Posted on Tuesday, December 4th, 2012 | In Market Commentary
Shhhhh. Don’t let the market know, but there’s more reason to worry this morning.
Today’s news falls under the same, growing category of fiscal cliff fallout.
“Manufacturing in the U.S. unexpectedly contracted in November as orders dropped to a three-month low and exports slowed” Bloomberg reports.
Why the added emphasis on this otherwise mundane report? Let’s have a look…
Whether or not the bush-era tax cuts are eradicated and we descend from the fiscal cliff, there are decisions being made RIGHT NOW that take into account a world with less disposable income.
You see, manufacturers, much like individuals planning for retirement or savings, are beginning to plan for next year. And with less perceived money flowing from the wallets of Americans in 2013, some manufacturers are pulling back.
Yesterday’s survey from the Institute of Supply Management (ISM) is our first shred of hard proof. The ISM report compiles data from top manufacturing company managers. And yesterday’s ticker read-out was the lowest it has been since summer of 2009.
In short, this data signals a slow-down in overall manufacturing. And the reason for the slowdown was stated in plain words: “Respondents [to the ISM survey] said fiscal cliff fears are weighing on business investment and hitting manufacturers” CNN Money reports.
File that tidbit away, dear reader: fiscal cliff expectations are pilfering fuel from American manufacturers.
There’s likely more to come, too.
Checking back in on the markets, the Dow Jones Industrial Average is a mere 85 points lower than it was on November 6th (back when no one knew the outcome of the election.) Today with Obama perched for a second term and Americans staring down the barrel of “taxageddon”, there simply isn’t enough downside built in!
Who knows, maybe I’ll eat some crow when the smoke clears in mid-January. But right the fundamentals just don’t add up.
That said, let’s cover a few more ways to protect yourself in the face of this market downturn.
The Three (Remaining) Best Ways To Protect And Grow Your Wealth
Yesterday we discussed two of our best investment options – in particular America’s new bounty of oil and gas. Today let’s get to brass tacks and hit three more ways to traverse the fiscal cliff!
You may not be surprised to hear me say gold and silver are the next two items that should be on your radar in the next 45 days (heck, they should always be on your radar!) In that 45-day timeframe, though, I believe we’re going to see, at least, the start of a great buying opportunity for both metals.
Gold holds support right now above $1,700, but even the Midas metal will endure a haircut if the fiscal crap starts to hit the fan. Same goes for silver above $33.
What’s the 45-day metal forecast? Hear me out…
Recall, back in 2008-2009 you couldn’t get away from the “flight to safety” trade and the “fear” trade.
Flight to safety pertains to a proverbial “run for the exits!” mentality. This trade has investors fleeing equities and commodities and heading towards bonds and dollars. It’s the exact scenario that played out at the end of 2008.
Also, beginning at the tail end of 2008, there was the fear trade. Once government stimulus spending cranked up, fears of inflation sparked renewed interest in precious metals. This is what fueled gold from a low around $750 (in November 2008) to a high over $1,900 in 2011.
With potential fiscal cliff fallout in our future, we could soon see a redux of both trades. Luckily we’ve got our 2008 playbook in hand, so we can take advantage of any pullback.
If we see fiscal fallout in the next month, surely the overall market along with commodities could take a hit (albeit on a much smaller scale than in 2008.) We could see gold head towards $1,500 and silver under $30.
But don’t expect those bargain prices to stay long. Let’s use what we learned in 2008 to your advantage and pick up some metal on the cheap. This is trading-101 stuff, but it could be a great payout if we play our cards right.
Gold and silver always remain a buy – it just depends what sticker price you want to pay.
Don’t Forget The Powder!
I hate fiat currency as much as the next guy, don’t get me wrong.
But in today’s market – with the Dow off less than 100 points from its pre-election prices – there’s good reason to keep an eye on the downside.
Also, as you may know, I like to keep you up to speed with what I do in my own portfolio.
Well, recently, I set a little investment cash on the sidelines. I scrubbed my d-list portfolio and cut back where I could. The point being, right now I’m sitting on, say, 20% cash. That’s normally money that I wouldn’t dare take out of inflation-protecting hard assets. But today’s market fundamentals are warranting a little outside of the box thinking.
It’s a win/win if you ask me. If the market shrugs off the fiscal cliff and America continues its energy renaissance, we’ll still be positioned to play it.
But if the market does take a 10% dip – you know, a month of blaring headlines about congress, massive tax hikes, worse-case-scenario talk, impromptu government action – then (then!) we’ll have some spending money on bargain assets.
Stay tuned. When something goes on sale you’ll be the first to know.
Keep your boots muddy,
Original article posted on Daily Resource Hunter
About The Daily Reckoning (http://dailyreckoning.com)
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also the author of the free daily e-mail The Daily Reckoning. Written in a wry, witty and often irreverent manner, The Daily Reckoning has offered its over 500,000 readers insights and advice not offered by today's mainstream media. The DR looks at the economic world-at-large and offers its major players - investors, politicians, economists and the average consumer - some much-needed constructive criticism.