|
Last
week was one of the most volatile weeks in the history of the stock market.
In my opinion the cause of these wild swings and the subsequent spike in the
VIX has been a loss in confidence in investors. The wild swings we witnessed
in the market is proof that after three years from a near Armageddon in the
financial markets we are far from having an economy that is recovering. There
is not a doubt in my mind that we will be in for more volatility in the
market because our leaders have been unable to deal with the core issues of a
staggering debt and a stagnating economy.
This
week, French President Nicolas Sarkozy and German Chancellor Angela Merkel
are scheduled to meet to discuss Europe’s problems. While the 300 pound
gorilla in the room is the eventual breakup of the Euro Zone I am sure that
will not be the topic of their discussion. At this most crucial time,
they are not going to discuss anything that would actually lead to a solution
of their debt crisis. I’m sure they will confine their remarks to issues
like improving economic stability. While there is no doubt that European
stability needs all the attention it can muster, I believe this meeting will
be less about ending the crisis that is staring them in the face and more
about preventing future problems.
While
not everyone shares my views I have positioned myself for more market
trouble. No one can argue that corporate profits have been exceptionally
strong as of late and that makes stocks look very inexpensive. I contend,
however that it will be difficult for companies to repeat their strong profit
gains as there is only so much fat that can be trimmed from the bone. Sooner
or later these companies will have to produce real growth. There are only so
many good earnings that can be reported before real wealth creation takes
place.
From the
market standpoint, this current situation is very reminiscent of the market
troubles of the 1930’s and the 1970’s but this time on steroids.
In the two eras I have mentioned it took well over a decade for the world
economies to recover. In today’s world we now have to factor in China,
India, Russia and Brazil. A return to a recession or worse a double dip in
our economy would cause a global ripple effect that would have disastrous
consequences throughout the world.
Yesterday
we saw a run up of 214 points on the Dow to close at 11482.90, 26 points on
the S&P to close at 1204.49 and 47 points on the NASDAQ to close at
2555.20. I am not buying into this for one minute. I believe that there
will be strong volatility still ahead and I have positioned myself for a
retest of last week’s lows. If we can hold these lows we may have put
in a level of support. Very often just like a stock a sector like the S&P
will retest support levels more than once. Every time they retest that
support level it gets a little weaker. If that support level can show the
strength to hold this level of support we know we have found a bottom.
That’s when you start buying in.
Today
our old friend gold was selling off, as it had for the last couple of days
when it did an about face and closed up in a show of strength. It seems no
matter how overbought gold is, it continues to rise. I attribute this to a
loss of confidence, our staggering national and European debt and a continued
stagnating economy. The spot price of gold closed up $20.00 at $1770.00 and
the gold ETF (GLD) closed up $2.00 at 171.80 and continued trading higher in
the after markets at $172.19. The silver ETF (SLV) also put in a show of
strength and closed up 1 ½ % at $38.67.
So in
conclusion I will continue to maintain my long positions in GLD, SGOL, PHYS,
SLV, PSLV and AGQ. Until is see that confidence has been restored to the
markets I see Gold and Silver as the only safe ports in these most perilous
economic waters.
I found
this link on my copy of the Wall Street Journal (online). Dr Nouriel Roubini
talks about thecurrent state of the economy. Like him or not, he certainly brings a very interesting point of
view.
|
