Gold Price vs. S&P 500 Returns From 1961 Thru July 2017: Chart

Gold prices closed at $1,280 an oz. today. After a few years of steady decline prices have been slowly climbing back up. In general, gold is considered as a safe haven asset as gold tends to be strong when equities fall. According to a recent article at Schroder’s gold does in fact performs well in weak equity environments. From the article:

If we look at history for guidance, then we see gold has the potential to perform very well in periods of stockmarket weakness.

Gold’s perceived “safe haven” status is well-supported with hard evidence. For example, if we look back at gold price performance between 1961 and July 2017 (see chart 1 below), it is very clear that gold price annual returns were positive, particularly during periods of high inflation, while stockmarket returns were negative.

We see no reason why this relationship should not continue in the future; an argument for holding a minimum weighting in gold or gold equities in a well diversified portfolio. It is important to remember, however, that past performance should not be used as a guide to future performance.


Source: Market complacency could bolster case for gold by James Luke and Mark Lacey, Schroder’s

Related ETF:

  • SPDR Gold Trust (GLD)

Disclosure: No Positions

Stocks of US Auto-Parts Retailers Have Crashed This Year

The US auto-parts industry is experiencing severe slowdown in recent months. Major retailers such as Autozone, Inc(AZO), O’Reilly Automotive(ORLY) and Advance Auto Parts(AAP) have seen seen their stocks decimated. These companies announced poor quarterly earnings and mentioned a variety of factors for their dismal performance. Some of these include high sales of new vehicles, warmer weather, oil prices, etc.

While the S&P 500 is up over 8% based on price year-to-date, the above parts retailers are off by double-digit percentages YTD as shown in the chart below:

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Source: Google Finance

Generally auto-parts sellers tend to be stable companies as sales boom during recession when consumers patch up their existing cars to keep them running longer while in expansionary periods they add additional accessories and replace parts when they wear out. However this theory is being tested in today’s environment.

Autozone stock has declined from over $791 per share to $510 this past Friday. It must be noted that the company does not pay a dividend and is purely a growth stock. AAP ‘s decline of about 45% just this year is indeed shocking.

Investors can continue to monitor stocks from this sector for better entry points. Nobody knows when the sector will bottom out. But catching the bottom is next to impossible. So getting in at some point in lower levels and holding them for a few years may yield excellent returns.

Disclosure: No Positions

Knowledge is Power: American Economy, Emerging Stocks, Long Term Investing Edition

Interesting fact: The Sahara is the world’s largest hot desert. It is almost as big as the USA.
Source: National Geographic

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Bloomberg: Canadian Stocks Look Cheap

Many of the equity markets have double-digit percentage growth so far this year. For example, developed European markets like Austria and Denmark are up by 21.4% and 12.9% respectively. Among emerging markets, Chile and India are up by 20.6% and 18.4% respectively YTD based on their benchmark indices. The S&P 500 has increased by a decent 8.34% year-to-date on a price only basis. On the other hand, the Canadian stocks are in the doldrums this year with the S&P/TSX Composite down by 2.2% YTD.

According an article in Bloomberg this week, on a valuation basis Canadian equities are cheaper relative to their American peers. From the article:

An upbeat earnings season hasn’t had much impact on valuations yet. The gap in forward price-to-earnings between the S&P/TSX and the S&P 500 Index is the biggest it’s been since 2008. Several strategists and investors say a gap this big can’t last and will either be narrowed by declines in the U.S. or gains in Canada.

“There’s a good case to be made for the bout of serious underperformance in Canada to subside,” Robert Kavcic, senior economist at BMO Capital Markets, wrote in a recent note.

Any recovery in the S&P/TSX will need energy stocks behind it, given their importance to the benchmark. Although there are plenty of unknowns for oil prices — including OPEC’s commitment to production cuts and U.S. shale producers’ ability to fill the gap — there are also signals that investors are getting more bullish on energy.

Source: Five charts that show Canadian stocks could rise from the dead, Bloomberg via Financial Post

Investors looking to add Canadian stocks can consider some of the companies trading on the US markets. You can checkout the complete list of Canada Stocks Trading on the US Markets.

Income Inequality in Emerging And Developed Countries: Chart

Income inequality is rising in many countries of the world especially in emerging countries and some developed countries. The Gini coefficient is one way to measure inequality. The higher the number the more inequal a country is. The chart below shows income inequality in emerging and select developed countries:

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Inequality is a major issue in emerging countries due to corruption and other factors.  Among advanced countries income inequality is the highest in the US and low in the Eurozone countries. This is because the US is a capitalist country where capital rules and the winner take all philosophy is followed. Eurozone countries on the other hand follow Socialism where the economy is designed towards social welfare rather than capital accumulation by some at all costs.

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Source: Inequality- is it increasing? What’s driving it? And what it means for economic growth and investors, AMP Capital.

According to the above charts, the US is just one step above emerging countries from an inequality perspective. Whether rising income inequality is good or bad for a country remains to be seen.