Category: General Stock Markets
What (nearly) killed the markets today?
A nearly 1000 point drop in the DOW. Gold up nearly $30. What does is all mean? Well, that depends on who you ask at this hour. MSM news outlets are claiming a computer glitch or a mistake made when entering a trade. Others claim the markets are simply catching wind of just how serious of a problem exists in the currency markets with the sovereign debt problems in Greece and the Euro zone. Still others blame HFT - High Frequency Trading – that simply got caught without a negative feedback loop, ala the 1987 crash.
Whatever the reason, one thing is certain. Market sentiment is sure to have changed. All the spin that has been engineered by the MSM and PTB over the last year was undone in one, 60 minute roller coaster ride on Wall St. If nothing else was evident today, it is clear that someone – be it millions of individual someones – or a few computer programmers in the glass houses of the big investment banks – has a hair trigger when it comes to exiting the markets. That was on display for all investors to see today, and now people know that they can lose thousands of dollars in the blink of an eye. Investors now will have their finger hovering over the mouse clicker or on the speed dial number of their broker. “Sell NOW!” is on their minds.
18 months is not long enough for investors to have forgotten the pain that the market dive in late 08 and early 09 brought them. They saw their financial life pass before their eyes. Many were late to “get back in” and have recovered only a fraction of their losses. They will not stand by this time and watch the rest of it slip away. The question is, where will they go? If today’s market action did nothing else, it served to reveal in a 3 hour period where money will flow when the next down leg gains momentum (tomorrow and Monday will tell us if that is now). Places to be: US Treasuries, the US dollar, gold and silver and their equities. Nearly everything else got thrashed today.
Let’s look at these one by one. US Treasuries will be a safe haven only for a short period of time. That period could be days or months, depending on how quickly things unravel. Eventually, they too will join the list of asset classes doomed to fall. Ditto for the US dollar. In the game of cascading currency defaults, even the last man standing (which will NOT be the US dollar) will fall.
Now to gold and silver. Today they showed their metal (no pun intended). Gold was firm all day long, steadily catching a bid in the face of major market turmoil. Silver was noteworthy due to its lack of volatility. This is the opposite of what happened in late 08/09′ when they both got crushed with the markets. Why? I have given this some thought, and in 08/09, the markets were under pressure because the financial system was failing. Now, however the actual “money” itself is failing. Big, big, big (did I say big?) difference. This is a trend that will continue throughout the remainder of this crisis, until our current fiat empire is replaced by something else.
And what about energy and other “hard” assets? Well, you saw that they will likely receive the same treatment – at least in the short term – as most other asset classes. The fear of “demand destruction” will outweigh the flight to tangible assets in the early stages. That simply means that energy and other hard assets will be great investment opportunities after the first wave of selling subsides. It will take some wisdom to know when to enter those markets.
If the markets somehow gather themselves tomorrow and are able to put this horror show behind them. It will only be temporary. Gold may pull back slightly, however people now know what to expect. More and more people will begin to accumulate precious metals and their shares. Even Larry Kudlow remarked today “Gold is now the world’s reserve currency. Amazing.” Not for those who have been watching this unfold for the past 3 to 5 years. Not for the Austrian economists. Not for those who read and study history. And last but not least, not for those who read and study their Bible.
Buckle up everyone. The next few days will be very telling. Let’s see how the overseas markets view today’s action.
View PostThe coming second wave…
For those who believe the economic crisis is over, I have a reality check here.
- Unemployment is above 17% according to government figures (see U6, not the touted U3 number) and nearly 22% if it were calculated using methodology used before 1994. Source Shadow Stats. Yes unemployment is generally a lagging indicator, however we are not in a normal business cycle here. This is a deleveraging cycle, and the two are very different.
- Social Security is due to go into the red in 2010 (meaning it will contribute to budget deficits, not lower them). Source “Gary North/Lew Rockwell.
