The Market Speaks with Strength in Treasuries

You should be happy with your gold investments. The group’s been going up solidly in this market and many of these stocks are now trading right around their 52-week highs.

This is one group that has real staying power in the current bear market for stocks. With gold over $1,000 an ounce, mining the commodity is profitable. Over $1,200 an ounce, it gets very profitable.

The two most opportune groups for equity speculators remain gold (silver also included) and U.S.-listed Chinese companies. There isn’t a lot of value left in the gold sector, but there’s a lot of it in Chinese stocks.

A lot of smaller Chinese companies that are listed on American stock exchanges are only now reporting their second-quarter numbers. Of the companies that I follow, most are reporting very good to excellent financial growth. About half of these companies are raising their financial guidance from previous estimates. Nowadays, that’s the only way a stock will move. A company has to impress the Street by beating itself.

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The broader market is clearly vulnerable right now and the recent improvement in sentiment from mid-July to mid-August now seems to be gone. Trading volume’s been falling since June, which isn’t unusual at this time of year, but isn’t very helpful for bulls.

It will be interesting to see what happens (if anything) to investor sentiment as we get closer to the fourth quarter. If there isn’t any marked improvement towards the end of September, then I think the S&P 500 Index will be vulnerable to breaking the 1,000-point level.
Some downside protection will be a must, if you don’t already have it.

The flight to Treasuries among institutional investors is a real sign that there’s no appetite for risk in capital markets today. If investors would rather own government debt over stocks, then you know that equities are stuck in the doldrums.

So far, reduced interest rates and rates for mortgages are not working to help grow the economy. They’re only keeping things relatively stable. What we need is growth and the Fed is basically out of options. My worry continues to be price inflation down the road and that monetary policy might become too used to interest rates that are very low. We might then get a situation where the global economy builds enough inflation to sideswipe a struggling U.S. economy. In this scenario, interest rates would have to rise dramatically to try to contain prices. It’s a slippery slope and a real possibility in the next few years.