TSX, Oil, Loonie Advance; Crude Inventories Build

Crude Oil Inventories at 2 year high

Crude oil stocks continue to build, now at the highest levels in two years. As crude oil stocks see sharp drawdowns, we see prices spike. One would expect prices to fall as inventories build, yet upon the release of recent EIA petroleum data, oil got a bump to just over $100/bbl.

11:30 am EIA report release, oil jumps nearly $3 on inventory build

Canadian Dollar Slides on Lower Oil

The loonie broke below support at 1.024 and trades at 1.021 USD, a level we haven't seen since March 24th. The loonie has nearly a 90% correlation with commodity prices,  and as oil continues to fall the loonie is dragged down with it.  But lower oil isn't the only factor putting downward pressure on the CAD, there are two other items worthy of discussion. Firstly, the recent Europe debt crisis has caused a flight to quality where investors pour out of emerging markets (ie.Canada) and into perceived safe havens like dollars, francs, and gold. Also, speculators are dropping the CAD as a result of an expected rate hike that won't at the next BoC meeting. Tough to call a bottom, there is enough evidence to support a loonie above parity.

Euro Climbs Against Dollar, Pound

The Euro gained 0.2% on the US dollar as German business confidence unexpectedly stayed at record highs in May, signaling that the ECB may be forced to raise interest rates even as the region's debt crisis intensifies.  The Euro fell below 1.40 US yesterday for the first time since March.

The pound suffered against the euro for the first time in 4 days Tuesday as Moody's Investors Services Inc. may lower the credit rating of 14 key UK banks, and a report that showed the UK budget deficit widened in April. The Euro climbed as much as 0.3% against the Sterling in early trade.

Goldman "More Bullish": Crude Oil, Gold, US Futures Gain

Goldman Sachs is "more bullish" on commodities today, following the biggest drop in raw materials in two weeks, reversing their call a month ago to sell. Goldman believes that economic growth in the 2nd half will be sufficient such that key supply constraints will be reached that will undoubtedly push prices higher. The risk trade back on; crude oil, copper and zinc were up over 1% on the back of this news. Gold is up 0.34% to $1520.60, Silver up almost 2% to $35.50.

LNKD Update: Insiders permitted to sell 180 days after IPO

Of the 94.5million shares in existence of LinkedIn Corp., there are 7.84 million shares trading in the secondary market. Less than 10% of the total share count floats in the marketplace, perhaps a reason why its currently trading at its current price level. Its a function of supply and demand, and for whatever reason excluding rationality people want to own this dog. Sell it. 

After 180 days insiders are allowed to sell their stock in the market and divest. Given that insiders currently own a whopping 87 million shares, a glut of supply is coming to market as even insiders know that the current market price is astronomical. Lawrence Haverty of Gamco Investors believes insider selling could drive the price below $30/share.

This will be the textbook example going forward of how markets fail, how markets are irrational, how they can be manipulated, and how certain individuals, ahem..underwriters, banks, wall street junkies make a shit load of money at the expense of the public. Its a zero sum game folks, money is neither created nor destroyed, just transfered from one medium to another.

LinkedIn Shares Fall Sharply, Recover

As we have analyzed the insane valuation of NYSE:LNKD in previous posts, and spotted the easy short at $120 a share, shares were down today in early trading over 8%. Not surprising. I do find it interesting that the shares are rallying throughout the day, now 1-hr before the close, the shares have moved from $84 to $91.06, down only 2.5%.

Still the valuation is rich, the stock, currently trading at 2300x forward P/E multiple, its the most expensive stock on the market. The most recent EPS was 4 pennies per share. AAPL for example trades at 16x forward earnings, so if we are to use the average P/E multiple on the S&P 500 (16x), the stock price would be a meagre 64 cents.

So to derive the price, we multiply earnings ($0.04 EPS) by 16 (S&P P/E). Of course earnings will grow going forward. But no where near to the degree what the market is paying.

Even as I wrote this post, the stock is moved down to $88.70. Absolute insanity.

World Stocks, Oil, Euro Slump; EU Debt Crisis is Worsening

The Bears are out today as stocks across the globe dropped precipitously Monday as fears of the European debt contagion spread, and data out of China showing that growth is slowing. On China, Copper fell the most in two weeks, dropping almost 4%. Light Sweet Crude also fell, to nearly US $97/bbl, a drop of 2.84%. Precious metals were mixed; Gold up slightly, silver edging lower.

Asian stocks were hit the hardest, the MSCI World Asian Index dropped 2.2%. European stocks also tumbled; the CAC40, DAX, and FTSE down an average of 1.8%. In North America, the TSX was closed for Victoria Day holiday, while the DOW30, S&P500 were down an average of 1.2%. The Nasdaq suffered the most down 1.72%.