- Commercial loan losses are just beginning to be felt in the financial sector. Source: Seeking Alpha, Wall St. Journal.
- Christmas sales are running under last year’s dismal numbers. The consumer (70% of GDP) is tapped out and pulling in the horns as they stave off personal bankruptcy and credit card default. Source: Gallup.
- Dubai’s debt default (technically anyhow it was a default) shows continued stress in the system.
- Then, there is this chart.
We are moving headlong into the next wave of mortgage resets. It took a full year into the first wave before the crisis hit the banks. So far, interest rates are low and the resets are hurting but not devastating. This chart is a major reason that the Fed will keep rates low for at least another year. At least they will try. Contrary to popular opinion, the bond market controls mortgage rates, not the Fed. What happens if the dollar continues to slide (it will) and the bond market demands higher rates for holding US treasuries (they will)? You’ve got it. Mortgage crisis II, only this time from an economic baseline much lower and more fragile than it was during the first wave.
If the economy were truly on the mend, the Fed would be talking about raising rates and a real exit strategy for all the liquidity they have pumped into the system. Remember when we were told by the Fed that the taxpayer would make a profit on the Fed buying these assets and selling them back to the banks at a profit? Their exit strategy should be to sell those assets back to the banks and get them off the Fed’s books, in turn receiving back the cash they lent out. That is how money is drained from the system.
However, recently they announced their “exit strategy” is to perform a reverse repo. What this means is that they will sell their toxic assets for cash, thus “draining” that cash from the banking system. But wait. That’s not all. The reverse repo means they also agree to buy that asset back at a future date for more than they paid for it. Say again? Source: Financial Times
Yep. That’s right. This is a shell game combined with a game of hot potato. Follow the ‘taters.
1) Toxic assets (the ‘taters) are bought by the Fed for cash in late 2008 to stave off a banking system collapse.
2) Those assets are held on Fed’s books while banks supposedly repair their balance sheets.
3) Rather than the banks buying the ‘taters back at par or greater, making a profit for the taxpayer (who believed that?), they are being re-sold by the Fed back to the banks with an agreement for the Fed to buy them back later at a higher price, thus making a profit for the banks, and sticking the taxpayer with the ‘tatters once again.
Sick isn’t it. If anyone thinks this financial crisis is over, they are not watching what the Fed is doing. The toxic assets they bought are more toxic now than they were a year ago. They will never return to a state of health and at some point the ‘taters will have to be dealt with. IF this game can buy the Fed more time, then that is all it will buy them. There is no way out of this bankrupt mess. But the time bought will allow them to concoct a plan to further enrich the banking system while putting into place the follow up for whatever is left of our national currency.
Obama declared a few weeks ago that there is risk of a double dip recession. Also, the Federal Reserve has recently began to increase the Fed’s monetary base further, (despite their jawboning about an “exit strategy” – see above) following a pause following last fall and winter’s unprecedented doubling of the monetary base. At the same time, they are saying that substantial downside risks remain and interest rates are going to be held low for a considerable period. Why? The answers are above. We are moving headlong into the next financial crisis and this time it will include not just the financial markets, but the bond and currency markets as well. Gold’s rise to well over $1,000/oz is telling us the transition from a credit crisis to a currency crisis is well under way.
Do not be fooled. Be prepared. God, gold, grub and guns. I never thought I’d post that, but that’s what I see.
A dose of reality?
The fact is, government officials do not tell the truth or they are very incompetent (or both you might say).
Here is the propaganda put forth during the early 30′s regarding the aftermath of the credit collapse in 29′. Sadly you are hearing the same things today. Even more sad is the likely hood that we will see a repeat of 30-37′. Only I firmly believe we will be looking at entering the depression from the other end of the spectrum – hyperinflation vs. hyperdeflation.
A lot of intervention in the dollar today. This is a big week.
Quotes from the great depression
September 1929
“There is no cause to worry. The high tide of prosperity will continue.” — Andrew W. Mellon, Secretary of the Treasury.
