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Mon 3rd Aug 08.00 GMT UK Halifax House Prices (MoM/YoY) July
Mon 3rd Aug 08.30 GMT UK Purchasing Manager Index Manufacturing July
Mon 3rd Aug 14.00 GMT US ISM Manufacturing July
Tues 4th Aug 04.30 GMT Aus RBA Interest Rate Decision
Tues 4th Aug 12.30 GMT US Personal Income (MoM) June
Tues 4th Aug 12.30 GMT US Core Personal Consumption Expenditure (MoM/YoY) June
Tues 4th Aug 23.00 GMT UK Nationwide Consumer Confidence July
Thur 6th Aug 11.00 GMT UK BoE Interest Rate Decision
Thur 6th Aug 11.45 GMT EMU ECB Interest Rate Decision
The US economy suffered continued economic contraction during the 2nd quarter, (April to June), though the gap to growth narrowed, relative to Q1. The fall in output of -1% annualised compared to a consensus forecast of -1.5%. Q1 GDP was revised downwards from -5.5% to -6.4%. 2008 growth was also revised to a weaker 0.4% from 1.1%.
The world’s largest economy has now shrunk for four consecutive quarters, the longest losing sequence since records were formalised in 1947.
A key contributor to the latest decline was the erosion of business inventories which slumped by a record $140bn in the quarter as firms cut production in an effort to reduce stockpiles. The production cut-backs contributed about 80% of the Q2 contraction in economic activity.
Exports, residential and business investment all fell though the rate of decline in each sector slowed compared to the 1st quarter.
The GDP report came at the end of another week of appreciating equity prices, though as predicted in this column last week Monday and Tuesday saw equity markets stutter giving short sellers a small window of opportunity mid-session to prosper before equities resumed their bullish run later in the week.
Ticker AUO
Position Open
Signal Long
Date 30th July 2009
Entry Price 11.17
Target Price 11.96
AUO to 30th Jan 09
The essence of Pawlewski’s system is that it is able to distinguish between appreciating stocks that are experiencing a short term pull back but will imminently rally and stocks that are falling and will continue to do so with near uninterrupted momentum. Using statistical analysis Pawlewski’s system can identify long trade candidates, which he would typically hold for an average of 10 days. Similarly, by using ‘reverse’ statistical analysis the system proposes short positions. The exact details of the process are confidential, but it is clear that Pawlewski can identify the ‘genetic’ code within a stock’s chart which under analysis by the Pawlewski system provides information regarding the future direction and pace of a stock’s movement.
Mid-session Thursday and the equity rally has sparked back to life after 3 days of relative calm. The ‘QQQQ’ NASDAQ Tracker’s relative strength index has progressed deeper into overbought territory and now stands at 75.09, which is unsustainable. Any reading over 70 indicates prices are stretched at least in the short term on the upside.
Surprisingly, considering the rally, there has been an absense of good economic news on the day with the latest jobless claims data coming in slightly worse than expected.
QQQQ to mid session 30th July 2009
Democracy is the system of one person one vote. Business is one dollar one vote. It would take a vivid imagination to think that the perfect scenario for a business; securing abnormal profits or a monopoly, is appropriate in a fair and democratic society. Likewise, the managers and shareholders of corporations need to be offered a reward for their time, skills and investment otherwise there would be no motivation to take risks or to employ workers. A fair equilibrium is the logical aim.
But the two, democracy and business, co-exist uncomfortably as there is a finite amount of wealth in the economy and that wealth needs to be shared equitably between two of the three participants in any economy: individuals, (workers, consumers and taxpayers) and businesses. The third participant is the government which should not pursue wealth or power for its own benefit but should act as the moderator and facilitator creating a scenario which allows the two other parties to prosper fairly, in correct proportion and in line with the law. To achieve this fair scenario key governmental decision makers should not have personal interests more aligned with one group, business, than the other, society.
In periods of economic growth when both the individual and corporations as a whole prosper the division of wealth between the two is naturally a concern. But those concerns are magnified significantly when the economic pool of wealth is contracting. In a recession tensions between the individual (the ‘man on the street’) and companies increase as corporations lay off staff to protect the interests of the firm’s owners. Tensions rise further when certain companies or industries receiving preferential treatment at the expense of industries with less political influence or the collective society.
The onus is on the government to ensure fair allocation of stimulus and support so that both individuals and companies exit the recession together, as far as that is possible. But if the country is still struggling to recover, unemployment is rising and the average individual is still suffering whilst certain corporations are already, again, enjoying abnormal profits then the division of wealth and the legislation that created that scenario is flawed. Also, corporate earnings can only grow quicker than GDP growth if the finite wealth of society is being re-allocated from the individual to corporations.
The past 25 years has seen the economic balance of power shift too far from the fair equilibrium. The few are benefiting at the expense of the many. Goldman Sachs is a beneficiary. Wall Street as a whole is another beneficiary. Main St has suffered. But the individual, the workers, the micro-engines of the economy have suffered most. Unfortunately, one dollar one vote is more popular than ever in Washington.
GS to 29th July 2009
A couple of years ago, earnings growth obsessed investors and banking analysts treated Banco Santander almost as an after-thought. For every mention of Banco Santander in the UK investment press there were 10 articles on each of the other big banks; Barclays, RBOS, LloydsTSB, HBOS and HSBC. Santander just wasn’t very exciting. Plus, the London investment community, deeply in love with its own Anglo Saxon model of capitalism was ever so slightly amused at the thought that our European cousins in the Mediterranean might articulate banking management skills equal, or god forbid superior, to those in London or Edinburgh.
Now, as the country continues its efforts to formally exit the worst financial crisis in living memory the enigma that is Banco Santander is better appreciated.
