In this last edition of the Gold & Silver Report for 2013, we will be reviewing our Selection List. 3 names will leave our report to make space for new future positions. Further …
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Twitter’s IPO was one for the history books. It took the market by storm and closed off its first trading day 70% higher just below $50. Afterwards however, TWTR got stuck and the stock price dropped back slowly but surely to around $39. Naturally, this was plenty of reason for analysts who do not like Twitter’s revenue model to start screaming. Last week, however, Twitter launched an improvement to one of its marketing features, which had quite the effect. You could say it opened certain people’s eyes.
Twitter: hedge funds are waking up
The new marketing feature of the social media company helps advertisers to reach potential customers who had previously shown interest for product X. And that struck a chord: hedge funds as well as independent analysts now believe that Twitter’s revenue can grow a lot faster than Wall Street thought.
The result is an easy guess: hedge funds are throwing themselves at the stock. At the end of November, TWTR was still at $39, give or take. Yesterday, the stock was again at $52. The sell-side analysts do not have much to say anymore, that is for sure. It appears that they are structurally underestimating the growth figures of social media companies like Twitter. How that all plays out is enough material for another blog.
Leave it to Jim Rogers to keep investors on their toes. Wall Street, Japan, Europe: all stock markets have had a good to great year in 2013. Christmas is at our doorstep, what better reason to be jolly right? Well, according to Jim Rogers, we are merely waiting on an unavoidable financial hangover to kick in.
Jim Rogers: artificial recovery
According to Rogers, central banks have only brought an artificial recovery with their policies, and with that they (consciously) inflated the value of certain assets. The global economy and the global financial system are not faring well and they will implode. That will probably also be the end of the bull market in commodities, but most certainly the end of a lot of other bull markets.
Rogers is saying that the US has to deal with a crisis on average every 4 to 6 years. The severity of those crises highly depend on how high the pile of debt is at that time. So more debt means a worse the financial crisis. The 2008 crisis was a lot worse than the one from 2002, because we had a lot more debt. And the next financial crisis will probably occur in 2015 or 2016, says Rogers. The amount of debt as now gone through the roof so the next one will be extremely severe.
Until that time however, Rogers remains bullish on commodities: demand keeps growing while supply cannot keep pace. The price pressure in commodities at the moment is only a temporary correction in his view. Jim Rogers is mostly interested in sugar and gas.
The Dow Jones took things a little slower than the S&P 500 and the Nasdaq this year, but there is no need to be embarrassed about a year-to-date plus of almost 23 percent. Meanwhile, the statement is made from different sides that the Dow is in a ‘make or break‘ period, and that would have to do with a triple top forming potentially. That phenomenon would set off the alarm with many investors no doubt. Technical analyst David Aronson explains.
Dow Jones: ‘make or break’
If we look at the Dow Jones in inflation-adjusted terms according to David Aronson from Hood River research, the index is reaching the tops for the third time that were made in 2000 and 2007. If the Dow Jones does not manage to break through this barrier, the triple top will be a fact. For clarity’s sake: we are not there yet, but the period to come is crucial. The technical analysis books say that the previous tops from 2000 and 2007 are a major resistance level. If the Dow Jones does not pierce through this could spark a sell-off (again according to the technical analysis books). In the below chart you can clearly see where the Dow Jones is now.
The technical analysis chart from the broader S&P 500 index is not showing a potential triple top pattern. Adjusted for inflation, the S&P is higher than the 2007 top and lower than the 2000 top.
The coming weeks and months are pretty interesting for technical analysts in particular: will the Dow Jones form a triple top, or will the most widely tracked index break through? The answer, as in most cases, can only be given in due time.
Many professionals are giving their US investors and customers the advice to focus not on Wall Street but on… Europe. Furthermore, they are advised to open a foreign brokerage account and take up more positions in European stocks. And if you know that price is not a problem for the average investor as long as the story is solid, the alert investor knows enough right?
US investors crowding European markets?
Although the past is never a guarantee for the future, experience has taught us that US investors do visit overseas once in a while. In general, Americans are not scared to buy in to ‘exotic’ assets, although we are quick to leave when the news turns bad.
