Shelter From The Storm

The half- and quart-point losses on the Dow and S&P 500 look positively like a day at the beach compared to the rest of the world’s exchanges. And the modest rise on the NASDAQ seems like Thanksgiving, Christmas and Fourth of July rolled into one.

European indices were down anywhere between 2 and 2.5%, but the real shellacking took place in Asia early today where Shanghai was down 5.3% after having been down 6% early on.

Gold seems to have burst to the fore on the Asian flight from risk. Gold is behaving in relation to the stock markets just the way it ought to. When sledding gets rough, head for the safe haven play.

A weaker dollar market is beginning to experience a bearish tone that seems to be overtaking the greenback, helping also to push gold higher.

Oil was rebounded a touch today, finding its feet on assessments that it is oversold and there is money to be made – at least in the short term – on buying dips. But it is in a scary place now. We may see $55 before you know it.

A number of other fundamental forces are at work. One by one, the peripheral energy producers – Russia among them – are feeling the pinch of the fall in prices. Venezuela is already rushing into a whirlpool (Of course, what could one expect with gasoline at 4 cents a gallon?) But Russia and the central Asian republics formerly in the Soviet Union are key, even if minor, players in the world’s overall economy.

This is a tough call, but we also think that the release of today’s Senate torture report doesn’t help stability worldwide. It casts doubt on the integrity of the United States and how its government functions. No one wants the world’s largest economy in turmoil, nor does anyone want it attacked again.

Let’s turn one more time to safe havens and Asia’s problems. China is finally admitting to the world that its economy is slowing. They officially claim growth will be 7%, but more realistically it is at 5%. This is due to a decline in both exports and imports. There is still a credit crunch in China and it is about to get worse – much worse. Bank reserves requirements are going to be raised and that doesn’t spell good news for business or the consumer.

It is probably coincidence, but an interesting one, that China is allowing more gold to be imported. Hmmm

Wishing you as always, good trading,