Today is traditionally known as “Black Friday” in the retail industry for a number of reasons. Traditionally, it was the day after Thanksgiving when many retailers actually crossed into the black, meaning they became profitable for the year. More commonly, retailers and shoppers refer to the day after Thanksgiving as “Black Friday” because of the madness at store locations where door busters, huge crowds, and short tempers make for a chaotic shopping experience.
This year we may face fewer shoppers than we have traditionally seen, due to lingering unemployment, an economy likely to still be in recession (or only recently beginning to show signs of recovery) and a level of wealth that is diminished from last year. However, we may still end up with a significantly “black” Friday as far as the markets are concerned.
Most US investors were unaware of the carnage that was sweeping world markets yesterday as we all binged on turkey and remembered to be thankful. However, the European markets along with many other international markets were down more than 2% as Dubai rocked the international sense of economic improvement. Dubai World is a sovereign wealth fund which has huge liabilities related to its leveraged investment. On Thursday, the country announced that it would seek arrangements to delay the repayment of a good portion of its debt. This has caused quite a stir in the international community and brings liquidity questions into play.
As I write, the US pre-market futures are pointing to a negative open of about 3%. While a drop of that magnitude is not extremely concerning, it should be noted that markets are likely very susceptible to a sustained decline, due to rich valuations in equities, and generally bullish pricing trends on securities across many asset classes. Sometimes it only takes a small catalyst to shift sentiment enough to completely reverse the trend. In today’s markets, there is enough dry powder which could lead to a morally bruising market decline, and Dubai’s news could be just the spark to set off the explosion.
US markets will only be open a half day today with the majority of the country still in celebration (or shopping) mode. That leaves trading desks largely full of rookies whose trading decisions are fairly unpredictable. If these managers begin to panic with losses mounting, selling could begin in earnest shortly after the 9:30 open. If this happens, there will be very little liquidity in the market to support prices and the declines could quickly accelerate. I’m not predicting this to be the most likely outcome, but investors should at least understand that this is a possibility.
With equities largely pricing in a full fledged economic recovery, stocks holding multiples that imply significant growth, and short-term treasuries at levels that are simply unsustainable, there are few safe places to hide. We have been recommending purchases of precious metals for quite some time, but it now looks like gold may e a bit extended on a short-term basis, and while silver may have a long way to run, it will likely experience a temporary pullback if the markets decline.
So please keep your capital safe and wait patiently for buying opportunities. I wouldn’t plow any capital into growth positions today or next week, even if the prices drop significantly. The market will need to take some time to adjust to the declines and buying opportunities should only be pursued after careful thought and deliberation. So keep the defense on the field and watch out for the dreaded “Black Friday” 
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