Monday, June 7, 2010

Gold'n Apple

Barry Ritholtz is out with a blog post with the respected technician Dick Arms pointing out that the extreme selling on Friday June 4 correlated with market bottoms in the past.

Only a similar amount of selling near the market peak in 2007.

And a similar amount of selling was seen Dec. 1 2008. But at that time the SPY was more than 30% below its 200 day moving average (smoothed). Now we are in the early stages of a market breakdown, so early that the 50 day sma is above the 200 day sma. We are not even in a bear market; there is little real fear that is the bottom-of-the-market/world-is-ending-type fear seen in late 2008/early 2009.

This was brought home this weekend in various small group encounters. Gold? It was as if I was from outer space, or a subversive.

The fact that gold is money according to the U. S. Government, IMF, China and Russia was not in people's minds.

Yet everyone I asked recently reports business down year on year. And last year, business was down vs. 2008.

The longer-term charts of gold and Apple both suggest that the current upswings in price have much more upside before they replicate growth surges off of prior intermediate highs. Apple could be selling for perhaps 10X 2012 earnings. That would be an earnings yield of 10%. Or you could get less than 1% yearly in a 2-year T-note. And gold is in a well-established bull market. Quite some time ago, Louise Yamada established a $1350/ounce intermediate price target for gold. Her longer-term targets start at $2000/ounce. In a liquidation panic a la October/November 2008, all babies get thrown out with bathwater, but the healthy ones rebound first.

Today's market action may have been telling. Gold approached another all-time high, yet only one current headline on mentions gold. Stocks get multiple mentions, as does the following that looks as though it comes from a ten-year old headline: Tech Lifts S.F. Prices as Ocean View Gets 26 Bids.

Here is the gold mention; it is being sold, not bought: Glencore may put gold assets on market, mulls IPO.

The subliminal message from the above is that gold is toppy, as the savvy Glencore looks to cash in on investor enthusiasm. And who knows? But this sort of action would be early, perhaps equivalent to NASDAQ 1000-1500 in the second half of the 1990s, not late 1999 when turkeys flew.

More sensible may be that of Rothschilds Bank; see Why Rothschilds is piling into gold, which begins:

Rothschild's Private Banking & Trust's head of investments Dirk Wiedmann has increased the firm's overweight positions in gold and hedge funds in preparation for further volatility and modest economic growth.

Wiedmann highlights short-term fixes for long term problems as a key headwind facing the global economy.

'The cracks in the financial system have been papered over and may not become critical for some time. Crucially, central banks will do all they can to prevent another recession. Policymakers will focus on short-term fixes and try to muddle through,' Wiedmann said.
. .

Wiedmann expects gold prices to surge during the second half the year in an uncertain environment, comfortably breaking the $1,300 per ounce level - particularly if sovereign debt problems in Europe continue to escalate to a point where a break-up of the euro seems likely, he said.

For other commodities the firm has a neutral to negative outlook, arguing that buying opportunities may be emerging if financial markets stabilise.

Apple: secular, organic growth at a very cheap price/growth ratio and gilt-edged finances. Gold: The opposite, but public is not engaged and remains of the mindset that the thing to do is to own tiny minority shares of companies run by insiders for their own benefit, collectively comprising the "stock market". You can forget TRINS and sentiment indicators. What counts is what is happening in the real world. An overpriced group of mostly aging companies in league with poorly run governments are seeking price levels that take into account more risks than investors have been used to seeing come to fruition for quite some time.

Caveat emptor.

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