Euro Touches Record Low Versus Franc on Debt Woes

The Euro continued to slide against a basket of currencies in the Asian trade, some to levels haven’t seen since the currency’s 1999 debut. The Euro dropped to 1.2324 Swiss Francs briefly before bouncing it’s lows; the Euro weakened a full percentage point versus the dollar to 1.397, the lowest we’ve  seen since March 17,and is expected to cross it’s 100-day moving average at 1.3969. The European debt woes continue to be a huge concern for traders, as this fear that the contagion is spreading, coupled with slowing economic growth in China has traders heading for the exits of riskier assets.

On China’s economic growth softening, Asian stocks as a whole slumped 2.2%, as people are less comfortable with the recent stock market gains. Today, HSBC Plc. released the recent Chinese preliminary Purchasing Mangers Index dropped 51.1 from 51.8 reading in April. A reading above 50 indicates expansion, so growth is slowing.

Breakdown Reverses; TSX Jumps 120pts on stronger metals, oil

The TSX rallied off its lows this morning in a 120 point swing on the back of an midday rally in oil. Gold and silver also shook off their losses and moved higher. Despite the lackluster economic data, these positive reversals are again signs that the short term market bottom is in.

Oil Slides 2%; Gold, Silver Shed Gains

Texas Tea shed over 2% today to settle at US$96.48/bbl, again unable to hold above the US$100 psychological threshold. Good news for consumers, but oil, the lifeblood of the world economy, is essentially a leading economic indicator that provides data up to the minute.

Precious metals, gold and silver were also down. Gold was just edging into negative territory, down a dollar at US$1491/oz,while silver, the more volatile of the two, shed 1.2%at US$34.52/oz.

Euro Weakens on Growth Concerns; Greek Debt,US Stocks Drop

The euro weakened 0.4% over the dollar this morning as words out of Germany say the economic growth will likely lose momentum in the second half of the year. Greek bonds also fell on speculation that it's debt will need to be restructured. US Stocks feel on weak consumer data and a weak profit forecast from Gap Inc., one of the largest clothing retailers in the US.

UPDATE: LinkedIn valuation/Comparison

Currently at $9.8 Billion USD, LinkedIn is valued at:

0.3x Starbucks
0.5x Research In Motion
0.5x Kelloggs
0.6x Alcoa
5x US Airways
2x PetSmart
1.8x US Steel
2.5x Williams-Sonoma

or at 100 Million users, the market values each user at $100.

LinkedIn IPO; Price Doubles!?

The myth of the rational market

LinkedIn Corp. shares traded today for the first time on the NYSE. Despite a relatively rich valuation to begin with at $45/share, secondary market trading has pushed the stock up an amazing 120% since the open. This has got to be a joke. Who is buying the stock at this price? This is an easy short.

This professional social networking site created in 2003 is now worth over $8 Billion by market capitalization, which is absolute insanity for a company whose Q1 2011 net income was slightly over $2 million.

Canadian Stocks Rise Sharply

Downside risks have ebbed and commodities firmed up in overnight trading. The rally which started midday Tuesday has lifted the Canadian benchmark index up 1.25% nearing the close of the session. While  it is expected that trading in the market will remain choppy over the course of the summer in QE3, I am confident the market moves higher from here.

Stocks to watch: RIM, SLW

Futures Firming Up, Commodities Higher, Pointing to Higher Open

US Futures were up 3/10 of 1%, while the Commodities complex was up just over 1%. This is great news for Canadian stocks as I am sure they will get a nice pop at the open from stronger oil and metal prices. Yesterday I put to sleep the price drop in Canadian stocks, and gladly bought the dip the entire way down. I still have plenty of cash on the sidelines just in case a nuclear explosion or earthquake, or both should occur and send stocks stumbling in a freefall once again.

Stock Market Correction Likely Over

1year Chart of the TSX index

The recent downturn in global stock markets has likely run its course. The TSX, the index I follow, has been unable to break below it's January breakout levels of roughly 13400. The TSX has given up all of its 2011 gains, however over the last 52 weeks it has returned over 15% so historically speaking we're still in good shape.

By the end of the year my expectation is that the market will break out into record highs, possibly somewhere in the 15000 pt range, before any significant retracement. My reason for this is the commodities and resources Canada produces are in continued to be in huge demand by emerging markets which are still showing strong, unabated growth rates which are likely to continue in due course.

An interesting point about gold is that, in my opinion, the rally is likely beginning to unwind. It has mostly been a play against inflation and the US dollar, and as we've seen by a relatively stagnant core inflation numbers, and as oil and other commodities price lower in the 2nd half of the year, gold and silver will likely ebb going forward. The difference between gold and oil, for example is that oil has an end user. It is bought and consumed, not stored so the demand for something like oil in recurring. The demand for gold lately has been somewhat more of an emotional play and this will contribute significantly to some downward price pressure.

