WJP, you just need a bit of patience, assuming you are a longer...

WJP, you just need a bit of patience, assuming you are a longer term investor & not a trader. Worth reading an article at Kitco.com today headed "How Bull Markets Evolve into Bubbles" dated 10/2. Below is the last part of that article -

Bull markets follow three stages. These are the initial stealth phase, the wall of worry phase and then the bubble or public participation phase. By now you should know we are in the wall of worry phase. The current valuation of gold stocks confirms that. Sentiment confirms that. After all, gold stocks have made little net progress in the last four years while Gold has nearly doubled in the same period. The mainstream continues to ignore the gold equities while most of the true supporters are doubting the future.

Yet this wall of worry phase is what sets the stage for the bubble phase. In this period, earnings increase faster than stock prices and it results in lower valuations and improved fundamentals. At the same time, sentiment from a contrary perspective becomes more compelling. Many investors bail out of the bull market in this period leaving the strong hands in control of a bull market that remains intact.

Remember, stock prices are a function of earnings and valuations. In the first phase of a bubble we see earnings rise and valuations move from a low to a high. In the second phase of a bubble, skyrocketing valuations are the primary driver of share price appreciation. Bubbles develop from a one-two punch of rising profits and rising valuations. Over the next several years, the PE for the gold stocks (currently 10) could easily move back to 2004-2005 levels. Combined with continued increases in profits, share prices would explode. Ifyou’d like help in stock selection and navigating this bull market then we invite you to learn more about our premium service.

Good Luck!

By Jordan Roy-Byrne, CMT
[email protected]
February 10th, 2012