According to Sam Stovell, head stock strategist at S&P Capital IQ, the valuations on Wall Street have risen to unattractive levels. In January of this year, investors were already paying 19x profits and that has increased to 22x profits. The rising P/E ratio mirrors the higher expectations from investors regarding the future profits.
Paul Zemsky, CIO multi-asset strategy at ING, tells US investors to open a foreign account (probably at ING) and to gain an interest in European stocks. The reason for the switch to the European markets? Europe is just exiting a long recession and European stocks are a lot cheaper right now.
Mike Dueker, chief economist at Russell Investments, is mainly interested in tech stocks. Corporations will invest more in 2014 (CAPEX) and the technology sector should mainly profit from that.
Most market analysts choose to look at 2014 through rose colored glasses. That is why it is not a bad idea to let someone with a different view of things share his opinion. Someone like Brian Belski for example, fund manager at BMO.
It is not that Belski is predicting doom and gloom. That camp has moreover had quite the exodus and more and more investors have gone from bearish to bullish, which is not something that was easy to do for everyone.
Brian Belski had a bullish outlook at the beginning of 2013 and he can look back with a smile to the year gone by. Despite that fact however, he does feel that the rise cannot continue at this pace forever. Moreover, his target for the S&P 500 Index has been reached.
Brian Belski: single digit increase for stocks
That is why Belski thinks it is wise to hold off on the gas for a bit. He does assume that the market will close higher at the end of 2014, albeit with single digits. He admits that he is far less optimistic about 2014 than he has been about the previous years in the past, despite the many positive points.
Those positive points are the lower risk premiums, a beneficial trend for investing in stocks, and the regular increase in dividends (mainly for US stocks). A more negative point is that the macro conditions are not perfect at the moment.
Brian Belski also shared his predictions with regards to timing. In his opinion, Wall Street will put its best foot forward during the first half of the year. The realized profits will then dry up a bit, because the Fed’s actions will come into play. The American central bank will namely start tapering in 2014. An interesting view, from a different perspective.
Entrepreneurship is taking risks, that much is known. But true entrepreneurship, is definitely not taking unnecessary risks. Last week a story came out of someone buying a Tesla Model S and paying for it in bitcoins. The story was picked up by the media very quickly. A nice story to tell of course: a revolutionary car paid for with a revolutionary ‘coin’.
Tesla with bitcoins? dollars please
Well, the general manager from the dealer in question, Pietro Frigerio, told CNBC that the story was fake. A nice publicity stunt, sure, but the customer eventually ‘just’ paid in dollars. If you think about the margins on cars for dealers and recognize the extreme volatility in the world of cryptocurrencies at the moment, you would not have anyone pay you in bitcoins as well. Not a good example of being a smart entrepreneur.
The customer who bought the Tesla as a consequence also was asked to exchange his bitcoins for US dollars. Frigerio puts it like this: ‘If a customer wants to pay for a car with bars of gold, we will also not accept that. The dealer accepts dollars, and that’s it.’
And that is it. A good publicity stunt from the marketing manager, but nothing more.
Peercoin, another variety of Bitcoins, leads a much calmer life than its big brother. The founder of Peercoin however, does not exclude the possibility of a ban on cryptocurrencies in the future from the government.
We already wrote about some of the spin-offs that were coming up after the start of the Bitcoin hype. One of the other cryptocurrencies was Peercoin. We will not go in too much technical detail: Peercoin is based on the same concept as Bitcoin, but the so-called ‘mining’ is supposedly easier, it has better security and there are ‘anti group-mining’ measures in place. The founder of Peercoin, Sunny King, did an interview recently on CNBC and made some interesting statements.
Peercoin: valued at around $100 million
Sunny King decided to improve the Bitcoin concept in 2011. A year later, August 2012, Peercoin was ready for its debut. At the moment it is the third biggest cryptocurrency after Bitcoin and Litecoin. Peercoin is valued at around $100 million.
