It’s time to raise cash and position for a general all-out market downturn. It’s unavoidable.

What’s happening is a natural consequence of a couple of factors that have collided or fallen like dominoes, creating a spark that is likely to burn down investment and trading portfolios.

Here’s My Revised Short-Term Perspective:

1) Investors are likely to reduce their allocations to emerging markets in the next few weeks due to: a) MORE declines in commodities prices like silver and gold; b) FURTHER strengthening in the value of the U.S. dollar as the euro weakens; and c) INCREASED profit-taking in high-growth areas (emerging markets) to re-establish their cash positions or meet margin requirements. Basically, the drop in the U.S. dollar relative to other global currencies is probably over for a while—at least through the summer months.

2) I would like to think this would have an immediate positive impact on stocks — but it’s not likely. For the upcoming earnings quarter I expect the impacts of higher oil and commodity prices to start bleeding through to corporate earnings and compressing margins. At the same time the higher dollar will squeeze exporting company revenues. Yes, these are the companies that I have loved and still think so highly of. But let’s face it — no trend goes forward without a pause or, in this case, a slight reversal. This is a healthy correction for a longer-term trend.

3) As a consequence, even the China story will seem to dim for a while with the slower global growth expectations taking hold. Threats of higher interest rates to cool inflation will also reset future stock prices lower.

4) The good news is this sell-in-May-and-go-away strategy will allow us to buy securities cheaper by this fall.

You might be wondering why I am using such colorful language like “burn your portfolio” and “short gold/silver” after having made some winning trades on the long side in emerging markets. Earlier this week I attended the MoneyShow in Las Vegas, where I was invited to participate in an investment panel discussion. I heard a lot of great views and insights on how the market has changed. Yet as I looked around in the vendor area, I realized the rules of supply and demand remain unchanged.

According to the vendors I spoke to, the outlook for silver has never been better. Silver coin sales continue to boom. American Silver Eagle coins sold at a record pace in April 2011, making it the 13th best month for the .999 fine silver coins, and the best-ever April. Sales were 12.4% more than the same period last year.

AND now, you can even borrow against your silver and gold coin holdings; in effect mortgaging real assets. Fundamentally for the lender this could be attractive, depending on underwriting, capital invested and margin criteria.

But think about this: Isn’t the point of owning coins to be free and clear of all demands from banks, governments and even ex-spouses? Why would you leverage something so volatile?

Only one answer comes to mind: Greed and financial speculation.

The unraveling of this debt-fueled spending will be painful. Silver and gold prices are headed lower due to the same speculative forces that drove them higher.

I love to steal stocks that are undiscovered or highly undervalued. Yet with a view that all prices are coming down due to deleveraging, it’s hard to find places to hide.So raise cash and if you are more active read the most recent LSI trading alert for a short term strategy – “Major Moves: 24 Trades for Lower Prices”.

That’s my take on it.

Happy trading!

Rudy

Yes, there were market-leading stocks last week in Latin America including:

• Braskem (NYSE:BAK) +11.9%
• Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NasdaqNM:OMAB) +7.3%
• Vivo Participacoes S.A. (NYSE:VIV) +6.9%
• Coca-Cola Femsa SAB de CV (NYSE:KOF) +6.7%
• Grupo Aeroportuario del Sureste, S.A. de C.V. (NYSE:ASR) +6.4%