Backpedaling


Oil continued to be in charge of market direction yesterday, as its intraday price rose to nearly $107 before falling back and closing at $105.44/barrel.

Driving prices higher was continued fighting in Libya, as insurgents squared up against Gaddafi’s forces in fierce battles with civilians now becoming casualties as well.

Since there seems to be no end in sight, fears of a stalling recovery as a result of rosining oil prices are certainly justified. Other hot spots in Saudi Arabia are not helping to ease any of these fears.

It appears that the current weakness in the markets is a result of those concerns with bearish forces slowly but surely getting the upper hand. Bill Fleckenstein had some thoughts in “Is the market rally breaking down?

If you have been reading this column regularly so far this year, it should be clear that I expect 2011 to be dicey for stocks, as our money-printing, inflation and worthless-currency woes come home to roost.

My strategies to protect myself relate to what I think will benefit in such an environment — namely gold and related investments, such as mining and mining services. (Eventually, short selling will be required as well.) However, a friend recently pointed out that the macro environment also provides some additional reasons why investors might want to own gold. He summed the situation up as follows:

1.The planet is engaged in a war, religiously inspired
2.Pirates are on the high seas, mostly unimpeded
3.Communist dictators are engineering a rapidly growing capitalist economy
4.The Fed is printing $600 billion to buy $600 billion of our own debt and
5.All of the Arab world is in play.

He closed with the statement: “I see the wisdom of the old economic platitude, ‘If you forecast, forecast often.'” To which I would add, given the above, anyone who has a strong opinion of precisely how geopolitical events will play out does not really understand the situation.

There is a lot of truth in that last sentence. You can’t simply be convinced that, by analyzing a bunch of facts, you can arrive at an accurate conclusion as to how domestic and global events will eventually play out. That to me is the fallacy in using fundamental analysis.

Follow the signs the trends give you and act on their signals. While I have an opinion on the market, I never let that opinion interfere with the reality of market trends. I suggest you do the same and prepare yourself for the possibility that you may have to exit your positions and move to the sidelines.

As an aside, I will be travelling today and spending my fair share of time in airports and on planes, so I won’t have a chance to write Wednesday’s commentary. However, regular posting will resume on Thursday.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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