Stocks Climb With Metals on Factory Data as Dollar Gains – Proactive Investors UK

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Stocks Climb With Metals on Factory Data as Dollar Gains – Here is a brief portion of this informative article from Bloomberg:

Stocks and metals gained on data showing improvement in manufacturing and the U.S. labor market as a computer error halted trading on the Nasdaq Stock Market. The dollar rose as signs of an improving global economy increased speculation the Federal Reserve will reduce stimulus.

Germany led growth in manufacturing and services in the euro area, while a gauge for China’s factory output unexpectedly showed expansion. The fewest workers in more than five years applied for U.S. jobless benefits over the past month, indicating the labor market continues to improve, and an index of leading indicators rose in July by the most in three months.

“We’re seeing better economic data out of Europe and China, with several positive surprises,” Thomas Haerter, who helps oversee about $54 billion as chief strategist at Swisscanto Asset Management AG in Zurich, said in a telephone interview today. “Getting better-than-forecast numbers out of Europe is even more positive for stocks than better-than-forecast data out of the U.S., as the growth problem is mainly in Europe.”

My view – Global economic data in recent months has remained mixed but with overall evidence of gradual improvement in leading economies. This is consistent with the views of Kenneth Rogoff, Carmen Reinhart and other economists who have pointed out that it takes at least five to seven years for countries to recover from a financial crisis. A little over five and a half years have passed since global GDP bottomed between 4Q 2008 and 1Q 2009.

Obviously most stock markets have been considerably stronger, with companies benefiting from record low interest rates, quantitative easing (QE), technology enhancements and gradually returning confidence.

This item continues in the Subscriber’s Area.

Martin Spring’s On Target: Is Oil Really a Dinosaur? – My thanks to the author for his ever-interesting letter. It is posted in the Subscriber’s Area but here is a brief sample from the opening:

The FT commented recently of the giant oil companies: “Second-quarter results were a breathless mix of missed expectations, rising costs, lower upstream production and deteriorating downstream operations.” ExxonMobil reported its eighth consecutive quarter of falling annual production. Royal Dutch Shell announced a $2 billion write-off of its North American shale holdings as it moves to sell half its main unconventional assets there.

The Economist front-paged a picture of a dinosaur brandishing a fuel nozzle, suggesting that oil is “yesterday’s fuel.” Is that really so?

Despite the outbreak of pessimism, this has actually been quite a good year for oil. While commodities generally have fallen in price, oil has proved remarkably resilient, continuing to trade around $100 a barrel despite the slowdown in China and the sluggishness of the economic recovery in America.

Does this mean the longer-term outlook for the world’s most important commodity is rather better than the generally-bearish view of commentators and the low valuations of oil shares would suggest?

My comment – Martin Spring includes a long-term view in this opening feature which I think will be of interest to subscribers.

Email of the day – On volatility:

“In today’s comment on the Hindenburg Omen, you wrote:

“There are plenty of reasons for expecting a period of market turbulence, as Fullermoney has been discussing for several months, not least in the Audio. However, I do not think it will be anything like 2008.”

“Should we therefore invest in the Volatility instruments?”

This item continues in the Subscriber’s Area.

Additional commentary by Eoin Treacy

Email of the day (1) � on the medium to long-term outlook for oil:

�Please find attached a report plus slides from DNB Markets on the long term trends of the oil market. DNB got considerable media coverage with their bold � and disputed � forecast in the summer of 2012 that 2013 and 2014 oil prices would drop from the levels seen in 2011 and 2012. So far DNB has been right. Well, since last summer many other analysts have had to change their earlier optimistic (i.e. high) oil price scenarios to take into account the shale revolution and weaker demand. DNB Markets confirms its earlier predictions of cheaper oil in coming years, but not a return to cheap oil as such. The report includes a good overview of the North American shale revolution.�

My comment � Thank you for another in is this series of what i regard as invaluable reports sure to be of interest to subscribers. Here is a section:

But does that mean Saudi Arabia will choose to cut to protect prices this time? We are not sure. The fact is that Saudi Arabia does not really need a certain oil price to balance their budget, the kingdom needs revenues. The revenues from oil sales are a function of both price and volume. It is of course not a factor of price alone. Here is some food for thought when it comes to what kind of strategy Saudi Arabia will choose the coming years:

Currently Saudi Arabia is producing about 9.8 million b/d which at 100 $/b is worth 358 billion USD per year. If as an example Saudi Arabia have to cut output by 1.5 million b/d to 8.3 million b/d to maintain 100 $/b, revenues will drop to 303 billion USD per year. How far can the oil price drop and still provide the same revenues of 303 billion USD per year? The answer is 85 $/b. Saudi Arabia could in other words earn the same oil revenues by maintaining production at 9.8 million b/d and let the oil price slip to 85 $/b as the kingdom would receive by cutting output to protect the oil price. This is just an example to illustrate the strategic choices that could soon face Saudi Arabia. The benefit for the kingdom of maintaining output at a higher level to a lower oil price is that it would provide a larger oil market share for them, and also probably higher global oil demand.

What the kingdom will choose to do is not �written in stone�. During the 1980’s the Saudis cut massively to protect the oil price but changed that tactic after losing too much market share and then targeted volume instead. This time it might be a better strategy to let prices slide towards 85 $/b instead. The Saudis are fully aware of the cost curves for the shale oil industry and they know that many sellers would disappear if the oil price drifted lower than 80 $/b. Why not let the market take care of this adjustment and just let oil prices slide 15-20%? As already described if the price falls more than that, then non-OPEC will come to the rescue instead and start cutting output (drilling less shale wells).

My view � It has been our view at Fullermoney since at least 2010 that shale oil and gas represent a game changer for the energy sector, not least because the additional supply unlocked with new technology and an innovative state of mind among wildcatters changes the dynamics of the market.

This section continues in the Subscriber’s Area.

Share buybacks � In an ultra-low interest rate environment, corporations have been taking advantage of some of the lowest costs for capital in history to increase their debt load. One of the primary uses for this additional capital has been in refinancing older more expensive debt and therefore reducing the weighted average cost of capital for the whole company.

The stock market has been another important destination for this additional capital. Corporations have been in cost cutting mode since 2008 and the efficiency gains they achieved helped propel Wall Street higher from its lows of early 2009. Corporations have built up substantial cash reserves, often overseas, which would be taxed if they were repatriated. With top line growth increasingly difficult to achieve, stock market performance has been flattered by taking on additional debt and using the proceeds to buy back shares and to maintain or increase dividends. Apple represents a useful example of just this practice.

This section continues in the Subscriber’s Area.

 

Email of the day (2) � on the Chart Library’s track mouse function:

�Concerning charts – in the past if the cursor is hovered over an entry date, a yellow popup would show with O/H/L/C price. I don’t see this anymore.�

 

My comment � Thank you for this question which may be of interest to subscribers. The track mouse feature of the Chart Library can be switched on and off by clicking on the �Tracking On/Off� tab in the charcoal bar above every chart. Once turned on, this function will track the mouse as you move it around the chart area. Concurrently, the open, high, low and close will adjust accordingly in the legend box.