But in all logic the bank should be suffering a maelstrom of problems. Santander is domiciled in Spain, arguably the most vulnerable economy in Western Europe. The group also, in 2004, acquired one of the largest British banks, Abbey National, and it would be fair to expect Abbey to have a similar depth of exposure to struggling UK consumers and the housing market as the much maligned Northern Rock, RBOS, HBOS or LloydsTSB do, (the latter two now forming Lloyds Group). But Santander isn’t in a mess, nor was it on the verge of collapse like so many banks late in 2008. It didn’t dominate the headlines with news of government bail-outs or queues of panicking savers urgently trying to extract their cash. Quietly, professionally and with minimum fuss the Spanish bank has consolidated it position, strengthened its brand in the eyes of risk-averse consumers and built a reputation amongst banking sector observers for financial integrity and stability that most other Western banks can only dream of.
Santander’s strategy of geographical diversification and a commitment to building a relatively prudent book of loans and mortgages has protected its balance sheet from the worst excesses of the debt bubble, though obviously some additional bad debt provision has been necessary. The bank should be congratulated for having paid close attention to the Good Risk Management textbook, the book HBOS management left on the shelf, collecting dust, thinking it was a secret Martian code too complex to be deciphered.
Reviewing the financials from the latest quarterly report also reassures. The group’s attributable profit in Q2 has progressed to Euro 2,423m from Euro 2,096 in the prior quarter, whilst year on year performance is a modest 4% lower. The UK contributed 16% of profits, Latin America 34% and Continental Europe 50%. H1 2009 loan provisions rose 61% to Euro 4,626 from Euro 2,880 in H1 2008 causing a 19% descent in earnings per share which otherwise would have made strong progress. A proportion of the bad debt provision maybe ‘returned’ to the P&L if actual bad debts are less than the provision. Of course it is also possible that the provision is inadequate but with a diversified business model and exposure to the relatively healthy Latin America region, the future remains brighter for Banco Santander than many of its competitors.
The chart below highlights the growth in the bank’s NYSE listed ADR (Banco Santander Cent Hisp) which is deep in over-bought territory with a 14-day RSI of 77.38, so investors should add the firm to their watch list and reconsider the question of buying if better value returns.
Banco Santander STD to 29th July 2009
Ticker TIE
Position Open
Signal Long
Date 28th July 2009
Entry Price 8.29
Target Price 8.50
TIE as at 28th July 2009
The essence of Pawlewski’s system is that it is able to distinguish between appreciating stocks that are experiencing a short term pull back but will imminently rally and stocks that are falling and will continue to do so with near uninterrupted momentum. Using statistical analysis Pawlewski’s system can identify long trade candidates, which he would typically hold for an average of 10 days. Similarly, by using ‘reverse’ statistical analysis the system proposes short positions. The exact details of the process are confidential, but it is clear that Pawlewski can identify the ‘genetic’ code within a stock’s chart which under analysis by the Pawlewski system provides information regarding the future direction and pace of a stock’s movement.
Ticker AKS
Position Open
Signal Long
Date 28th July 2009
Entry Price 18.90
Target Price 19.86
AKS to 28th July 2009
The essence of Pawlewski’s system is that it is able to distinguish between appreciating stocks that are experiencing a short term pull back but will imminently rally and stocks that are falling and will continue to do so with near uninterrupted momentum. Using statistical analysis Pawlewski’s system can identify long trade candidates, which he would typically hold for an average of 10 days. Similarly, by using ‘reverse’ statistical analysis the system proposes short positions. The exact details of the process are confidential, but it is clear that Pawlewski can identify the ‘genetic’ code within a stock’s chart which under analysis by the Pawlewski system provides information regarding the future direction and pace of a stock’s movement.
Ticker AKS
Position Closed Long
Date 31st July 2009
Entry Price 18.90
Target Price 19.86
Closed Price 19.80
Great companies exit recessions leaner, fitter and stronger for the experience. Or to put it another way; form is temporary, class is permanent. BP is arguably one of those great companies. Predictably, during the recession revenues have been hit, the collapse in the oil price from $147 per barrel to the $30’s saw to that (current price $68), but the cost base has been reduced significantly, production is growing and capital expenditure remains strong to help build reserves – the embedded value of energy companies.
The most recent quarter has seen further progress in the reorganisation of BP. Production has risen to more than 4 million barrels of oil equivalent a day, the full year target of $2bn in cost reductions has already been achieved with another $1bn in savings predicted for 2H 2009, relative to 2008 and 2nd quarter replacement costs profit rose 32% QoQ to $3,140m. Sterling investors also saw their dividend rise by 21% due to favourable exchange rate movements. The dividend for the quarter is 14 cents. Capex for Q2 was $4.8bn and $9.4bn year-to-date.
Looking forward, BP forecasts the global economy could stabilise further through the summer but that “any recovery, whenever it comes, would likely be sluggish”. Management appear to be more satisfied with their upstream progress and reassured investors that the firm would continue to focus on streamlining their alternative energy operations and securing more group wide efficiencies.
BP closed the update commenting: “Our view remains that the right current balance is to continue to pay the dividend and maintain investment to grow the company. We will continue to use the capacity of our balance sheet while the industry cost structure adjusts.”
Analysis of the chart, below, fails to provide obvious clues as to the near-term direction of the stock, with a brief correction slightly more likely than a continuation of the recent bullish run. Traders should therefore pay close attention to the oil price, which in the absence of surprise stock specific news, is likely to be the dominant factor in BP’s share price through the summer.
BP weekly to 27th July 2009
tradinghelpdesk 11:46 pm on July 31, 2009 Permalink |
Ticker TIE
Position Closed Long
Date 31st July 2009
Entry Price 8.29
Target Price 8.50
Closed Price 8.40