Last week was another lousy one for Twitter. The stock plunged 14 per cent following its earnings report, and is now almost 60 per cent below December 2013’s all-time high.
Again, user growth figures disappointed. Indeed, the growth rate in Twitter users has fallen in every quarter since Twitter’s market debut 21 months ago. As one Macquarie analyst noted: “My mother still doesn’t understand what it means to ‘hashtag’ something, but she does understand what it means to ‘like’ something.”
StockTake has long been cautious towards Twitter, often warning shares were priced for perfection and beyond. Still, we were similarly wary about Facebook's valuation, but the stock continues to soar skyward. Most glamour stocks disappoint but some – such as Facebook – deliver the goods.
Unfortunately for Twitter, it remains a no-no among both value and momentum investors. Even now, it trades on 15 times sales – that’s expensive. Despite a strong Nasdaq bull market, Twitter has been in an entrenched downtrend for almost all its life as a public company, with rallies invariably petering out below technical resistance levels. With no margin of safety in terms of valuation and no momentum, Twitter remains a risky bet.
Rate hikes negative for gold?
Few commentators expect gold to bottom any time soon, judging by headlines such as "Gold is doomed" (Washington Post), "Gold looks like a 'textbook' short" (Bloomberg), and "Two reasons why gold may fall to $350" (MarketWatch).
Ironically, history suggests the source of much negative sentiment – the looming rise in US rates – may actually catalyse a counter-trend rally. HSBC noted last week there have been four rate- tightening cycles over the last 30 years, with gold typically falling in advance of the first rate hikes.
On each occasion following the first rate hike, however, gold went on to rally over the next 100 days. Similarly, the dollar always fell over the same timeframe. Why? The news was already in the price by the time rates were hiked, the usual case of “buy the rumour, sell the news”.
Gold may be in a secular bear market, but no asset goes down in a straight line.
There will be rallies, most likely when no one is expecting them.
Mixing politics with investing
Gold's recent woes have hurt many investors, including hedge fund billionaires such as John Paulson and David Einhorn.
However, few are likely to have been bruised as much as Ron Paul, the former Republic senator and three-time presidential candidate. In 2011, the Wall Street Journal reported 64 per cent of Paul's assets were in gold and gold- mining stocks, with another 14 per cent in cash.
He held no bonds and just 0.1 per cent in stock funds.
It was a bet on economic catastrophe, said investment manager William Bernstein, a "half-step away from a cellarful of canned goods and 9mm rounds".
Might Paul have since sold up, thereby avoiding the 80 per cent fall in gold mining stocks?
Unlikely – the Journal described Paul as a buy-and- hold investor, and his views have not changed. Market conditions "are every bit as bad as they were in '08 and '09", he told CNBC last week.
In recent TV ads, he warned stocks and bonds would crash, adding: “The savings of millions could be wiped out. You can’t rely on Washington to help you.”
There are two lessons here. One, diversification is good. Two, don’t mix politics and investing.
Making sense of China
Analysts have been busy trying to explain the recent equity bloodbath in China.
Goldman Sachs cited a variety of triggers, pointing to weak manufacturing data, poor institutional investor sentiment and concerns over government support, among others.
It's not worth expending much energy on this one. Deutsche Bank's Jim Reid points out the slowing economy didn't stop stocks going to the moon over the last year. Chinese market swings, he added, appear "pretty random". Indeed. Why look for precise explanations for market falls when the bubble defied reason in the first place?
The Chinese market is a manic one, its movements driven by the fear and greed of amateur speculators.
Those seeking to make sense of every market movement should remember the words of Isaac Newton, who lost a fortune during the South Sea bubble in the 18th century: "I can calculate the motions of heavenly bodies, but not the madness of people."