Thoughts On The Market!

April 3, 2014

I don't follow tech stocks much but a recent look at valuations for some of the big ones gives anyone with common sense pause. I remember the last time internet-based companies with no earning had 30 billion plus market values. It didn't end well. I'm not a gloom and doomer but it wouldn't hurt to see things get a little more rational.

One of the most encouraging recent trends is precious metals trading seemingly on their own accord based on supply/demand fundamentals. There is plenty of talk from gold bears about the fear trade but gold prices have been going up on good and bad news days. I can't square the idea of a broad-based fear trade with a relatively weak $US, stable treasury yields and world equity indices hitting all-time highs. It looks like a continuation of sector rotation into both metals and mining stocks. That is a roundabout way of saying traders, finally, think these stocks are cheap.

Nothing seems to faze traders on Wall St. lately. True, that is the mark of a bull market but its also the mark of a market that might still need a wakeup call. If I see more negative slant on market coverage from people other than permabears then I'd say the 8% did the job but I haven't seen that yet.

The financing environment has also strengthened quite a bit in the past month but it's a very top down affair as I expected. There have been a number of bought deals announced, some of them quite large. This will inflate the numbers for the whole sector even though they are only helping a handful of companies so far. Most bought deals are being done at fairly big discounts and include high fee structures. The fact that they are happening at all is a positive but we are certainly not in a "rising tide lifting all boats" scenario. 

My reasons for predicting a $1400 high this year were simple supply demand. The market was running out of sellers and physical buying in Asia was strong enough to lift prices. That still seems the case. There is even sustained buying in the EFT space for the first time since 2012.   

Update: 03/31/14

Markets are strong this morning though the gold price is not. Some of that is risk-on trades and some may be anticipated (though not yet actual) weakness in the Euro after an inflation reading there this morning that came in lower than everyone's estimates. February CPI in the EU was estimated at a pretty dismal o.5%. Not deflation but damned close to it. This might force the ECB to

get more active again though I'm not convinced of that. The European Central Bank doesn't have too many weapons at its disposal so it might take the "wait and hope" approach. Economic readings out of Japan overnight were also weak and well below consensus. In the US the Chicago PMI came in weaker than consensus. Fed chair Yellen was giving a speech which might account for part of that loss although the basic thrust of her talk seemed to be that the Fed was in no rush to get less accommodative. Given her last performance anything could happen by the time traders are finished parsing her talk.

Eric Coffin, HRA Journal                 

https://www.hraadvisory.com/

China is poised to become world's biggest gold consumer.