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  • Market And Meaning – Week Ending 5/2/14 0 comments
    May 4, 2014 9:57 PM | about stocks: AAPL, FB, GLUU, ASYS, DIA, SPY, 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.

    The Dow reached an all-time high of 16,580.84 this week, but was not able to hold that level to the end of the day on Wednesday. The latest unemployment numbers were announced and the unemployment rate fell from 6.7% to 6.3%. Sounds like great news, but the labor-force participation rate is still at a low 62.8%. These are the lowest levels since the late-1970's.

    There is lots of news globally but Russia and China continue to be the most notable. The news talks of Ukraine but the real story is Russia and Ukraine happens to be the context. The story is a Vladimir Putin that has become increasingly more aggressive. He politically stole Crimea from Ukraine and is now causing major unrest in eastern Ukraine through "pro-Russian militias." In light of this unrest, Russia has called for Ukrainian troops to leave these areas. You heard that right, Russia is telling Ukrainian troops to surrender parts of Ukraine. We said months ago that Putin would not stop with Crimea, but we are still surprised that he is already expanding this quickly.

    China has become very aggressive militarily in southeast Asia, particularly by air and sea. That said, the greatest news out of China is that they may possibly overtake the United States as the largest economy in the world, as soon as this year. This would be the first time the U.S. was not the top economy in the world since we surpassed Great Britain in the late-19th century. This change would not be felt in any particular way initially, but is very symbolic and possibly prophetic.

    Emerging countries already make up more than 40% of the global economy, which means the days of overwhelming U.S. and European dominance are declining. If China overtakes the U.S. (more a question of when than if), they still have plenty of their own problems and challenges to deal with. For example, their economy has grown largely on exports as opposed to a growing Chinese middle class. This means their economy is deeply dependent upon other economies being strong and able to buy their products. For a truly robust economy, they will need much more internal economic growth and development.

    Due to the growing influence of China and other emerging country economies, the U.S. Federal Reserve will likely be unable to raise interest rates for many years to come. Raising interest rates would run the risk of putting more burden on our fragile economy, something the Fed doesn't want with the rest of the world so close on our heels.

    Having the strongest economy in the world is a powerful weapon and tool. The U.S. dollar is a reflection of that. All international trade is done in U.S. dollars and that makes the dollar very strong and important. What if China becomes the largest economy in the world and begins to do more and more trade in Asia without the dollar? Trade agreements that bypass the dollar are already being enacted. While on topic, China is amassing large quantities of gold and being very aggressive against Bitcoin. These are all signs that they have significant plans regarding their currency.

    Back to stocks for a moment, Glu Mobile (NASDAQ:GLUU) reported earnings last week and gave a fantastic report. The numbers were above expectations and future guidance by management was excellent. For a more in-depth look see Glu Story Is Unchanged and Glu Mobile Hits A Home Run.

    What does all of this mean for the investor? The Russian problem, or better put "Putin problem" is one that needs to be watched closely. We don't expect any major developments anytime soon (unless you consider the erosion of Ukraine into Russia major), but do believe larger-scale conflict between the West and Russia will happen at some point. China as the largest global economy will greatly threaten the power of the U.S. dollar and therefore makes owning physical gold and silver a very compelling investment (see more below).

    As for the markets, it is possible the larger correction we have warned of may not come after all (or could happen next week). With some of our favorite stocks down big, we took advantage recently and bough more Glu Mobile (GLUU), Amtech Systems (NASDAQ:ASYS), Apple (NASDAQ:AAPL), and Facebook (NASDAQ:FB) to name a few. As a result, we now have much less of our portfolio in cash. We have some reservations about this since the markets still feel a bit shaky, but we believe the opportunities were worth taking. As always, we encourage you to do your own due diligence when making investing decisions.

    We have an exciting announcement for readers, through a special partnership with PTT Research, our readers can enjoy $500 off a lifetime membership to their service. Check out our review of PTT Research and through the links provided, use discount code "faminvestor" at checkout. The code will only work through the links found in our article.

    In site related news, we have begun collecting key articles written throughout the week and highlighting key quotes from each. This allows our readers to stay up to date on key thoughts and dialogues that are taking place in the investing world. Check them out in our new Current Top Articles section. Also, don't let any more time pass before you read our resource recommendation for Scutify.

    The Dow (NYSEARCA:DIA) gained 0.9% or 151 points for the week, erasing last weeks loses and closing at 16,512.89.

    The S&P 500 (NYSEARCA:SPY) gained 1% or 18 points for the week, closing at 1881.14.

    The Nasdaq (NASDAQ:QQQ) gained 1.2% or 48 points for the week, closing at 4123.90.

    The Russell 2000 (NYSEARCA:IWM) gained 5 points, closing at 1128.80.

    Gold (NYSEARCA:GLD) closed at $1300.40/oz and Silver (NYSEARCA:SLV) at $19.44/oz. with both up a bit for the week, thanks to a large spike on Friday morning. Over the last two weeks we discussed a recent gold report regarding the Chinese gold market and its implications on you as an investor. Topics include the eroding position of the U.S. dollar and the possibility of a gold-backed Chinese currency. To read our commentary, see last week's Market and Meaning.

    Our opinion on gold and silver holds firm. As we have said for weeks, we are still looking for one more big drop, perhaps even gold declining to $1000 and silver as far as $16 before a longer term rally begins. We are waiting for these price drops before we buy anymore gold or silver. Our general time frame is May/June, but that is being held rather loosely. That said, if we did not own any physical gold or silver, we would consider the current prices to be a very good entry point for long-term investment. It is important 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 $438.04, down around $20 from last weekend. The price dropped last week when the Chinese government cracked down further on the use of Bitcoin. This is where our commentary on gold mixes with that of Bitcoin. China appears to be making clear moves to protect and strengthen their currency, from buying huge quantities of gold to fearing the idea of Bitcoin gaining greater market share. These are not to be alarmist comments, but worthy of note.

    We are officially buyers of Bitcoin when at or around $500 and especially when closer to $400. The Bitcoin price chart shows that prices are currently toward the bottom end of the price range. We intend to have Bitcoin make up approximately 1-2% of our overall portfolio of investment so when prices drop like they currently have we spend more "lottery money" on Bitcoin, buying some fractional amounts. 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. 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."

    Disclosure: I am long GLUU, ASYS, FB, AAPL.

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

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