Thursday, July 21, 2011

Here we go again!


The Dow has outperformed the TSX this year so far (as I predicted early in the year - puff, puff). Commodities and commodity based stocks have underperformed this year and so have Canadian banks; hence the TSX's poor performance.

But the summer correction may be over and if you look at the Dow Jones chart below sourced from GlobeInvestor, you may notice that the U.S. large cap index is ready to break out into new high territory. Seems the Dow is about to test the 14000 high of 2007 before the year is over.

Commodity price charts such as Jim Rogers' RJA-N are showing an uptick in price but whether this is a turning point or just a rally in a correction is not certain. My bet, though is that it is the start towards new commodity highs. Oil prices, in particular Brent Crude, look also poised to go back to old highs. The question is whether the economy can handle $125 Brent prices or not. My guess is that it can for now.

Europe's debt questions are being addressed, although in nerve wrecking fashion. Now that Germany seems to accept a 'partial Greek default' the clouds look less dark. The U.S. debt ceiling issue remains, but the markets seems to ignore it for now. I am still waiting with cash in my hand for a significant correction if Obama et al. don't work it out in time. But, my long-time stockbroker pointed out that we had the same fight between Democrats and Republicans during the Clinton years. In those days no agreement was reached and the government was without funds for about 6 days. Apparently the impact of this 'incredible' event has been forgotten by most of the media. Be ready for a buying opportunity, however, yet another 'end-of-the-world' scenario seems unlikely.

It is so strange to watch this circus with the market potentially poised for either a major upturn or a downturn. Cash holdings remain very high and a recent survey of major U.S. investors by Citybank suggests that those investors expect an upward moving U.S. dollar. Hmmmm. So, when is all this cash coming off the sidelines?
My overall view now that we're entering the 2nd half of the summer (already? The snow is barely gone!) is that we'll likely get a market set-back because of those darn U.S. politicians but that this rapidly will be forgotten and we'll enter the final profitable phase of this year – only 5 more months to go! (Darn it). Here comes Santa. JJ Just to make the game juicy. My forecast for yearend: TSX vs Dow will be a tie at 14,000! WTI oil will end the year around $115 and Brent at $127.

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