Innovators and Creators of Capital: Giving Thanks

• values of $505 million and $638 million, respectively.  Strikingly, however, is that Klondex is the only company to post significant profit margins in a tough gold environment.  Klondex is set to end the year with roughly C$50 million in cash, up from C$7.6 million from the first quarter 2014. Klondex should be a considerable outperformer moving into and throughout 2015.
• Duketon Mining, an Australian nickel and gold mining company, saw its market price jump 207 percent after it announced the discovery of a 5.8 meter intersection of massive sulphides in a recently pulled drill core.
• Lucapa Diamond Company’s stock jumped this week after signing a 35-year diamond mining license agreement in Angola. The term of the license is the longest offered by the government’s new mining code. The agreement also allows Lucapa to recover all of its alluvial exploration and development expenditure from free cash flow and repatriate dividends and capital gains.

Threats

•  SocGen is forecasting an average gold price of $1,100 per ounce in the first quarter of 2015. The bank believes robust growth in the United States will lead the Federal Reserve to raise rates faster than anticipated, leading to a continuation of the downtrend in gold.
• Net bullish-dollar positions have reached a record of $48 billion as investors see an extension of the sharp rally in the dollar. A further rise in the dollar would be bearish for gold. However, the last time there was a net-long position to this extent was in 2009, which was shortly followed by a 17-percent decline in the dollar.

click to enlarge

• Credit spreads between corporate and government bonds have been on the rise, indicating investors are demanding a higher premium for parting with their money. The rise in spreads comes as a warning sign that liquidity, one of the largest drivers of the stock market rally in recent years, could be deteriorating.  Jack Ablin, with BMO Private Bank, noted that further deterioration would move their big market liquidity indicator into bearish territory, leaving only two of their five indicators (the economy and momentum) in bull mode.

November 26, 2014 With Oil and Gold Prices Depressed, Halliburton and Osisko Play Defense	November 24, 2014 Solar Shines on Silver Demand	November 21, 2014 Can You Handle the Stress of Losing 40 Percent in the Market?

Energy and Natural Resources Market

click to enlarge

Strengths

• Packaged foods stocks outperformed the broader market this week on falling oil prices and a strong U.S. dollar environment. The S&P Supercomposite Packaged Foods Index rose 1.41 percent this week.
• Utilities stocks rallied at the end of the week in response to the risk-off environment caused by falling oil prices. The S&P 500 Utilities Index rose 0.57 percent this week.
• Paper and forest stocks outperformed as well, given the current energy-depressed environment. The S&P Supercomposite Paper & Forest Products Index rose 0.07 percent this week.

Weaknesses

• Oil sensitive stocks fell this week as Brent and WTI crude prices fell substantially. OPEC’s decision not to cut production led to a global sell off in oil and energy stocks on Friday. The S&P 500 Energy Index fell 9.45 percent this week.
• Gold stocks suffered this week as lower-than-expected inflation in the eurozone and falling oil prices revitalized the deflationary scare. The NYSE Arca Gold Miners Index fell 6.70 percent this week.
• Tanker stocks underperformed this week as investors see reduced performance due to the declining oil sector. The Bloomberg News Tanker Index fell 8.31 percent this week.

Opportunities

• The U.S. economy continues to be a bright spot in the global economic landscape. The U.S. Commerce Department raised its estimate of U.S. GDP growth to 3.9 percent annually in the third quarter. Stronger growth from the United States should be positive for demand in the commodities space.
• A bill that could ban companies registered abroad from buying or exporting gold may be considered by Russia’s lower house of parliament. Blocking exports could put upward pressure on gold prices.
• The continued decline in oil prices should maintain a tailwind for certain industrial sectors such as airlines. Lower input costs will boost margins and profitability moving forward.

Threats

• It is obvious that the single largest threat to the commodities space right now is falling oil prices. OPEC’s decision not to cut production sent crude prices tumbling. However, although OPEC failed to surprise the markets and cut production this time around, it is only a matter of time before the large oil exporters will buckle under the pain of lower oil revenue.
• Eurozone consumer price index (CPI) data came in at 0.3 percent annually in November compared to 0.4 percent in October. Disinflation in the eurozone alongside declining oil prices serves as a headwind for inflation hedges such as gold and other precious metals.

Emerging Markets

 

Strengths

• Chinese stocks significantly outperformed among emerging markets this week, rallying on the back of interest rate cuts from the People’s Bank of China (PBOC). The surprise rate cuts came in response to weaker economic data out of China. The Shanghai Stock Exchange Composite Index rose 7.88 percent this week.
• Turkish stocks have completely turned around over the last few weeks. This is due to lower oil prices that many believe will stem rising inflation and reduce the country’s current account deficit. Turkey imports roughly 90 percent of its oil, according to the Energy Ministry. The Borsa Istanbul 100 Index closed up 3.47 percent this week.
• Indian stocks were among the best performers this week as falling oil prices help fuel economic growth. Declining prices also have many speculating that the central bank will follow China’s lead in cutting interest rates. The S&P BSE Sensex Index rose roughly 1.27 percent this week.

Weaknesses

• Greek stocks underperformed this week as government officials continue their standoff with Troika. Greece runs the risk of severing its lifeline to the eurozone, while political protests have broken out in response to the current austerity measures. The Athens Stock Exchange General Index fell 3.20 percent this week.
• Brazil’s weak economic outlook and political uncertainty caused the country to underperform this week. A central bank survey revealed that analysts predict the economy will expand at a mere 0.2 percent this year. Rousseff did please the market by selecting Joaquim Levy, the head of asset management at Banco Bradesco SA, as the new finance minister. The Ibovespa Brasil Sap Paulo Stock Exchange Index fell roughly 1.92 percent this week.
• Oil-leveraged emerging markets tumbled this week as OPEC decided not to cut production amid falling oil prices. Brent and WTI crude fell around 11.68 percent and 12.25 percent this week, respectively. Colombian stocks declined roughly 7.26 percent this week.

Opportunities

• Shanghai announced its municipal ambition to become an international insurance center, increasing its insurance penetration to 6 percent by 2020 from 3.8 percent in 2013, and its per capita premium to $1,189 from $554. In addition to support from government policy reform, Chinese insurers, still trading at historically attractive valuations, are set to benefit from asset appreciation on both fixed income and equity holdings thanks to lower interest rates and an A-share market rally.

click to enlarge

• OPEC’s decision not to cut production, along with the subsequent decline in crude prices globally should help spur global growth, especially for countries like China, India and Turkey, which are large energy importers.
• Miroslav Singer, governor of the Czech central bank, stated that monetary easing by the European Central Bank (ECB) should boost an economic recovery. The country’s consumer-confidence index rose to 1.3 in November from -2 the prior month, indicating that growth prospects are high for the Czech economy.

Threats

• A number of challenges could continue to weigh on investor sentiment toward South Korean equities. These include exports pressured by a stronger Korean won versus the Japanese yen, weaker corporate return on equity and negative earnings revision, as well as price-to-earnings valuation above the decade average.
• The OPEC decision not to cut rates could also have negative ramifications. Specifically, Russia faces further capital outflows and a declining