“Well, Stanley Ann, This is Another Nice Mess You’ve Gotten Us Into…”

This is some market! The Investors Intelligence survey and the VIX show a total lack of fear in the market. The Russell is trading at 85 times the trailing 12 months earnings 19 times next year’s forecasted earnings. This economy must really be getting ready to take off! Markets are at all time highs, unless you count inflation or look at individual stocks, where the average stock in the NASDAQ is down 24% from its 50 week high and even the average S&P 500 stock is down 8%.

On the other hand, the Middle East is on fire. Iraq is done, the only question is who ends up with what piece. Back in February (I believe) we talked about how Russia could pay us back for the sanctions. My hypothesis was that the way they could best hurt us and help themselves was to stir up trouble in the Middle East.  The best way for them to generate cash is to get oil prices up. This has the added benefit of really screwing up our economy. To make this happen, just ship some extra weapons down there, sit back and wait for the fun to begin!

I have no info that Russia is involved in the current conflict in Iraq, but we know they have been supporting the governments in Syria and Iran. Iran is now talking about getting involved in Iraq (if they aren’t already). Saudi Arabia may well be supporting elements of ISIS and the whole thing could turn into a proxy war between the two. If Iran wants to gain an advantage, sending some Hezbollah members to Saudi to work on their pipelines could be just the ticket. Of course there is always the defenseless Kuwait if you are looking to drive prices up and distract people. (BTW, there are reports now of Russian tanks in the Ukraine. Whatever happened to the Ukraine? That story got dropped faster than, well Fast and Furious (or the VA, IRS, Benghazi…). We also predicted this…

Yes, more domestic production and Keystone would help, but they are not magic bullets. Easing off on some EPA regulations would be faster and more useful. A note, saying this means that I want unchecked pollution in the country is a straw man, let’s talk about tradeoffs like adults.

Maybe this all blows over, maybe it is no big deal, but these types of events are unpredictable. Right now there is a ton of risk in this market that is not (in my opinion) being priced in. Be careful! To learn more, check out today’s show!

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June 2, 2014: GLD Straddle Update

If you are following the GLD trade from the 5/17/2014 show, it is currently up about 30%.  Not bad for a couple of weeks’ work, so position is being closed. GLD is entering a demand zone, so we might see a bounce here. That said, overall trajectory still looks down.