*If you have not already subscribed to our weekly interactive newsletter, please visit:http://equedia.com/newsletter/
For the full interactive edition, please CLICK HERE
Usage: Feel free to post this article anywhere you’d like. Just be sure to follow the rules set forth in our usage agreement by CLICKING HERE
In less than in a few weeks, more than $4.4 trillion was wiped off stock markets around the world. On Thursday, we had the biggest one day decline since October 2008.
The markets, the European crisis, and the political battles are wreaking havoc on our summer vacation.
Adding more fuel to the fire, the S&P just lowered their long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating. Let’s not forget, this is the same S&P that gave triple-A ratings to some of Wall Street’s riskiest packages of mortgage-backed securities and collateralized debt obligations that infused the crash of 2008.
Could things get any worse?
While I can’t sit here and confidently predict day-to-day events given the political climate, I can’t say I am surprised at what happened. For months I have been saying the markets are overvalued and that the US is in trouble – both long and short term. Does that mean the markets will continue to freefall?
The simple answer is no – the bottom for this summer drought appears to be forming.
P/E ratios are incredibly low and many stocks have now been battered so badly that even the mediocre ones seem like bargains. This isn’t a repeat of 2008. There is tons of liquidity in the system and the economy is nowhere near as bad as 2008. By the end of the year, we will look back at summer and wished we had more cash to buy more stocks.
That doesn’t mean you should go out there and dump everything you have into the markets. I continue to like gold, silver, and related stocks – especially over a longer period of time. However, we still don’t know what politics and what Europe has in store for us. Will the downgrade make a difference in the markets? Will Bernanke implement QE3? Maybe, maybe not. But if you remember during the debt ceiling debate, I said (see The Next Big Wave) the debt ceiling will be resolved in the eleventh hour, and it was. So while I can’t tell you what’s going to happen tomorrow, I can tell you confidently what I think will happen before the year is over.
Before I do that, I want to go back to a previous letter I wrote in June, titled, “Time to Feel the Pain.” If you already read it, it’s worth reading to refresh your memory. If you haven’t, I suggest you do so.
In the meantime, here is a brief excerpt:
While there will be bargains, that also means the overall markets may still have further downward pressure. Especially when Federal Reserve Chairman Bernanke looks so defeated.
Last week (June 5, 2011) I said, “With all of the money spent through all of the US’ loose fiscal policies, nothing has changed.” On Tuesday, Bernanke reiterated those statements causing the markets to fall even further down south.
In his Tuesday speech, he said that seven months after the central bank began a historic round of monetary stimulus, growth in the broader economy has been disappointing. But with the amount of money printed and no real results, Big Ben has planned to stay on course, ending stimulus on schedule this month and keeping monetary policy steady for the immediate future.
Bernanke has finally admitted what we already know. The recovery has fallen short of the central bank’s expectations by a number of different measures. Six out of ten leading indicators are bad and the other four appears to be getting worse: Unemployment is high, and anyone who has found work must accept lower wages than they previously earned. Home prices are falling at a newly accelerating rate (see The Greatest War in History), making homeowners more vulnerable to default and foreclosure. Manufacturing is down and oil is trading at levels reminiscent of 2008, when months of record-high fuel prices helped drag the economy into recession (combine that with OPEC’s recent objection of raising supply.) All obvious points that I have mentioned in previous letters.
The central bank’s ability to boost the economy, or its willingness to attempt to do so, has reached a limit. Or has it? Was the amount of money being spent really used to bolster the economy or was it used to bolster the wallets of the Fed by lending as much money as possible to the world’s most powerful nation?
Bernanke has made it clear that there will be no QE3…yet. But before we make any judgements, let’s not forget that after QE1, he hinted there wouldn’t be a need for QE2.
The truth is, the next QE, be called QE3 or something completely different, will eventually happen. But before it does, America will need to feel the pain. Without pain, there will be no political will.
That was written June 12, 2011. It is now August 7th. We’re starting to feel the pain.
America, like it or not, will have to do something drastic to keep things moving. In an exclusive interview with the Wall Street Journal, Donald Kohn and Brian Madigan – the last two directors of the Fed’s powerful monetary affairs division – said the Fed should consider a third round of bond purchases only if inflation slows from recent elevated levels and if the economy continues to underperform.
 |
| click to play |
The signs Kohn and Madigan speak of are here. This recent flash crash has caused the perfect storm for implementing QE3. The economy is underperforming. Inflation is moderating – commodities prices have eased and measures of inflation expectations have retreated a bit recently. The stock market is getting crushed. The US has been downgraded. And investors are fleeing. We’re feeling the pain.
While I think the S&P rating on US debt is a complete sham (Moody’s and Fitch have maintained US’ AAA rating), the markets may think differently. I go back to how ignorant a mob can become. Their panic selling will cause them to lose their shirts but it will also allow those who are calm to seize the opportunities.
I know next week can be scary but I don’t think the downgrade will mean much to the market. If you believe in value, taking some more risk during this time could prove very rewarding – as it did for those who purchased stocks after the 2008 crash. I’d be a buyer on dips next week.
“Be fearful when others are greedy, and be greedy when others are fearful” – Warren Buffett
This coming Tuesday, the Federal Open Market Committee will convene and Bernanke will speak. What he says will undoutedbly have an effect on the market, so be prepared. While he may hint at QE3, this may not neccesarily be enough to satisfy the battered and bruised investors. For the most part of August, we still need to be careful.
If next Tuesday fails to provide anything, the focus will quickly shift to August 26 for Bernanke’s speech at the Jackson Hole, Wyoming Fed conference. And that’s where I expect Bernanke to really pump up the markets, as he did last year with QE2.
