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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Puru Saxena
October 3, 2011
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After reviewing a host of technical and fundamental data, we are of the view that the world’s stock and commodity markets may be on the verge of a big slide.  Remember, for almost two years, the Federal Reserve supported the ‘risk trade’ via quantitative easing.  However, it has now left the party, which means that the private-sector credit contraction in the developed world is reasserting its upper hand.  For instance, a variety of credit spreads are rising, interest rates on Eurodollars are appreciating (shortage of dollars outside the US), the Federal Reserve is desperately trying to provide liquidity via its swap lines and the US Treasury market is signaling a severe economic contraction. 

Furthermore, the US Dollar Index has broken above its 50-day and 200-day moving averages, the VIX is elevated and the NYSE Operating Companies Only Advance/Decline Line has broken below its recent consolidation range.  Thus, all the key data points we monitor are flashing red and this is the time to be defensive.

It is notable that already, the MSCI Emerging Markets Index has broken below its early August low and a number of the European stock markets have also done the same.  On the contrary, the US indices are still relatively firm and a clear break below the recent lows will open up the possibility of a serious sell off.  Moreover, the prices of various industrial commodities have softened recently and this suggests that the global economy is slowing down considerably. 

Look.  The markets are skating on thin ice and obviously, we do not know the future.  However, we do know that the market’s internals are weakening and credit strains are emerging. Usually, this combination does not have a happy ending, but as usual, we will take our cue from the price action.  Should the S&P500 take out its early August low, a more serious decline will follow in all ‘risky assets’ and we could witness an epic autumn contraction.  On the other hand, under the best case scenario, major US indices may refuse to break down and commence a base building period.  The good news is that we are well positioned for either scenario and depending on what unfolds, we will make changes to our portfolio.  Unfortunately, certainty does not exist in the investment business!

Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets.  In addition to the monthly report, subscribers also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com