We find markets facing headwinds this morning due to world economic growth concerns which surfaced over the weekend. Little has changed over the weekend, so we will remain bullish while keeping in mind that we are due for a pullback after a great run. It shall be short-term when it occurs and a buying opportunity, but nevertheless a pullback.
Looking to Asia we see red, and lots of it. The Nikkei 225 is down 0.14%, Seoul Composite down 1.42% and Australia down 0.70%. The good news out of Asia is that the Shanghai Composite was up 0.30% despite all of the recent negative analysis regarding China's future growth. China can fund their future growth, and it gets a bit more expensive each year, with their reserves. Up in a down market is bullish and we believe China will continue to confound the skeptics with their economic growth - it is a trend which has been playing out for years and we see no reason for it to cease.
In Europe we see the major indices trading lower as well, with but a few bright spots and even those are but minor markets. The CAC 40 is down 1.16%, the DAX down 1.12%, the Swiss Market down 1.28% and the FTSE 100 down 0.75%. We expect Europe to lag the rest of the world markets going forward as they correct their debt issues there and enact further measures which slow growth, but today we are left to believe that they indicate a down day for traders here in North America as well.
Still holding in strong and near multi-month highs, oil is showing up down a bit this morning. This has become a trade everyone is playing and it makes us a bit worried. We have hedged for this with our picks, yet our uneasiness grows daily as more and more talking heads embrace this trade. Also, gasoline prices are rising, and markedly so here in the states, and consumers have taken notice. While traveling across our home state yesterday, we noticed large variances in pricing and a trend where stations with a $0.10/gallon difference in price (relative to their competing stations) were actually out of the two common blends of gasoline. This may bode badly for consumers if they are already taking notice and feeling the pinch, but we do have the warm winter to fall back on and hope the savings on heating bills keeps consumers flush.
Kodiak Oil & Gas (KOG) will have earnings this week. We expect good news, and an update highlighting future plans to increase reserves. This has been a big winner for investors, and sits at 52-week highs. Based on what competitors have said, we see no reason for a disappointment other than the fact that maybe expectations will be too high. Regardless this is a long-term play and has performed well for us the past week or two, rising over 10%.
EV Energy Partners, LP (EVEP) reports earnings this week and investors should get a bit of news regarding their strategy going forward. It is probably safe to say they will slow down on buying natural gas production assets and focus on drilling in the Utica. Remember Q2 is when they will open up their results for prospective buyers and the early talks have management excited about the possible properties they can pick up in any joint venture property exchange. We think this is a long-term play on both the price of oil and increasing production. Higher payouts await unit holders here, and thus higher prices.
Gold & Silver
Both find themselves under selling pressure today, with gold early in the day down about $10/ounce from its close in New York trading on Friday. It has since bounced back in London a bit, but is still down and certainly not in favor. Silver has mirrored this downward trading, finding itself down roughly $0.25/ounce and still above that $35/ounce mark we think is emotionally important. During a pullback based on economic jitters, silver shall perform worse than gold as it has many industrial uses. We would be a buyer at that time, but for now we are holding our positions steady.
Bloomberg has an article discussing soybeans and their recent rally to 5 month highs on sales from the US to world markets and it is worth a read (see here). The US is one of the breadbaskets of the world, and even though farmers are producing more than ever, prices are at highs and trending higher. There are two things at play here - inflation and population growth coupled with an expanding worldwide middle class. We are bullish the grains, which is why we have been bullish potash, and prices seem headed higher from all of the data we are seeing.
With farmers having record harvests and selling near record highs, we are seeing an environment where the potash cartels will be able to flex their muscle a bit and once again remind investors of their tremendous pricing power. Potash Corporation of Saskatchewan (POT) remains our favorite play, and we would be buyers on the dips.
We will signal our 'all-in' signal on uranium during this next pullback, and we remind readers we are already picking our spots in the current market. Uranium is about to enter a golden age, which we have been saying for years would be in the next two years, and this will probably be the last time we are able to get in cheap on shares on a global basis with minimal risk. We have done this trade numerous times over the past few years, and it has worked well.
Rather confusing news out of China, which is covered in Australia's The Sydney Morning Herald here, and has us shaking our heads. There are conflicting measurements for REE exports out of China and last year they were but 49% of quotas through 11 of the 12 months. This was most certainly a results of Japanese manufacturing being down as well as the economy, but probably a bit of Chinese gamesmanship in setting a high quota to appease the world only to have low actual sales to prop up prices.
There is a huge smuggling market in Asia, and estimates vary widely but we view this as good news and do believe that REEs will recover. We continue to believe that investors can play a bounce in Molycorp (MCP) and Rare Element Resources (REE) here in the states (we would recommend other plays for trades, however these offer investors the safety of liquidity which not all REE plays do).
Disclosure: I am long EVEP.