The State Of The Market

The big question in your mind is probably if we hit bottom? Probably yes, but I am still keeping my options open. The American market looks like it has hit bottom, but the European market is dragging along the bottom. I am extremely happy with my American positions as I have been in the positive for the past three days (oohh weee…) What were my best buys? Microsoft, and Apple. Those are doing very well for me. On the European side we need some more work. The Europeans seem to be in a bit of denial. I get the feeling the Europeans are thinking (oh those silly Americans always looking at things too optimistically).

Are we home free yet? No, we need to get through the upcoming earnings season semi intact. If this earnings season proves difficult then we could hit 1250 and 1200.

Though I am still bullish and still buying.

The commodities seem to be in a sell-off mode. And what bugs me is that on the weekend I talked to my wife and said, you know I should begin to build a short position in Gold. She looked at me and wondered why? Here is why I thought of taking a short position (BTW I did not build a short position because I have never in my life built a short position in investment terms. I want to do more research and understanding before I take this type of action.)

People are investing in commodities to hedge against inflation. But yet that is a fallacy because inflation is happening due to the hedge against inflation. This is a wonderful bubble in the making. I was just reading about how people are now investing in Gold.

With gold breaking the barrier of $1,000 an ounce this week and surging over 40% over the last year, a growing number of investors that joined the fray are finally acknowledging that gold bugs’ plans for apocalypse weren’t so kooky after all.

The streetTRACKs Gold Shares ETF, one of the most well-known gold ETFs, has close to $20 billion in assets and has surged over 15% year-to-date, according to ETF Trends.com.

The total amount of gold held in the StreetTracks trust recently stood at well over 600 metric tons, according to the fund. That’s more than the gold reserves held by many governments, including China, Russia, the European Central Bank and the Netherlands.

This has to raise some serious question marks. A fund that holds more gold than most countries? And are these countries buying gold? No! Many countries in the EU are selling gold. Of course France, and other countries desperate to make up budget deficits are selling gold. Yet what should surprise is that Switzerland the Netherlands are selling gold. Neither of these countries need the money.

Likewise, Swiss monthly sales have so far have been 10.8 tonnes in October, 11.3 tonnes in November, 9.8 tonnes in December and 11.5 tonnes in January.

So who is buying gold other than the gold fund? Not people with jewelry

“Everybody’s trying to sell,” said Richard Rozhko, owner of a jewelry store on the northern edge of Chicago. “People are trying to cash out because they don’t believe that gold’s going to go higher than $1,000 or $1,200” an ounce.

Ok so who is buying? Not the youth in India, as they are starting to prefer diamonds.

In both India and China, there is a growing interest in diamonds, as a symbol of newly acquired wealth. This employee of an Israeli diamond firm says that as sales in the United States have fallen, because of the economic downturn there. Her company increasingly focuses on India and China.

Get the picture on who is buying gold? People who believe it is a hedge against inflation and the dropping US dollar. This is called a bubble, and is the reason why I thought on the weekend on building up a short position.

Commodities are dropping and that is actually very good news because it means companies can generate more earnings. What about oil? Oil like the other commodities illustrates to me how fear goes a long way away from reality.

Let me illustrate. At the URL you have the per capita consumption of each country on this planet. Let’s take today’s consumption for the countries USA, Germany, and China, and look at the total consumption.

The total numbers are not that relevant. What I want to propose is a potential future scenario. Imagine if America decided to consume less oil to say 40 barrels, and imagine Germany being the eager beavers they are decided to consume only 25 barrels. And finally imagine if China needed 50% more oil with a population growing 15%. You would then get the following numbers.

Look at the bottom line, a growing American and Chinese population will consume less oil than before! This means we are not tapped out. We do not have a supply issue because we can reduce our oil needs, and it will happen. Wait until all of those hybrids and electrical vehicles come online, and watch that oil price drop like a rock.

The reality is that we have more than enough resources, if we use them efficiently. About 2 years ago I watched this Swiss economic discussion and they asked the question on what the biggest challenge in the future will be. The answer, efficiency. They were all of the opinion that we have enough food, oil, and energy. We just need to waste less and be more efficient.