Proverbs 22:3 NLT

A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences.

-- (((Charles Finney, said the following: “If
there is a decay of conscience, the pulpit is responsible for it))) --


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Monday, February 2, 2015

The Rant - Market Volatility Is Warning - With the Fed's target inflation goal of 2%, that means investors were literally paying the government to hold their money.

Market Volatility Is Warning
Have you ever stood by the seaside and watched a storm-driven tide roll in? If you have you have seen the havoc the sea foam can have on the coastal lands.

In many ways, the markets can be placed in the same category as the sea foam. They are much higher with less content than they should be but the impact can not be measured clearly.

Volatility is the foam churned up by the winds beating the sea (value) against the shore of the stock, commodity or currency cost.

The result is, while some of the global elite market analysts hold investments in the market, the majority are slowly coming to the conclusion that the fundamentals of the market are so skewed by the froth that it is decidedly over-priced, particularly in America's markets where the relative value of the dollar has added storm surge to the wind-driven froth's drive inland.

January's winds are notorious along the northeastern seaboard of the United States. Those winds merely echoed the winds buffeting the stock market.

Almost 75% of the trading days in January saw moves of more than 100 points. Now some analysts, looking at the average level of more than 17,400 points for the DJIA, claimed you have to look at the percentage of the move now rather than the overall effect, those wild swings made paupers of many people who didn't have wiggle room to stay with an investment when it lost ground. What is absolutely devastating was the 10-year Treasury issues ended he month at 1.64% or .164% interest per year.

With the Fed's target inflation goal of 2%, that means investors were literally paying the government to hold their money.

Part of the problem was the dollar's strength against foreign currency. The wild January swings were not echoed by the dollar's strength but rather in the large, persistent deviations among the world's other leading economies. Japan, China, the Euro Union, Brazil, Russia and India all suffered unanticipated downturns. All are relying on central bank printing presses to bolster otherwise sagging economic activity.

Many international stock investors left their currency ventures unhedged (meaning they only bought or sold the currency of choice). The ugly, one-sided rise in the American dollar has spilled over into the stock markets where company earnings were damaged by the currency movements as a negative force to profitability.

The steep drop in oil prices did not help either. Americans too often kept the extra cash in their pockets or used it to pay back debt rather than buy goods or services as the analysts had expected. At the same time the rising value of the dollar pushed most goods with American ties beyond the price range of foreigners--which is where the majority of companies on the Big Board had most of their revenue gains from over the past years. Since those sales were not made, the bottom line suffered in the fourth quarter earnings and stock prices went on the queasy ride that bounced the market up and down like a yo-yo in January.

The sharp decline in oil prices affected periphery countries like Venezuela who derive most of their economy from the sale of oil. This in turn put their closest allies, like Cuba, into an economic tailspin.

But the real culprit continues to be uncertainty, especially in the battle against Islam. The terrorist tactics have the whole of the world's population on edge. No place seems immune from the effects of an assault yet the politicians of the world have been collectively reluctant to put the blame on the governmental form of the Quran for fear of local reprisals.

That uncertainty is the heart of the market froth.

A sea wall is ineffective when the interior storm is as bad as the outer storm. The sea foam chokes the economy until it can be cleared away.

The tempests are still building. The economic barometer of the markets is not going to settle down any time soon. Since we are all connected in one way or another to the market value, the best advice is to hang on tight and enjoy the ride. No matter how much your stomach revolts.

"I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man."--Thomas Jefferson

Just a Reminder, I am scheduled to speak at the Larimer County Breakfast hosted by Colorado Senator Kevin Lundberg on Feb. 9. The breakfast is at Johnson's Corner, begins at 6:30 am with the program to start at 7 and end at 8 am. The presentation is on the state of the U.S. economy as we enter 2015. Thank you for your support--Mike 

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