This piece was written by Dominic Frisby for Money Morning.
It’s taken the devastating combination of an escalating sovereign debt crisis in Europe, revolution across the Arab world and one of the most horrific natural disasters in modern history to finally take this two-year bull market down, but take it down it has. Until mid-afternoon yesterday, when we saw some welcome respite, this week has seen nothing but inexorable, across-the-board selling. It’s felt like 2008 all over again. It doesn’t matter what you own, quality or not, everything has been sold. The baby has been thrown out with the bath water. Panic has set in.
This is one of those times, if ever there was one, to ‘keep your head when all about you are losing theirs’.
So let’s take a step back and think…
This sell-off started before the Japanese disaster
Historians may well look back and see it differently, but this sell-off began before the Japanese quakes. Emerging markets have been trending down since December last year. Despite new highs in gold and silver, the major gold stocks also made their highs late last year. The DAX, the FTSE, the Dow, the S&P 500 and the Nasdaq all peaked later, around 21 February.
Even uranium stocks, which are down by about 40% in barely two days (!) this week, were trending down a good three weeks before the earthquake hit. In fact only the CRB, the commodities index (which is heavily weighted to oil), was making new highs last week.
It has hugely exacerbated it, yes – it has turned it into something more serious. But the Japanese crisis wasn’t the initial cause of this sell-off.
In fact just last week, the day before the quake, I wrote:
“It could be that this turn down (in the gold-silver ratio) is the beginning of the next phase of the financial crisis. It wouldn’t surprise me. It’s long-overdue and there are bearish signals all over the place. Senior gold stocks have been in a downtrend since late last year, even although gold has been rising. Emerging stock markets have been falling, although their Western counterparts have been rising. And a spike down in the gold:silver ratio often marks a major market turn”.
But this is all academic. We need to recognise the…
