Interesting comments re gold contained herein:
Good evening to you all. Please find enclosed our weekend review of the
markets and the upcoming week.
GENERAL INFORMATION - MARKETS PERFORMANCE
LAST WEEK YEAR-TO-DATE
TSE Up 1.5% Dn 4.0%
DOW Up 0.9% Up 12.6%
S&P Up 1.9% Up 22.4%
GOLD Dn 0.1% Dn 0.1%
TED Spread 75.50 points
In a week that saw the United States and Britain bomb Iraq and the lower
house of the US Congress impeach the President, it may be difficult to
find a starting point in reviewing the week. Perhaps the simplest place
to begin is with the fact equity markets were not affected in any way and
gold fell to a 3 1/2 month low, thus further proving investors
unequivocal faith in equities and lack of concern for any fundamentals,
which have historically sent them for cover.
Confirmation of this confidence can be found in the TED spread, which is
still high at 75.5 points but well off the 100.00+ numbers we were seeing
in late October. As you all know, the .80 level is considered to be a
strong warning sign of current and future market conditions but this
week's performance reflects investors optimism in the markets.
(Most of you have received our report regarding the TED spread, the
difference between 90-Day T-Bills and 3 month Eurodollars, which serves
as an indicator of market sentiment. For those of you who have not
received this report, kindly
e-mail us and we will send it out to you immediately.)
With respect to equity markets, the global pace setting Dow Jones closed
above 8900 despite the fact that, in addition to this weeks obvious news,
earnings warnings have been reported by many major companies over the
last two weeks. Despite the fact we continue to believe current levels
are unwarranted given the complete set of global economic circumstances,
there is no fighting the fact that momentum in equities is very strong
and provides plenty of opportunity for the AGORA portfolio to capitalize
on trading opportunities. Having said that, we continue to remain
cautious and refuse to dedicate a large amount of capital to these
markets at any on time. Rather, we prefer to make the "hit and run" type
of investments that leave very little money on the table and for only a
short period of time.
With respect to gold, this week proved to be very difficult for gold bugs
who were counting on fundamental appreciation in it's value, including
AGORA. Only two months ago, we sent out a report that outlined all the
fundamental reasons for a forward movement in gold. As the situation
stands today, we were completely correct on the fundamentals and yet the
desired result of $320 gold, or anywhere near it, has not been achieved.
In fact, gold closed at a 3 1/2 month low of $288.80.
OUR COMMENTS - MARKET EXTREMES OR A NEW PARADIGM?
1] Neutral Switzerland defeats Desert Storm 2 in the bullion tug of
war.
In a week that culminated with news that should have finally drove gold
well into $300 territory, investors chose to concentrate more on the
continued threat of central bank selling out of Switzerland, which arose
when Parliament voted this week to sever the Swiss Franc's peg to gold.
This is despite the fact that even if such sales were to occur, Swiss
officials claimed they would not happen anytime before 2000.
On the other end of the spectrum, gold could not find momentum in any or
all of the following bullish events:
1] The Japanese government took over two large banks in two months;
2] Russia continues to remain in default and has no means to pay
upcoming debt installments;
3] A weaker US dollar;
4] Large US corporations release early 4th quarter profit warnings;
5] The US and Britain launched a full out military assault on Iraq,
using more missiles in three days then in the entire Desert Storm
campaign; and
6] The US Congress has voted to impeach President Clinton.
Had we been given this exact set of circumstances two months ago, we
would most certainly have bet on $320 gold and a sub 8000 Dow. In fact,
most of these factors were already built into our analysis. It just goes
to show you that even a crystal ball can't tell you where the markets are
going.
Given what has actually transpired in the price of bullion, it must be
said that gold's value as a hedge against political uncertainty and
international conflict, has now been served a big blow. This is
especially true when you consider it's neutral performance earlier this
year, as Pakistan and India engaged in nuclear weapon tests.
2] Cyber Space Stocks Climb to Out of This World PE Ratios As Real World
Companies Warn of Down to Earth Profits
In a week that culminated with news (as listed above) that should have
finally drove equity markets into 12 month lows, Amazon.com is given a
$400 price target and climbs $54, to $290, in only one day of trading.
