Sifting Through the Madness for Trends

09/20/2011 9:30 am EST

Focus: MARKETS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

When things are moving this fast and in so many directions, it’s sometimes difficult to sort out what are important trends and what is just background noise, write Pam and Mary Anne Aden of The Aden Forecast.

These are wild times. Big changes are happening, and we realize it’s sometimes hard to keep up.

It’s actually been pretty exciting, and it’s hard to remember a time when so many fast-paced things were going on at the same time, all over the world. So let’s take it one at a time, filter through the noise and look at what’s most important.

It’s All About Safety
First, gold soared, hitting yet another record high as it closed in on the big $2,000 level. There were many reasons for this, but gold is really breaking away and coming into its own. It’s doing what it has always done during times of global uncertainty, and these are indeed uncertain times.

Despite its volatility, gold is truly shining as the world’s No. 1 safe haven. And with the Swiss taking dramatic measures to halt the rise in the Swiss franc, which had been one of the other safe havens, it made gold even more attractive.

US bonds have been the No. 2 safe haven. Growing signs the global economy is slowing have given bonds a real boost. As a result, US bonds have been outperforming global stocks, commodities, and other world bond markets. The only exception has been gold and some of the other metals-related investments.

Fear and uncertainty have been the driving factors behind the markets. The whole world seems to be anxious about what’s coming next.

Stocks are bearish, the developed world’s finances are on shaky ground, the future of the Eurozone is seriously being questioned, banks are again undergoing stress, jobs are not available, protests and unrest are becoming more common in major cities, and a global recession has become more likely. So it’s no wonder the markets are reacting the way they are.

Meanwhile, world financial leaders are sounding the alarm. They’re calling on governments to put politics aside and do more to help the deteriorating world economy, warning that the downside risks are growing…and there’s good reason for this.

The situation worldwide has deteriorated rather quickly. In Europe, for instance, the European Central Bank (ECB) has been buying bonds of the weaker Eurozone countries, like Ireland, Greece, Portugal, and Spain, essentially doing its own version of a QE program to keep it all together, at least for the time being.

But Greek bonds are plunging, as interest rates soar to near 80%. This is a real red flag, and it’s causing concern about the big banks who have lent lots of money to these countries. That’s one reason why the ECB had to step in.

At the same time, many Germans aren’t happy about having to carry the load for their weaker “relatives.” This too is raising concerns about the future of the entire Eurozone.

That was one important factor driving many investors to the safety of the Swiss franc—it isn’t part of the Euro community. The bottom line: the Euro area is in flux and the euro is falling. The situation is still unfolding, and it’s still to be seen how it’ll all work out.

The US is in a similar but different situation. People are losing faith and confidence is plunging. Still, the Fed will use whatever tools it can. They’ve said so many times, but the basic underlying situation will remain. So any rebound or correction in the markets is likely to be temporary.

This will probably add to all the confusion that’s currently out there, which is why it’s now more important than ever to focus on the major trends because they’re telling the real story. Don’t let corrections confuse you. And if you stay with the major trends, you’ll be ahead of the pack over the long haul.

It’s the same story with the currencies. If you live in Australia or France and the global currencies look ready to take a dive, you may want to move some of your cash into US dollars or US bonds…and vice versa.

The world has become a smaller place. It’s far more global, and we have to go with what the markets are telling us.

We know it’s different, and it may seem strange. But that’s the reality. It often may not make sense, but the markets have the ultimate say. They are always right and regardless of our personal views, we have to go along with them.

As things change, we have to change with them. That’s the bottom line for all of us.

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