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Defensive Stocks for Quick Trades as Crisis Looms

NEW YORK (TheStreet) -- Friday, June 1, 2012 will go down in stock market history as another deep pothole on the road to a crisis showdown that will make way for more economic stimulation and massive monetary easing.

The Dow Jones Industrial Average, consisting of the bluest of the blue-chip stocks is now in the minus column for 2012.

In case you were vacationing on Friday, the employment data (new jobs created) looks as exciting as a race among giant tortoises.

Europe is a continent up to its ears in financial crisis and mountains of unpaid debt with little hope for a quick fix.

Reuters posted the following quotes: "This puts the Fed firmly in play and they will likely feel compelled to respond," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York, after data on Friday showed U.S. job growth in May was the weakest in a year.

"The missing ingredient preventing the Fed from action had been the equity market, but now we are seeing it softening," Porcelli said. "Equities are falling and that was the last hurdle for Fed policy action because all the other criteria have been met."

So that helps explain why precious metals stocks exploded to the upside Friday, with companies like Goldcorp (GG - Get Report) surging 9%, IAMgold (IAG - Get Report) up 9% and Kinross Gold (KGC) up over 7%.

The worldwide financial caldron and the spreading economic influenza are beginning to drive speculators and sophisticated traders into precious metals contracts as well as big direct purchases of gold and silver.

This is what some call the "inflation trade". What it correlates to is the idea that the world's major governments and their central banks are about to step on the accelerator.

What accelerator am I referring to? It's the one that spews out hundreds of billions of dollars in added monetary liquidity. The perceived result is that the buying power of the world's major paper currencies will be or is already decreasing.

Another way of saying this is that investors are plunging into gold and silver contracts anticipating an inflationary scenario that looked much more probable on Friday.
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XLV $69.98 -0.30%
GG $19.12 -1.90%
JNJ $112.72 -0.03%
IAG $3.20 -4.30%
PFE $33.71 2.80%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.43 -18.00 -0.86%
NASDAQ 4,763.2240 -54.37 -1.13%

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