The Market Sobers Up

"Statistics are used much like a drunk uses a lamppost, for support, not illumination." - Vin Scully

After a party that has lasted almost seven years it is looking more and more like the market is waking up to reality.  After the binge on easy money and low interest rates of the past few years it looks like there is a realization that the economy is too weak to handle an interest rate hike and that if the Federal Reserve does not hike rates soon things will get out of control on the inflation front.  In other words market participants are finally realizing that the Federal Reserve is boxed in and this is making market participants nervous to say the least.

Now while I could go on about how an interest rate hike will have negative impacts on earnings, housing and the market I do not plan to use the lamppost for support as I have done that at length in previous blogs.  What I can say is that the market appears to be hanging on to a very weak thread and that the correction so long overdue is looking more and more probable by the day.  On a trading basis the level of support for the S&P 500 is 2046.50.  This level was briefly tagged and broken on Thursday and should a sustained rally not ensue on Friday things could get ugly for the simple reason that margin debt is at the highest level ever recorded and the vast majority of that money will exit the market en masse at any further sign of weakness.

For those of you still interested in staying in the market (for reasons that I cannot understand other than you once again wish to be beaten up by another vicious market draw down) I would hope that you will move a large portion of your investments to gold miners and possibly their silver brethren.  These are stocks that are down 80-90% from their highs and should the market implode they will benefit from a rise in the value of gold.  Furthermore the ratio between the gold price and the price of silver is wide and should mean that silver will appreciate faster than gold.  Still silver is a squirmy beast not easily tamed so expect an adventure in that market but that to me is the only place to turn right now.

Outside of that ensure that you do not get sucked in by the lamppost leaning drunks who throw any kind of statistic at you to make you believe things are going well.  They are not, not in the United States, not in China, not in Europe and not in Japan.  Furthermore the market is due a correction so ensure you do your homework and sidestep the impending mess.