28 Jul GOLD AND EARNINGS
Gold is around an all time high. Some might ask why? Simplistically speaking, the government is hell bent to increase the deficit to levels as a percentage of GDP last experienced at the height of WWII, the Fed has commented it will keep rates at zero for at least two years, the dollar is weakening, real rates are negative, the news about Covid is almost apocalyptic and a cultural implosion is occurring at a lightening pace.
Bloomberg wrote yesterday “bullion may be ready to beat US stocks for years to come,” the result of an extremely over extended and crowded trade in a handful of mega sized technology companies, rising inflationary pressures because of fed policy, and the incessant need for money from by the federal and state government, partially the result of Covid and partially the result of years of failed fiscal policies.
Counterbalancing this dismal equity outlook are earnings. Bloomberg states the clearest sign that the environment has “turned to the better,” the 10-day moving average of the net companies raising their earnings forecasts is at the highest level in two years. Moreover over 82% of S & P 500 companies that have posted earnings have exceeded expectations. I must write the bar is low because no one knew or knows the outcome of the pandemic.
This week and next week are massive earnings weeks where over 60% of the S & P 500 companies are posting results, companies that include the NASDAQ heavy weights such as Apple, Google, Amazon and Facebook. As noted yesterday because of the massive size of these companies, if the majority stumble, it could be difficult for the averages to move higher.
How will the results be interpreted?
Radically changing topics, I think the outcome of November’s election can potentially forever alter the direction of the economy and society. The policy differences between the two candidates is perhaps the starkest it has been in at least a generation.
Typically, any presidential candidate that is proposing a radical agenda loses in a landslide, utilizing the massive Republican defeat of Barry Goldwater in 1960, and the humongous Democratic losses in 1972 and 1984 of George McGovern and Walter Mondale, respectively, as examples.
Will this year be different? Will society re elect a person who many believes his personality is toxic but whose policies are more mainstreamed and traditional or will society elect a “more likeable” candidate whose proposals are extremely progressive?
Perhaps the only certainty, it will get uglier and uglier as November approaches.
What will happen today?
Last night the foreign markets were down. London was down 0.06%, Paris down0.73% and Frankfurt down 0.34% China was up 0.71% Japan down 0.26% and Hang Sang up 0.69%.
The Dow should open nominally lower on a myriad of concerns including a $1 trillion stimulus is not big enough, earnings fears and the emerging belief the averages are so top heavy that any misstep from the big six will crush sentiment. The 10-year is up 2/32 to yield 0.61%. Gold is nominally lower because the proposed stimulus is not as large as some had expected.