According to King there is a possibility that China or the US will ban cryptocurrencies altogether. It remains a possibility, although it is unlikely. King sees risks, but hopes at the same time that cryptocurrencies will have a legalized status at a certain point. If that does not happen however, he believes that different cryptocurrencies will still exist on the market.
Accepting cryptocurrencies like Peercoin, Litecoin and Bitcoin is a step by step process, which takes time says King. The first step is that virtual currencies become something people trust value to. The next step, which is going on right now, is that they become widely accepted as a method of payment.
A surprising trading day for gold on Friday: a strong jobs report, which normally impacts the price of gold negatively, but a higher close for gold… The gold price did respond to the jobs report, however. The precious metal dropped to just below $1,220 but it also shot up again to $1,240. What is going on?
Gold price in the twilight zone
According to Reuters the explanation is short covering. A number of investors would have, anticipating a better than expected jobs report, gone short on gold in the assumption that the precious metal would suffer. Although the gamble was correct, things turned out different as far as price action goes. Then there is not a lot else you can do but close your short positions.
A recent poll by CNBC indicated that 53 percent of surveyed investors expects the gold price to increase lightly this week, 35 percent believes the price will go down and 12 percent believes nothing will change. At IG Markets the number of bulls is a bit higher: no less than 76 percent of surveyed clients wants to take up long positions in the precious metal.
The strong jobs report from last Friday did not put an end to the tapering debate as well. For that, 203,000 extra jobs were not good enough. So the guessing game continues and because of that, the gold price will remain in some sort of a twilight zone where the thought of the day will determine the price until the 17th or 18th of December (FOMC meeting). The sentiment, however, is not as negative as it was in recent months, IG Markets’ and CNBC’s figures indicate.
In recent months you have heard a lot about tapering from many experts. Talks about scaling back the support measures of the Fed by cutting back the Fed’s buyback program for bonds. If you are still wondering, that is the $85 billion that shows up in the monetary system each month to buy back different kinds of bonds, among which are government bonds. In short: printing money.
A lot of investors were worried every time the Fed seemingly had the urge to start tapering. Especially after Bernanke’s announcement earlier this year when he mentioned tapering would probably start in September. That had some noticeable consequences, especially outside of the US. In the Emerging Markets specifically, damage was done.
Tapering: ‘no biggie‘
According to chief strategist Thomas Lee from JPMorgan Chase, investors do not have to worry about this anymore, he said in an interview on CNBC. Lee believes that the Fed might even make a decision in December regarding tapering, but finds January a more logical choice to start scaling back the support measures.
The latest figures regarding the state of the US economy gave investors a good feeling about the future. According to Lee, they will be less worried about tapering than they were a few months ago. Investors are ready and they will redirect their focus to the American economy, which is picking up steam, and remain bullish on stocks. As far as Thomas Lee’s wishlist goes, he believes in large technology stocks and financials the most.
For lovers of bubbles, and we are not talking about soap of course, Wall Street is the place to be these days. On blogs, forums, and financial websites there is a big debate going on about the fact if bubbles exist or not. Bubbles on Wall Street, of course.
Alexander Friedman, global chief investment officer for UBS wealth management, responded on CNBC to the question if the valuations on Wall Street have risen beyond levels that can be assumed to be reasonable, as a few market watchers are indicating.
Friedman was very concise in his answer: this is certainly not the case. Bubbles are out of the question, he says. There is still upside left for further growth and that is why the UBS team is still investing in American stocks.
UBS: modest expectations
Based on the price-to-earnings ratio’s, prices of US stocks are now a little bit above average, but investors do not have to worry about that. The increase, is namely supported by improved company results.
The expectations for the future that Friedman has put forward, however, are still quite modest: we do not have to count on the strong growth we have seen in recent years anymore, apparently. In the last five years we have seen increases of 15 percent year on year and that scenario will not repeat itself.
A yearly return of about 7 to 8 percent is still in the cards, however. UBS remains invested in US and European stocks and is even increasing its positions. Global growth will, for the first time since 2010, speed up in 2014. It is that acceleration that will lift stocks to the next level.