IBM, Apple, and Google: How Strong Are They?
Apple, IBM, and Google surprised investors with better-than-expected fourth-quarter results, which sparked a rally in their shares and talk of recession-proof performance. Last to report was Google (GOOG), which on Jan. 24 said revenue increased 18% from a year earlier. Investors are betting the three will thrive despite the woes of peers and the economy. But before you place a bet on what looks like a tech survivor, think twice. Remember, last year Microsoft was counted among the strong until it issued an earnings warning in October. Likewise, on Wall Street, Goldman Sachs (GS) was among the few firms to anticipate the subprime debacle and seemed the financial stock to bet on. Its share price has been halved since October. And then there's Wal-Mart, which was expected to flourish as bargain-hunters flocked to its stores. After a Jan. 8 announcement that fourth-quarter sales were below expectations, its stock is down 14%. Bottom line: In a bear market, amid a deep recession, the strongest companies may be the last to feel the chill. But inevitably they do.
Why Gold Finally Looks Good
Gold hit a five-month high on Jan. 26, closing at $910.70. Investors seem to have realized that much of the Federal Reserve's plan for reviving the economy is also likely to bolster gold's prospects. Lowering rates to almost zero and promising to print money to combat deflation will almost certainly crush the value of the dollar and send gold flying, some believe.
That's attracting new buyers, including hedge fund manager David Einhorn. In a Jan. 20 letter to investors, Einhorn says he long avoided gold. His grandfather, Benjamin, an amateur gold bug, lost money for 30 years. The runaway inflation and collapse in the value of the dollar that would have sent gold prices up never materialized.
The Fed's recent moves have prompted Einhorn to change his view. "Our guess is that if the chairman of the Fed is determined to debase the currency, he will succeed," he writes. Einhorn, who declined to comment, wrote that his firm has bought gold, call options on gold, and an index of gold-mining stocks tracked by the Market Vectors Gold Miners ETF (GDX).
For more on this see: Hedge Fund Whiz Einhorn Jumps on the Gold Wagon
Time to Buy the Pound?
The near-nationalization of the Royal Bank of Scotland (RBS) on Jan. 19 forced the British pound down 6.6% for the week. It's now worth $1.42 or €1.08, well off its 2007 peak. Britain faces full-blown bank nationalization and its pain may intensify. But the sell-off may have been overdone, says Barclays Capital sterling strategist Paul Robinson (BCS). After all, the U. S. also may have to nationalize banks, and the euro zone could splinter as some member nations suffer debt downgrades. Those who think the pound will rise against the dollar can buy CurrencyShares British Pound Sterling Trust (FXB) (bears can short it).
For more on this see: Currencies: Playing a Rebound in the Pound