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Home prices, consumer confidence — What you need to know in markets on Tuesday

Myles Udland
Markets Reporter

With volume light on the New York Stock Exchange on Monday, the major averages were little-changed with the tech-heavy Nasdaq leading the way.

On Tuesday, the economic calendar will pick up some, though the earnings flow is light and most of the market’s — and the country’s — attention remains focused on the flooding in Houston.

In the morning, the June reading on home prices from S&P/Case-Shiller will be the highlight, with economists looking for a 0.1% increase in home prices over the prior month.

Home prices are expected to have remained on the rise in June.

Additionally, we’ll also get the August reading on consumer confidence from The Conference Board, which is expected to show a slight decline in optimism among consumers from the prior month.

Elsewhere in markets, oil and the insurance industry will remain in focus as floods continue to paralyze Houston, with the National Weather Service saying Monday that an additional 10-20 inches of rain are expected through Thursday, bringing totals up to 50 inches in some parts of the Houston metro area.

This is gold

Michael Batnick, the director of research at Ritholtz Wealth Management, is buying gold.

On his widely-read investment blog “The Irrelevant Investor” on Monday, Batnick wrote that while he’s been a critic of the yellow metal in the past, this Thursday he will put 10% of his liquid net worth into gold.

“I’m not buying gold for any other reason than it is going up,” Batnick wrote.

And in an appearance on Yahoo Finance’s The Final Round on Monday, Batnick elaborated on this view, saying that, “What excited me is that prices are rising, and gold is a very emotional investment, and higher prices tend to attract investors.

“It’s pretty much the opposite of most investments — when prices are rising [they] become more risky, not less, but with gold it seems to be the opposite.”

Batnick added that gold is “really driven by sentiment” and as a result, when prices are rising they tend to keep going that way.

Gold bars are worth what the market will pay — nothing more, nothing less.

In his post on Monday, Batnick noted that gold is currently on track to close above its 12-month moving average — a smoothed average of gold’s price in the last year — for the second straight month. Over the last nearly 50 years, these occurrences have been followed by an average 1.47% gain for gold in the next month. When gold goes up, in other words, it tends to keep doing so.

But what Batnick also highlights is how gold differs from your average stock — and yet also shares some similarities.

Gold, on its own, does not have any significant fundamental properties. There is no price-to-earnings ratio for gold. Its price is simply what the market is currently paying for it.

A stock, which is really just a derivative claim on the profits of an actual company, does have fundamental properties. But the value of that stock is still what the market will pay for it, even if your own investigation into the company’s financials yields a result drastically different from the current market price.

This, of course, is the underpinning of so many investment strategies — buy stocks being undervalued by the market and sell those the market is too optimistic on. And while the old Ben Graham quote that the market is a voting machine in the short run and a weighing machine in the long run, a lot of time stocks act sort like, well, gold.

The price of a stock can and does go up because that stock’s price has been and continues to go up. The price of other stocks can go down for reasons that seem only to do with the fact that that stock had recently been going down.

And while each of these examples highlights the irrational and emotional nature of investing in stocks, or gold, or anything else, this also, to my mind, highlights why markets are efficient. In the short term, things might not seem to make a lot of sense. That gold goes up because it has recently is sort of a weird quirk in human behavior. But over the long-term, the gold price is ultimately responding to supply and demand — supply and demand for the actual metal or for investor peace of mind serving the same ends.

And this is just as the stock of a good company can go down, way down, but if there’s a business and a long-enough timeframe, the market will realize this mispricing. A good company will not go out of business because of bad shareholders; and a bad company can’t stay in business forever just because it’s good good ones.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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