There is a saying among investors that you should never try to catch a falling knife and we are seeing plenty of falling knives right now. In fact what we are seeing is a full scale liquidation of all risk assets – precious metals, commodities and stocks. About the only things going up in price are the US dollar and bond prices.
As these charts of oil, copper, steel and wheat show, the economic reality of rapidly slowing growth and the likelihood of renewed global recession is now weighing heavily on raw materials.
3 Month Chart of Oil
3 Month Chart of Copper
3 Month Chart of Steel
3 Month Chart of Wheat
Back in April I wrote “Stocks will fall 25% in the next 12 months”. Since that time the FTSE 100 index has fallen 16% and the sell off shows little sign of abating. In that article I explained that the countertrend rally that we had seen since the March 2009 low was running out of steam and that after July the market would be “living on borrowed time” and that has proven to be the case.
6 Month Chart of the FTSE
For those of us that have been expecting this sell off there will soon be a time to go bargain hunting, in the meantime however investors should step away from the falling knives. Only when they have hit the floor should you approach them.