Climbing the wall of worry

Gold and Silver Miner weakness has been with us for too long. On the "gold miner pulse" blog page, you find continuous (at least weekly) updates on how major precious metal miners are priced relative to gold. For that purpose the HUI/Gold ratio is used. By mid May, it bottomed below 0.25, a value not seen since the very October 2008 market bottom. In the previous posting, The Slump in Precious Metal Miners you read it in detail.

The slump in precious metal miners

Havoc during the financial crisis 

Before the 2008 financial crisis and as late as March 08, when gold peaked above $1000 for the first time ever, the popular HUI index of unhedged gold miners quoted above 500. The ratio HUI/Gold had been in a trading range between 0.4 and 0.6 for several years. This seemed to be a dynamic equilibrium. Forced liquidations during the financial crisis caused a near 30% retreat for gold, bringing the price down to around $725 (not counting intraday lows). This meant carnage for the gold miners, which fell off a cliff, with the HUI plunging from 515 (March 14) to 152 (Oct 27). The HUI/Gold ratio plunged from 0.51 to 0.21 between those two dates.

Risk mispricing

Derivative positions are accumulating profits… while sweeping on to a catastrophe

"JP Morgan May Be a Trading Accident Waiting To Happen" is what you may like to read on "Jesse’s cross road café blog". JPM’s two billion dollar loss on credit derivatives is making it more and more obvious that the quadrillion derivative positions outstanding are really the accident waiting to happen.

But how can risk models be so flawed that financial collapse is looming behind the corner? Well, just listen to John Butler, author of “The Golden Revolution” as interviewed by Jim Puplava on ‘Financial Sense’, especially the section from 21’30” to 28’30” dealing with risk taking.

Stijgende trend gebroken

De vastgoedcertificaten zijn 2011 niet alleen goed doorgekomen, zij hebben de BEL-20 netto returnindex ruim het nakijken gegeven. Hoe liggen de kaarten nu?

Small is beautiful / Klein maar dapper

Abstract

There are a couple of challenges facing Eugene Fama’s “efficient market hypothesis” (EMH). According to this hypothesis, trading systematically at a profit always results in reducing market inefficiency. Hence markets are evolving towards more efficiency.

Two of the challenges are:

·         the outperformance of value stocks relative to growth stocks in most markets and most of the time;

·         the outperformance of small or mid-caps relative to large enterprises.

This contribution will illustrate the latter, focusing on three national markets of the Euronext group: Belgium, France and the Netherlands.

Résumé

Il ya quelques défis auxquels est confronté "l’hypothèse du marché efficace" (EMH) d‘Eugène Fama. Selon cette hypothèse, la réalisation systématique de bénéfices se traduit toujours par la réduction de l'inefficacité du marché. Ainsi les marchés évoluent vers une plus grande efficacité.

Deux des défis à relever sont:

·         La surperformance des titres de valeur par rapport aux titres de croissance dans la plupart des marchés et la plupart du temps;

·         La surperformance des actions des entreprises à petite ou moyenne capitalisation aux grandes entreprises.

Cette contribution veut d'illustrer ce dernier, en se concentrant sur trois marchés nationaux du groupe Euronext: la Belgique, la France et les Pays-Bas.

Samenvatting

Er zijn enkele uitdagingen aan het adres van Eugene Fama’s “efficiënte mark hypothese” (EMH). Volgens deze hypothese reduceren systematisch winstgevende beursverrichtingen altijd de markt inefficiëntie. Daardoor evolueren markten naar meer efficiëntie.

Twee van die uitdagingen zijn:

·         het betere resultaat dat met beleggingen in waarde-aandelen gehaald wordt in vergelijking met groei-aandelen op de meeste markten en over een langere periode;

·         het betere resultaat dat met beleggingen in aandelen met kleine of middelgrote beurskapitalisatie kan gehaald worden, vergeleken met het gemiddelde van de grotere aandelen.

Deze bijdrage illustreert dit laatste, wat dan aangetoond wordt met voorbeelden uit drie nationale markten van de Euronext beurs: België, Frankrijk en Nederland.