Larry's take on the wild Stock Market and Gold action
Stock-Markets / Analysis & Strategy Mar 02, 2007 - 11:03 AM
For months, I've been warning you that U.S. stock markets looked overbought and were headed for a tumble.
And just last week, I said that a Dow close below the 12,242 level “will be your signal that the recent economic strength is rolling over, that investors think corporate earnings have peaked, and that the weakness in the housing sector is really hitting home.”
A few trading days later, we got that signal ...
I didn't know that China would be the trigger of the sell-off. But I will tell you right up front that I don't think China is where the real problem is.
Although a 9.2% drop in one day is disconcerting considering how far and fast the Chinese market rose, it's not entirely surprising. Nor is it surprising to me that the market jumped back yesterday, erasing about half of its losses.
What's next? Don't be surprised if you see more short-term weakness. That would be natural. But the fundamentals in China and Asia are still solid. One day — or even one month — of market action doesn't change that. Economic growth is still strongest across the Pacific. Three billion people are still awakening to the modern world and leaping into the 21st century.
Many Asian economies are like toddlers still learning to run. Sure, they will stumble from time to time, and sometimes stumble hard. But they are also growing and maturing very rapidly — offering abundantly rich investment opportunities.
How do you prepare for these rough patches? One method I like is stop losses. That's why I tell my Real Wealth Report subscribers to keep their stop losses in place on recommended positions. These orders help you lock in gains and protect your capital during sudden market corrections. They're made to order for days like Tuesday.
That's Asia and natural resource investments that are driven by Asia. But ...
The U.S. Economy Seems Headed for a Recession
Our economy has been floating on a magic carpet ride for the past three years. It's been artificially boosted by low interest rates, strong real estate prices, and sheer, blind optimism. But now the winds are shifting:
Look at the debts piled sky-high in this country, with personal, state, corporate, and federal debts at record highs!
Look at the economy's miserable performance, with GDP rising at little more than 3% per year!
Look at the housing market, already crumbling and with more downside ahead!
Then add a weakening dollar, a wimpy Federal Reserve, and a political torrent of Democrats and Republicans duking it out for nearly two years straight.
And remember that true U.S. inflation is likely running much higher than government's Consumer Price Index would have you believe.
Don't get me wrong. I love the United States. But I also recognize that it's not where the growth will be over the next few years.
Gold: The One Investment I MUST Talk About Today!
Last week, gold reached its highest price level since last May. And although gold has sold off in sympathy with stocks, you ain't seen nothing yet when it comes to the yellow metal's upside.
Any Wall Street analyst with half a brain should be starting to realize what I've been saying all along: There's not a central bank or politician in the world that will sacrifice growth in the name of tighter money.
If anything, this week's downdraft will just spur them to print more money. These guys don't want to see markets crash. Nor do they want to see the kind of weak economic conditions I just told you about above.
Ironically, these free-wheeling central bankers will continue printing money with reckless abandon at the worst possible time ...
- When global demand for goods and services is already at all-time highs;
- When the world's most essential natural resource — oil — is already facing severe supply limits;
- When the U.S. dollar has already lost a great deal if its purchasing power;
- And when the world is already dealing with massive issues like terrorism!
Always keep in mind: While central bankers and politicians can effectively create paper money at will, they cannot control the supply of gold in the world.
And there isn't much of it to go around: ALL the gold ever mined in the history of the world (about 151,000 metric tonnes) can fit into a 62.3-foot cube!
Right now, gold is trading at about $660 an ounce. If you don't own any, I would definitely consider buying some.
The most convenient way, in my opinion, is through the streetTRACKS Gold Trust (GLD). Each share represents 1/10 of an ounce of gold. When you buy this fund, it's kind of like buying a mutual fund, but one that holds only physical gold. The best part is you don't have to worry about storage and shipping because the gold is held in trust for you.
Or, if you want a diversified stake in gold companies, you can buy a good mutual fund such as the Tocqueville Gold Fund (TGLDX), the DWS Gold and Precious Metals Fund (SCGDX), or U.S. Global's Gold Shares Fund (USERX).
Best wishes,
By Larry Edelson
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