Wow! The market exploded on Friday. Egypt hasn’t has such influence on the world since Cleopatra ditched Caesar for Marc Antony. I admit, the breadth of the selloff surprised me, but, in truth, the market has been looking for a reason to panic. Like Cleopatra, or any stereotypical woman, the market is always thinking it is a tad too fat, that it needs to lose a couple of pounds. Well, it shed the pounds and the move toward 12,000 on the Dow.
Believe it or not, Friday’s flight is good for the market. The market has been steadily munching its way up for quite some time. It needed a breather before it begins indulging again. Now it can consolidate and form a stronger base for another run at the ceiling. It’s all good, except for the uninvited speculative pressure on oil. If Egypt gets more out of hand, and the revolt spreads to other oil producing countries in the region, we could see an inflationary spike because of oil. Investors and traders need to track this event closely.
Today, the market seems to have shrugged off Egypt. I suspect this is so because panic is out and reason is in. Although the outcome is not certain, one possible scenario is that the dictatorship moves aside to allow for some form of democratic government. For now, the uncertainty is not unhinging everything, which means we get back to a bull-market strategy.
With the debt issues looming in Europe and USA exacerbated by devaluing currencies, would you say that investors in 2011 should focus on emerging economies/countries for better returns? Also, hedging in gold and silver seems attractive given the fear mongering about the US dollar valuation, what is a novice investor to do in such turmoil?
Well, the worries about the debt issues in Europe are fading. In a communiqué from Davos last Friday, world business leaders said worries about the collapse of the Euro zone from excessive debt are now gone. In fact, this weekend, Germany, Britain, and France did something unprecedented – they sent out a joint political statement stating their united position on the events in Egypt. Yes, too much government debt exists in both Europe and the U.S., but this is nothing new. Despite the cries of imminent doom, politicians of all stripes understand it is time to push the pendulum in the other direction, and so they will. I am not worried, as long as they don’t push too hard too fast.
In 2007, I began moving money into emerging economies. In 2009, I moved more money into that sector. I believed then that they would lead the U.S. out of recession, and I was correct. Now, things have changed. Although investing in the emerging economies will have legs for some time, the U.S. is coming back. I have moved some emerging market money back into U.S. investments.
My position on gold is the same as always. Barring some cataclysmic geo-political event (think Egypt), it is not going to $2,000 in the near term. In fact, I would watch for a continued decline right down to and possibly through $1,200. Silver? Well, that is a horse of a different color. Lumping silver in with gold is a mistake. Watch it closely and buy in on strong dips.
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