The fact that gold and oil prices are so strong at this time is a reflection of a global economy that’s not too worried about slowing growth in the U.S. market. Growth in Asian economies is grabbing the attention of global investors and they are placing their bets by bidding on precious metal and oil futures. The fact that oil is trading over $80.00 a barrel with economists lowering their growth estimates for the U.S. economy is an unusual trend. Investors just aren’t as worried about U.S. economic leadership as they used to be.
It really is the housing market that’s holding back the economy and, without a clearing out of all the foreclosed homes, there can’t be any sustainable economic growth. It will happen eventually, but it’s going to take more time.
With this trading action in global capital markets, you have to roll with the marketplace if you want to make money. The gold trade’s been done. We’ve analyzed that one to death. I’d be very surprised if the spot price of gold doesn’t hit $1,500 an ounce over the coming months. The best money to be made in equities continues to be in gold stocks.
But, the value in the equity marketplace (for risk-capital speculators) is now in U.S.-listed Chinese shares. We’ve talked about this a lot lately and even a cursory review of a number of these stocks highlights some very attractive valuations. This sector is where I’d be putting new speculative money right now — in beaten up Chinese stocks. I’d also be speculating in junior mining companies as well.
With the Dow Jones Industrial Average nosing towards the 11,000 level, you might think that we’re in a mini bull market for stocks. I don’t think this is the case. My view is that we’re still in a large trading range and investment risk remains very high.
The Dow stocks that are doing the best are those with substantial operations abroad; throughout Asia, in particular. Those businesses that are more focused on the domestic economy continue to see their stock prices struggle.
We’re at the beginning of another earnings season and investors tend to have an optimistic view of things. But, as the main stock market averages have been ticking higher, they’re doing so on declining trading volume. This, in my view, is a growing signal that points to an upcoming correction in share prices.