In­vest­ment exec: “Time for in­vestors to be­come in­creas­ingly de­fen­sive”

The Denver Post - - FRONT PAGE - By Aldo Svaldi

The Bloomberg Colorado in­dex, a bas­ket of 65 com­pa­nies in the state, turns neg­a­tive af­ter a 7.8 per­cent drop this month wiped out its gain for 2018.

Oc­to­ber has a well­de­served rep­u­ta­tion for spook­ing the stock mar­ket, and this year the month is go­ing all out, send­ing in­vestors run­ning to­ward gold and gob­bling up their re­turns.

The Dow Jones in­dus­trial aver­age is down 5.3 per­cent this month, while the S&P 500 is off 6.4 per­cent and the Nas­daq com­pos­ite dropped 8.9 per­cent. The losses, which have come largely in the past two days, have robbed in­vestors of the sweet gains they thought were in the bag this year when the Dow hit new highs on Oct. 3.

“We be­lieve it is time for in­vestors to be­come in­creas­ingly de­fen­sive. U.S. stock price val­u­a­tions are stretched to his­toric lev­els. Many eco­nomic growth in­di­ca­tors have over­heated, cre­at­ing the dual risk of ris­ing in­fla­tion­ary pres­sures and the burst­ing of an eq­uity bub­ble,” said Kevin Smith, chief in­vest­ment of­fi­cer at Crescat Cap­i­tal in Den­ver,

Smith is in the camp of those who think the cur­rent slump will usher in a much larger de­cline. And while the ma­jor in­dices are still pos­i­tive for the year, the Bloomberg Colorado in­dex, a bas­ket of 65 com­pa­nies based in the state, turned neg­a­tive Thurs­day af­ter a 7.8 per­cent drop this month wiped out its gain for 2018.

Some of the worst losses this month in Colorado have come at com­pa­nies that were al­ready strug­gling. Shares of AYTU Bio­science, af­ter drop­ping 93.8 per­cent through Sept. 30, are off an­other 59.4 per­cent this month. Shares of West­more­land Coal are down 52 per­cent this month and 95 per­cent this year, not un­ex­pected af­ter the com­pany filed for bank­ruptcy pro­tec­tion Tues­day.

Riot Blockchain, which was rid­ing high late last year, has seen its shares drop 40.8 per­cent this month, part of the deep­en­ing aver­sion to cryp­tocur­ren­cies that started in Jan­uary. It doesn’t help that reg­u­la­tors are prob­ing the com­pany.

Mim­ick­ing the larger mar­ket, some of Colorado’s high fly­ers have found them­

selves fall­ing fast. Den­ver email firm SendGrid, whose shares were up 58.6 per­cent this year through a high on Sept. 11, has seen its stock price wal­loped in Oc­to­ber. Shares are down 20.2 per­cent this month.

A be­nign in­fla­tion re­port sparked hopes early on Thurs­day that the mar­ket rout of the pre­vi­ous five trad­ing days would re­verse it­self, and for a while it looked like it might. Smith said in­vestors looked be­yond the re­port and to the longert­erm pres­sures build­ing.

Tax cuts that Congress passed last year are putting the coun­try on track for a $1 tril­lion fed­eral deficit, an un­prece­dented amount this late into a re­cov­ery, and those deficits are likely to go even higher if the econ­omy slips into a re­ces­sion. Tar­iffs and trade dis­putes, which push up the price of con­sumer goods, are also in­fla­tion­ary, Smith said.

In one sign of how scared in­vestors are get­ting, they piled head­long into gold, end­ing a six­month streak of de­clin­ing gold prices. That helped lift in­ter­est in gold min­ing com­pa­nies Thurs­day.

Shares of Den­ver­based New­mont Min­ing, the coun­try’s largest gold pro­ducer, shot up 7.1 per­cent Thurs­day, while Royal Gold shares rose 5.8 per­cent, Golden Min­er­als shares rose 9.2 per­cent and Vista Gold rose 10.8 per­cent.

Shares of Lake­wood­based Per­sh­ing Gold Corp., which rose 6.5 per­cent Thurs­day, are up 35.5 per­cent this month, mak­ing them the state’s top per­former in this down­turn.

“The big rea­son gold stayed un­der­val­ued and went down for six months in a row is that the stock mar­kets kept go­ing higher and higher. Gold has been left dead since 2012,” Smith said. But the gold zom­bies are fi­nally awakening, and that isn’t a good omen for what might come next.

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