Just how far down the rabbit hole can we go? A deeper analysis between the first quarter's price action for 2013 and 2014 reveals some shocking discrepancies. Last year, the S&P 500 scored a total upside gain of 7.3% in Q1, with a little noise in late February bringing in a temporary -2.8% correction. This year, total upside so far has been limited to 2%, whereas the correction that was experienced in late January resulted in a 5.6% correction. In essence, the risk in the current market has doubled, whereas the reward has slowed by a factor of three. So the question that everybody should be asking is, who the hell wants to absorb greater risk for less reward, and at a premium of plus-21 percent?
Not too many, judging from the price of gold, which has been making headlines in recent weeks. The yellow metal is now trading above the all important $1,350 technical threshold, a price point that analysts agreed must be taken out in order to confirm sustainability for another bull run. Last year, its first quarter price action resulted in a loss of -5.2%. This year, gold is up nearly 12%, an astonishing turnaround that can only be explained by over-riding fundamentals. During the precious metals' parabolic move to record heights, investors flocked to the safety net of hard assets to counter inflationary concerns that were as relevant back then as they are today. This time around, it's the fear of global instability as the Russian bear rears its ugly head, causing German chancellor Angela Merkel to question Vladimir Putin's mental state, in a conversation with U.S. President Barack Obama.
Moving forward into next week, the theme will be risk management : the referendum proposed by the Crimean government to be annexed into Russia has a deadline of Sunday, March 16th, but is wholly rejected by the international community. While there could be some upside if the referendum is passed peacefully, this geopolitical event is a cinder box waiting to explode.