Market Outlook for Fall 2012: Oil, Gold and Stocks
The broader US market indices have hit new 2012 highs in the last two trading sessions. Along with the stock move up; gold, silver and oil have followed suit. A combination of perceived European economic stability and more Federal Reserve bond purchases have led to a 10% rise in stocks, a 25% rise in WTI oil, and (gasp) a 27% rise in the price of oil. money in the last two months.
One has to dig just a little below the surface to realize that this months-long rally, now dubbed “the most hated rally” on CNBC, is based on nothing more than a hope and a prayer. Taken together, corporate earnings only beat negatively revised estimates by the same historical amount. The demand for oil has steadily declined and the central banks of China and India have eased their gold buying operations.
Overall, demand for investment grade vehicles continues to decline, both in the US and around the world. For investors looking for a sanctuary in gold or European or US equities, the six-month outlook is not promising. Now, temporary upside moves are sure to come, but “buy and hold” in this economic climate is not wise.
It seems increasingly likely that the US Federal Reserve will implement another round of bond purchases (QE3); however, there is still no indication that the US fiscal problems are any closer to being resolved than they were at this point in 2011. Until there is legislative movement at the federal level by Congress to ensure a climate that promotes growth, our problems will be solved. continue and get worse. One should look no further than tepid monthly job growth over the summer.
So what is the movement? Well, as detailed in “An ounce of gold will cost $800…”, there are several strategies that can prove profitable in the next six months:
First, short silver. At its current price of nearly $34 an ounce, “poor man’s gold” is really just fool’s gold. Silver is an industrial metal and although it has been considered an inflation hedge and a store of value, it is really just an expensive industrial metal. Look for a 50% move down in silver.
Second, sell gold. I don’t like to short gold because it is an internationally accepted store of value and a real hedge against inflation, but at these bubble prices gold is too expensive to buy at these levels. I will wait until less than $1000.
Third, short US stocks. Unlike European stocks, many US stock valuations have held up and even spiked in the last six months. The idea that European problems can be isolated in Europe is absurd.
At the moment, Europe is off the radar, as the ECB has said it will buy an “unlimited amount of Spanish and Italian bonds”. The problem with this strategy, just like in the US, is that monetary policy cannot correct fiscal problems!
The fall of 2012 may be when Ben Bernanke and Mario Draghi discover that the artificial demand for US and European bonds is at best a short-term patch for an economic emergency, not a long-term fix for an economy. structurally deficient. Don’t be the one holding her bag!