This is despite the fact the $400 target was derived as 28 times earnings
in the year 2002!!!
WHAT DO WE MAKE OF THIS?
You will note that both of these items deal with events that MAY happen
after the turn of the century. With respect to gold, investors chose to
base their decisions on an event which may occur in the year 2000 - Swiss
Central Bank sales, rather than focusing on events that are definitely
happening today.
With respect to Amazon.com, the catalyst of the rising technology sector,
which in turn is the catalyst to rising equity markets, investors chose
to base their decisions on a multiple that may be achieved in the year
2002, rather than focus on corporate earnings warnings which are actually
being reported today.
Given this set of factors, AGORA can unequivocally conclude that
investors are now in the midst of a full-blown speculative bubble in
equities, as we can see little justification for current values. If you
need further proof, look no further than a recent Christmas event we
attended, which was hosted by a group of real estate professionals. We
were shocked and alarmed to listen as these professionals spoke not of
fundamentals in the real estate sector but rather, how much money they
were planning to make in the stock market over the next few weeks. What
was alarming was the fact that a large group of inexperienced stock
traders fully believed they could easily make 200-300% returns in the
coming months.
Does this sound familiar? We have no doubt you are hearing the same
thing in your circles. In our experience, once investing becomes "easy
money", it is a sure sign the end is nearing and it is time to limit
exposure. We need to look no further back than the real estate markets
of the late 80's for our latest such example.
Under such conditions, our conservative nature prefers to take money off
the table and wait for a clearer equity picture to emerge. If we were to
gamble in the markets today, it certainly would not be with the rent
money.
CONCLUSION
Bull market advocates, which are basically the entire financial
community, are eager to continue the bull market. The rationale is
simple, they make alit of money when you are investing and markets are
moving upward, which explains the majority of Dow 10,000 + forecasts by
these "experts". Thus, their level of objectivity must be questioned.
You, on the other hand, probably have much more at risk. As such, it is
necessary to take the time and be more objective when weighing the facts.
If you don't agree, just speak to anyone who purchased real estate
during the booming 80's when experts were telling us "most millionaires
in North America made their money in real estate".
At that time, participation by individual speculators in the real estate
market was at an all-time high. Headlines, magazine articles and
infomercials all portrayed images of multi-millionaires who bought and
sold real estate as prices soared to all-time highs. To defy these
impressions and fail to participate in the real estate market was to
forever toil in the low-middle income bracket. Investors were all told
"real estate will always go up in price...you can't lose."
Unfortunately, the speculative bubble did get too big, real estate prices
did not return and investors did lose. In most cases, investors lost
most or all the savings they had built over the years. In hindsight,
when you consider what your neighbor's house was selling for, that was a
frenzy. The same story can be told for $800 gold and $35 silver of the
late 70's and early 80's.
If you experienced any of these frenzies, then ask yourself "what is
different about today's stock market?" Price to Earnings ratios ("PE
ratios") are considered one of the most fundamental measures of value in
the stock market. The recent PE of the Dow Jones and the S&P 500 are
hovering at 21:1 and 26:1 respectively. They are both down a couple of
points from their July levels but still very far from reasonably valued,
let alone "cheap", on a historical basis.
On the other hand, on a historical basis, small-cap stocks have never
been as oversold and undervalued as they are today. Specifically, the T.
Rowe Price New Horizons Fund - a historical basket of small-cap stocks -
is trading at a PE ratio approximately 15% below that of the S&P 500.
However, it has historically traded between even and twice the S&P 500,
since small-cap stocks tend to grow at a faster rate than large-cap
stocks. On the only other two occasions where the fund has traded at any
discount to the S&P 500, it has gone on to handily outperform the S&P
over 1, 3 and 5 year periods.
Thus, if it is not a question of investing in the stock market, then it
is certainly a question of where to invest in the stock market.
