Tuesday, August 4, 2009

Market Analysis

As real world data continues to pour out showing a dismal consumer economy (click HERE for data from Gallup), the financial markets in general and the stock market in particular have finally begun to decouple from reality. Financial stocks with essentially no yield and uncertain asset value are surging month after month. Worse, Ford Motor now has a greater market cap than the far stronger dividend-payer, General Dynamics. A company called Commvault (CVLT) came out with earnings after the market close that beat expectations and saw the stock drop after hours, reminiscent of the bubble era where stocks moved on "whisper" numbers.

David Rosenberg reports that 20% of personal income in the U. S. now comes from the Government.

The Establishment wants people to forget about the extraordinary financial events of last summer and fall, and the AIG conduit that continued this year to enrich Goldman Sachs and many firms it promised insurance to despite holding no reserves. It is no wonder that a substance with no current use to individuals but that is "money" or "wealth" to nations-- gold--rises in a controlled manner with little pause. At least gold is "real" and has survived as a perceived store of wealth for millenia, long after mere issuers of currency such as monarchs or countries have come and gone.

Probably the true contrarian investment is a "growth at a reasonable price" large cap international stock. Numerous of those are selling at 10-13X earnings (or less) and with historically rising dividend yields that exceed the yields from 2-5 year Treasuries. But after a 50% move off the lows despite 3rd quarter earnings estimates materially lower than they were at the winter market bottom, anyone who is not now invested in the stock market is psychologically frozen out. The gamblers who went long and are winners know this. Eventually most markets reach some sort of fair value, but nowadays the term "fair value" takes politics into account. Ultimately that fact is bad for all markets and good for gold.

Another worry that is good for gold: the news just out that those in the know are pushing the Administration to send many more "advisers" to Afghanistan to train the vaunted Afghan Army for an expanded war. Another Viet Nam or even another Iraq would certainly use up some spare industrial capacity, would it not?

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