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

Dithering on the Road to Utopia

If you are a stock bull, there wasn’t much to get excited about this week. US Corporate earnings have been successful at “beat the number,” but not necessarily at YoY growth in terms of revenues and or earnings. Clearly there have been some winners (i.e., Facebook, United Technologies, Texas Instruments and Qualcomm, the banks, and autos), but the list of losers may be equal in scope (i.e., AT&T, Apple, Broadcom, Caterpillar, BASF, 3M, Samsung, Unilever, and US homebuilders).

Forecasts for the remainder of 2013 have also produced mixed conclusions, but the landscape has already changed significantly. Just a few short months ago, disappointments of any kind were non-existent; now they seem to be increasingly commonplace. US existing home sales declined 1.2%, for example, and US durable goods orders, excluding transportation, showed zero growth in June. The exception was US new home sales (+8.3% in June), which surprised to the upside. That news, after being hyped by the MSM, was enough to reignite hopes of Fed “tapering” from QE by September – though only for a day as it turned out. For the week, stocks and Treasuries produced slight losses, while the dollar experienced some heavy selling that induced another round of steady gains for the precious metals.

MWM 13, 7-26 Box ScoresAs for the dollar, if weakness continues in the absence of economic inflation, the US may be the only developed nation with a perceived motivation to extend its currency debasement for the time being. Japan in particular may be forced to pare back its printing efforts. Inflation in the country has spiked at twice the expected rate (national CPI, excluding food, was up 0.4% vs. expected 0.2%). The Yen spiked higher this week, and was the primary influence behind the dollar’s collapse to its 200-day moving average.

Away from Japan, the ECB has its hands tied with respect to printing. England’s inflation rate threatens to stunt growth, and the emerging markets continue to intervene in favor of their own currencies – against the dollar. New Zealand’s central bank signaled this week that it would take measures to tighten policy in coming months. In any case, the dollar may slide a bit further from what are considered oversold levels.

Next Wednesday we will have another FOMC rate decision, in which the Fed is expected to hold fast on both rates and the $85 billion bond-buying program. In the absence of a Bernanke-led press conference before the Fed meets again in mid-September, speculators will be forced to parse the economic and corporate data for clues as to how the Fed may conduct policy in coming months. We suspect that the data will produce enough uncertainty to spare us any further tapering prattle, while solidifying the Fed’s dovish policies.

In such an environment, the metals may see further upside – with the next breakout level set around 1370. Buying remains strong on the dips, despite the reported 80% drop in jewelry sales in India caused by new taxes and exchange controls to curtail the industry. India’s gold imports dropped from 162 metric tonnes in May to 30 in June. Yet, at a $6 billion differential value, we find that the sum pales in comparison to Fed injections in excess of 10 times that amount on a monthly basis.

Best regards,

David Burgess
VP Investment Management