Dollar Index Bottoming? But Gold's Still Rising
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Your Daily Profit

 

October, 12 2009

 

*****A Look Back

*****A Look Ahead

*****Gold to $2000?

 

Fellow Investor,

 

Dow 10,000 is less than 100 points away this morning. Who’d a thunk it? Just 6 months ago, when the Dow closed at 6,547 on March 9, it seemed as though the world was coming to an end.

 

You might have thought I had gone off the deep end when my Daily Profit from March 9, 2009 hit your inbox with the headline “Upside for Stocks?” And the following day, March 10, I even included a list of stocks you might have considered buying for the rally that was starting. Since then, Graham Corp (AMEX:GHM) has rallied 90% and SXC Health Solutions (Nasdaq:SXCI) is up 162%.

 

You might still think I’m a little nuts calling for the Dow to hit 10,500 before this year is over. But with money still cheap, economic data still improving and stock valuations that are reasonable if forward earnings estimates prove accurate, that there may be more upside isn’t a crazy idea.

 

*****Of course, there’s no guarantee that earnings will improve as much as forecast. As I wrote on October 5: According to Bloomberg, these folks (analysts and money managers) see earnings for the S&P 500 rising 26% in 2010 and another 22% in 2011. By that time, they say earnings for the S&P 500 will hit an all-time high at $92 a share. 

 

*****Barron's currently has the P/E for the S&P 500 at 136 times trailing earnings. Sounds bad, downright absurd, even. But don't forget that investors are looking forward. 

 

The P/E of 136 is based on current earnings of $7.60 a share. If the S&P 500 grows earnings at $92 a share, then we're looking at a much more reasonable P/E of 11.

 

It’s clear from 2Q earnings season that earnings estimates were too pessimistic. And that is likely true for 3Q earnings season, as well. We’ve already heard from Alcoa (NYSE:AA) that demand is picking up as the company posted a solid upside surprise.

 

This week, we get earnings from Intel (Nasdaq:INTC) tomorrow, JPMorgan (NYSE:JPM) on Wednesday, followed by Goldman Sachs (NYSE:GS), Citigroup (NYSE:C), Google (Nasdaq:GOOG) and IBM (NYSE:IBM) on Thursday and Bank of America (NYSE:BAC) on Friday.

 

I expect at least solid earnings from this entire group. And there’s a good chance for upside surprises, especially from Goldman, Google and IBM. I still have a hard time getting behind the banks because we know that they still carry toxic assets on their books. But the accounting rules changes enacted in February have at least made them look better.

 

*****Bloomberg reports that central banks around the world added $413 billion in foreign currency reserves last quarter. And Barclay’s reports that 63% of the foreign currency investments in the second quarter were in euros and yen. The U.S. dollar is apparently getting left behind as foreign central banks appear wary of the dollar’s falling value. Some are even calling for the dollar to be replaced as the world’s reserve currency.

 

We’ve been following the U.S. Dollar Index lately, and I’ll include the chart again…

 

 

Clearly, the U.S. dollar has lost value. But it’s interesting that its value has found support at 76, even as the “dump the dollar” rhetoric is hitting a fever pitch.

 

Investors aren’t waiting for the next leg down. They are buying gold now to protect their wealth form further declines in the dollar’s value. October gold futures hit 1,054 today.

 

Famed commodity investor Jim Rogers is out today saying that gold will hit $2,000 during the current rally. Even if gold gets close, profits for gold mining companies will hit some amazing levels, and their stock prices will hit some equally amazing highs. My Global Commodity Investing advisory service has 3 mining stocks poised to move significantly higher as gold prices rise. Click here to learn how you can profit from gold's rise.

 

*****As I wrote on Friday, I’m very glad I didn’t take 128% profits on China Natural Gas (Nasdaq:CHNG) the last time it hit $14 a share. With today’s move, SmallCapInvestor PRO members are up 139%. I have a price target of $18.

 

*****So, do you think we’ll hit Dow 10,500 by the end of the year? Let me know whether you agree or disagree. And if you disagree, where do you see us ending up. You can email me directly at [email protected].

 

Until tomorrow,

 

Ian Wyatt

Editor

Daily Profit





Posted 10-12-2009 11:49 AM by Ian Wyatt