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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Four Stock Market Warnings to Watch

Stock-Markets / Stocks Bear Market Jun 03, 2009 - 01:52 PM GMT

By: Uncommon_Wisdom


Best Financial Markets Analysis ArticleTony Sagami writes: The TV experts are breathless again thanks to some triple-digit Dow Jones moves. Like a bunch of thirsty frat boys on a Friday night, the Wall Street crowd is so eager to throw a party that they’ll latch on to any good news as the start of a new bull market.

The bulls assume that since stock prices are moving higher, the economy is improving.

Ha! The economy is as ugly as ever, and instead of looking at what the Dow Jones is doing, investors should be looking at four of the ugliest, most dangerous, and most clear warning signs that are telling me to run for the hills.

Warning Sign #1

Dollar hits 2009 low: The U.S. dollar hit a new low for the year last week. The dollar lost more than 6 percent for the month of May. That’s the biggest monthly fall since 1985.

The pinstripe suits in Manhattan and Washington, D.C., don’t care. The rest of the world, however, thinks we are reckless spendthrifts, and several countries are dumping our dollars as fast as they can.

The dollar’s downward spiral isn’t finished yet either. My Asia Stock Alert subscribers own the Merk Hard Currency Fund (MERKX), and they are sitting on a double-digit gain after holding for only a few months.

And if you expect the dollar to keep falling (and I sure do), this non-dollar currency fund should continue to rise.

Warning Sign #2

Gold nears $1,000 an ounce: Gold hit $980 last week, a three-month high, and is now within shouting distance of $1,000 an ounce.

Gold is within reach of $1,000 an ounce due to both geopolitical  concerns and fears about the global financial system.
Gold is within reach of $1,000 an ounce due to both geopolitical concerns and fears about the global financial system.

The turmoil in North Korea and the Middle East is responsible for some of gold’s move, but the real catalyst behind the move is the growing risk of the global financial system going completely haywire.

The credit crunch is far from over, our government still has trillions of dollars more to spend, housing prices will continue to fall, and inflation is building a launch pad from which to skyrocket.

I believe it is only a matter of time before gold busts through $1,000 … and goes much, much higher.

Warning Sign #3

Oil jumps to $68 a barrel: Oil also hit a 2009 high but also had its largest monthly gain in 10 years in May after it hit $66 a barrel last week. And it’s rising again this week.

The Wall Street crowd likes to crow that rising oil prices indicates a global economic recovery, but what those idiots don’t understand is that oil is rising not because times are good but because times are bad!

Oil prices are going up because it is priced in the rapidly devaluing U.S. dollar, and investors are fleeing paper assets and seeking hard, tangible assets, like oil.

Warning Sign #4

Treasury bond yields skyrocket: Like oil, the yield on 30-year Treasury bonds also hit a 2009 high when they rose to 4.6 percent last week. To put that into perspective, the yield was as low as 2.5 percent six months ago.

Foreign investors may punish the U.S. government for borrowing trillions of dollars too much by refusing to buy its debt until bond prices plunge to much cheaper levels.

The Dow Jones shot up by more than 200 points Monday after some strong manufacturing news came out of China.

But you should be asking yourself how dangerous the above four warning signs really are.

To me, they are four of the clearest, most dangerous signs I’ve seen in my 30-year investment career, and they are ominous enough that I consider them to be the Four Horsemen of the Stock Market Apocalypse.

I don’t know if the tumble — and a mighty big one at that — is coming next week, next month, or even further down the road, but trouble is certainly coming.

Here is what you need to do to protect your assets:

Slash your dollar-denominated assets. It sounds simple, but you don’t want to own dollars when they are going down. You can diversify into currency hedges, such as the Merk Hard Currency Fund, but what I’m really talking about is selling your dollar-denominated paper assets: U.S. stocks and U.S. bonds.

Chop your maturities. One of the biggest losers in an inflationary environment is long-term bond holders. If you own any bonds that go out more than 5 years or any bond mutual funds with an average maturity longer than 5 years, dump them immediately and move into shorter maturities.

Add some tangible assets. That could be gold, oil companies, or other natural resource companies, such as Yanzhou Coal (YZC).   Real assets, not paper assets, will hold their value and perhaps even appreciate when things get ugly. For example, Yanzhou Coal, which my Asia Stock Alert subscribers already own, jumped by 11.4 percent Monday.

Go on the offensive. When it comes to stock investing, one rule trumps all others: Stock prices follow earnings. The one region of the world where corporate earnings are still rising is in Asia and India, so the best place to invest your stock market dollars is across the Pacific Ocean.



This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit

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