The world breathed a sigh of relief Monday night, as China's growth of gross domestic product, at around 8% to 9%, was not too hot, nor not too cold, but just right. That precipitated a rally of about 4% to 5% in the Chinese market and set the stage for rallies around the globe on Tuesday.
S&P boosts its discredit rating
On the problem continent of Europe, for instance, Italy and Spain saw decent-sized bond-market rallies. Thus, the news of the debt downgrades of nine eurozone countries by ratings agency Standard & Poor's in essence was met with a giant yawn.
Most likely, that is because S&P is just following the market (not leading it), and between the long-term refinance operations and other bond buying by the European Central Bank, more than half a trillion dollars of debt has been lifted off the balance sheets of European banks. In addition, there is another LTRO scheduled for the end of February, which may be even larger. So, at least for the moment, short-dated European government debt appears to have buyers, and the world has breathed a giant sigh of relief.
Still giving them the gold shoulder
As I mentioned last week in "Where a dull market looks bright," gold seems to have found its footing after a rough finish to 2011, and nothing this week has changed that view.
Bill Fleckenstein
Unfortunately, gold stocks have not fared as well. Kinross Gold (KGC, news) declined 20% last week, casting a pall over every other miner. This included Newmont Mining (NEM, news), which announced preliminary results for 2011 that were about in line with expectations, and gave similar guidance for 2012 that indicated costs would be rising again, as they have virtually every year for the past decade.
Newmont stock typically gets hammered whenever the company says costs will go up. Even though the price of gold rises more and in the end it makes money, the first reaction is always to sell. (Look at what happened Feb. 24, 2011, for instance, when it was crushed on similar guidance only to beat those expectations all year.)
The miners continue to be a source of frustration for most people, I imagine, as they seem to be sold no matter what they say. Yamana Gold (AUY, news) and Goldcorp (GG, news) were hit along with Kinross and Newmont, even though the former two had virtually nothing but good news to report during the prior week. I certainly believe this will change at some point, but to state the obvious, thus far it has not.
Feeling chipper
One sector that did make some noise this week was semiconductors. On Wednesday, Linear Technology (LLTC, news), which met its earnings estimate and didn't say anything too awful, saw its stock leap 10%, which precipitated an explosion in most semiconductor-oriented names. This rampage in tech stocks was foreshadowed about a week or so ago when Juniper Networks (JNPR, news) had an ugly preannouncement and the stock was given a pass (something I noted last week as well).
The problem is, there is no real "there" there in chip land. Inventories have been worked down to some degree, and folks have gotten excited. But anyone who thinks that end demand is liable to be strong is a disciple of the "subprime is contained" school of thought (which was so prevalent during the early days of the financial crisis, and so wrong).
Nonetheless, the fact that semiconductor stocks could react as they did does demonstrate that it is still dangerous to be short, betting stocks will go down, even with all the live grenades rolling around in the world. Company valuations are compressed, and there is a lot of money sloshing back and forth, so it doesn't take much to get the Wall Street wildebeests to stampede into one group of stocks or another.
For the time being, animal spirits may run wild in the stock market, but they have a date with rising interest rates that won't go well. However, that outcome (higher rates) probably can't happen for real until we see if Europe's debt crisis is papered over by the next round of LTROs on Feb. 29.
At the time of publication, Bill Fleckenstein owned stock in Newmont Mining, Yamana Gold and Goldcorp. He also owns gold.
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
