Market and Meaning is our weekly update on market movements and their meaning for you as an investor. Market and Meaning is normally reserved for premium subscribers but is currently being offered for free to all our readers. As always, everything here represents our personal views and not official recommendations, please do your own due diligence and come to your own conclusions. To follow us more closely at Investor in the Family, be sure to subscribe by entering your info in the field to the right of our website and follow us on Twitter, Facebook, Scutify, and even Pinterest.
This seems to have been a week of soothing tensions. The markets were up for the second week in a row after the 2%+ slide of a few weeks ago. We have yet to regain all lost ground, but the gains are still encouraging. Russia appears to be backing down some in Ukraine, for now. It's hard to say there has been any real progress in Iraq and Syria, but some aid has reached some of those suffering there and that is reason to be thankful.
The private intelligence group, Stratfor, has some insightful views on global affairs. In their view, the current Sunni versus Shiite conflict in the Middle East is likely the beginning of progressive and even intensifying sectarian conflict in the region. Over the next decade, they see this Islamic family-feud engulfing the entire region and pitting sects, clans, tribes, and ethnic groups against each other as each seeks to assert or protect itself against the radical actions of the other. The best case scenario presented by Stratfor is that eventually they will get tired and wear out on fighting, similar to what happening in Lebanon in the 1980's.
Regarding Ukraine, Russia, and Putin, Stratfor has a different (and much more informed) view than I've favored of late. They view Putin as someone who has bungled his way into a mess that has left him with few good alternatives. When you find yourself disappointed with your own country's foreign policy, it can be easy to assume the foreign policy of your "enemy" is superior and will win out. Whatever happens with Russia, it is an important lesson in life and foreign policy to recognize and account for your biases when doing analysis.
Stratfor believes that Putin began his Ukrainian campaign with the, apparently, flawed assumption that pro-Russian support in Ukraine was much higher. Now, he is stuck backing a losing campaign that could only be turned around with direct Russian military support. With Putin feeling the pressure of economic sanctions this is very unlikely. Stratfor even goes as far as to say that this campaign could cost Putin his job.
This week brought seemingly terrible economic news from the developed world. Both Japan and Europe suffered notable economic contraction in the second quarter of this year. While this is not good news, it is also likely not as bad as it sounds. Don't forget, the U.S. suffered a big contraction in the first quarter of this year, then jumped back on track. Learning from that history, we should not jump to conclusions based on one quarter of economic data now either. All the same, it is worthy of note.
Companies have continued to announce second quarter earnings and the results have been largely positive. Earnings per share numbers have been exceeding those from this time last year. This news has been a nice salve for very jittery investors.
Amazon (AMZN) and Disney (DIS) have entered into a little feud, something Amazon can't seem to get enough of these days. Amazon, the Wal-Mart of the internet, can only exist if their prices are better than everyone else's. When they can't get their way, they flex their massive retail muscles. Currently, the two companies are spatting over prices as well as promotion and product placement. Please note, I am a fan of Amazon as a shopper, but I believe their relentless plan for world domination could be checked a bit.
While on the topic of Amazon, they revealed a new credit card reader this week to compete with other similar devices made by Square and PayPal (EBAY) among other companies. The new product should help Amazon advance their presence in traditional brick-and-mortar companies. As you would expect, Amazon's angle is to charger lower transaction fees than the competition.
High-yield bonds have begun to rebound a bit, which is an encouraging sign toward potentially lifting our "Yellow Alert" on the markets. High-yield bonds, or "junk bonds" are very risky and tend to do poorly when the market is heading in a bad direction. Seeing them gain ground is a welcomed shift.
As for my personal portfolio, I am excited to reveal a new position in InvenSense (INVN). I encourage you to read the full article from earlier this week, New Position Announcement: InvenSense. I expect solid gains on INVN over the next year, perhaps even a double in a strong bullish case. This week saw some great gains in my solar positions, which have grown to make up over 10% of my portfolio all-together. Glu Mobile (GLUU) continues to be my largest position and my thesis of a $10 price target remains unchanged.
What does all of this mean for the investor? In the end, the events of this week have been encouraging. While things in the Middle East will likely continue to get worse, there was good news of some aid reaching the suffering masses in Iraq. Our prayers continue to go out to those facing starvation and persecution at the hands of ISIS. Ukraine appears to be at an inflection point. Will Putin harden or buckle? As for the markets, it is too soon to hit the gas, but the more time that passes since the sell-off of a few weeks ago, the more positive our outlook on stocks can be. In the meantime, I remain very net long (still very invested in stocks). This is a more risky position to be in at the moment, but a risk I am willing to make. Let me know of any questions you may have in the comments section below.
Current Market Outlook: YELLOW ALERT
The Current Market Outlook is like my traffic light for investing. Green means all systems go, yellow means to be cautious, and red means we believe there are major reasons to be concerned.
Gold (GLD) closed at $1304.50/oz and Silver (SLV) at $19.55/oz. for the week. Gold has been up and down for the last month, with little net change. Silver on the other hand has seen a notable, steady decline. I view this as a bearish overall for both metals.
My opinion on gold and silver holds firm. As I have said for some time now, I are still looking for one more big drop. Gold below $1200 is a good range for me, but I am hopeful for even lower toward the $1000 range. I thought these lows could come before the end of June, but that appears to not be the case. I am now looking at this larger drop, potentially below $900 or more, sometime in the next six to eight months. At the same time, I am preparing for the possibility this drop may never fully materialize.
That said, if I did not own any physical gold or silver, I would consider the current prices to be a very good entry point for long-term investment. One of my favorite gold sources recently said that he expects the metals to at least double from current levels in coming years calling this a "generational buying opportunity." It is important to reiterate that I am talking about owning physical gold and silver coins and bars, not stocks or ETFs. My favorite coins are U.S minted Silver and Gold Eagles, they are universally recognized and offer tax protection. For information on how to buy gold and silver, please see "How To Buy Gold And Silver."
Bitcoin is sitting at around $500.16, beginning a dive on Monday that continued throughout the week. There had seemed to be some notable stabilization taking place, but this weeks selling could change that. I don't see any near-term catalysts for Bitcoin one way or the other. I am currently holding my small Bitcoin position and have plans to buy or sell any more at the moment.
I continue to urge caution as we still think Bitcoin is a lottery ticket that could grow 10-100x or more and could even more easily go to $0. Caution and small amounts of money are strongly advised. For information on how to buy Bitcoin as well as my views on investing in it, please see my article, "How To Buy Bitcoin."
Disclosure: I am long GLUU and INVN and own gold and silver bars and coins as well as some Bitcoin.
Disclaimer: This article is for information purposes only. There are risks involved with investing including loss of principal. All readers must be responsible for and make their own investing decisions. Each reader bears the full responsibility for any decision to buy, sell, or hold any securities, precious metals, real estate, or other asset class as well as any decision regarding the starting or running of a business. Nothing in this newsletter is to be considered a formal recommendation. Investor in the Family LLC makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made. There is no guarantee that the goals of the strategies discussed by Investor in the Family LLC will be met. Please see full Disclaimer.
Disclosure: The author is long GLUU, INVN.
Additional disclosure: I am long gold and silver coins and bars and some Bitcoin.