S&P Boosts Its Discredit Rating

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Goldilocks Visits China

The world breathed a sigh of relief last night, as China's GDP growth (at around 8-9%) was not too hot, nor not too cold, but just right. That precipitated a rally of about 4-5% in the Chinese market and set the stage for rallies around the globe.

S&P Boosts Its Discredit Rating

Turning to the problem continent of Europe, Italy and Spain saw decent-sized bond market rallies. Thus, the news from late Friday night of the debt downgrades in essence was met with a giant yawn. Most likely, that is because Standard & Poor's is just following the market (not leading it), and between the LTROs and other bond buying by the ECB, over half a trillion dollars of debt has been lifted off the balance sheets of the banks. In addition, there is another LTRO at the end of February, which may be larger still. Thus, short-dated government debt appears to have buyers, at least for the moment.

All of the foregoing was enough to boost European equity markets about 1%, and the Spooz joined the party with its own 1% rally. The early going, however, saw those gains trimmed a bit. Over the course of the day they continued to leak, and by day's end the gains had been cut by two-thirds, with the Nasdaq/Dow gaining 0.5%, but the S&P 500 a bit less.

Away from stocks, the dollar was weaker, bonds were flattish, and oil tacked on 2%. The metals were higher as well, as they gained about 1%.

Still Giving Them the Gold Shoulder

Unfortunately, gold stocks did not fair too well (again). Kinross Gold Corporation (KGC) declined 20%, which cast a pall over every other miner, including Newmont. The latter 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 last decade. NEM 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 last February 24, 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 completely to be sold, no matter what they say. Even Yamana and Goldcorp were hit today, and they had virtually nothing but good news to report last week. I certainly believe this will change at some point, but to state the obvious, thus far it has not.

Positions in stocks mentioned: long NEM, long AUY, long GG.

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About Bill Fleckenstein

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