Kicking and Screaming

From The July 2012 HRA Journal

Eric Coffin

With summer doldrums well and truly upon us markets have been drifting lower on low volume and trying to hold their May lows. Most metals and certainly gold have performed better and seem to have bottoms in place.

After such a long bear run it’s not likely we will get a huge bounce during the summer when so many are trying not to think about the market. Not every stock is falling however. As we note in the updates there are three companies on the HRA list that have been getting a lot more attention from traders and several others that are getting traction based on results to come. That isn’t much but it is an improvement. We don’t know yet how “real” any of these discoveries are but new finds are the shortest route to renewed investor interest in the sector.

Major markets have not been cooperating thanks to debt issues that won’t go away soon. There are plenty of headwinds still but commodity prices, though lower, are all at levels that makes them hard to pin the blame on for weak markets.

This is still about sentiment. It’s not likely most economies will generate strong enough numbers to rock the markets. If things calm enough new discoveries may be able to help the juniors themselves and we’re pinning our hopes on that for the time being.

It’s been an eventful month in Europe, and we don’t just mean the Euro 2012 Cup (Congratulations to Spain on a great win). The EU held its 19th summit since Greece fessed up to its debt problems. There were no expectations it would produce anything momentous since the 18 before it hadn’t. The markets were taken by surprise when, for once, the European political class managed to do something almost decisive.

This meeting followed the latest US Fed meeting where the decision was made to extend and somewhat expand “Operation Twist” and keep US long term yields low. Not that the market needs much help in that regard. Traders have been so spooked and piling into the US debt market in such numbers that rates are already miniscule.

That central bank meeting followed two other events that went the way the markets wanted but produced no lift whatsoever. First up was an agreement by EU members to lend Spain up to €100 billion to help shore up its banking sector. EU creditor nations managed to prove one again that they didn’t get it. The way the announcement was handled and the strings attached to the loans meant the markets quickly gave the deal a thumb’s down.

Things were salvaged to some extent by good news on the Greek election. Pro bailout parties prevailed this time, though the margin of victory was thin. There is now a three party coalition in Athens though almost all of the cabinet comes from the leading New Democracy party.

Although the pro bailout forces won, their fear of losing to charismatic leftists meant they were also selling the idea the debt deal would be rewritten. Greece has indicated it wants a two year extension on the deadlines to reduce its deficit to 3% of GDP. Creditors are not pleased but the new timeline is probably actually a best case scenario with a collapsing economy. Creditors tsk tsking won’t change that.

To read the full editorial, please go to: http://www.hraadvisory.com/pdfs/2012-07_Kicking_and_Screaming.pdf