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Published 4PM, March 18, 2014
"Whoever has the gold, makes the rules."
Well in this case, Vladimir Putin owns the gold and is making the rules. Substitute gold for the gas and oil that Russia supplies to most of Europe and you get the picture. The present Putin plan has been under way for many years, I would have to think since 1991 when the Ukraine became an independent nation. It is an audacious plan to pull in all the old Soviet states under the new Soviet Empire.
So what is this going to mean to Europe and the rest of the world?
As a former KGB operative, Putin knows how to play hardball. He perceives Europe and the US as being weakened and not willing to take a military stand against him (he is correct, no one has the stomach for a third World War).
The referendum and annexation of Crimea is a done deal with 96.8% of the vote in favor of falling into the arms of Mother Russia. I cannot see a weakened Europe or America with no foreign policy standing in his way on Crimea. The next logical step, as far as Putin is concerned, is to annex the Ukraine (this all seems to remind me of how Hitler started out when he advanced uninvited into Poland and other countries in Europe). Here we are in a world hobbled by political correctness and restraint as Russia pushes forward to expand its empire once again. The talk of sanctions, freezing assets and all of this other malarkey really has no effect on Putin whatsoever. He is playing for a much bigger prize and one that most Western politicians do not understand. This is not some academic exercise as far as Putin is concerned, it's hardball, take no prisoners, I'm getting what I want, get out of my way.
The politicians here in the US and abroad can huff and puff it up and cite international law, but in the end they lack the street fighting skills of Putin. The reality is, they will do nothing as they do not have any effective counter measures for Putin’s aggressive land grab.
Having established a very shaky and dangerous world environment that we are presently in, how do you plan to protect your capital and avoid a replay of the 2008? Just a little over 5 years ago, we witnessed the market's dramatic decline when investors saw their holdings collapse over 45% in a very short time frame.
This is where it gets to be very interesting and dangerous, as the potential for a catastrophic decline in world markets is very real, in my opinion.
Asia
In China I see an economy that is not doing well and many other Asian indices are teetering closer to the edge to heading lower.
Europe
Over in Europe, which has been addicted to Russian oil and gas, they may symbolically throw up some weak sanctions which will be like water off a duck's back to Putin. I cannot see anything happening over there that is likely to be positive in the months ahead.
North America
Here in the US, we have very little leverage to use against Russia, as overall we do very little business with this country. The continued tapering of the economic polices that are out of touch with the marketplace, and the uncertainty of the outcome from Europe, all hold a ceiling over this market’s head.
Now, let’s take a look at the major markets that can effect your wealth.
Stocks & Indices
The US stock market continues to be choppy, with over 40% of the Dow stocks in downtrends. The key area to watch in the DOW 30 is $16,000 level. Should things heat up in the Ukraine, I expect to see this level taken out to the downside.
Looking at the NASDAQ, should the $4,240 level give way, I would expect to see increased selling pressure coming into this index. Much the same with the S&P 500, with the $1,839 level acting as a trigger point. In the case of the S&P 500 and NASDAQ, these would be early warning signals to seek protection either by buying puts, selling calls, or using one of the inverse ETFs such as:
| ETF Name | Ticker | Benchmark Index |
| Short QQQ | PSQ | Nasdaq 100 | Short Dow 30 | DOG | DJIA |
| Short S&P 500 | SH | S&P 500 |
| Short Mid Cap 400 | MYY | S&P Mid Cap 400 |
| Short Small Cap 600 | SBB | S&P Small Cap 600 |
| Short Russell 2000 | RWM | Russell 2000 |
Remember to always use stops to protect capital, no matter what strategy you use.
Gold
Gold might just be the "canary in a coal mine." Coal miners used to take canaries down in the mine with them to protect themselves from poisonous gases. If the canary died, they would hightail it to the surface for fresh air. Only in this case, gold is pointing out that things aren't exactly great in the world and you may need some traditional insurance in the form of gold in your portfolio.
After peaking in August 2011, the gold market has steadily fallen until it recently made a low in December 2013. I believe that the gold market made a major reversal in 2014 and I expect to see this metal continue to be positive for the balance of the year. The key level of resistance for gold is $1,400 and once over this area I expect to see a move up to $1,600.
You can trade gold using an ETF such as GLD, in futures and options markets, or the interbank market. Whatever instrument you feel more content with, that is the one you should use. Remember to always use sound money management principles to protect capital.
EURO/USD
I believe the Dollar is in a weakened state and I continue to see the Euro move up against the Dollar. I know it sounds rather counter-intuitive, but why would the Euro be going up against the Dollar considering that it is in the same strategic geographic area as Russia? The bottom line is that the trend is for whatever reasons, clearly in favor of the Euro over the US Dollar. The Euro could continue on its positive journey against the Dollar and I would not rule out a move to the 1.4500 area for this pair.
You can trade in the ETF FXE, which mimics the Euro/USD pair, or you can trade in the futures or interbank market.
Crude Oil
One of the strangleholds that Russia holds over Europe is of course its supply of crude and gas to its various customers throughout Europe. I think one of the under-the-radar strategies that is being tried out is trying to push down crude oil prices, which are priced in Dollars, to new lows. The theory behind this move is to put pressure on Russia's cash machine (gas and oil). If that is true, I think it's a fail policy as most attempts historically to control commodity prices have been unsuccessful. I see crude oil prices in a broad trading range between $85 a barrel on the low side and $105 on the upside. You could play this market using futures, options on crude oil, or an ETF such as the USO.
Every success,
Adam Hewison
President, INO.com
Co-Creator, MarketClub
