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A Gathering Storm?

by Lear Capital EditorialJanuary 13, 2016

The stock market got off to a very rough start this year losing triple digits several days in a row without a big bounce back. Not a good sign. China’s troubles seem to be spreading like a contagion into everything, just as the US economy seems to be getting back on track. The most recent and troubling news concerns the Baltic Dry Index. This is the cost of international bulk shipping, a measure of global economic health and it has crashed. According to Zero Hedge, international commerce has basically come to a complete halt. Meaning – no ships are moving anywhere. They are all docked. With the index at such lows, operating necessarily means operating at a loss right now. While largely ignored by the main stream media, will this lack of international trade be reflected at grocery stores soon?

Are we seeing the beginnings of things to come? Is the storm finally approaching?

UBS is warning of a 20% -30% crash and bear market coming this year or early next. This sounds bearish in the extreme after many in the financial sectors have just expressed elation at the December jobs report. However, it should be remembered that year over year, December was not that spectacular. December 2014 saw 329,000 jobs added vs 292,000 in 2015. Just because we expected 211,000 doesn’t mean we are out of any woods. In fact, UBS analysts say that instead of looking at this as the beginning of a real recovery, they see it more as the top end of a bull market, noting, "we are definitely more in the late stages of a bull market instead of being at the beginning of a new major breakout."

Sure, many still insist on seeing us as turning a corner and heading off to the economic races again, and even if that were finally happening, we must temper our expectations against what is happening in China and Saudi Arabia right now.

Saudi Arabia still refuses to turn off the oil spigots and the US is in a major oil glut. This is what is causing the amazing prices you see at the gas pumps. You may love it, but the oil and gas sector in the US as a whole is losing $2 BILLION dollars every WEEK. To put that in perspective, the Powerball jackpot that everyone is losing their minds over is $1.4 billion. Energy companies are losing more than that weekly. This means that about a third of them will probably face bankruptcy or restructuring by 2017.

Something like that could possibly affect jobs and a lot of other economic indicators this year, don’t you think?

The truth is no one really knows what happens next. It would be nice to look around at a few encouraging signs and feel cautiously optimistic. And there is no reason to give yourself an ulcer over things you can’t control. But don’t forget or ignore all the reasons that still exist for being cautious. Remember, gold is the best bet for the cautious and diversified investor. With gold in your portfolio, you can look at the world more confidently, knowing you’re prepared for anything. And truly, in today’s market, anything could happen.

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