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Our economy and, more
specifically, our markets are going through a kind of test... a test of
faith.
The market runs on emotions:
fear and greed, mainly, but for the longest time, faith was a big factor.
Before the global financial crisis, people had faith that the stock market
would be higher in five or 10 years.
That's no longer the case. In
fact, we've been dealing with a kind of "fractured faith" in the
markets for the past three years.
Here's a chart of the S&P
500 since 2007:
This is a war of faith. Bulls
and bear markets... these are words for how well we trust the market. And
this four-year chart said it all.
The faith the American investor
had in the U.S. markets is dead.
Financial investors tried and
failed to breach the downturn of 2007 and 2008. Where we end up from here is
anyone's guess, but S&P at 800 would be the next point of support. That's
above the dip in the first quarter of 2009, but a point where this index
found support twice in the past 10 years.
For now, though, the freefall of the markets has just begun.
Turns out
investors' faith is fickle.
When the winds change, so does the market. Perhaps that's as it should be,
but it leaves a lot to be desired.
For financial investors who can
sense the changes coming a mile away, this kind of volatility is a trader's
dream. But for a traditional investor used to going long and waiting out
"hiccups" in the market, investing long in the market is like
throwing in your lot with Pastafarianism -- faith
in the Flying Spaghetti Monster.
(Apologies to any Pastafarianists out there.)
That is to say, crazy.
The S&P 500 is at its lowest
point in more than 11 months.
To be honest, this index could
see just a little support at 1,050, but if that level is breached, the
S&P 500 is headed below 1,000.
So where do financial investors
put their faith?
Invest in
Commodities
I know many of you are looking
toward your retirement. Maybe you're looking to build back up your nest egg.
Perhaps you're still smarting from the financial crisis.
In our opinion, the place to put
your faith is in tangible things... things you can actually get your hands
on.
I'm talking about commodities.
Hard assets. Things that have intrinsic value.
One of the reasons is that we
know commodities have value. They are used to build, fuel or feed. The stock
market, at least lately, has been fluctuating huge percentage moves in a
single day. Does that mean Company X is worth 5% more on Monday than it is on
Tuesday?
No. But that's what's happening.
That's the fickle nature of market faith.
On one hand, the market is
always right. The value of a company is only what an investor is willing to
pay for it at any given time.
But if you're talking about a
commodity, that's a different animal.
Of course, some would argue that
the value of a commodity is only what an investor is willing to pay for it at
any given time. But with commodities, that's only half the argument. The
other half is actual demand.
You can't run your car on shares
of stock.
You can't eat a share of Apple, Inc. (AAPL:NASDAQ).
That's not to say you can't make
money from investing in stocks and options.
Take Jared Levy, for example. He
helped his Option Strategies Weekly readers make 27% and 33% on LinkedIn (LNKD:NYSE)
put options in less than a week. But today's investors need to have all the
bases covered...
And that means investing in
commodities like gold and platinum, energy, and agricultural commodities.
While the S&P 500 is falling
fast, commodities are climbing... This is a
relationship that investors need to use to balance out their portfolio. This
balance is particularly useful in bear markets. And if the chart I showed you
didn't scare you, maybe this will...
Last Friday, as markets tumbled,
metals climbed 1.35%. Grains climbed almost 0.6%. Softs -- like sugar and
coffee -- jumped 1.08%.
These commodities can have a
huge impact. On Friday, the Dow closed down 1.57%. Gains like those in the
commodities market can be priceless editions to your portfolio.
And by the way, we nailed the
gold prediction. We said gold would have to retest its old trend before
moving higher. Sure enough, gold pulled back to close at $1,741 on Friday,
Aug. 12, before beelining to nearly $1,900 an ounce
in early trading today.
In our favored
gold ETF, SPDR Gold Trust (GLD:NYSE),
that's a jump of 5.8%. For a gold mining company like Goldcorp (GG:NYSE), that's a gain of
3.4%. Much better that the S&P 500's loss of 3.4%.
Right now, we like hedge-quality
commodities, like precious metals, but keep an eye on the
upcoming harvest season... agricultural commodities will get a lot of
interest in the next couple months.
Sara Nunnally
Taipan Publishing Group
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