If you remember on April 11, 2011, I wrote the letter, “Beware the April Fool“:
Bernanke’s statements have a major impact on the markets. Earlier in the week, the Dollar rallied simply because he told us that “inflation must be watched extremely closely.” Imagine the consequences of an open press briefing.
In his August 27, 2010 speech at the Fed’s Economic Symposium in Jackson Hole, Wyoming, Bernanke signalled the possibility of QE2 (Quantitative Easing 2):
“I believe that additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions,”- Ben Bernanke, Fed Chairman
A couple of months later in November, the central bank announced plans to purchase $600 billion in long-term Treasury securities by the end of June 2011.
The S&P 500 is up more than 25 percent since Bernanke’s speech at Jackson Hole.
If historical political events are any indication of what’s going to happen, expect Bernanke to hint at QE3 sooner than later. While it may not have as strong of an effect on the market as QE2, it should be more than enough to push the market into another short term rally. This will give us another opportunity to make some money and then begin our own selloff before May 2012.
The market mob has turned every investor into a day trader. If you’re not a day trader, don’t act like one.
Until next time,
Ivan Lo
Equedia Weekly
Questions?
Call Us Toll Free: 1-888-EQUEDIA (378-3342)
For the full interactive newsletter and report, please follow this link: http://archive.constantcontact.com/fs005/1102243211822/archive/1106819919722.html
If you have not already subscribed to Equedia Weekly, you may sign up here:http://equedia.com/newsletter/
Until next week,
Ivan Lo
Equedia Weekly
Questions?
Call Us Toll Free: 1-888-EQUEDIA (378-3342)
For the full interactive newsletter and report, please follow this link: http://archive.constantcontact.com/fs005/1102243211822/archive/1106955264498.html
If you have not already subscribed to Equedia Weekly, you may sign up here:http://equedia.com/newsletter/
Forward-Looking Statements
This Newsletter and report contains certain forward-looking statements that may involve a number of risks and uncertainties. Actual events or results could differ materially from current expectations and projections. Except for statements of historical fact relating to the project, certain information contained herein constitutes “forward-looking statements”. Forward-looking statements are frequently characterized by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate” and other similar words, or statements that certain events or conditions “may” or “will” occur.
Except for the statements of historical fact, the information contained herein is of a forward-looking nature. Such forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company to be materially different from any future results, performance or achievements expressed or implied by statements containing forward-looking information.
Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that statements containing forward looking information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on statements containing forward looking information. Readers should review the risk factors set out in the Company’s prospectus and the documents incorporated by reference.
Cautionary Note to U.S. Investors Concerning Estimates of Inferred Resources
This presentation uses the term “Inferred Resources”. U.S. investors are advised that while this term is recognized and required by Canadian regulations, the Securities and Exchange Commission does not recognize it. “Inferred Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of “Inferred Resources” may not form the basis of feasibility or other economic studies. U.S. investors are also cautioned not to assume that all or any part of an “Inferred Mineral Resource” exists, or is economically or legally mineable.
Disclaimer and Disclosure
Disclaimer and Disclosure Equedia.com & Equedia Network Corporation bears no liability for losses and/or damages arising from the use of this newsletter or any third party content provided herein. Equedia.com is an online financial newsletter owned by Equedia Network Corporation. We are focused on researching small-cap and large-cap public companies. Our past performance does not guarantee future results. Information in this report has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. This material is not an offer to sell or a solicitation of an offer to buy any securities or commodities.
Furthermore, to keep our reports and newsletters FREE, from time to time we may publish paid advertisements from third parties and sponsored companies. We are also compensated to perform research on specific companies and often act as consultants to many of the companies mentioned in this letter and on our website at equedia.com. We also make direct investments into many of these companies and own shares and/or options in them. Therefore, information should not be construed as unbiased. Each contract varies in duration, services performed and compensation received.
Equedia.com is not responsible for any claims made by any of the mentioned companies or third party content providers. You should independently investigate and fully understand all risks before investing. We are not a registered broker-dealer or financial advisor. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report OR ON Equedia.com will be the full responsibility of the person authorizing such transaction.
Again, this process allows us to continue publishing high-quality investment ideas at no cost to you whatsoever. If you ever have any questions or concerns about our business or publications, we encourage you to contact us at the email or phone number below.
Please view our privacy policy and disclaimer to view our full disclosure at http://equedia.com/cms.php/terms. Our views and opinions regarding the companies within Equedia.com are our own views and are based on information that we have received, which we assumed to be reliable. We do not guarantee that any of the companies will perform as we expect, and any comparisons we have made to other companies may not be valid or come into effect. Equedia.com is paid editorial fees for its writing and the dissemination of material and the companies featured do not have to meet any specific financial criteria. The companies represented by Equedia.com are typically development-stage companies that pose a much higher risk to investors. When investing in speculative stocks of this nature, it is possible to lose your entire investment over time. Statements included in this newsletter may contain forward looking statements, including the Company’s intentions, forecasts, plans or other matters that haven’t yet occurred. Such statements involve a number of risks and uncertainties. Further information on potential factors that may affect, delay or prevent such forward looking statements from coming to fruition can be found in their specific Financial reports.
Equedia Network Corporation is also a distributor (and not a publisher) of content supplied by third parties and Subscribers. Accordingly, Equedia Network Corporation has no more editorial control over such content than does a public library, bookstore, or newsstand. Any opinions, advice, statements, services, offers, or other information or content expressed or made available by third parties, including information providers, Subscribers or any other user of the Equedia Network Corporation Network of Sites, are those of the respective author(s) or distributor(s) and not of Equedia Network Corporation. Neither Equedia Network Corporation nor any third-party provider of information guarantees the accuracy, completeness, or usefulness of any content, nor its merchantability or fitness for any particular purpose.
