A Lesson from Charlie Sheen (about the Stock Market)

Maybe I am a fan of Charlie’s because of his role in the movie Wall Street, which motivated my career in finance. Perhaps it’s the fact that I …

Maybe I am a fan of Charlie’s because of his role in the movie Wall Street, which motivated my career in finance. Perhaps it’s the fact that I have enjoyed his films and his comedy.

I have to admit that Mr. Sheen has been accused of (and is guilty of) actions that I do not approve of or condone, but what I have found interesting is undeniable about the man — he speaks his truth! (As irrational as it may seem or offensive as it may be.)

Oddly, the words of Charlie Sheen have more sincerity than the majority of politicians, and corporate and world leaders. And SOME kind of truth is what this world needs right now.

The lack of straightforward, raw truth we’re seeing in government and the corporate world right now might be one of the reasons the stock market is behaving the way it is, and I don’t want you to get caught up in the "bull" without being informed.

Lost in the Jungle of Information

The recent rally in the stock market has been dubbed the "nothing matters rally" because the market has seemed to get a boost from nothing. In reality things have gotten seemingly worse (housing, sentiment) but none of the news has fazed the market. The headlines can be extremely confusing and even misleading, and the average retail trader has to be experiencing a bit of bewilderment; I know I am.

In fact, the stock market just had its best week in months, shrugging off record highs for oil, elevated food and energy prices, a dead housing market, astronomically high U.S. unemployment, flat wage growth and spotty earnings expansion for the majority of the stocks in the S&P 500.

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That’s in addition to a terrible disaster that is crippling an indebted country and many companies that produce goods there. And by the way, revolution is further destabilizing the Middle East…

To be fair, there are many companies that may flourish in this environment. You see, with global prices (inflation) on the rise (food, metals, etc.), there are companies that will benefit. We have seen the results of these in companies like Potash (POT:NYSE), Mosaic (MOS:NYSE), Caterpillar (CAT:NYSE), Deere & Company (DE:NYSE) and others. Smart Investing Daily has had many of these companies on our radar.

(Investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Sara Nunnally simplify the stock market for you with our easy-to-understand investment articles.)

Other sectors that are seeing support are connected to global technology growth, economization (the cloud) along with wireless communications and infrastructure (transport, electricity and telecom). Global growth and development has created demand for computers, smartphones, hardware and much more, fueling profits for companies like Apple (AAPL:NASDAQ), Google (GOOG:NASDAQ), Skyworks Solutions (SWKS:NASDAQ), and Qualcomm (QCOM:NASDAQ).

The potential problem is that much of the demand is coming from fast-growing "bubbles" in China and other developing nations such as India and Brazil.

But like we experienced here in 2008, what goes up too quickly, can end badly. But no one seems to be bringing this up…
Déjà Vu

Commodity prices, on average, are through the roof, many back at early 2008 levels, and the greenback is still in the toilet. The DXY, which is a popular index that measures the U.S. dollar against other currencies, is also back at early 2008 lows. Not good for us here in the States.

Where is all this inflation coming from?

Several reputable data sources have noted the extreme inflation readings in China. Yesterday MarketWatch noted how inflation in China is spreading across the world affecting prices and perhaps more importantly outsourcing in the country now and for years to come.

To put it simply, we all know that many companies make many of the products that you and I use on a daily basis in China. This is because it has cost so little to manufacture goods there because of cheap labor and materials.

Change is coming my friends; China is no longer the cheapest place to manufacture, which means all those manufacturing cost increases are getting passed back to you and me, leading to even more expensive goods and services — like we need that.

Some also discount the enormity of the situation. In a research note published last year, Euromonitor noted that "China will overtake the USA to become the largest world economy in 2017 and there will be more emerging economies in the top ten economies by 2020 and beyond."

What Do You Do?

In a letter to subscribers last week in WaveStrength Options Weekly, I noted that something has to give. The only catalyst I see for the stock market’s boom is essentially material and food price inflation driven by the largest developing nations. Remember that earnings season starts April 11; I don’t think the market can shrug off financial results.

For now, you can’t fight the tape, so stay long but keep your stop-losses extremely tight. I would hang on to those longer-term insurance puts that you may have and perhaps begin to take profits on your long positions here.

I just wish that the mainstream media would tell the full story (dare I say truth), unedited and unpolished to investors around the world. Things don’t seem to make sense at the moment.

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