The Cheapest Stock Market in 20 Years

I don’t have a
problem with
investors who are bearish on the stock market and the U.S. economy.
After all, official unemployment is near 10%. U6 unemployment, which
includes
those who are underemployed or have simply given up looking for work, is
significantly higher.

The housing
market is likely
to only gradually improve over the next couple of years. There’s record
government debt here in the U.S.
and in many other countries.

But the bears
need to take
another look before they add high stock valuations to the laundry list
of
downside catalysts. Because the numbers say stocks are as cheap as
they’ve been
since 1990.

Sure, it’s
easy to look at the 79% move by the S&P 500 and think stocks must be
expensive.

But so far, 1st
Quarter
earnings have beaten estimates by an average of 22%, according to
Bloomberg.
80% of reporting companies have beaten expectations.

Analysts have
raised forward
earnings estimates for S&P 500 companies by 9.3% in April. The index
has
responded with a 3% move in April.

Are gold stocks disappointing?

You might have
noticed
something strange going on in the markets recently – especially with
how stocks relate
to commodities like gold. And you’re not
alone. It’s easy to see that gold and
stocks shouldn’t make gains in tandem. It’s hard to imagine people being bullish on the economy at the
same
time they’re bullish on gold. That’s because gold is usually seen as a
safe
harbor, protecting against calamity in the markets and world currency.

So what’s going
on?

Yesterday I was
talking with
a well-respected gold analyst with many years of experience in the field
– who spoke
to me under condition of anonymity. He’s
been as successful as anyone I know when it comes to finding profitable
gold
stocks.

He complained
yesterday that
gold stocks weren’t performing as well as he’d like.

And he’s right –
so far this
year gold has returned about 16%, while larger gold companies like Royal
Gold
(Nasdaq: RGLD) have been somewhat disappointing. RGLD
has only returned about 6% this
year.

Check out this
chart showing
gold prices (dotted line) vs. RGLD (solid line). 

We know that
gold stocks
tend to lag gold price fluctuations, and we can see how RGLD always
seems to
tentatively follow gold prices upward, and then quickly retreat when
there’s
even a hint of trace-back in gold. 

A Blizzard in April

I’m always on the lookout
for parables in the investing world – and a snowstorm in late April is a
great
metaphor for unexpected phenomenon in the markets. 

Many
investors view each unexpected action in the market as an opportunity to
learn
and adjust – which is fine if you’re a day-trader, but disastrous if
you’re a
long-term investor.  I don’t plan on giving my shorts and t-shirts to
the
Salvation Army after one rogue snow storm.  That would be foolish. 
And it would be equally foolish to sell all of my oil positions just
because
crude oil dropped $2.50 a barrel yesterday. 

The
long-term trend for oil – a trend that’s obvious even to school children
and Congressmen
– is for prices to increase.  A dip in oil prices is an opportunity to
buy
more shares of oil companies, not sell.  Just like a mid-spring snow
storm
is an opportunity to go sledding or cross-country skiing not ditch the
charcoal
grill and golf clubs.  The point is: seize opportunities as they come,
but
don’t change your long-term plans because of short-term abnormalities. 

Speaking
of opportunities, one of my favorite oil and gas companies is about to
pay out
a quarterly installment of their 7.7% dividend yield.  This company has
raised its dividend an average of about once a year – and they’ve never
lowered
it or missed a payment.  You can click
here
to request a free report all about this
company. 

Is Your Portfolio Ready?

If
you’ve
been looking for a dip to buy, your opportunity may be coming soon.

Stocks
got
whacked yesterday, and the S&P 500 dropped below an important
support point
at 1,188. Aside from the past few weeks, that support level hasn’t come
into
play since September 2008, when the stock market was crashing. Before
that,
you’d have to go back to the October 2005 lows to find when 1,188 was in
play. 

There
were
several catalysts for yesterday’s drop. Debt problems with Greece and
Portugal are weighing on investors.
And Goldman Sachs testimony before Congress didn’t help either.

It’s
been
revealed that Deutsche Bank (NYSE:DB) has been informed by the SEC that
it,
too, is being investigated for mortgage-related fraud. It appears that
no
charges are pending at this time, but this gives investors another thing
to
worry about.

