Of course, the recent explosion of volatility across the trading world easily can be blamed on the increased volatility in the Middle East. This week’s Israel/ Lebanon rocket hits, the horrific mass executions in Iraq and the terrorist train bombings in India all strike at the heart of what drives crowds: fear and greed.
Today it’s hard to find a placid market. Commodities have regained their mojo, seemingly following their leader: crude oil, which today hit new front month contract highs (by the time this article reaches you, it most likely will see even newer highs). I just saw a chart of nickel, not a commodity I’d normally look at, but its straight up trajectory the past few months caught my eye, and well, it turned out to be a commodity high.
So we believe it’s timely to have spoken with Jim Rogers, the investment guru who forecasted the commodities bull market in his 2004 book “Hot Commodities” (see “Is the commodity bull market overheated?” by Managing Editor Daniel P. Collins). Rogers combats the analysts of Wall Street, pooh-poohing their “bursting commodity bubble” theories. He notes that the real market that is vulnerable is the stock market, and based on recent volatility of that market, he may be right.
In “Volatility takes center stage,” contributing editor Carla M. Bauch speaks with traders and analysts to see what they expect the stock market to do for the rest of 2006. After being close to all-time highs, the market has dropped, regained ground and is dropping again. Even though some earnings reports have been positive, and in some areas, incredible, the market’s footing keeps slipping. Of course, the uncertainty of the U.S. economy, inflation fears and higher oil prices have taken their toll. In fact, the twin deficits, despite the Bush Administration’s rosy projections about the increase in revenues bringing down budget deficit projections (only slightly less than the year before), the hole is deep and grows ever wider.
A true sign to watch is the housing market, which will have a huge impact on how goes the stock market. Recent signs, such as a drop in sales of previously owned homes, don’t bode well for the stock market. So where do investors go?
A few months ago I was playing “Star Wars Monopoly” with a friend’s 10-year-old son. I thought I was cleverly winning by buying everything I landed on, teaching him the brilliance of Donald Trump by mortgaging what I had in some instances to buy more, while he passed up most opportunities and settled on the Star Ships. As he started collecting more and more money from me on the Star Ships (and I had to mortgage more to pay up), I hadn’t realized then what these smart kids today must know intrinsically: buy utilities, which are what the Star Ships are in this version of Monopoly. Utilities, so says one analyst, might be the best stock bet.
Which brings us back to commodities, of course, which the utilities sell (ironic with the passing of Ken Lay). As commodities heat up, indicators on what the smart money does in these areas will be ever more important. The Commodity Futures Trading Commission is asking for comments from the public on whether it should alter, or even continue to publish its weekly Commitments of Traders report, which has been a road map for years on what the big players are doing. In an opinion piece (“Wake up! The Commitment of Traders report is under attack!” page 64), two long-time traders provide their view on its importance. No doubt, Jim Rogers would agree.
