December 13, 2011
BY: Robert Hallberg, Topics: Markets
Stock market volatility and uncertainty has been the theme for the last couple of months. The VIX, which measures the implied volatility of S&P 500 index options, has remained at an elevated level for an extended period, which is quite unusual.
The volatile markets have created a difficult environment for traders. As a result, many traders have simply stepped away and taken money off the table. And with liquidity withdrawn from the market, volatility has been further exacerbated. On the chart below you can see the seesawing motion in the S&P500 index.
Part of the problem is that investors donât know what to expect. Some fear a deflationary bust and others fear inflation, created by too much stimulus. The ongoing debacle in Europe does not add any certainty, with new developments everyday as the political leaders trying to figure out what to do next. Then we had a failed bond auction in Germany, Europeâs perceived safe haven.
Given whatâs happening, it does not seem like there is much traditional investments going on, with people looking for long term real value. Rather, many people have been turned into speculators, trying to second guess the market or the Fedâs next move.
The bad news is that it seems like we are heading towards another liquidity crisis, the way things are shaping up. Credit is getting hard to get, and banks financial situation is deteriorating. If we have another Lehman event, it will be much worse this time since public debt is at an all time high and the central banks only have one remaining options left, which is to print more money.
The good news is that every crisis presents an opportunity, and resources stocks, especially precious metals and energy companies is in a secular bull market and most institutional players are underinvested in these sectors. This is a relatively small sector, especially in gold and silver, and just a little bit of institutional money can send prices souring. Furthermore, there are currently about $7 to $8 trillion of investor money on the sideline in the US waiting for an opportunity to enter the market.
Looking at the action in the market it may be difficult figure out where the market is heading and what to do next. But rather than looking at next week or next month, it may help to expand your view and look at the bigger picture. Regardless of what will happen tomorrow, the fundamentals for the resource sector is continuing to improve. There are now seven billion people on this planet. Many are living in developing countries and are looking for ways to improve their life. This will require commodities and energy. Moving forward I suggest that you remain liquid and buy gold, soft commodities, and energy once an opportunity presents itself.
To learn about trends and spot the next investment opportunity read the Casey Report from Casey Research. It's a monthly investment news letter that breakdown economic trends in a way that is easy to understand. They make recommendations based on economic reality and their track record is several times better than the market or any mutual fund for that matter.
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