Zacks.com Expert Watch Highlights the Following Issues: Newmont Mining.

Business Editors

CHICAGO--(BUSINESS WIRE)--Aug. 7, 2003

Will the spike in 10-year yields be the death knell to the market rally and recovery? Experts offer insight. Read the full Experts Watch article with commentary and recommendations on Newmont Mining (NYSE:NEM) go to; http://expertwatch.zacks.com

Interest rates on the 10-year Treasury dropped to 3.1% in June, and have since risen to 4.2%. According to Ed Bugos, editor of the Goldenbar Report, it was the massive lower of rates heading that contributed to the stock market rally post-March. Much of this drop was due to increased interest in bonds from the perception, created by the Federal Reserve, that deflation was a huge concern. The lower interest rates that we enjoyed for a spell had the dual effects of lowering borrowing costs for companies, thus increasing their earnings, and forcing money into equities for lack of any other securities offering real returns. Dividend-yielding stocks, propelled by the tax cut on dividends, became much more attractive and the equity markets had a collective cocktail party. However, Bugos believes that now that rates are rising, stocks have been hoisted on their own petards and most deliver earnings themselves.

The bond selloff has been accelerated by positive economic news, according to Gregory Spear, editor of The Spear Report: Professional Edition. Spear describes the trading on July 31 and August 1 as interesting given that the response to strong employment numbers, GDP numbers and construction/manufacturing numbers prompted a selloff in bonds. The bond price drop wasn't what was interesting, rather the response of the stock market provided a view of what could happen if interest rates continue to rise. Finally, long-term interest rates will continue to face pressure as unprecedented amounts of securities are brought to the market by the US government. With the twin trade and budget deficits, Uncle Sam may begin to crowd out corporations from the credit markets.

Ed Bugos has long contended that gold is seriously under-valued and that the multi-year focus on deflation was a red herring. It was used in order to keep a cap on bond yields such that the Federal Reserve Board could continue growing the money supply and lower interest rates while driving stocks up. Bugos feels that gold and gold equities remain the best investments in this environment. Interestingly, Gregory Spear, who called Newmont the "Microsoft of Gold" agrees.

Newmont Mining (NYSE:NEM) has equity reserves of 89 million oz of gold, which translates into $23 billion in cash according to Spear. Thus the Microsoft comparison is rather simple. Newmont reported better than expected second quarter profits of $.22/share vs. $.18/share expected by Wall Street. While gross operating profits slipped slightly, that is primarily due to rising cash costs across the industry. The company realized an average gold price of $353/oz vs. $314 in the second quarter of 2002. Most significantly, however, was that the company improved its hedge book to -$19 million from -$224 million in the first quarter and -$433 million at year end 2002.

Read the full report with insight from the experts at Zacks.com: http://expertwatch1.zacks.com

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