GENERAL STRATEGY
For our part, we will continue to pick our spots and then monitor the
markets carefully. The AGORA portfolio has made some aggressive
additions recently, with the acquisition of Sun Microsystems, AOL and
Netscape. Currently, all are giving us a nice return. We may even
venture into a couple of more tech acquisitions and ride the current
momentum BUT IT WILL NOT BE WITHOUT THE USE OF STOP LOSS ORDERS TO LIMIT
OUR DOWNSIDE. As of today, we have set all our stop losses at our
acquisition prices plus our commission costs.
Secondly, tax-loss selling season is now upon us. For the record, the
final day for tax-loss selling is December 24th. As of now, the AGORA
portfolio has added Yogen Fruz at $4.00 and Kinross Gold at $3.65. Over
the next few days, we anticipate making at least two further
acquisitions, which will once again provide a nice kick start to our 1999
portfolio year. As such, keep a close watch on all our incoming
e-mail.
We hope you all had a great weekend.
Regards,
Agora
The Agora Wire. Published by Agora International Enterprises Corp.
© COPYRIGHT 1997-1998 by Agora International Enterprises Corp. ALL RIGHTS
RESERVED
DISCLAIMER
Information provided by The Agora Wire is intended to level
the playing field between small and large investors by effectively and
swiftly disseminating information to all those interested or
in need of information pertaining to stock market events, global events
and any other event which may effect their financial position. We aim to
provide ordinary people and investors an open ear to events effecting the
global economy while they tend to their daily responsibilities of gainful
employment, tending to their households or both. In effect, we level the
playing field for all those people who are not rich enough to be placed
on their broker's list of phone calls when news happens. Your
consideration received for subscriptions to The Agora Wire is
strictly the effective and swift dissemination of information that is
included in our subscription rates and service guarantee.
Such information includes but is not limited to: breaking
global economic developments, government announcements, company press
releases, breaking news events and other matters of significance which
may effect the global economy or any part of it. Information presented
by The Agora Wire is not an offer to buy or sell securities referred to
herein. It is strictly an exercise in our freedom of speech, as
guaranteed under our constitution, highly opinionated and not in any way
guaranteed as to accuracy or completeness. Readers wishing to
make investments are urged to obtain complete financial and other
information directly from their investment advisor, certified financial
analyst or the company. Agora International Enterprises will
not answer any specific questions pertaining to investment decisions. We
are not liable for any investment decision made by you. We are not an
investment advisor, analyst, market maker, money manager, stockbroker,
etc. The Agora Wire maintains a model portfolio to
demonstrate methods of portfolio management and to track our personal
feelings with respect to the markets. However, because we buy a stock
for our portfolio, it does not mean you should go out and buy that stock
for your portfolio. This is the same common sense you would
apply when a complete stranger buys stock for their portfolio. Only you
know your circumstances, your resources and your needs. We do not. We
are not investment advisors and do not purport to tell people, or suggest
to people, what they should buy for themselves. We never issue "Buy" or
"Sell" recommendations, and we don't give personal investment counseling.
DISCLOSURE STATEMENT
AGORA INTERNET RELATIONS CORP. receives a monthly monetary fee from King
Communications Inc., Sideware Systems Inc., Valu-net Corporation and
Mirandor Explorations Inc. for the purposes of communicating with
Internet shareholders - both current and prospective - to increase
awareness of and interest in our clients. AGORA INTERNET RELATIONS CORP
activities are aimed purely at keeping their clients' shareholders and
prospective shareholders informed about their company. These activities
consist of providing investors with previously disclosed factual
information concerning the company, comments from company principals,
copies of material that has been filed with regulatory authorities,
comments prepared by registered brokers or investment dealers and
material published in newspapers, magazines or journals.
AGORA INTERNET RELATIONS CORP does not participate in the maintenance of
an orderly market in their client's securities, nor is required, or
receives an incentive for, the maintenance or achievement of a price or
trading volume for their client's securities at a certain level, for a
specified period of time or by a certain date. AGORA INTERNET RELATIONS
CORP. may, at any time, own shares in the company.
|
