Posts filed under “Valuation”
In a piece published in Barrons.com’s on Friday (Is Gold Nearing Capitulation?) the selloff in gold was described as “a contrarian’s dream scenario.” John Hathaway of Tocqueville Funds wrote in Barron’s: “The evidence shows strong macro fundamentals for gold, investor sentiment at a negative extreme and compelling valuations in the mining shares. It seems like a contrarian’s dream scenario to us.”
I am less sure than Mr. Hathaway is.
He cites a variety of factors as “positive fundamentals” for gold: negative real interest rates, worldwide quantitative easing, and governments’ new confiscatory inclinations, as demonstrated in Cyprus.
To which I am compelled to point out three things:
1) Gold had a huge rally came as the dollar collapsed 41% from 2001 to 2007. The Dollar is now at a three year high. Why would that be a fundamental positive for Gold?
2) Quantitative easing has been going on int he US for 4 years, and worldwide for a while. What is the basis of Hathaway’s assumption that this is a net positive for Gold? We have so few examples of this phenomena that I do not understand his analysis here.
3) Cyprus is a terrible example of “governments’ new confiscatory inclinations.” Readers need to recall that Cyprus banks were paying 6% in a zero interest rate environment. These were not “risk free checking accounts” but rather high yield, high risk trades. This “confiscation” as described by the usual paranoics was nothing more than a capital loss in a high risk trade. (about 16 months of interest payments).
We looked at Gold as a trading vehicle in the past, and identified the many ways it is different than assets like equities or bonds. Back in 2011, we noted that Gold is a trade, not a religion. During that presentation at the Agora conference in Vancouver, we discussed how commodities spike and collapse versus how equities roll over and break trend lines.
History shows Gold trades differently than equities. Why? It comes back to those fundamentals.
It has none.
This is not to say gold is not affected by Macro issues. But that is very different than saying Gld has a fundamental value, an intrinsic worth. It does not. That led to this heretical advice: Gold is not, and can never be, an investment. It has no true intrinsic value, no cash flow, no earnings, no coupon. no yield. What people call fundamentals are nothing more than broad macro analysis (and how have your macro funds done lately?). Gold is the ultimate greater fool trade, with many of its owners part of a collective belief theory rife with cognitive errors and bias.
I do not want to engage in Goldenfreude — the delight in gold bugs’ collective pain — but I am compelled to point out how basic flaws in their belief system has led them to this place where they are today.
Gold does trade technically, and is especially driven by the collective belief system of the crowd. When that falter, well, you know what happens . . .
Gold falls 10% this
Source: FT Alphaville
Everyone Should Be Thrilled By The Gold Crash (Business Insider)
Tax Time Takes A (Big) Bite Out Of $GLD $GC_F (Stock Traders Almanac)
God is Making Gold Crash to Test Your Faith (The Reformed Broker)
GARTMAN: In Four Decades Of Trading Gold, I Have Never Seen Anything Like This Crash (Business Insider)
Charts du jour (silver and gold) (FT Alphaville)
Is Gold Nearing Capitulation?
Wall Street’s Best Minds | Barron’s April 12, 2013
In a piece published in Barrons.com’s on Friday (Is Gold Nearing Capitulation?) the selloff in gold was described as “a contrarian’s dream scenario.” John Hathaway of Tocqueville Funds wrote in Barron’s: “The evidence shows strong macro fundamentals for gold, investor sentiment at a negative extreme and compelling valuations in the mining shares. It seems like…Read More
Here’s a little surprise: The top military contractors have all been doing pretty well since Sequestration hit.
I know what you’re thinking: They already got hit in anticipation of Sequestration. Only they didn’t.
Boeing (BA) and Oshkosh OSK are near 52 week highs, while United Technologies (UTX) and McKesson (MCK) 20% are at all time highs. (Table below)
So much for the impact of these government cutbacks on Military contractors . . .
Chuck Hagel on defense budget cuts under sequestration: ‘We’re adjusting to the realities’ (NBC)
The case for the sequester’s defense cuts (WonkBlog)
McKeon ‘Very Concerned’ About Sequester’s Military Impact (Washington Wire)
click for larger graphic All of the major markets have had a huge run off of the lows (though they are barely flat since the 07 peaks). What does this mean? Are markets too expensive, or are they better priced than last time? What say ye? Source: Is Anything Cheap? JASON…Read More
> My Sunday Washington Post column this week looks at two of the major topics of financial news – Politics & Economics. The column draws the counter-intuitive conclusion that these aspects of daily life are mostly meaningless to investors much of the time. Under the headline Voters should pay attention to politics. Investors should ignore it,…Read More
Click to enlarge Source: Daring Fireball Fascinating chart via John Gruber looking at the relative change in market capitalizations of four of the largest publicly trading tech companies. The ongoing strength of Amazon is nearly amazing as the continued weakness in Microsoft. All the while, Google keeps chugging along . . .
To answer that question, look at the chart above, courtesy of Société Générale’s Albert Edwards, who asks the question “Are equities really unambiguously cheap?“. (Cyclical Earnings charts after the jump).
Shiller’s CAPE chart shows that while US equities are fairly reasonably priced, they are not, to use Edwards term, “unambiguously cheap.” But for about a week in March of 2009, they were, but if you blinked you may have missed it.
Europe, on the other hand, appears to be appreciably cheaper than US equities. (Funny how recessions tend to do that). We have about a 16% European weighting, primarily through ETFs like GAL and DVYE.
Regardless, contrarians may wish to take note of this from a valuation perspective.
Are equities really unambiguously cheap?
Albert Edwards, Global Strategy Weekly
Société Générale, February 14, 2013