The Safest Play Going Forward

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

Sentiment is everything nowadays. You could own the greatest company in the world, but the stock could be doing terrible because sentiment in the broader market is so lackluster. In fact, it’s more than that — investor sentiment in this market is just plain volatile. Everyone is trading on the news of the day, without much in the way of any conviction.

Finally, the market is beginning to attribute some positive reaction to the solid earnings being generated by large-cap companies. A lot of big, brand-name companies are doing quite well and have reported better-than-expected earnings so far. Earlier, the stock market brushed off those numbers, but they’re finally starting to have some effect on sentiment.

What’s needed in this market if you want stock prices to go up is a new catalyst — a reason for institutional investors to be buyers of stock. What that catalyst could be is very unclear. There just isn’t much in the way of defined information to develop a strong market view. No one really knows where this market is headed because nobody knows how the economy is going to unfold.

Chinese stocks look like they are headed for a breakout. The Shanghai Composite Index just looks like it’s ready to go in a new direction after consolidating over the last six months. Again, that market needs a new catalyst as well and it’s unclear what that catalyst might be. Changes to China’s currency regime would certainly be a large catalyst for the markets. Learned Street analysts are chattering more about this possibility.

I still come back to gold and other precious metals as the most attractive asset class this decade. An investor can easily estimate and discount the flow of cash from an existing producer of gold. It’s much more difficult to anticipate what a central banker will do in a world awash in debt. There remains a sense of fragility to global capital markets and it all has to do with confidence in repaying debt. There is so much personal and government debt in the global marketplace, I wouldn’t be surprised at all if we experience another crisis of confidence in capital markets. Right now, we’re in an economic landscape where anything could happen. Elimination of debt and accumulation of gold is the safest play.