ECONOMY

Canada - Canadian building permits fell by 1% month-over-month in February after a 3.5% drop in January.  This was worse than had been expected.  The biggest drop was in the non-residential sector, where the permits fell by 25.6%.  Ontario was hit the hardest.  Residential building permits, however, were up 18.2% in February after January's 15% decline.  This indicates that the housing sector is still in pretty good shape.  Ontario is the one area which is starting to show some weakness.

U.S. - The US Department of Agriculture’s outlook for prospective plantings shows a considerable shift in acreage intended for certain crops.  Corn growers reduced their intended acreage by 8% to 86.0 million acres from 93.6 million acres a year ago.  Despite the drop in corn acreage allotment, plantings are still at very high levels.  Corn acreage is quite desirable because of the huge increase in price.  Soybean acreage is up 18% over last year to 74.8 million acres.  The trend of commodity prices continues to be up and is resulting in acreage that farmers had been paid by the federal government not to cultivate, is now being put into cultivation.

US consumption could be flat for 2008.  Nitrogen fertilizer could actually show a decline due to a drop in the number of acres of plantings of corn.  Corn is the most fertilizer intensive crop.  Global fertilizer supply, however, will remain very tight.

Rice, which is the staple food for about 3 billion people worldwide, has doubled in price in the past year.  India has imposed a ban on some rice exports to ensure they have enough to feed its own population of more than one billion.  Vietnam, which is the world's second-biggest rice exporter, has stopped all new exports until June.  Vietnam and China have already curbed exports, and Indonesia is considering banning all exports.

In spite of the problems in the financial markets in the US, there still seems to be very little spillover as far as the consumer is concerned.  Consumer credit rose an annualized 2.4% in February on top of a 4.9% gain in January.  Credit card activity was especially strong.  Revolving credit was up 5.9% in February after a 7.1% increase in January.  Non-revolving debt was up 0.4% in February, mostly because of very weak automotive sales.

There are now a number of retail stores closing, and the number is increasing on a weekly basis.  Statistics indicate that retail sales have stagnated since September 2007.  Excluding gasoline, retail sales are now lower than they were in May 2007.  A 10-month period of malaise like this was last seen in February 2003, and before that in the 1991, 1982 and 1980 recessions.

There is also evidence that market-based consumer spending peaked in November and consumer confidence has now fallen to a 26-year low.  Debt payments are running more than double the pace of wage growth.  The fiscal stimulus being provided by the US government could add just 0.5 percentage points to GDP growth from May to August.  This is hardly enough to keep the economy on an upward trend.

The US trade deficit widened 5.7% in February to $62.3B.  There was a 2% increase in exports to $151.4B and a 3.1% increase in imports.  Imports of goods and services were $213.7B in February.  Energy is a main contributor to the increase in imports.

The American Bankers Association has found that 2.65% of US consumer loans were at least 30 days past due in the fourth quarter of 2007.  That is up from 2.23% in the fourth quarter of 2006.  Although this number does not look large, it represents significant dollars, and also indicates that credit trouble has spread from mortgages into other types of debt.

International - China's Banking Regulatory Commission has ordered banks to extend more farm loans to help boost supply of food, and especially grains, to help keep inflation under control.  Rising food prices have driven China's inflation to a 12-year high.

In China, rice is the most nitrogen fertilizer intensive grain, requiring considerably more nitrogen than wheat or corn.  In order to maximize yields, the Chinese farmer is going to apply extra nutrients to their crop.  China has been a major exporter of nitrogen fertilizer, but the tight Chinese market will likely stop exports from China, resulting in more pressure on prices.  This will have no effect on the performance of either Agrium or International Potash whose products continue to be in greater demand than ever.

Kazakhstan, which is the fifth-largest wheat exporter in the world, and Indonesia, which is a major rice producer, have each ordered farmers to stop selling abroad.  Pressure on prices in their own countries and demand is such that they are trying to get control of their local market.  Rice is selling at a record US$22.67 per hundred pounds.

MARKET

Gold is having a rest at the present time after running up to over $1,000 from the $350 level just five years ago.  It rallied $650 in August 2007 to $1000 in March 2008.  The gold stocks have been lagging, which is normal.  As gold advances in the next stage of the uptrend, stocks should begin to perform better.  The large stocks should move first, followed by secondary stocks, and then the juniors.  It will likely be several months before the stretch shows up.

Moody's has indicated that there will be at least $6.8B of corporate debt in Latin America maturing in the last six months of this year, compared to less than $2B in the first half of the year.  With the debt market as it is, this might create a major problem.

Dow Theory dictates that the Industrials low of 11,740 on March 10 provides the basis for continuation of the bull market trend if that low holds.  The Transports have performed exceptionally well since the January 17 low of 4,140.  They are now starting to show some weakness, however if they hold above this low, and the Industrials do not break their low, that would be very positive for the market.  If the Industrials continue to move through to higher levels, and the Transports go through their previous high, this would likely negate all the bear market signals

Crude oil has had fairly wide swings in the last several weeks.  There is no resistance.  Support remains at about $93.   Saudi Arabia and other OPEC countries will not increase production of oil.  At the present time there is political risk as there are rumors that Israel is ready to move into Syria.  In addition, the situation with Israel and Palestine continues to deteriorate.  A blow up in either of these regions would likely push oil to well over $120 per barrel.

The recent correction has not had a major cleansing effect on the market, the various financial excesses, and except for Bear Stearns, there has been very little punishment of the executives and the corporations who created much of these problems.  The correction has been about 9% to 10% whereas in major market cleansings corrections were much more severe.  After these types of corrections, markets rally, but in most cases, after the rally, markets have had more corrections.

In major crashes like 1962 and 1987, as well as in other major bear markets, there has been a real cleansing of the speculative and valuation excesses which led to under-valuations and high dividend rates.  Markets then had much more major, and more new short-term uptrends, which eventually led to new bull markets.

Due to the fact that the Fed started to take action very quickly it has taken the biggest shock out of the financial markets and therefore has not allowed the cleansing process to be completed.  As a result, rallies likely will not follow through to become new bull markets until a significant time span has passed, which allows for the elimination of the speculative premium in a number of equities. 

There are indications that water purification companies are going to become major investment targets.  There is growing concern over clean water shortages and the lack of infrastructure, not only in the US, but in developing countries.  The US water distribution system is aging, and more stringent regulations are being anticipated.  There will likely be a significant number of private companies in this sector going public to boost their values.

The Indonesian government has reduced the maximum ore production permit by 26% for Freeport-McMoRan Copper and Gold Inc.’s Grasberg copper-gold mine.  Production is being cut to 220,000 tonnes per day from 300,000.  The reason stated for the production cut is environmental concerns.  The Grasberg mine produces about 3.8% of the Western world’s supply of copper.