(TUESDAY 23RD AUGUST- 08.07 - JAMES GERRISH)...The US MKT was up strongly in early trade with the DOW +180pts presumably on the back of some optimism about the upcoming 'Jackson Hole' conference that provided Fed Chairman Ben Benanke with the platform to hint towards asset purchases (QE2) last year. The optimism was short lived with selling ticking up into the close.
Bank of America was of particular interest with rumours of a large scale capital raising prompting a significant drop in their share price while Lloyd Blankfein (Goldmans CEO) has apparently hired a high profile defence Law Firm so investors joined the dots - created a negative picture and sold down that stock.
When all was said and done, the DOW JONES added +37pts while the S&P 500 finished +0.03%. Locally, the SPI FUTURES are pricing a flat start to our MKT this morning.
Both BoA and Goldmans are shown in weekly charts below - both decidedly bearish and show a lack of confidence in US financials... and probably the financial system as a whole.
JACKSON HOLE
Central Bankers from around the world meet in Jackson Hole this week with Fed Treasurer Ben Benanke speaking on Friday. This time last year Benanke gave the nod to QE2 which prompted a +27% rally in the S&P 500. It seems to me that Bond Markets are pricing in some type of asset purchases (quantitative easing) with yields on the 10 year treasuries dropping to near 2%. This is important because yields drop on expectations of greater demand which would come from the Fed stepping into that MKT.
At the moment, the US economy is in a similar position to what it was when the last round of stimulus was announced. The US economy is clearly too fragile to stand on its own two feet, growth is stalling and unemployment remains way too high (9.1%).
These are the obvious reasons for stimulus to be rolled out but I'm a little less confident that we'll actually see any action from the Fed. Firstly US policy makers are facing rising inflation compared to a backdrop of deflation this time last year. Back then, annualised core CPI was at 0.9% - now its at 1.8%. Further QE will pump up asset prices (equities + commodities etc etc) which will filter into inflation.
We know the Fed Treasurer Ben Benanke is partial to pushing the button on the US printing press however he doesn't have the support he once did. At the last Fed meeting, three board members disagreed with the call to keep benchmark interest rates are near zero until mid 2013 - a level if dissent not seen since 1992 and a clear sign off differing opinions between board members.
What the outcome from Fridays speech will be can only be determined in time, however the market is clearly looking some guidance on the role of the Fed in supporting US growth. They need to give some guidance on what tools they still have available (and are prepared to use) should the trend of high unemployment and low growth continues. My gut feel suggests they'll be something but probably not enough to be the catalyst for a strong rally (I hope I'm wrong on this).
CHARTING THE RECENT LOW....
A colleague of mine, Gary Glover put together the chart below - basically highlighting the choppy nature of recent market lows. The premise here is that recent lows have shown an inclination to test and retest a certain level a number of times before moving higher. This looks similar to what could be playing out this time around.
MODEL PORTFOLIO STOCKS
Kingsgate Consolidated (KCN)
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Kingsgate Consolidated Provides June 2011 Quarterly Activities Report 22-Aug-11 17:14
Kingsgate Consolidated provided its June 2011 quarterly activities report, reporting group quarterly gold production of 36,877oz (Chatree 16,180oz and Challenger 20,697oz); total cash costs of US$583/oz at Chatree and US$1,059/oz at Challenger (incl. royalties);?Chatree North Plant expansion on schedule and near 5% under budget; and strong positive gold reconciliation of 124% from lower levels of the Challenger M2 Shoot system. The Company also reported deeper drilling at Challenger confirmed the ore shoot system offset and included an intersection of 9.6m @ 17.1g/t with visible gold; Arqueros resource drilling completed and feasibility study commenced; and the acquisition of Esperanza and Chimberos leases significantly enhances the Arqueros Project.
We've got a current valuation on KCN for 2012 of $13.36 against current MKT price around +$9
Qube Logistics (QUB)
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Qube Logistics Admits to Official List 22-Aug-11 11:17
Qube Logistics was admitted to the Official List of ASX on Monday, 22 August 2011. Official Quotation of 610,839,329 FPO shares will commence during the Group 4 Opening Phase at approximately 10:06:45am AEDT on Tuesday, 23 August 2011 on a deferred settlement basis under ASX Code QUBDA.
Starpharma (SPL)
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Starpharma Holdings Announces GSK Awarded Funds for Dermal Treatment 22-Aug-11 10:58
Starpharma Holdings announced that GlaxoSmithKline (GSK) has been awarded a grant to advance a dermal treatment based on the company's dendrimer drug delivery technology. The funds will be used to support the company's synthesis of dendrimer-based drug candidates which will then be tested by Stiefel, a GSK company with a view to further development towards a dermal product. The funding has been provided under a grant program run by the Victorian Government.
This stock has been sold down aggressively of late however we feel this presents an opportunity rather than something more sinister.
BHP Billiton Limited (BHP)
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BHP Billiton Announces Petrohawk Tender Offer Completed 22-Aug-11 09:30
BHP Billiton announced that all conditions to the closing of the tender Offer by the Company, BHP Billiton Petroleum (North America) and North America Holdings II, to acquire all outstanding shares of common stock of Petrohawk Energy for US$38.75 per Petrohawk share net to the seller in cash, without interest, less any applicable withholding taxes, have been satisfied. As of the expiration of the Offer at midnight, New York City time, at the end of 19 August 2011, approx. 293.9m Petrohawk shares had been validly tendered and not withdrawn pursuant to the Offer, including approx. 36m Petrohawk shares tendered by guaranteed delivery, which tendered shares represent approx. 97.4% of the outstanding shares of Petrohawk. The Company has accepted for payment, and expects to promptly pay for, all shares validly tendered and not withdrawn on or prior to the expiration of the Offer.
DIVIDENDS
See top left.
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp fell by US$0.51 to US$15.80, equivalent to A$15.20, A$0.40 below its last close on the ASX.
ResMed rose by US$0.26 to US$27.81, equivalent to A$2.68, A$0.02 above its last close on the ASX.
In London, Rio Tinto fell 63.0 pence to £34.32, A$1.00 lower in Australian currency terms.
BHP-Billiton fell 30.0 pence to £18.60, A$0.47 lower in Australian currency terms.
Henderson Group Plc fell 7.0 pence to £1.23, A$0.11 lower in Australian currency terms.
