Forget Gold. Nickel Is a Better Long-Term Bet
Investors fearing inflation ought to buy gold, right? Actually, they may be better off with lowly nickel. As the economy has perked up, nickel prices rose from less than $5 a pound in April to more than $7. Chinese buyers have stockpiled the mineral, used in producing stainless steel. But gold's down from about $1,000 an ounce in February to $935. Why the split? BMO Capital Markets strategist Bart Melek cites higher inflation-adjusted rates on longer-term bonds. "As yields rise, the relative cost of holding gold rises," he says. Also, some expect the Federal Reserve to hike interest rates to keep inflation in check. Even if the Fed waits until 2010's second half, Deutsche Bank (DB) analysts expect gold to struggle. They say it tends to underperform industrial metals when general price levels are reinflating. Melek says nickel miners like Vale (VALE), whose shares have spiked since the winter, to about 19, are a good bet.
Short Interest: The Market Outlook Dims
Are recent down days in the market a sign the rally is losing steam? Since the Mar. 9 low of the Standard & Poor's 500-stock index, there's been a spike in so-called short interest, a sign investors are betting stocks are due for a fall. The short interest ratio—the number of shares borrowed and sold short, divided by a stock's average daily trading volume—for S&P 500 stocks is currently 3.0, up from a Feb. 27 low of 2.3. Typically, the higher the ratio, the more gloomy the outlook, since a larger percentage of shares that are actively traded has been shorted. Consumer discretionary companies, including those in the auto and manufacturing industries, have an average ratio of 3.9 now, the highest among all sectors. Five S&P 500 companies have ratios of more than 10.0: Harley-Davidson (HOG), CenturyTel (CTL), Fastenal (FAST), Quest Diagnostics (DGX), and New York Times Co. (NYT) On the flip side, battered financials boast some of the lowest ratios, with Bank of America (BAC) and Regions Financial (RF) boasting ratios at less than 0.5.
Don't Hurry into Peruvian Stocks
After tumbling last year, Peru's stock market is going gangbusters in 2009, gaining more than 101% through June 15. That is the best performance of any market in the world, according to Bloomberg. Rising prices for Peru's copper and gold and a trade deal with China have attracted substantial attention from money managers. And now U.S. investors are getting a simple way to bet on Peru's stock market. Exchange-traded fund sponsor Global X Funds, which already runs a Colombia fund, says its Peru fund will start trading in the next few weeks.
Perfect timing? Maybe not. Deutsche Bank (DB) equities strategist Guilherme Paiva says Latin American stocks have risen too quickly on hopes the world economy will pull out of the downturn. He expects a 15% across-the-board correction over the summer. Investors may want to wait that out.