Under Attack

"Invincibility lies in the defense; the possibility of victory in attack." - Sun Tzu

Today is a short day for the markets due to the extended holiday that is Thanksgiving and as I am taking the day off this will also be a very short blog.  But while it may be a short day for the markets and volumes are typically light it is very interesting to see the commodities markets under complete attack.  Oil is down almost $8 a barrel or more than 10%, Natural Gas is down more than 6%, Copper is down more than 3%, Gold is down $29 or 2.50% and Silver is down $1.20 or more than 7%; and this is all today!

This is an all out route and while Gold and Silver have not broken down completely yet, Copper has now confirmed a downside bias and Crude oil has now fallen more than 40% in less than 6 months.  The raw materials of Copper and Crude will feed into inflation numbers and start to exacerbate the issue of deflation.  Furthermore their continued weakness points to a global economy that may be completely out of gas regardless of what the central bankers of the world do, but their response will no doubt be to throw more money at the issue.  Interest rates will remain benign for a lot longer than anyone can imagine so finding places to invest your cash will be difficult.  Make sure that you do not chase yield as the risks inherent in a low interest rate environment are still the same (if not higher) but the yield is reduced.

Looking ahead it seems clear that the near term concern of deflation is very real and this environment is treacherous for stocks particularly for companies saddled with debt (IBM springs to the top of the list).  Be very cautious and try to bring your debt levels down to a minimum, build up cash and wait for the inevitable.

Happy Thanksgiving to all.