Losses Cascade in Midday Trade

Gold is off about $15 an ounce to $1475, Silver showing signs of support above the $33 level as it continues to retest the psychological threshold. US Manufacturing Capacity Utilization Rate shows signs of 0% growth, this along with other recent data points show the US economic growth is beginning to stall. Some view this as transitory, and I tend to agree that this is merely pause in growth for a couple of quarters. 

US Stocks have shed about a 1% within the last hour with the disappointing news; the Dow is off 135 points. Canadian stocks are fluctuating between positive and negative territories, despite the fact that crude inventories are at the highest levels in 2 years. Gasoline also under significant pressure today, and prices should come down which is good news for consumers. 

In other news, some oil and gas companies have had to shut off production due to wild fires in Slave Lake, Alberta, Canada. The fires have burned roughly 1/3 of the city, which is quite devastating. Unlikely that these disruptions will cause oil and gas prices to rise.

Oil, Silver Decline; Stocks Mixed

Oil Below $98/bbl

Silver Below $34/oz

Oil fell below levels we haven't seen from the middle of February, and silver struggles to gain traction as the metal fell below $34 US/oz. Commodities weakened amid strength in the US dollar, again a sign that commodity prices are showing signs of normalizing.

Looking at a 6mo. chart of the TSX index, we can see that near term the highs have been set and the stocks are currently in a downward trend. Largely the result of commodity prices falling; Euro debt issues, and US debt issues, weak US housing data and, a cooling Canadian housing market show that while the recovery is still somewhat in tact, economic headwinds still remain. Valuations in my opinion have been quite high, merited however by record corporate profits. I am looking to get long oil in the low 90s, silver in the high 20s and am hoping to see the TSX shed another 1000 pts.

6Mo. Chart of the TSX index, clearly rounding out

Gas Prices Hovering Near Record

I have been trying to plot the canadian dollar, oil price per barrel, and gasoline prices at the pump, over the last couple years to try and draw any worthwhile conclusions as to what is going on in the retail world.  My personal view is that high oil prices are like the kryptonite to the world economy. Clearly the higher oil prices go, the less disposable income consumers have to purchase other goods and services.  Our economy, and economic growth is dependent on cheap oil. In June 2008 oil peaked at $150 per barrel... markets then cascaded downward and the worst recession since the depression ensued. But what I find unusual is that despite bearish inventory data, a stronger canadian dollar, a recently a significant drop in oil prices, the price at the pumps is edging up another couple cents to over $1.41/L.

I can remember when I got my TDI Volkswagen, diesel was $0.33/L and about $20 to fill the tank (55L tank). Man, I miss those days.

Gas prices will have to come down, I am confident they will. More people should be walking, or riding bikes if they can, and the amount of savings you can enjoy are quite significant.

CN Tower Stepping Up Its Game

The CN Tower is getting rigged up to allow for individuals to walk around its observation pod. Why didn't they think of this sooner? The Statosphere tower in Las Vegas has a reverse bungee jump attraction where people are propelled at 60 MPH outwards a couple hundred feet.  Obviously way cooler than being able to walk outside/around the CN Tower but at least its a step in the right direction.

Silver Losing It's Lustre

The epic rise in Silver Bullion over the past year and a half has largely been uninterrupted. That is usually a warning sign for anyone with a brain at least the size of a tangerine. As silver crept up on is historical high of $50.25 USD/oz, it look liked new highs were going to be created. Before the $50 mark was reached however, the bottom fell out, and prices have subsequently declined 25% over the last 4 trading sessions. Sure, new margin requirements set by COMEX played a huge factor in the decline, but any chartist could spot the reverse Japanese candle stick formations, and the tops blowing off. Many investor's have been calling me eager to buy weakness in the metal, but the reality is the declines are likely continue in the short term. I will be adding to my physical position if I see anything below $28 USD/oz, hopefully by then my broken will lighten up on those hefty commissions he's been charges for delivery.

I wouldn't be buying silver at these levels unless I was a jeweler or a dentist. If you want to trade the metal, you would have to be incredibly nimble, and mildly suicidal. The money was made on the way up and on the way down, going forward it's going to be incredibly choppy. Long-term however, the fundamentals are still in tact, but I could be dead in 20 years so what good is that? I will discuss reserve, production, circulation, and pricing ratios going forward and how you can use them to spot opportunities in the market places as they arise.

137th Kentucky Derby

Dialed-In is the early 9-2 odds on favorite to win the 137th running of the Kentucky Derby. So far there has been nearly $250,000 wagered on the track, with still a couple hours to go before race time. Calvin Borel, the "son of Kentucky," will be riding Twice The Appeal, currently showing 7-1 odds to win. The focus however will be on the 9-1 favorite Pants on Fire jockeyed by the 6th ever female jockey in history to race in the epic run for the roses. If Rosie Napravnik takes the derby, she will be the first woman in history to do so.

Delean's Picks:
Pants On Fire
Nehro
Comma To The Top (long-shot)