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At first glance, it might have been easy to miss the part of the Fed’s
statement where the word "significant" had been added to the phrase
"downside risks to the global economy."
But it wasn’t missed for long.
The Dow’s sickening 283-point plunge Wednesday afternoon extended into
yesterday. The Dow was off nearly 500 points at its worst.
Judging by the MSCI All-Country World Index, which is now down +20%, global
equities are in a bear market. It also seems like investors are now pricing
in a recession. Because in addition to the issues in Europe, inflation in
China accelerated to a 3-year high.
I’ve warned before that, even though Europe is in the headlines, weakness
in the Chinese economy could be the straw that breaks the market’s back.
China’s been combating inflation for over a year, tightening lending
standards and raising loan reserves. And inflation had started to slow. But
this renewed acceleration means that China will continue to act to calm
inflation and slow its economy.
I’ve also been adamant that there was no reason to make any stock purchases
until Greece actually defaults, which I am still convinced will
happen.
Even a pledge by the G20 to "do something" to respond to this latest
weakness should not be seen as an invitation to buy this low for anything
but a quick trade.
*****I’ve been sitting on a question from a Daily Profit reader that can
shed some light on the situation. Rich L asked:
I notice that gold prices are very volatile lately. They drop
then quickly recover. Does this indicate that central
bankers are somehow manipulating the prices or are selling some of their
gold holdings?
Gold is a safe haven, yes. But it’s still an asset. It’s not cash.
And when the market sells off like it has the last two days, it’s
because investors are going to cash. Cash, and Treasuries, are the only
thing that survives in a major correction.
The Dow is teetering at a 52-week low. And we’ll likely see a new 52-week
low before it’s all said and done. Because there will have to be some
clarity of whether we will actually see another round of recession. And
we’re not likely to get that clarity in the near future.
I don’t believe that gold prices are being manipulated. It’s sold off
because investors take profits and raising cash.
*****Could this be a catalyst for the EU to get its act together and come
up with a clear plan to accelerate aid to Greece and others, or absent
that, at least shore up its banks with liquidity?
Perhaps. But my advice will remain the same: wait for Greek default to find
a buying opportunity.
And there will be an opportunity. Too often, investors are too paralyzed
with fear to buy when valuations get ridiculously low. Maybe you
missed the chance to buy Goldman Sachs (NYSE:GS) in the $70s or Microsoft
(Nasdaq:MSFT) under $20 when the market bottomed in March of 2009.
Well, there’s another opportunity to buy quality stocks at extreme lows
coming…
*****It’s not my intention to rub your nose in it, but TradeMaster Daily Stock
Alerts’ Jason Cimpl had his readers in a double inverse ETF on the
banking sector over the last few days. They made +20% on the ProShares
UltraShort Financials (NYSE:SKF) in two days.
I’ve said it before, but Jason is amazingly good at anticipating the swings
in the stock market. And I’ll also tell you he’s closed his downside
positions, for now. Jason Says stocks are too oversold for him to maintain
downside exposure right now. But he ultimately thinks 1050 on the S&P
500 may be coming.
*****I’ve been hard on Bank of America (NYSE:BAC) lately. But it’s a
financial stock I’ll be watching, along with Citi (NYSE:C). Both are in
better shape than they were at the depths of the financial crisis, and
Citi, especially is approaching those lows.
I’ll also be watching tech. Both Intel (Nasdaq:INTC) and Microsoft
(Nasdaq:MSFT) have showed relative strength lately. And while Microsoft was
down with the market yesterday, Intel again showed relative strength. And
I’ll have a tough time avoiding Nvidia (Nasdaq:NVDA) at $12 or below.
Finally, there’s oil stocks. Oil was absolutely killed yesterday. But we
should all be well aware that it can — and will — bounce strongly when
money returns to the financial markets.