There is many opinions floating around on POG:
A couple of interesting insights on the markets, one from a respected
contributor to SI, one of the few directly involved with a company who
regularily posts on Mongolia Resources.
exchange2000.com
I am not sure who this is but I came across it in my travels and it is
worth a look:
COMMENTARY FROM A WELL RESPECTED ANALYST IN VANCOUVER
>Subject: Market Commentary
>
>Outlook for markets still positive
>
>
>Our long term outlook for the senior equity market remains unchanged -
>bullish!!
>
>While the Asian crisis, concerns of future earnings and rich valuations
>definitely concern us the primary drivers for our markets remain positive:
>Low interest rates and inflation, moderate economic growth, strong
>employment( esp US), rising incomes and wealth,robust consumer confidence,
>improving government finances, solid earnings, rising productivity etc.
>
>The basis for our enthusiasm lies primarily with the strength and breadth
of
>the domestic economies of Canada and the US. We do not believe in the
>consensus view that we will see deflation in 1998. Inflation will probably
be
>lower but we will not have deflation. While it is possible, the odds of
>deflation in the midst of rising employment, incomes, spending and
earnings
>is low in our opinion. This domestic strength was further evidenced with
>today's US employment report showing November payrolls rose twice as much
as
>forecast to 404,000. US unemployment has fallen to a 24 year low of 4.6%.
>Wages were up a solid 4.1% from a year ago. Canadian employment also
improved
>in November after 2 months of stagnation. Employment rose 33.500 allowing
the
>unemployment rate to drop from 9.1% to 9.0%. Clearly, Canada still has a
long
>way to go but we think we see continued improvement in 1998.
>
>While under a more normal scenario these numbers would have sharply
increased
>the odds of an interest rate increase in the US, the current Asian crisis
>makes this virtually impossible. We still expect the slowdown in Asia to
>reduce growth in Canada and US in 1998.
>
>Today's employment number is excellent news for the equity markets and
while
>it may result in a short term selloff in the bond market rates will not
stay
>up for long. We continue to recommend mid to long bonds and especially
>Canadian Provincial bonds issued in US dollars. They offer attractive
yields
>and protection against our weak Canadian dollar which we feel will
continue
>to suffer in the 1998.
>
>The Asian crisis,margin pressures and expected slowing economic growth in
>North America will however keep gains much more moderate compared to the
past
>few years.This is the first time in history that the S&P 500 has recorded
3
>consecutive We again see the DJIA outpacing the TSE 300 in 1998: Our
targets
>are 7300 for the TSE 300 and 8900 for the DJIA - however don't expect it
to
>be a smooth ride.
>
>Unfortunately, the heavy exposure to gold exploration companies on the VSE
>market projects ongoing difficulty. The VSE has remained in a long term
>downtrend since the spring of 1996. With weak gold prices and less demand
for
>small and micro cap stocks, our index will continue to suffer for some
time.
>We continue to recommend caution.
>
>The current Asian crisis will have an definite global effect on world wide
>economies,prices and markets, but we do not expect it to derail the
current
>solid economic growth in North America and Euroupe. Asian exports
represent a
>marginal 2% and 3% of GNP for the US and Canada respectfully. Infact the
>tiger countries of Thailand, Indonesia,Malaysia etc represent only .7% of
US
>GNP. We would however keep a very close eye on the potential of China
>devaluating the currency. If this were to happen in early 1998, deflation
>pressures would rise markedly.
>
>We expect inflation to stay under 2% for both Canada and US in 1998.
>
>We remain bullish on bonds. As a result of the expected slowing
growth,Asian
>crisis,huge capital investment growth ,low inflation and reduced debt
demand
>by government, we feel long term interest rates will approach 5.5% by
early
>1998. In the short end however, a weak Canadian dollar and worries of
slower
>export growth esp resources, should push short rates up at least another
1/4
>percent. The past increases and future increase will slow 1998 growth
closer
>to 3 to 3.5% from forecasts as high as 4%.
>
>In the equity markets, selection will be very important.The gains have
been
>primarily made by a small number of big cap issues. We do not think this
will
>change in the next few months. Quality is always king in the face of
anxiety.
>We would advise a domestic theme and avoid the Far East for now. The US
will
>be a haven and will likely outperform most other markets. We would
favour
>interest sensitive issues such as utilities, real estate,
telecoms,pipelines,
>and financials. The recent weakness in oil prices and slower demand for
>forest products will keep these sectors underpressure for the short term.
The
>long term outlook for oil and gas remains very positive and should be
>accumulated over the next few months. We continue to like technology,
>consumer products and industrial products.
>
>On the gold front however, conditions could not be more bleak. Central
bank
>selling,slowing Asian demand and economic growth, low inflation and still
>high multiples do not foretell good times for the precious metal. Gold is
now
>at 13 year lows of $286US. While the psychological level of $285 may
result
>in a short term bounce, we do not think it will last. Gold is losing or
may
>have already lost its special role. Central bankers around the world are
more
>than ever realizing gold is not a hedge against inflation - it has not
been
>one for 25 years. Gold stocks have always maintained a very high valuation
>levels because of the inherent volatility of gold and leverage. I think
this
>has changed. Further gold is no longer seen as a hedge against world
crisis
>or calamity. If it was it would have soared during the Asia meltdown. For
the
>foreseeable future we think gold stocks will be afforded much lower market
>multiples. If gold prices stay at $300 very very few companies will be
>profitable. For example Newmont Mining(NEM-N) ,one of the lowest cost
>producers in the world, would earn only .11US cents per share next
>year(according to Lehman Bros.).Even with a healthily P/E multiple of 20X
>,.it results forecasts a price of $2.20. Newmont currently trades at
$27.75 !
>Not to mention what it does to their asset value. Granted , Newmont does
not
>hedge gold and this does realize asset value, but it does illustrate how
much
>gold producers could fall if prices stay this low for a long period of
time.
>Needless to say, we continue to advise investors to avoid the gold sector.
>
>Those that may wish to stay within the mining sector should place their
>attention on the base metal group. Base metals have not fared much better
>than gold but their underlying commodities have vastly different
>fundamentals. Nickel,zinc,copper,aluminum etc are used in the production
of
>wide variety of products e.g. steel. Inventory levels are similar to other
>raw materials - unlike gold. With a continued economic expansion expected,
>base metal stocks will fare significantly better than golds in the long
run.
> |
