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  • Market And Meaning – Week Ending 3/21/14 0 comments
    Mar 23, 2014 11:02 PM | about stocks: SPY, DIA, QQQ, IWM, GLD, SLV

    Market and Meaning is our weekly update on market movements and their meaning for you as an investor. If you have questions or comments beyond what we discuss here, please leave them below or contact us directly. Also, don't forget to take advantage of our Education Center - a great resource for growing as an investor and getting your questions answered. 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.

    Ukraine and Malaysian Airlines Flight 370 continued to dominate the news last week. MAS 370 continues to captivate the world as the Boeing 777 carrying 239 people is still unaccounted for. The Crimean region of Ukraine now belongs to Russia. Apart from the impact upon those directly involved, should the rest of the world care? As investors, this move will have a potentially significant impact on any company that works in or with Russia. Economic sanctions threaten to destabilize an already weak Russian economy.

    Russian President Vladimir Putin has not sat idly by as the West has threatened economic sanctions on Russia. Europe relies heavily on Russia for energy, particularly natural gas. If the U.S. and the West attack Russia with sanctions, he plans to return the favor. This does not bode will for a European economy that is still struggling to get back on its feet.

    At first glance, it can be easy to brush off the threat of sanctions as weak and passive moves by a war weary U.S. While there is truth to that idea, it is also true that if pressed hard enough, sanctions have the potential to eventually strangle countries into submission. Iran appears to be conceding to international demands regarding nuclear power for the opportunity to escape sanctions that have suffocated them for years. North Korea on the other hand seems unmoved. What about Putin? We have said for weeks, Putin is no fool and has made his moves with Ukraine fully knowing the consequences. Putin has said the fall of the Soviet Union was the greatest tragedy of his life, it is still unclear whether he intends to do anything about that now.

    The markets seemed to ignore the Russian takeover of Crimea as all the major indexes rose this week. It is difficult to not see eerie parallels to 1938. Hitler moved into Austria and Czechoslovakia as a means of protecting German speaking people there, a similar argument made by Putin regarding his moves in Crimea. After his move, Hitler seemed content and the markets marched on, largely unscathed. Putin claims to be fully content with Crimea and the markets are marching on, largely unscathed.

    Something that has gone largely unnoticed this week was the withdrawal of more than $100 billion in U.S. Treasuries from the Federal Reserve. It is assumed that this move was largely orchestrated by Russia as slap in the face to the U.S. While the details are uncertain, the more significant news that was brought to the surface is the realization that foreign central banks have been selling Treasuries at a significant rate. Why does any of this matter? For years, central banks and other investors have been reacting to the Fed's money printing (QE) by shifting assets out of the dollar. These trends serve as a warning sign that many countries and people are losing faith in the strength and security of the dollar.

    Fed Chair Janet Yellen announced another taper of $10 billion dollars, tapering monthly purchases to $55 billion. The big news though has been regarding interest rates. Low interest rates have helped fuel the economic recovery and especially the all-time highs in the stock market. Yellen indicated that rates could begin increasing around mid-2015, earlier than expected. The end of bond purchases and low interest rates would indicate that the five year party in the stock market could be ending soon.

    The slowing of China's economy continues to be a significant point of interest. China wants to stabilize economic growth and their success or failure will echo loudly around the world.

    What does all of this mean for the investor? Things with Russia will likely cool off for a while as Putin considers his next move. In the meantime we expect stocks to continue to do well as long as QE continues. Behind the scenes, the economy is not growing nearly as fast as stock prices are, something that will eventually catch up to us. As we said last week, bubbles can only grow or pop and we expect the current bubble in stocks to grow a lot bigger before it pops. Many people who fled stocks in 2009 are concerned with missing out on today's big gains. History tells us to expect them to begin to flood back in just as things go south. We still believe that stocks, gold, and silver are all great investments right now, but also expect some notable pullbacks in each over the next few months. That means that we will continue to buy slowly but in smaller quantities than normal. We are also keeping a big percentage of our portfolio in cash, keeping it available to start buying when prices pullback.

    In site related news, we are excited about some new articles this week for new investors. What would we do if we were getting started with $1000, $5000, or $10,000 today? We wrote articles detailing our moves in each situation. Also, don't let any more time pass before you read our newest resource recommendation.

    The Dow (NYSEARCA:DIA) gained 1.5% or 237 points for the week, closing at 16,302.77.

    The S&P 500 (NYSEARCA:SPY) gained 1.4% or 25 points for the week, closing at 1866.52.

    The Nasdaq (NASDAQ:QQQ) gained 0.7% or 31 points for the week, closing at 4276.79.

    The Russell 2000 (NYSEARCA:IWM) gained 12 points to 1193.73.

    Gold (NYSEARCA:GLD) closed at $1334.70/oz and Silver (NYSEARCA:SLV) at $20.27/oz, with both taking a notable hit last week. Gold fell around $60 and silver nearly a $1. Gold and silver have benefited from turmoil in Ukraine, but we expect things to cool off as Ukraine fades into the background and stocks continue their rise. As we have said for weeks, we are still looking for one more drop, perhaps even gold declining to $1000 before a longer term rally begins. If you own no physical gold or silver, we consider the current prices to be a very good entry point for long-term investment. We want to reiterate that we are talking about owning physical gold and silver coins and bars, not stocks or ETFs. For information on how to buy gold and silver, please see "How To Buy Gold And Silver."

    Bitcoin is sitting at around $560.17, dropping around $70 for the week. If you have been considering buying Bitcoin, these are some of the lowest prices we have seen since the dramatic price jumps in December of last year. It is also unclear how much further prices could drop as the current slide has shown little sign of stopping at the moment. Caution and small amounts of money are prudent because however things unfold from here, we continue with our view that owning Bitcoin should be equated with buying a lottery ticket. If it becomes "established," it could skyrocket from here, but it could also fail to catch on and crash to $0. For information on how to buy Bitcoin as well as our views on investing in it, please see our article, "How To Buy Bitcoin." For a brief history of Bitcoin, see Market and Meaning 1/31/14.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: We own gold and silver coins and bars and some Bitcoin.

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