Never Underestimate the American Consumer

It was two weeks ago that I likened the ongoing Greek debt saga to a slasher flick bad guy that keeps rising from apparent death. The Greek story is truly one that will not die.  

 

It should be clear by now that none of the parties involved are playing it straight. Greece has made several misleading statements about the size of its debt and its plans to pay it off. Germany has reneged on its promise of support several times.   

 

Even the aid talks with the IMF seem to be taking far too long. In fact, this Greek aid process is taking so long that investors are starting to speculate that Portugal will not be able to get aid quickly if it needs it.   

I’d Rather Talk About Gold

If you
don’t yet own gold it’s not too late. As
soon as possible, buy gold, whether it’s bullion, stocks or the State Street SPDR Gold ETF (NYSE: GLD)
if you must.

Gold’s run
is by no means over, and I can list dozens if not hundreds of reasons
why gold
should be a part of your portfolio – the biggest reason being that gold
is the
best way to insure against the planet-wide epidemic of weakening
currencies.

Gold is
exciting. It’s sexy. Gold’s
stocks especially are fun to watch and
study closely. Drilling results, assays
and ore mineralization might sound boring to you, but trust me, it’s
exciting
to own a stock ahead of major findings.

So I could
talk about gold all day, but right now another commodity in a
less-exciting
sector is bouncing off its lows. It’s an energy commodity that we have a
lot of
in North America – enough to last 100 years by
some estimates. It’s cleaner than
gasoline and coal, and it can be used as fuel in power plants as well as
automobiles. And right now, I believe
the trend has the potential to be at least as profitable as the bull
market in
gold.

The Virtuous Cycle

In a recent survey by the National Association of Business Economics, 70% of economists said they believe the U.S. economy will grow by more than 2%. Just three months ago, only 61% of surveyed economists had such bullish expectations.   

 

And it gets better. 24% of surveyed economists believe 3% growth is coming, up from just 14% January.   

 

The details of the survey also show that employment is improving in the hardest-hit sectors: real estate, finance and manufacturing. And salaries are also on the rise.   

Going Golfing in a Bear Market

I hope you had a great weekend. I
got out and played 18 holes of golf; always
a humbling experience. The game of golf
is a great metaphor for investing. Sometimes you can do everything right given the information you
have,
and things can go against you in a truly astounding way.

I
keep my
left arm straight, head down, follow through and just as often as not,
I’m
peeking into someone’s yard or digging through brambles for a $2 plastic
ball. (By the way if anyone has a
foolproof method for curing a truly debilitating slice, please email me
at editorial@resourceprospector.com.)

Likewise,
sometimes
you can do everything right in the markets and still lose. As prudent investors, we seek to buy
companies with low pricetoearnings
ratios in sectors with growth potential, with little debt and competent
CEOs, a
history of raising their dividend, etc. etc.

And
all
those best laid plans can go against us for any reason or no reason. Bad news in the broad market has made mutton
of even the best companies.

Is the Market Bulletproof?

If the stock market has you scratching your head, don’t worry. You’re not alone. 

 

I’ve been half-jokingly calling the stock market “bulletproof” for the last couple of weeks. And it’s because stock prices just keep marching higher. It’s like there’s no bad news that could possibly bring it down.   

 

Last week, we had a volcano eruption that grounded European flights and cost those airlines at least $2 billion. Then Goldman Sachs was accused of fraud by the SEC, which makes a financial reform bill that could affect the entire banking industry’s profits, and the net result for stock was a one-day decline.   

Only 7 Days Before this Commodity Skyrockets

I set a
timer on my laptop calendar to go off today, because I had to remind
myself of
important news from the Energy
Information Administration

coming out in exactly one week.

If you read
my April
6
issue of the Resource Prospector
a few weeks ago,
you know what I’m
talking about.

From
that issue:

On April 30, the EIA is scheduled to release
its
natural-gas monthly report for February. In the report, the agency will
use the
new methods to estimate gas supply and revise its January numbers
.”

I believe
these new methods will reveal significantly lower natural gas reserves
than the
marketplace currently expects. And more
importantly, I believe this news will move natural gas prices much
higher in
the near future.

And while
I’m content with my analysis, sometimes it’s nice to get some support
from
another contrarian viewpoint.