Week in Brief: April 15

April 18, 2016

Had I told you in April 2009 that seven years hence, the S&P 500 would be at 2,100, gas would cost $1.90 a gallon and unemployment would sit at 4.9 percent, you might have thought me a lunatic.
And yet, here we sit. Seven years into a tepid, low-growth recovery. But a recovery all the same. It rather reminds you that, regardless of the times, tenor or general mood, even as everyone around you appears to be losing their minds amid a scarcity of hope, optimism will always be, as Colin Powell said, a perpetual force multiplier.
So, while the market continues its recent exultations, plumbing ever closer to all-time highs, one cannot help but wonder what might serve to drive equities beyond previous boundaries?
Q1 earnings forecasts are woeful. GDP growth anemic. Central banks oft appear to be operating in a dark room devoid of candles, flashlights and common sense. And the remaining contenders for The White House range from the vapid to the dispiriting. What, if anything, might lead this economic horse to water? To even greener, more fertile pastures?
Well, don't despair. In spite of the aforementioned tedium, noted economist Ed Hyman believes there's reason for optimism. In fact, research by his team at Evercore ISI suggests that the next recession may be five or six years away.
The U.S. economy has shown signs of weakness. And the current economic expansion has already become long in the tooth by most standards. Yet, Hyman explained in late February at the 2016 MIT Sloan Investment Conference that the odds of a recession within the next year or so are about 10 percent.
By way of reason, Hyman explains as follows.
"Recessions usually happen around five years after the Fed's stance on interest rates changes from easing to tightening. Normally, the Fed begins tightening two to three years after a recovery begins. But the depth and longevity of the Great Recession and the slow momentum of the current 65-month recovery kept the Fed from raising interest rates until December of 2015."
Hyman's cautiously optimistic outlook is underscored by surveys and interviews his team conducted with more than 300 CFOs. Most of whom report that their markets are doing well. Further, demand for employment agencies has strengthened. And wage pressure is increasing.
Hyman has also found encouragement in the gradual rebound within the housing industry. As well as in low energy prices. Which, while harming companies across the energy supply chain, will ultimately serve to delay the timeframe of the next recession.
So, while equities have gone nowhere since late 2014, perhaps the economy will continue to muddle through. But where might investors find an opportunity for growth?
Well, we've been encouraged of late by movement in the precious metals mining companies and the indices that hold them. Having suffered through a protracted bear market, mining companies as a group have gone stratospheric since the year began. With some of the indexes up nearly 70 percent.
What's more, the sector remains among the most under-owned in the U.S. market. And with miners appearing ready to enter a new bull market, the charts project much higher prices. And understandably so. Consider that mining companies have not priced inflation, a higher gold price, and have dealt with the headwind of a rising dollar for seven years. A trend which is now ending amid a growing belief that monetary policy has run its course in terms of effectively reflating world economies.
Eastern nations are buying gold while Western nations regularly belittle the asset class. And as China has announced that it intends to partially back its currency with gold, one wonders what the future holds for the yellow metal. As well as the purely fiat currencies utilized by Western economies.
Bottom line? If precious metals like gold and silver are entering a new bull cycle, then that represents a big opportunity that could last for a long time. Gold has risen 19 percent from its closing low reached on December 17. Which happens to be the day after the Fed hiked rates for the first time in a decade. If gold reaches the 20-percent mark, it officially terminates the bear market begun on August 22, 2011. One that lasted 1,578 days. Marking the second longest gold bear market on record after the 1,916-day bear that ran from December 1987 to March 1993.
So, what happens when gold traditionally returns to its bullish ways?
According to Bespoke Investment Group, the median growth for gold during bull markets has been 76.7 percent, while the median gold bull market has lasted 643 days. To get to median levels, the Bespoke analysts observe, gold would stage quite the rally over the next two years. So this is more than just a casual observation. We believe the change in precious metals, specifically gold and silver, as well as the metals mining companies, merits serious and immediate consideration by serious investors. Remember, the best time to enter an investment is when its gone from detested to slightly less detested in the eyes of the investment community. Which appears to be the situation with metal mining companies at the moment. Stay tuned.
Weekly Results
Major markets finished up last week. The DJIA gained 1.82%, while the S&P 500 rose 1.62%, and the NASDAQ climbed 1.80%. Small cap stocks also gained 3.06%. The 10-year Treasury bond yield rose 3 basis points to 1.75%. Gold finished down $5.20 per ounce, or -0.42% last week.

Securities offered through Dempsey Lord Smith LLC – Dempsey Lord Smith LLC, Rome, GA Member FINRA / SIPC / MSRB.

Advisory Services offered through Dempsey Lord Smith, LLC, an SEC Registered Investment Advisor. Clearing through and accounts held at Charles Schwab & Co., Inc.

Dempsey Lord Smith, LLC nor Hyde Park Wealth Advisors LLC provides tax or legal advice and you should consult your accountant and/or attorney if considering an investment of this type. Hyde Park Wealth Advisors LLC is not controlled by or a subsidiary of Dempsey Lord Smith LLC. Investing in Alternative Investments come with a variety of risks that could result in a complete loss of principal investment.

Alternative Investments offered as private placement securities are offered only to qualified accredited investors via confidential private placement memorandum. Income and returns are not guaranteed and there are no assurances investments will meet their stated objectives.

© 2024 Hyde Park Wealth Advisors. All Rights Reserved