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July 14 2013 – Weekend Market Comment

July 14 2013 – Oh baby, how can you not smile? The markets continue to move higher this week and if you have been bullish on U.S. equities you had a nice ride this week. All my market indicators from last week just look a bit better this week. We have a nice low volume summer rally.

(as always click any graphic to enlarge)

Our trade in TBT still looks good, it has slipped a bit this week but this is a long-term play. Here is a highly entertaining video from Bloomberg on why the TBT trade has gone far better than I thought it would, or as the video says a “massive outflow” from bonds.  

Who followed me in to Canadian Pipeline Stocks a last week when I recommended them? Lets look at Enbridge this week up 3% since my recommendation.

Biotech and U.S. regional banks are doing well but a long dead category has come back to life, Insurance companies are having a nice rise, because of anticipated rising rates is boosting revenue potential. 

Look at stodgy, stuffy, old Prudential. In the crash of 2008 Apple went down to $80 and now is about $400, 5:1 a nice return you say, but wait, it is hard to believe but Prudential stock was $8 in the crash of 2008, now nearly $80. A “ten bagger” on an insurance company? I bet you will never see that opportunity again!

I have been out of gold for a few weeks while it enjoys a little bounce on rumours of trouble from China and a stronger U.S. economy. I have drawn a chart of gold in a Keltner channel. The middle of the channel is the average gold price the outside edges are two standards of deviation. Notice on the way up, price would fluctuate between the middle and the upper band, on the way down it fluctuates between the middle and the lower band. Well we are now at the middle, the ducks are quacking and the big hedge funds getting out of gold, especially HSBC London (who are sweating bullets trying to dump their holdings) have some nice gold bars to sell those noise suckers. From here gold should retreat. If it does not, then perhaps the gold sell off is off for a little longer, but I went short this week. I used futures but you can also buy HGD on the Toronto exchange or DZZ in the US, for the really gutsy DUST the X3 gold miners down.

Whats New? Look Offshore.
Emerging Markets are becoming known as “Submerging Markets” but this really is no surprise when you look how closely these nations are linked to commodities. South Africa and Brazil are diving into economic chaos and Australia has found that the BHP Billiton billabong has finally run dry. That said, there are a few really bright spots in offshore diversification. As wages and environmental issues grips China’s attempt to build a middle class -- low end manufacturing work is leaving for the new so called Frontier Markets. A New ETF under the ticker FM, tracks these new oil producers and sweatshop havens in places like Nigeria, Pakistan, Kenya, Oman, Kazakhstan, Argentina and Vietnam.  Read more here.

Also as it is becoming clear that the EU will survive and that everyone still wants to drive an Audi A6 things have turned around in Germany. As you know we have been waiting for this bounce -- I have been accumulating all week. 

The Japan trade is back on again as DXJ continues to rise on Abenomics (Yen devaluation and stimulus). I pointed out the before this was a crowded trade and sure enough it fell off, well it looks like Wall Street traders have the attention span of a "purse dog" and it is back to game on for the land of the rising sun.

Never put all your eggs in one basket, diversification is important. Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.

Just look what happened Friday, here is the stock of Boeing in real time, it hit a record high and 6 min later the news of a fire in a 787 Dreamliner at Heathrow hit the wires.

Sign of Impending Doom?
The Chrysler building and the Empire State building were finished right at the start of the great depression. Ever since then, every nation that has just built the “Worlds Tallest Building” has hit economic disaster.

New York (1908)
187 meters
Panic of 1907
Metropolitan Life
New York (1909)
247 meters
Panic of 1907
40 Wall Street
New York (1929)
283 meters
Great Depression
New York (1929)
319 meters
Great Depression
Empire State
New York (1931)
443 meters
Great Depression
World Trade Center
New York (1973)
526 meters
’70s Stagflation
Sears Tower
Chicago (1974)
527 meters
’70s Stagflation
Petronas Towers
Kuala Lumpur (1997)
452 meters
Asian Financial Crisis
Taipei 101
Taipei (2004)*
509 meters
Tech Bubble
Burj Dubai
Dubai (2008/9)**
828 meters
Global Credit Crunch

Thus you can think of the world’s tallest skyscrapers as indicators of lofty overconfidence. The economist Mark Thorton eloquently summarized the context surrounding the construction of the world’s tallest skyscrapers: “First, a period of easy money leads to a rapid expansion of the economy and a boom in the stock market . . . credit fuels a substantial increase in capital expenditures … [and] this is when the world’s tallest buildings are begun.”

Well this week China did not build the World’s tallest building, but they did open the World’s Largest building. You can read about it here
So does that have the same implications? I bet it does . . .