College basketball does not possess a monopoly on
madness…not even during the month of March.
Nor has the NCAA cornered the market on stunning upsets.
Rather, during this particular month of March, finance
imitates sport: The perennial favorites are disappointing
their legions of fans, while a few underdogs are wowing the
Semiconductor stocks, for example, have stumbled as badly
as the Kansas Jayhawks, while the never-say-die crude oil
market continues to defy its skeptics.
The "March madness" seems likely to continue, both on the
hardwood courts of the NCAA and on the trading floors of
the nation’s stock and commodity exchanges.
Please permit us to present a brief summary and a couple of
predictions, also known as "guesses."
So far this month, the "highly rated" Nasdaq Composite
Index has slumped about 2%, bringing its losses for the
year to nearly 8%. How very different from the outcome
envisaged by its many adoring fans at year-end. All the
major U.S. equity indices have dropped about 2% in March,
dragged lower by a 15% drop in General Motors shares. On
the other side of the "stat sheet," the CRB Index has
jumped nearly 3%, powered by an astounding 9% jump in crude
Very few investors anticipated this sort of March madness.
Not only have the outcomes been somewhat shocking, but also
the volatility has been unnerving, if not downright
maddening. Yesterday, for example, a seemingly inert
comment from the Hong Kong Monetary Authority’s Chief
Executive, Joseph Yam, sparked an explosive reaction in the
currency markets. The dollar soared more than 1% against
the euro after Yam suggested that Asian central banks
shouldn’t rush to boost euro holdings at the expense of the
"The euro may become so popular in this region, it may
undermine the stability of international finance," Yam told
a meeting of business executives in Hong Kong. The gold
market did not take kindly to his remarks, as the ancient
monetary metal skidded $8.30 to $431.40 an ounce.
Meanwhile, the May silver contract plunged 28.5 cents to
$7.11 an ounce.
Does gold’s latest tumble signal the start of a new dollar
rally? Or is this sell-off merely the latest of many buying
opportunities gold has presented to investors during the
last three years?
Your editor favors the latter interpretation, and will
seize this opportunity to offer a couple of predictions for
the collective benefit – or detriment – of all Rude
1) Gold will recover its footing later this week, as
surprisingly strong PPI and CPI readings cross the
2) Villanova MIGHT win the NCAA championships.
(In the event that neither of these predictions comes to
pass, your editor reserves the right to revise history
according to his liking, or to offer a new and improved
prediction concerning some other future event).
Most likely, neither of these predictions will come to
pass. Even so, investors should brace themselves for the
possibility that financial underdogs will deliver a few
more "shockers" over the coming weeks and months.
Specifically, we investors should not be too surprised if
the gold market "pulls a Bucknell" over the stock market,
by charging toward $500 an ounce while the Dow slumps below
10,000. Nor should we be surprised if the bond market
withers in the fourth quarter…just like Wake Forest.
The current "buying opportunity" offered by the gold market
may prove to be more remunerative than most, simply because
the gold market has quite a bit of catching up to do. Even
before yesterday’s miserable performance, gold had been
lagging well behind most other commodities. As the chart
below illustrates, gold has advanced a mere 4% since the
end of 2003, compared to a gain of 26% for the CRB index.
We suspect that this underdog is on the verge of producing
a string of surprising "upsets," perhaps as early as today,
when the Bureau of Labor Statistics releases its producer
price index (PPI) report for February at 8:30 AM Eastern
time. Or maybe tomorrow, after the CPI report crosses the
"Gold is one of those markets that can snap back and rally
quite quickly," says Kevin Kerr, editor of the Resource
Trader Alert, "so trading back down here may entice some
investors to step back in and buy value where they might
not have been willing to before."
Assessing gold’s long-term prospects, John Myers, editor of
Myers’ Finance & Energy, notes that global gold production
has finally topped out after two decades of relentless
"According to the World Gold Council," Myers reports, "gold
mine production in 2004 totaled 79.7 million ounces. That
was down from was 83.3 million ounces in 2002 and 2003. It
is true that world mine production doubled between the
early 1980s and early 1990s. Yet since 1997 mine production
has stalled at around 80 million ounces per year."
Myers suspects the constrained supply of newly mined gold
will support of the gold price, especially in light of the
fact that the unrestrained supply of newly minted dollar
bills pouring out of the U.S. Treasury.
"Alongside the stagnation in world gold production," says
Myers, "is another important fact: M1 money supply has
grown by a whopping 30 percent since 2001." In other words,
the kind of money produced by printing presses continues to
proliferate rapidly, while the type of money extracted
painstakingly from the earth’s crust proliferates very
slowly. At the margin, the relatively precious item should
appreciate against the relatively common item.
Our advice: Don’t count out the underdogs.
Did You Notice…?
By Eric J. Fry
For the last few years, U.S. farmers have been enjoying
resurgent prosperity. This fact has not been lost on the
shareholders of tractor-maker, Deere & Co (NYSE: DE).
Deere’s share price has been outpacing the S&P 500 since
the late 1990s – a timeframe that corresponds with rising
farm incomes. As the chart below illustrates, Deere’s share
price tends to mirror the trend of farm incomes, as
measured by the USDA’s calculation of "prices received by
We have no idea whether Deere stock is a "buy" or a "sell."
We do know that the company still faces a hefty pension and
healthcare liability. On the other hand, farm incomes
continue to rise. If, as we expect, commodity prices
continue to boom, Deere & Co. will likely sell a few more
tractors. Does that mean Deere & Co. stock is a buy? Let
the reader decide.
Recommendations From A Floor Trader
And the Markets…
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