Monday June 25, 2012
by Mary Anne and Pamela Aden, editor The Aden Forecast
We don’t mean to sound dramatic, but these are times when you want to be especially careful. That’s the message we’re getting and we want to be sure you’re warned and on guard.
For now, we are in uncharted territory and anything is possible. Hopefully it’ll be okay -- but the old saying, hope for the best and plan for the worst, is appropriate right now.
Increasingly, the similarities to 2008 are becoming almost eerie. We may be wrong, but the markets are poised for this and while we don’t know what the trigger will be, it could be almost anything.
Currently, our gut feel is that if an accident is coming, it’ll likely happen this year. Again, it could be a wild card.
One example is the explosion of the derivatives markets. In the past 12 years, derivatives have grown 10 times faster than world GDP to the tune of $200 trillion for U.S. banks, which is three times the world’s GDP! This is a reckless accident waiting to happen.
With or without an accident, it seems pretty obvious that the Fed is going to be forced to produce another QE type program, sooner rather than later. And that’s why the markets have recently been rebounding.
Some experts believe the debt ridden economy has reached a breaking point and it’s now totally dependent on Fed stimulus. Strong deflation forces are also a reality.
Even though the U.S. stock market is currently rebounding, it remains volatile and marginal. Most of the world stock markets are bearish and it’s likely just a matter of time until the U.S. joins this global trend.
As we saw in 2007-08, bear markets can be vicious. So our best advice is to get out of the way. Stay in cash, U.S. government bonds, gold or money market accounts. Safety is best, and it’s a lot better than losing a big chunk of your savings or retirement funds.
The Dow and the S&P 500 essentially trading within a neutral band between 12850 and 12250 for the Dow Industrials. These are the important support and resistance levels and whichever way the Dow breaks out of this band will determine the next trend direction.
If gold closes clearly below $1536 for a few days, it would be a bearish sign. Gold could then decline similarly to its 2008 fall, which could take it down to the $1350-$1400 level.
On the upside, gold won't look stable until it closes back above $1600 and silver above $28.50. Crude fell to its October lows today and it's very weak below $85.
Learn more about this financial newsletter at Mary Anne and Pamela Aden's The Aden Forecast.