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Obviously the
biggest issue this month is gold. Gold has taken
a big hit recently. But while the mainstream
media was ridiculing gold owners after its sharp
decline, the media has been pretty silent now
that it has regained a significant portion of
the value it had lost.
The point is that
Wall Street generally hates gold. It’s bad for
the stock and bond business. Just as it’s easy
for the cheerleaders to hail every climb in the
markets, ignoring the context and the underlying
fundamentals, it’s easy to cast aspersions on
gold and those who own it based on its recent
downturn. In some cases the tone has been
downright nasty, which goes to show you just how
hostile some in the mainstream are to anything
that threatens their preconceived ideas about
the stock market, and how fragile those opinions
must be.
That negativity
toward gold and support of the stock market is
to be expected, but it doesn’t mean the
fundamentals for stocks and gold have changed.
The short term fundamentals for stocks are that
earnings growth is heading down for the S&P
500 and revenue growth has gone negative. Short
term for gold, Japan has started printing almost
as much money as the US. Long term, gold is up
almost 400% since 2000 and the S&P 500 is
only up 2%. No wonder the stock cheerleaders are
jumping all over gold when it’s down! More on
both gold and stocks below:
STOCKS
While the stock
market remains high, recently we’ve seen
disappointing earnings from a number of big
companies that led to disproportionately large
drops in their share prices. Take Amazon, for
example, which dropped 6 percent after its
earnings announcement (and it is flat for the
year). IBM was down 10 percent (and flat for the
year) after its earnings announcement and
Procter & Gamble dropped 5 percent.
Why the big drops
for such well-established companies? It could be
a sign that the stocks were priced beyond their
respective companies’ actual earnings potential,
and bringing investors face-to-face with the
hard facts sent prices plummeting. And frankly,
maybe some investors are finally asking the
question: How can stock prices keep going up
when the economy continues to struggle?
We’ve already said
that the upside to the stock market at these
levels is limited, and that is even more
apparent now. With reality becoming increasingly
difficult to ignore, and some of the big boys
already beginning to suffer for it, we are very
concerned about the stock market’s stability in
the immediate future. We can’t rule out a modest
increase, including a run for 15,000 in the next
month. But then we can’t rule out a correction
beginning to set in either. It’s not an easy
gamble to justify.
BONDS
The bond market
hasn’t been terribly exciting in April. But the
gradual move to safety—and thus toward higher
bond prices and lower yields—has continued. We
don’t expect much change in this trend going
forward, though it will be more pronounced if we
do see any correction in the stock
market.
It’s very telling,
we think, that even with the stock market doing
as well as it is, and even with a lack of any
confidence-shaking news over the last few weeks,
so many investors prefer the security of
fixed-rate securities. This shows that there is
a real hunger for bonds right now, and that will
only increase should any new development in the
coming weeks threaten investor
confidence.
COMMODITIES
With the Chinese
economy growing at a slower pace, likely even
slower than reported, commodities in general
have fared poorly. Some people are even calling
this the end of what has been a long term
commodities boom. Copper is often seen as a
benchmark for commodities and has fallen more
than 20 percent since February. With much of the
world in or near recession, we expect the
pressure on all commodities to
continue.
Natural gas, as we
mentioned last month, continues to be an
exception. Natural gas rose steadily in April
and we expect this trend to continue in the
coming months.
GOLD AND
SILVER
Gold recently took
a 15 percent loss in just two days. It has since
bounced back regaining some ground, but remains
down from its recent highs. In the short term,
gold will remain unstable and subject to extreme
volatility (both downward and upward). We expect
this volatility to continue through May. Our
long-term position on gold has still not
changed. As always, one’s allocation to gold has
to be weighed against one’s tolerance for that
short-term volatility.
CURRENCIES
The major
currencies are seeing much less change in April,
with the Cyprus crisis and Japan’s announcement
of massive money printing both fading in many
people’s minds. There are still unanswered
questions surrounding various countries and how
they will conduct their monetary policy. As a
result, it’s difficult to predict trends in the
coming weeks and month. We’re seeing some
stability around the world now, but there’s no
reason that can’t change next week or the week
after that.
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LLC 2013. All Rights
Reserved.
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