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Notes to myself, possibly of interest to others.
-- Bill Northlich

Friday, February 25, 2011

Rosenberg Daily - Outtakes

  • Employment.  The excess supply of labour in the U.S.A. may be as understated as much as the official home sales data (as we now find out) have been overstated.  The IBD/TIPP poll of American adults that was just published showed 35 million American households — 28% of the universe — which have at least one member looking for work right now. This translates into a job-seeker rate of 23%
  • Oil.  [The] emerging view that Saudi Arabia can just step in and replace Libyan oil seems totally off base, as a loyal subscriber informed us yesterday, it is not so simple. The reason: Libya’s crude is a perfect feed for ultra low sulphur diesel. The oil Saudi Arabia would supply to replace, it is not. Apparently you need three barrels of Saudi crude to get the same number of barrels of diesel you could get from one Libyan barrel. Further, the Saudi crude is very high in sulphur. The refineries that process the Libyan crude cannot remove the sulphur. The question is what happens if we lose Libyan crude and if strategic stocks are not released (1.6 billion barrels I believe) — then $150/bbl is certainly not out of the question and that is before we start talking about Algeria.
  • Investment.    Start looking for the trend towards consensus growth upgrades we saw take hold last fall to reverse course and along with that a broad investment thrust towards capital preservation strategies, and here are strategies that we like:
    • Relative value strategies (true long-shorts hedge funds)
    • High quality stocks over low quality stocks
    • Dividend yield and growth, including Canadian banks
    • Defensive growth over non-resource cyclicals
    • Oil and gas equities
    • Large cap stocks over small caps stocks
    • Low P/E stocks over high P/E stocks
    • Corporate bonds
    • Precious metals — accumulate on dips
    • Ongoing overweight to Canada and the Canadian dollar
    • Hybrid funds that carry a yield better than one can get in the government bond market and with low beta to the overall stock market.
  • Econ Cons; Pros  Let’s make no mistake about the headwinds facing the U.S. economy:
    • Declining home prices
    • Contracting bank credit
    • Listless jobs market
    • Soaring oil prices
    • Accelerating spending cuts and tax hikes at the state/local government levels; the Fed is about to follow suit on the spending side
    • Policy tightening overseas and impact on domestic demand and U.S. export picture
    • Lagged impact of last year’s fiscal stimulus announcement 
    • Quantitative easings
    • Strong corporate balance sheets
    • Manufacturing renaissance
  • Housing.  The “raw” (not seasonally adjusted) data showed a whopping 13.6% MoM decline [of existing home sales in January]. Going back to 1963, not once have we ever seen a decline in January of that magnitude, and that covered plenty of storms, sleet and hail and some doozy recessions too. In fact, January is usually an up-month for new home sales despite the typically lousy weather

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