"Tell me I'm Dreaming" But...
November 27th, 2008 by Lou Muddaris
Closing Data
| current | change | % | |
|---|---|---|---|
| Dow Jones | 8726.61 | 247.14 | 2.9% |
| NASDAQ | 1532.1 | 67.37 | 4.6% |
| S P 500 | 887.68 | 30.29 | 3.5% |
| FTSE 100 | 4152.69 | -18.56 | -0.4% |
| Nikkei 225 | 8213.22 | -110.71 | -1.3% |
| SPI Futures | 3647 | 82 | 2.3% |
| All Ords | 3479.6 | 95.8 | 2.7% |
| Oil | 54.2 | 4.18 | 8.4% |
| Gold | 808.5 | -10 | -1.2% |
| Silver | 10.22 | -0.05 | -0.5% |
| Aluminium | 1749 | -9 | -0.5% |
| Copper | 3565.5 | -150 | -4.0% |
| Lead | 1186 | -3 | -0.3% |
| Nickel | 10110 | 5 | 0.0% |
| Tin | 13000 | 1045 | 8.7% |
| Zinc | 1210.5 | 2.5 | 0.2% |
“Tell me I'm Dreaming” But...
In terms of shock value yesterday's BHP/RIO drama was up there with Paul Keating's famous “Banana Republic”; nobody saw it coming; certain shareholders were upset and the market certainly took it badly (apart from BHP shareholders). Interestingly the shock value can be measured by the price of RIO shares actually rallying hours before the announcement. That must be a first!
Analysts are now speculating that BHP will look elsewhere with Fortesque Metals (FMG) being the favourite and some analysts even citing OZ Minerals (OZL), based purely on its ridiculously cheap share price of 52 cents. Although many of us would view that as the markets best Xmas present ever (say an offer of $1.30) it has to be noted that BHP is already well exposed in copper and OZL's zinc operation (at the current zinc price) is hardly a booming business. However, if BHP went for Australia's 2nd biggest miner then why not Australia's 3rd biggest miner? I certainly see value in OZL around 55 cents; indeed yesterday Credit Swiss issued an “outperform”on OZL. So tell me I'm dreaming!
The BHP AGM today will certainly be the most interesting one ever with many shareholders upset that it cost the company over $450 million; I think better to waste $450 million than take on $65 billion of debt!
As for RIO well it seems they will have to sell assets to service the $65 billion debt. I must say I doubt whether the CEO Tom Albanese will be receiving many Xmas cards…only from BHP shareholders. The only good news is the CEO of Chinalco who presently holds 11% said they will increase their holding to at least 14.99% and seek approval to increase their holdings further. In February 2008, Alcoa and Chinalco picked up strategic stakes in RIO. They bought stock at approximately $140 AUD. So they are currently sitting on an unrealized loss of approximately $12.45 billion. The Chairman, Lu Youqing (I like that name) said “I cannot say when, because it will affect the price of RIO shares”….I just hope Reuters didn't lose that in translation!
Incidentally the Chinese government cut rates by 1.08% (no, I don't get the extra 0.08% either) the most in 11 years.
A big call: We have seen the lows
Overnight the U.S. economic data was plain and simply terrible, I really don't need to rehash all the data but suffice to say it doesn't get any worse and that won't change anytime soon. Yet the U.S. held 4 days of gains for the 1st time in over 3 months.
Why?
It's all about price action, the currencies are gaining, and this market is a leading predictor along with the yield curve. The curve is showing slight changes, certainly LIBOR is falling and base metals appear to have bottomed out having fallen an amazing 70% in 3 months, this is simply sowing the seeds for the next bull market. The stock markets are forward thinking to the tune of about 9 months and that is exactly when many economists are saying the economy will start to recover.
The technicians/chartists are saying prices seemed to have bottomed. Indeed, my favourite Fibonacci is looking positive. The key Fib' number of 61.8 is exactly the percentage retracement we had from Novembers 2007 highs to the low of the 1987 crash. Indeed the S&P/ASX 200 has retraced 50% from its high in November. The 50% retracement in any market is a level many technicians trade off.
Today is Option expiry day so please be aware of any position you may have and call your advisor should you require.
Also, today is Thanksgiving in the U.S. so we will have no leads for tomorrows trading.
Have a great day.
Quote of the day: “Never take yourself too seriously”
Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.
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