Yesterday’s 228-point Drop; Why I’m Not Too Worried

There’s so much going on in the world today…so much to tell my readers…and I believe it all boils down to one opportunity for investors.

This morning we wake to hear the terrible news of an 8.9-magnitude earthquake hitting Japan. It’s Japan’s biggest quake in 140 years and it has unleashed tsunami warnings. Japan stocks were down 1.7% yesterday before the main exchange was closed to the earthquake. This morning, futures on Japanese stocks are down another 2.0%.

Where will these worried Japanese investors park their cash now? Conservative investors will run to the security of U.S. Treasuries (pushing yields down), while the more risk-loving investors will go for U.S. stocks.

The civil unrest in the Middle East continues. The largest economy in the Middle East is Saudi Arabia and unrest among anti-government demonstrators is growing there each passing day. The Saudi Tadawul stock index has fallen nine percent in only two months.

Where will these worried Middle East investors park their cash now? Conservative investors will run to the security of U.S. Treasuries (pushing yields down), while the more risk-loving investors will go for U.S. stocks.

China reported this morning that its consumer prices rose a whopping 4.9% in February. The Shanghai Composite has been declining, as investors fear that rapid inflation will continue pushing interest rates higher. In February, the People’s Bank of China raised interest rates for the third consecutive time in four months. But more rate hikes are needed to cool that economy.

Where will these worried Chinese investors park their cash now? Conservative investors will run to the security of U.S. Treasuries (pushing yields down), while the more risk-loving investors will go for U.S. stocks.

Hence, when I look at the 228-point drop by the Dow Jones Industrial Average yesterday, I see two things: investors taking some profits off the table and a market that doesn’t like a rising greenback. Investors are too quick to forget the same thing happened last spring. Some European countries encountered debt problems and investors ran to U.S. Treasuries, the U.S. dollar rose in value, and we started experiencing mini-market crashes as stocks adjusted to the stronger greenback. Same thing is happening now.

But I’m not throwing in the towel on the bear market rally just yet. In fact, I see the market weakness and the temporary strength in the U.S. dollar as an opportunity to accumulate quality gold-producing stocks at what I see as bargain prices.

Michael’s Personal Notes:

There are records and there are records…but this one is a doozy.

According to the U.S. Treasury Department, the U.S. government experienced a record $222.5-billion shortfall in February of this year. That means the government incurred…

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