The Dangers of Short Term Thinking – Lawrence Roulston
Markets continue to oscillate in reaction to news headlines, with little attention to the big picture or to the longer term implications.
The early headlines about the financial situation in Greece led some to expect a complete collapse, which would trigger a domino effect through other weak European nations. Germany agreed to support the Greek debt, averting the perceived collapse of that nation's economy. The problems have not yet gone away, but investor perceptions have been tempered with a dose of reality.
Europe will continue to muddle along, with slow but positive growth. The same outlook applies to the United States.
Asia is very different. Growth in China had accelerated to the point where the government saw the need to take some preemptive measures to keep things under control. Steps to prevent growth getting out of control were reported in headlines in North America as likely to slow growth, causing another wave of concern among investors.
In reality, nothing substantive has changed. Slow growth in the west, added to faster paced growth in Asia equals an overall positive growth rate. The copper price, which exceeded $3.40 in January, briefly dropped to $2.85 when concerns over an economic slowdown dominated the headlines. Copper is back to $3.23.
The situation in Greece impacted the value of the euro relative to the dollar. That apparent strength in the dollar resulted in lower investor demand for gold. As a result, the price of gold dropped under $1,060 in early February, $100 lower than the January high. Skittish investors reacting to headlines will continue to push the price of gold through gyrations in the near term. Over time, the trillions of newly printed dollars will again rise to the top of investor concerns.
Investors in the junior resources sector remain nervous, reacting to news in the broader markets. Even with that nervousness, companies that generate results continue to earn investor recognition. The model that we are following in this newsletter, of junior companies developing resources to supply the larger companies, remains totally intact.
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