Last weekend, the Australian government imposed a proposed 40% tax on resource companies in a move designed to raise the government's coffers. It was a somewhat surprising move with three potential dampening effects and/or one positive effect. The positive first- what if it works? What if no behavior patterns change and everything goes along hunky-dory? According to Prime Minister Rudd, Australia would have taken in an additional $35 billion Australian dollars- a very sizable amount of money over the last decade. But at what cost? First, there have been numerous mergers, expansions, and acquisition in the resource industry in Australia in the last year. Companies such as BHP Billiton and Xstrata to grow many come to a halt on the Australian plan. The reason is simple: the proposed plan (scheduled to take effect in 2012) effective raises the bar for prospective buyers in the resources industry in Australia simply because profits will automatically be reduced due to the tax at the margins. Deals such as the proposed acquisition of MacArthur Coal by Peabody Energy (BTU) are now in danger because the acquisition targets suddenly don't have the same potential for profits. Second, there is a concern that the tax could halt Australia's nascent recovery. Resources companies compose about 10% of Australia's economy thus investment in crucial infrastructure much less the incentive to ascertain even more resources diminishes. Furthermore, it almost destroys the playing field for smaller start-up entities as they have to work that much harder to succeed. Finally, day traders (much less all American investors and government officials) will be watching the situation as it develops. There has been talk on and off of a similar tax in the United States. The likelihood of such a tax has diminished in recent weeks with the oil spill in the Gulf of Mexico, but with oil prices trending toward $100/barrel, it is entirely plausible that we may see a similar situation (or at least talk of a resources tax) spring up again as we progress toward Election Season 2010.
Markets in Asia were hit very hard overnight with Tokyo off 3.2% after a three day holiday, Hong Kong almost another 1%, and China 3% plus on worries their economy is slowing. As of this writing, the trend shifted a bit in Europe with the bourses up from 0.2% in London to 0.6% in Frankfurt. The bounce is partially because the U.S. stock market was near its intra-day low when Europe closed yesterday and partially because there was no other major news overnight. Oil is flat, gold up almost another 1%, and the dollar is a bit stronger across the board with the euro now under 1.28 to the dollar. For today, ahead of a jobs report tomorrow and after a failure by the markets to implode yesterday, the feeling is a bit more muted with cautious optimism out there. Despite the euro tumbling to almost 1.27 and TGT posting weak sales data, the futures failed to really break down in the early going. Thus, look for a quieter session today barring a complete collapse of the euro with prices on both sides of unchanged. Conditions will likely be fairly thin so it is much more of a ‘pick your spots’ session than we’ve seen in recent days with a heavy reliance on relative strength/weakness trades.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
RIG- decent earnings
FLS- decent earnings
MED- great earnings
JAZZ- good earnings
SYMC- good earnings
ADCT- good earnings
CELL- good earnings
CLH- mentioned on “Fast Money” last night
FSYS- good earnings
MGA- good earnings
PCS- good earnings
SMG- good earnings
CAAS- good earnings
KERX- begin phase III registration program of Zerenex
DPS- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
JDSU- poor earnings
BMC- poor earnings
CECO- poor earnings
CBS- poor earnings
HIL- terrible earnings
MUR- poor earnings
CETV- closed near a low after posting terrible earnings
WHX- continued to decline after posting earnings Tuesday morning
EZPW- closed near a low
TKLC- poor earnings
TGT- weaker-than-expected retail sales data
Earnings:
THURS MAY 6 BEFORE
ARG BVF CI
DNR DPS DTV
EP FSYS FTO
GAP HEW HOC
LAMR MGM OCR
PCP PCS PNW
PXP RRI SFY
SMG THS TKLC
WNR
THURS MAY 6 AFTER
BGC CLNE CNQ
CPT CROX DCT
GXP HANS HLIT
HME KFT LEAP
LVS MELI MIL
PRE PSA ROVI
RST SGMS SQNM
STEC WRI WTW
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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