Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

Mr. Market Buys More Life Insurance

U.S. corporate fourth quarter earnings are rolling in, and the results are somewhat less than adequate to justify current exorbitant stock market valuations. Industrial giant Alcoa, which doesn’t seem to make the headlines anymore, bombed, with lower revenues and earnings year over year. GE shares tumbled as profit margin growth was below CEO Immelt’s projections. Banks bettered results overall, as gains in equity management and trading (estimated at 47% of bank profits) overshadowed sharp losses in fixed income.

In tech, Intel failed to impress, although revenues and earnings were “in line.” The company reduced first quarter revenue forecasts by 7.0%, citing subpar PC markets – again. Intel plans to cut 5.0% of its workforce. In retail, turnaround story Best Buy’s revenues and profits slumped. Though holiday discounting was blamed, market share losses to on-line retailers like Amazon likely contributed. Amazon also warned about discounts weighing on profits, though we doubt a profound impact to earnings will be felt in its case. And JC Penny announced 33 store closings and 2,000 job cuts – another casualty of the retail wars.

MWM 14, 1-17 Box ScoresTo put a summation sign next to all of this, reported earnings overall seem set to inch up from third quarter levels, though the momentum is clearly fading. Judging by the market’s inability to jump higher on every piece of earnings-related news, stock operators may share that sentiment. However, further gaming of stocks is not out of the question between now and mid-March, when we get a glimpse at first and second quarter prospects.

Away from stocks – bonds, gold, and the dollar caught a bid again, outpacing stocks in some instances. Recent profit taking in these areas has been shallow, showing reversals above key support levels. This suggests that the smart money is expressing a marginal interest in acquiring insurance against “bubble” dynamics in stocks – or at least that’s the assumed motive. This is speculation on my part, as trumpets rarely sound the charge ahead of major market moves. Stealth is always the more preferred method of acquisition until a respectable position has been established.

For the next two weeks, there isn’t much gold-friendly economic data due for release, with the possible exception of existing home sales data due next Thursday. But with concerns regarding stock valuations increasing, and calls by Fed-heads Evans and Kocherlakota to increase asset purchases, defensive assets may continue to see gains – albeit in tentative fashion.

As an aside, the Shanghai gold exchange, doubtless in response to recent shenanigans in London and U.S. markets, plans to host a spot gold market of its own – priced in yuan. The move follows what has been a landslide shift of gold assets from west to east over the past year, and may well cap off another chapter chronicling developed nations’ monetary missteps.

Best regards,

David Burgess
VP Investment Management