Archives: 2007 December

With the FOMC meeting all set for tomorrow stocks look for additional rate cuts.

The market looks like it wants to rally into the year end. A strong year end rally would likely set conditions up for a lot of disappointment early in 2008. With the economy slowing earnings probably won’t be looking so hot by the end of first quarter 2008.

Next year could have a lot of shocks for the stock markets of the world. Should we have a strong rally into years end I would use it to take profits and move into cash for awhile. I believe that the US economy may well sink at a more rapid pace than now forecast as 2008 unfurls. For one thing the government’s plan to freeze subprime mortgage loan resets may result in a series of unintended consequences that could absolutely cause a deep freeze in the mortgage markets.

Who in their right mind would want to lend money to the mortgage market when the government gives itself the right to step in at any time and change the terms of the loan agreement?

Standard and Poor’s Gold Industry Report for 2008, Dec 1, 2007

The bull market in gold likely has a long way to go. Adjusted for inflation since the all time market high of $850 an oz. in 1980 the price of gold would have to climb to over $2,000 an oz to take out the old high. With strong worldwide demand and very limited means to increase production it is in my view likely that new inflation adjusted highs will be made at the peak of this bull market cycle.

One way to play the bull market in gold is to purchase shares of stock in companies that are involved in gold production.  Gold mining companies that have not fully hedged their gold production should see their earnings soar as gold prices increase.

Standard and Poor’s has recently made their own assessment of the prospects for the gold market in 2008. One of their articles appears below.

Begin article by Leo Larkin ============================

Our fundamental outlook for the gold sub-industry is positive. Based on our expectation for another increase in the gold price in 2008, we look for higher sales and earnings for this group this year even though production volumes are likely to be unchanged from 2007’s projected levels.

Stocks of companies that are part of the natural resource commodity boom immediately come to mind when looking to future rapid appreciation in portfolio value.

It stands to reason that the stocks of well managed companies that are involved in the production of increasingly scarce natural resources such as oil, natural gas, precious metals like gold, silver, and platinum, industrial commodities like copper, and agricultural commodities will do well as supplies are stretched thin due to increased world demand.

The downside to the prospects for stocks in these industry groups is that the United States and indeed much of the world enters into a deep recession or even worse. Then demand pressures would take a sharp drop and the price of the shares in natural resource related companies would likely follow.

However, for those investors who take a long term view having a portfolio heavily weighted to the natural resource sector should pay off in a major way. When one cuts through all of the high hopes for alternative renewable energy sources it will be impossible to replace oil and gas as energy sources anytime in the foreseeable future.