Petrocanada will trade at less than 3 times earnings this morning and that is a current balance sheet number that does not include its oil and gas reserves or any other assets. It is one among many. As someone said this morning , "if the market went down as it did yesterday for another 10 days it would be worth ZERO".Look for a two to five hundred down opening followed by a mid morning turnaround that runs to a positive close....hopefully on huge volume.

If any of you caught the McCain Wisconsin rally on CNN you might have thought you had been taken back to the 1950's, except in color. The tone and tenor of the right wing talk show hosts has long bordered on lunacy but when it is encouraged by a major party candidate it becomes scary as hell. The racist rant is rising and when combined with the McCarthyist "guilt by association" program that has typified recent Sarah speeches we must be truly frightened for Obama's safety. This campaign is fast becoming one in which the party of hope is fighting the party of hate.

Bobby Kennedy was fond of saying that "20% of the people will be against everything all of the time", the problem in America is that 20% is heavily armed. There will be an ugly start to a day that will end on a very positive note.

April

The Laurel Comment

“Logical consequences are the scarecrows of fools and the beacons of wise men.”
-Thomas Henry Huxley


Commentary

Although America has lost much of its military and economic influence during the Bush years it still remains the world’s most powerful nation in both regards; and because of this tragically incontrovertible fact, the coming November election is of greater importance to Canadians and other citizens of the world than are their own domestic political issues.

The month of March was supposed to signal the end of both primary campaigns but alas the Democrats rage on. During this latest period of silliness each of the three remaining candidates was confronted with an issue problem, two of which were directly related to what we now call “misspeak”.

It may not seem fair or even logical to define a candidate’s honesty, knowledge or intellectual depth on the basis of a “one off” comment or occurrence but what we do discover from these events is the meaning of the mistake and the capability of the candidate to respond meaningfully to the self created crisis.

In the case of Barack Obama, whom I incidentally support, the reaction to his pastor’s rather outlandish display was a measured and hopeful speech on the history and potential future of race relations in America. Oratory is one of Obama’s greatest strengths but more importantly for America it is not just the verbiage expounded by the man that gains purchase with his public but the tone of the subject matter and the hope it portends.

Hillary Clinton on the other hand misspoke about an event that never occurred, effectively creating a story that was intended to enhance her credentials as an experienced world diplomat. Worse still was the absurdity of repeating this easily fact checked fabrication on more than one occasion as part of an attack on Obama’s international capabilities. Not smart!

More egregious still was the thrice repeated gaffe by John McCain, the Republican candidate who prides himself as a military expert. McCain stated that Iran was training Al Qaeda terrorists and sending them to Iraq. It was not until he was corrected on a third occasion by one of his potential running mates, Joe Lieberman, also known in some circles as the Senator from Tel Aviv, that he revised his thinking.

John McCain, the military expert, has also adopted, as one of his main campaign themes, his belief that his Democrat opponents are weak on Iraq, that the surge is working and that America might maintain a troop commitment there for 10 more years or even 100. He also repeatedly states that a withdrawal will mean victory for Al Qaeda.

Let us grant the fact that Senator McCain is a great patriot and a war hero with terrific military genes who suffered sorely during his captivity by the Vietnamese. But let us also understand that anyone with a modicum of knowledge of Middle Eastern affairs is aware of a number of absolutes. The Shi’ite and the Sunni may be both Muslim but they are enemies in Iraq where the Shi’ite represent 60 percent of the population, the Sunni 35 percent and the Kurds 15 percent. Furthermore, Iran is 90% Shiite and Persian. The Al Qaeda movement is 100% Sunni and has no presence whatsoever in Iran. Worse still, McCain’s continued belief that America’s abandonment of Iraq will lead to an Al Qaeda victory belies all common sense as the majority Shi’ite would be busy vanquishing (a nice word), any remnants of Sunni power including Al Qaeda, in a post occupation Iraq.

This is a civil war being fought over oil and who owns it and this war will not end until one faction of the Shia is victorious.

McCain’s gaffe has deadly and costly overtones, Hillary’s was silly and self demeaning, Barack’s was countered with a positive spin, you judge.

Spending 5 years in a POW camps may make someone tough, the experience does not however make anyone a Clausewitz.

Markets

The last year has been a devastating one for many in America but for the most part Canadians and others have escaped the brunt of the housing collapse and the sub prime disaster. “Greed is good”, as Gordon Gekko said in the movie Wall Street, had become the creed of the financial engineers who created and sold fabricated products to many who should have known better. The fallout, which began last Spring among the knowledgeable, culminated recently in the collapse of Bear Stearns an 85 year old investment bank that had been worth billions only last year.

“How could this happen” many have wondered over the past few months “and when not if will another debacle reoccur?”

The answer to part one, at least in general terms is about regulation or the lack thereof; in more specific terms it may be about the Glass Steagall act which was created in 1933 to separate commercial and investment banking and replaced in November 1999 through the auspices of Republican Senator Phil Gramm, the encouragement of Alan Greenspan and the signature of Bill Clinton. The investment world that was then created may have been largely responsible for the mess that financial markets are now experiencing.

As many readers of this letter are aware our bearish position on markets that lasted throughout 2007 (save gold and oil) was repealed by our bullish stance adopted in mid-January when we stated that the lows had been made. The several tests of these lows over the past weeks have confirmed our belief in their validity. We have stated and continue to believe that financials lead markets both up and down, we now look forward to the former side of the equation.

Added to our recommendation to buy financial ETFs; XFN and HFU in Canada, XLF in the U.S. is a bullish scenario for technology. Semiconductors lead this area and there are many including Intel that will benefit. PMC Sierra and Micron are among the many.

Gold has taken a hit from the hedge funds but should settle in above 850 before it makes its next run to the upside. Inflation is a growing, not a declining factor.

Other themes continue to grow with infrastructure, agriculture and oil sands being predominant. The market should be profitable until next spring after which some new chickens may come home to roost.

Remarkably

The month of May should bring an end to the last hopes of Hillary Clinton after which the Democrats can get down to the serious business of trashing John McCain and the Republican greed machine.

The coming campaign will ostensibly be about two issues; the economy and Iraq, but in reality these two are interwoven and the Democrats must be adamant in their emphasis on this linkage.

Last month we mentioned the Stiglitz-Bilmes book entitled The Three Trillion Dollar War, a study that should become mandatory reading for every voting American.

Since its inception the war in Iraq has been an exercise in economic, moral and political suicide. The argument that America is obligated to see it through is both specious and stupid. It is the same argument that was used in Vietnam in years one through ten. In 1967 Alaskan Senator Ernest Gruening, who along with Wayne Morse of Oregon was one of two Senators who voted against the 1964 Golf of Tonkin resolution, answered a reporter’s question on how the United States could get out of Vietnam.

He responded simply by saying “in ships and in planes”. Tragically and fruitlessly that is exactly how they left 8 years and thousands of deaths later.

Barack Obama should propose a fix for Medicare, Social Security and the economy in general by proposing a massive infrastructure program. When asked how to fund it he may easily respond by saying that he will end the waste in Iraq and the tax cuts to the already wealthy. The side benefit will be a $30 per barrel drop in oil.

Geoff Ryan
March 5, 2008
GeoffreyRyan@hotmail.com
514-795-8450
http://thelaurelcomment.blogspot.com/