Spring Fever 9000!

by Zubin Driver
April 07, 2009

A few weeks ago a guest appeared on BNN discussing his opinions on market direction using technical analysis in conjunction with moon cycles. Moon cycles affect how people feel, he explained, which in turn affects their investment choices. The BNN host interviewing the guest didn't even bother to conceal his sneer--what a nut!
And yet, since we've said goodbye to winter, look out the window or at your screen -- both are bright green.

As earnings season kicks off with Alcoa reporting Tuesday after market, we'll see whether spring fever has any staying power, or just sneezes its way into a bad bout of hay fever. TSX 9000 is where the battle lines are drawn...

G-factors: GM, G-20, Gold Breakdown

Last week got off to a rough start as the Obama administration tossed out GM's CEO and gave the company one last chance to come up with a viable plan for the future. However, markets recovered smartly as a relaxation of mark-to-market accounting rules in the US was announced Thursday. This relaxation should benefit banks as it enables them to use their own valuation models to price toxic assets rather than having to use the last traded price, thus increasing the value of those assets on their ailing balance sheets. On the same day the G-20 leaders met and announced $1 trillion in aid, a shift from de-regulation to 're-regulation' of the global economy via supervision of hedge funds and financial institutions, and stricter rules on tax havens.

A sub-text less spoken about, but of which most are aware, is the notion of power moving away from the US towards other areas like China, the EU, India, Russia, etc. This notion was manifested before the meeting as China and Russia spoke of replacing the US dollar as the world's default currency with a basket of currencies, a proposal that in fact was never mentioned at the G-20 talks and therefore continues to exist only as a concept. Nonetheless, the US dollar declined following the meeting, and interestingly, so did gold.

Which leads to the week's 3rd G-factor, which was the breakdown in the price of gold. Support levels at $925 and $900 were both broken, and gold continued its tumble yesterday, down $23 to $870. Seasonally, gold tends to weaken from spring to late summer, so is seasonality all that's taking place here? Gold is often referred to as a fear trade, so is the gold market telling us that fear is no longer dominating the markets? Or that deflation rather than inflation continues to be the dominant force (even, strangely, as markets are moving higher)? Whatever the reason, bargain hunters may want to be patient and wait for the summer doldrums to buy their favourite gold stocks...

Control

There has been significant discomfort surrounding the level of government control that is being exercised over the private sector in conjunction with the bailouts that have been occurring. Geithner and Obama have essentially shown that they reserve the right to replace personnel in companies receiving heavy doses of government aid. Said Dennis Gartman, a commentator I always enjoy and admire: "We have scanned through our copy of the constitution that we keep by our desk at all times for easy reference and nowhere...can we find reference to the Federal government's right to seek control of a business and to run it on behalf of the people of the country." Yet, if the business is only capable of running itself into the ground and cannot survive without government aid, why would the government leave it to run itself and thereby guarantee the aid money to be wasted?

Best regards,
Zubin

Zubin Driver
Investment Advisor
(W) 604 643-7608 / (F) 604 643-7606
Email: zubin_driver@canaccord.com

Canaccord Capital Corporation
Attention: Zubin Driver
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OFFICES IN MAJOR CENTRES ACROSS CANADA. MEMBER OF ALL CANADIAN STOCK EXCHANGES AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA. MEMBER CANADIAN INVESTOR PROTECTION FUND (CIPF).