MARKET UPDATE: THESE ARE CRAZY DAYS

Just a quick post today before I put up some detailed analysis soon.

There's so much happening in markets these days - Debt Ceiling, US AAA downgrade, Equity Market crashes, a really manic VIX (Volatility S&P500 ^VIX), UK Riots and all the ongoing discussion of the ''fragile'' global economic recovery!!

Below is a snapshot of todays wildly gyrating markets! For the ''goldbugs'' out there, Gold has been riding high, driven upwards by all the uncertainty & it is overbought in the near term!

The FED has signalled that it wishes to keep rates at record lows well into 2013!----the recovery must be more fragile than they first thought.

Overall, I would refrain from any risk taking at the moment and would look to hedge gold positions. In the medium term, I expect gold to continue to be volatile in a price range of $1550 to $1780(New all time high as of today).

Will come back with some market specific ideas soon.

GEOPOLITICAL NEWS IMPACTING MARKETS

The last couple of months have really been a roller coaster ride for the world economy.

Whether its the unrest in the Middle East leading to surging Crude Oil prices, or rising food prices or EU Sovereign debt troubles, or the recent Japanese Quake and resulting Tsunamis...... a lot has been going on.
The incredible damage to property and the loss of innocent lives in case of the Japanese quake is really tragic.

There was another important bit of news that went by unnoticed.
"" Wisconsin Gov. Scott Walker on Friday signed into law the controversial bill that eliminates most union rights for public employees""
Wisconsin governor signs anti-union rights bill World DAWN.COM
Wisconsin governor signs into law union curbs Reuters
Clearly the crisis on Main Street is not over yet. As David Rosenberg recently said, the impact of cost cutting and downsizing at the state and local government level will really undermine the '''ongoing consumer recovery'''
So I think that it's time that the guys on Wall Street sit up and take notice.
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The Dow Jones may continue to brush off the impact of rising gasoline & food prices and the discontent on Main Street for now, but the prudent investor must realise that its now too late to join the equity market bandwagon. The risk reward ratio is not in favour of the ''long only'' investor and his margin of safety is far too inadequate at the current time.

REAL ECONOMY vs PAPER ECONOMY

Came across 'Planet Real vs Planet Paper' in the Taipan Daily, 24th February, 2010.

At a time when Wall Street seems to be totally ignoring Main Street, it's always worthwhile to take a step back and analyse the 'real' vs 'paper' economy.

DAVID ROSENBERG : WHAT WORKED IN 2009 PROBABLY WON’T WORK IN 2010

David Rosenberg at Gluskin Sheff is spot on once again.

Economists and analysts are busy extrapolating last years trends, without fully understanding the ''fragility'' of the ongoing ''recovery''.

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A firm believer in 'the buy low & sell high' investment philosophy, he is still 'long term bullish on the commodity complex', but believes that 'the positive trend over the past year could experience a near - term pause or even a technical correction that could last for several months.'

FOMC's wide range forecast!

Obviously, no one at the FOMC is ready to commit on a narrow range as far as economic forecasts go.

As David Rosenberg said in his update this Thanksgiving, FOMC estimates are quite wide. Take a look at his charts on this.

Yes, these are the same guys who in 2008, thought that the sub prime crisis was contained, and that the U.S. economy was in decent enough shape.

And these are the same people who today, are encouraging individuals to spend rather than save, even borrow and spend to save the U.S. economy!

Listen to David Rosenberg - he's one guy who has been consistent in his views all along, and he DOES NOT think that the risk reward ratio for ''risky assets'' favours an investor today!

THE LIMITS TO DECOUPLING

With world equity markets rallying, the 'decoupling theorists' are back again.

Here is an interesting perspective from Ruchir Sharma -Head of emerging markets at Morgan Stanley Investment Management. I follow his market commentary, and I have always found his views to be rational, well thought out and consistent.
He is one of the experts whose views I follow!

Source: US revival key to emerging market recovery: Morgan Stanley ...

Below are some of the very valid points that he makes in his article.

• Given the trade and capital flow linkages, developing countries cannot pull away from the developed world too far, too quickly.
• China's policymakers have already succeeded in stimulating their economy but beyond a point, it too needs the largest buyer of its goods - the US consumer - to start spending again. If that doesn't happen soon enough, then the global economy faces the prospect of a relapse.
• It's then all down to the US Consumer to determine whether a global economic recovery gains traction by moving beyond the inventory rebuilding stage.

That pretty much sums it up. There is a lot of manufacturing capacity out there. A recovery can be sustainable, only if genuine consumption resumes.
Given the weak financial position of the US Consumer, any sustainable recovery in the medium term looks doubtful, and equity market investors/speculators that fail to understand this point are likely to be disappointed.