Can any follower of world stock markets not now be aware that the confidence in an ongoing bull market is showing signs of slipping?

 

We have suffered a major correction in late February followed by a return to the high ground punctuated by the odd flat day and reversal.

 

This activity and a look at the fundamentals that drive markets are making many of the old hands have doubts.

 

Followers of the theory that past market movements can foretell the future are also becoming concerned that the party is coming to an end.

 

Ask any Elliot Wave technician what conclusions they are drawing from their reading of the runes!

 

It has been a given that wherever Wall Street goes so European markets will follow.

 

Before briefly talking about the problems facing the U.S. it is worth taking a close look at this premise to see whether it is likely to hold true in today’s global environment.

 

A fundamental belief at Precious Metal Investment is to check and double check wherever possible all the information that flows across our desk from whatever source.

 

It would also be remiss of us if we accepted without question that past experience will hold true today and in the future.

 

U.S and European financial centers still remain the most powerful and influential drivers of stock markets world wide, and although there are signs that their significance is becoming eroded, we do not think that the effect will change attitudes for a decade or more.

 

In the meantime what happens in the US will continue to have a serious knock on effect on all Western stock markets, as in the past, and to a lesser extent on the markets of the emerging economies.

 

As an aside we also see Russia standing aloof from much of this downside as their realization of the extent of their untapped resources, both industrial and in commodities, will enable them to flex their financial muscle with increasing effect.

 

As we still believe that the strength and weaknesses of the U.S. economy will continue to direct the major markets, it is necessary to take a hard and calculating look at America today.

 

It is difficult to see one encouraging aspect of the U.S. economy to hang a note of optimism on.

 

Although we may be clutching at straws we still believe that there are many individual entrepreneurs still alive and kicking in the States, and that American technology and ´get up and go´ will continue to lead the world for the time being so there is some hope that the U.S. will maintain its superior position of influence in the financial world for some time to come.

 

That is if the politicians can keep their noses out!!

 

The major problem as we see it is that the Chinese hold so much American paper that they are effectively holding a knife to the throat of the U.S. economy and if at any time they care to exercise it, the result will be a catastrophic fallout.

 

Sadly the present administration

 

• can only think of printing more money
• is unable to find the political strength to admit to and address the growing problem of inflation
• as yet cannot find a face saving way of getting out the increasing cost of ill advised military ventures in the middle east
• and never far from the headlines, the growing problem and consequences of the housing market collapse brought about by taking the politically easy way out with artificially low interest rates and to hang with the future

 

The dollar continues to lose value, there is in effect a political vacuum between the republicans and democrats that will not be resolved until the next presidential election and if Hilary gets in!!!

 

Out of the frying pan into the fire comes to mind.

 

And please do not think that we have overlooked the oil and energy problems, the growing and out of control national debt, a looming crises with Iran, the catalogue of potential disasters goes on and on.

 

We can find no encouragement that there is a back up, fail-safe plan that could go into effect to avert or alleviate a painful market sustained downturn.

 

Before looking at ways to profit or at least to minimize the losses from a forthcoming long term bear market we have to reflect upon the timing.

 

Lets be clear on this, if anybody were capable of accurately forecasting the timing of movements in any market they would quickly become as rich as Croeses.

 

Furthermore the markets have a nasty and frequent habit of surprise, taking the most sophisticated of investors to the cleaners from time to time.

 

Despite the plethora of economic indicators now available the market will often contradict logic.

 

So where are the "Profits of Doom?"

 

In the circumstances it is wise not to try to outguess market timing but to take a long-term defensive view to protect a portfolio.

 

The answer can be to buy long term put options on the stocks in your portfolio and to look at selling covered calls when you believe the market is entering a reversal for a shorter-term profit on stocks you wish to retain.

 

We like to think that those companies that are long established and provide essential domestically sourced goods or services and have a history of paying a decent dividend should be retained and are candidates for covered calls.

 

If you have other favorites in your portfolio you want to retain then think seriously about the advantages of puts.

 

It may be time to evaluate the advantages and disadvantages of holding on to the more speculative stocks and perhaps cashing profits or cutting losses and finding a safer and less volatile investment

 

You may be reluctant to hold cash if you see your own currency whether it is the $, Euro or GBP losing value and inflation taking hold. If so then commodities may hold out a solution for you.

 

We are enamored with Uranium and think that despite a general market fall out occurring, the environmental pressures are such that the benefits of nuclear power cannot be ignored.

 

Projects in the pipeline, tax breaks and government assistance all hold out promise that good returns can be made from investing in uranium producers, nuclear power contractors etc., despite economic difficulties in other sectors.

 

Despite our misgivings that the price of gold has been shadowing the price of oil, this is a scenario we now accept as a given.

 

If you believe that oil can only get more expensive and as some pundits have forecasted US$100.00 a barrel in the not too distant future then gold may be your answer.

 

There are also other fundamental reasons for favoring gold but this market does have some question marks hanging over it. Have a look at our articles on the yellow metal for some more opinions.

 

As the emerging nations become wealthier so their appetite for the finer things in life grows greater, led by better food.

 

Take a look at soft commodities such as cattle or wheat, and the easiest ways to play this market is index led or Exchange Traded Commodities (ETCs).

 

Whatever you do keep a close eye on the leading market movers, the news, and if you can get your head around it, technical analysis of charts can give some surprisingly accurate forecasts of future trends.

 

If you need more information or help on options, covered calls, ETCs etc. feel free to contact us

“A reasonable probability is the only certainty” E.W.Howe

Check, double check and check again and may the luck be with you.

 

 

 

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