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Ukraine Collapse, Bad GDP and Home Sales and Emerging Markets Meltdown Can't Stop U.S. Markets from Going Higher

It's über- confusing today as to what the catalyst is for stock surges, or, for that matter, stock drops.


Washington, D.C. -- (ReleaseWire) -- 04/08/2014 --Even with the collapse of Ukraine sovereignty, the U.S. GDP downward revision, which was ugly (they almost cut it in half), and the miss in pending home sales, (also very ugly), the continued meltdown of emerging and frontier markets, the U.S. markets ended up higher this week. Can you believe it? asks Dawn Bennett, CEO of Bennett Group Financial Services.

Go figure, right? It's über- confusing today as to what the catalyst is for stock surges, or, for that matter, stock drops. Are we just missing something somewhere that offers equally compelling position fundamentals to support last week's run-up? No, sorry. We are not seeing any strong, positive fundamentals out there. All we're seeing right now is a highly compressed, speculative market that is completely ignoring the fundamentals, which in simplified terms, means that the market is still completely disconnected from reality.

Now, always remember that investment markets are nothing more than a means of sharing the wealth that companies and countries create, which is why you always have to keep it real. Investors always have to be honest about what's going on when determining when and where to invest. Now, in the medium term and in the long term, remember that real, true-blue fundamentals drive prices, always. Of course, the converse is also true. The lack of strong fundamentals should push everything down. Short-term, we're not seeing that. But medium to long-term, the collapse of the Ukrainian government is not likely to be the last emerging market to begin falling apart.

UBS' George Magnus believes that the next global economic crisis lightning rod will be the emerging markets, and we’re thinking he just might be onto something here. As the emerging market meltdown now seems to be turning into a major global destabilization type of event, look out below or you will be crushed. Ukraine might have been the first to start the emerging markets' domino to topple, but Turkey and Thailand and Nigeria and Venezuela and Argentina aren't far behind, as they're also headed down this dangerous path.

So, who's to blame for all this you've got to be asking? Well the Federal Reserve is; they are the major problem. The Fed drove rates so low and provided too much liquidity, which was used to cover up the problems of both the emerging market economies and the developed market economies, the U.S., Europe and Japan. Since the emerging market outflows are from the popped Fed QE bubble, it's going to start accelerating.

Unfortunately, that acceleration will lead to more political, government and market collapses. Worldwide, a lot of countries and companies borrowed money at ridiculously cheap rates. They've been doing it for the last three years, which is when the Fed started to do all of their quantitative easing and gave too much liquidity to the system. It's been covering up, like a veil, so many of the financial and economic disfigurements and many of their issues. These problems were never addressed in order to fix them. We are now facing a massive mess of a problem. This Fed-made disaster that's taking place worldwide is a direct blowback from ultra-loose Fed monetary po licy.

A problem that encouraged even the legendary value investor Warren Buffett to be sitting now on the single largest amount of cash in the history of his 50 years as an investor. Since Mr. Buffett typically advocates being fully invested, this tells you something important. Also George Soros, another billionaire, was highly hedged with short positions and precious metals to protect himself from the downside that could possibly happen. So, if both Soros and Buffett are trying to set themselves up to protect their holdings at the same time by owning assets that could benefit from a drop, then retail investors should consider it too.

So, we put together some portfolio ideas and some justifications for when looking at a portfolio. Here's the first idea. Both gold and silver are significantly above their 200-day moving average (Source: Bloomberg). They are also a play on monetary instability and central bank monetary policy failure.

My second idea is Japan. I wouldn't be long in their markets. Maybe consider shorting them, because the last time the Bank of Japan raised the Japanese sales tax, the Nikkei fell about 40 perce nt. That happened in June 1997 to October of 1998 and guess what? The Japanese sales tax is going up again from 5 percent to 8 percent, that's a 3 percent hike, this April 2014.

Here's a last idea. Watch the Chinese renminbi very closely. It traded at 6.1450 to the dollar, its lowest value in 10 months (source: Bloomberg).

This may not sound like a big deal, but it is. The renminbi currency is controlled currently by the Chinese central bank, the People's Bank of China.

We're conservative money managers believing in global diversification for worldwide liquidity. We are not people that feel like every dollar needs to be invested at all times. And I also don't buy into a lot of stuff that goes on in the markets nowadays, because it's not running up on true fundamentals. When the medium-term and long-term hits, the true fundamentals are the only thing somebody should value.

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