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Gold/Mining/Energy : Gold Price Monitor

GDXJ 98.59

-2.8%

Nov 13 4:00 PM EST

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To: long-gone who wrote (66555)	3/26/2001 6:10:20 PM
From: Rarebird	Read Replies (3) of 116762

The real question for these markets is whether the poor earnings that are almost certain to materialize in the 1st quarter of 2001 and extend further in the year are already reflected in current stock prices. The answer here depends entirely upon how long the economic downturn lasts. It takes at least six months before interest rate cuts have a direct effect on the economy. However, it is very clear that the problems the market is facing are not directly related to interest rates. While an economic recession looks extremely likely, what we are seeing right now is the market reacting to negative profit growth - effectively a recession of corporate earnings. For instance, auto sales on the macro level are relatively strong, but the profits from auto companies are dropping precipitously. The fundamental problem with the market is that current valuations are not fully justified by earnings expectations that are heading decisively lower. We know that during periods when the Fed is cutting interest rates the market almost always(with the "Great Depression as a noteworthy exception) responds positively. However, this should be viewed somewhat skeptically as these other periods of Fed easing were not also plagued by the high valuation levels that we are still seeing. My expectation is that things will probably get a lot worse in equity land before we see a bottom. Be on the lookout for GATA style lawsuits in the equity market, accompanied by massive despair and complete loss of confidence in equities before a bottom becomes possible. When investors/traders begin to look at equities the way most people view Gold, it will be time accumulate positions. Got Gold?

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