Pretzel Logic

Gaza War: Expect a Spike in Oil, Gold

Regarding "Higher oil prices will be the death knell for the recent modest rally in global stock markets and the impact of higher energy costs " -- if you overlay a chart of oil and the SPX, you will see that the two have been moving in tandem for several months. Modestly higher oil prices would be bullish for equities, not bearish. I expect oil to rally to $65-85 before crashing to new lows on its next downleg.

Gold lost its luster as a war safe-haven when Russia invaded Georgia (look at a GC chart if you missed it). I doubt most investors have forgotten that lesson this soon. I expect gold to see the $600's before it sees the $1000's again.

36 Opportunities for the Beginning of the Bull

There are problems with trying to catch falling knives at this point.

1) The markets are overly unstable, as the 300-700 daily point swings illustrate. We run the real risk of a crash.

2) The fundemental conditions are not anything most of us have seen in our lifetimes. Maybe everyone is RIGHT to be fearful. Contrarian indicators generally only work to confirm other indicators. They are virtually useless on their own, because the levels of bullish/bearishness are all relative. As an example: It may seem high when 50% of the people are bearish, relative to the 20% who were 2 months ago... but it will turn out that 98% will be bearish at the REAL bottom -- which makes the 50% seem low. There's just no way to know where you are in that cycle, except by hindsight.

3) There is a risk of systemic meltdown. This would obviously be exceedingly bearish.

4) The hedge funds are facing extremely high redemptions, and may be forced to continue selling.

5) The market anticipates the future. The future 6-9 months ahead looks worse, not better.

All in all, I have considered trying to bottom pick, but decided against it. Bottom picking implies a bottom -- and I'm not convinced we're there yet. Stocks are still not cheap by historical standards.

I would rather miss the exact bottom by a few percent than be way too early and lose dozens of percent.