Saturday, May 29, 2010

Now Fear This!!!

Dow Loses 8% in May...  Worst single month since 1962...  That was the headline I read on Friday.  But, let's be honest, the real story was that the Dow has gained close to 30% since the 2009 lows of March.  While analysts and market mavens alike will continue to discuss whether this is a bull market sell-off or a resurgence of the bear market of 2009 there is genuine fear in European credit markets. Sure we can speculate about socialism's disaster in Europe... but government after government now realizes that there was a downside to GLOBILIZATION that was part of the fine print...  If the weak governments fall, they will take the stable governments with them.  Germany, and to a lesser extent France are seeking a solution... any solution to prop up the debt markets.  Tim Geithner's visit, coupled with China's promise to continue purchasing European debt will temporarily quell the markets...  But it is becoming more and more obvious that a major paradigm shift is underway.  Will deflation take grip and squeeze the savers and stock holders?  Or, will inflation save the day and allow a more simple sovereign debt solution?  According to Marty Hutchinson a Contributing editor at Money Morning 

"In that case, many of the economic advances that globalization has brought to the United States - and the world as a whole - will be reversed. The world economy will have to adapt to a much lower level of efficiency, with higher manufacturing costs and less outsourcing. Both inflation and unemployment will be high. The result: We'll be looking at a decade of inflationary recession, with declining living standards. We have already traveled a considerable distance toward de-globalization and should work towards reversing this trend. We should keep trade barriers down and international capital markets open. As protection against the possibility that governments and markets will fail in this attempt, investors should look in one direction - at gold. In a world of inflationary recession, in which international investment opportunities are blocked and government bonds are dangerous, gold remains the most reliable store of value. Others will realize this. So investors with gold in their portfolios will at least have the satisfaction of increasing their capital, while others are losing theirs."

Others view this as a great buying opportunity as the wall of worry has provided plenty of traction for certain investment sectors.  As for now, I am content to build a cash position and continue supplemental purchases of silver coins and commodity stocks like D.     

As dire as some things seem we are reminded of a couple basic principles...  The sun will still come up tomorrow.  And life will go on... 

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