October 14, 1929
“Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board.” — New York Times
December 5, 1929
“The Government’s business is in sound condition.” — Andrew W. Mellon, Secretary of the Treasury
December 28, 1929
“Maintenance of a general high level of business in the United States during December was reviewed today by Robert P. Lamont, Secretary of Commerce, as an indication that American industry had reached a point where a break in New York stock prices does not necessarily mean a national depression.” — Associated Press dispatch.
January 13, 1930
January 21, 1930
“Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said the reports to the Cabinet showed the tide of employment had changed in the right direction.” – News dispatch from Washington.
January 24, 1930
“Trade recovery now complete President told. Business survey conference reports industry has progressed by own power. No Stimulants Needed! Progress in all lines by the early spring forecast.” – New York Herald Tribune.
March 8, 1930
“President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days.” – Washington Dispatch.
May 1, 1930
“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity.” – President Hoover
June 29, 1930
“The worst is over without a doubt.” – James J. Davis, Secretary of Labor.
August 29, 1930
“American labor may now look to the future with confidence.” – James J. Davis, Secretary of Labor.
September 12, 1930
“We have hit bottom and are on the upswing.” – James J. Davis, Secretary of Labor.
October 16, 1930
“Looking to the future I see in the further acceleration of science continuous jobs for our workers. Science will cure unemployment.” – Charles M. Schwab.
October 20, 1930
“President Hoover today designated Robert W. Lamont, Secretary of Commerce, as chairman of the President’s special committee on unemployment.” – Washington dispatch.
October 21, 1930
“President Hoover has summoned Colonel Arthur Woods to help place 2,500,000 persons back to work this winter.” - Washington Dispatch
November 1930
“I see no reason why 1931 should not be an extremely good year.” – Alfred P. Sloan, Jr., General Motors Co.
January 20, 1931
“The country is not in good condition.” – Calvin Coolidge.
June 9, 1931
“The depression has ended.” – Dr. Julius Klein, Assistant Secretary of Commerce.
Walking with calm through the coming storm.
It is a comfort to many to see the DOW stretching for the 10,000 mark. To be sure, in normal economic times the stock market is the barometer of the overall health of the economy and this milestone would mark a significant milestone in our recovery.
We do not live in normal times.
The article referenced in my last post entitled “The Demise of the Dollar” has caused quite a stir internationally. It is one of the most widely analyzed articles on the topic of the dollar that has been written in many months if not years. Granted, it is thinly sourced, however that is the nature of how early dissemination of information of this sort works. If this information were highly and tightly sourced, it would have literally brought the dollar down by 10% or more within days.
With the U.S. economic problems, our government’s looming bankruptcy and the Fed’s policy of free money, the rest of the world (ROW) is getting fed up with playing the game of “all is well.” It is becoming obvious to the citizens of most other nations (except ourselves) that the U.S. is in irreversible decline. It has gotten to the point that the PTB must defend the “common stock” of the United States – the U.S. dollar by attempting to manage its decent. Releasing an article that touches a very tender spot in the U.S. dollar market (it’s petro dollar status) with a measure of “plausible deny ability,” allows the PTB to use spin to somewhat control what is now a forgone conclusion – the decent of the dollar is going to gain speed. Right now, it is in all nation’s best interests to see that the dollar does not collapse. Thus they are stepping up their efforts to control the rate of descent.
I suggest that everyone read about England’s transition from global superpower to second tier status. That is where the United States is heading over the next several years. This will be a time of unequaled turmoil in this nation. The realization by “we the people” that the policies of our government and “independent” Fed will cause our standard of living to decline sharply will not be met with cheers. However, as Christians, we should be well down the path of having already taken our eyes off of mammon, worldly possessions and the government as the provider of our security. Those who truly open God’s word and understand the times we are in will be among the first to see the changes coming – and to accept them with open arms.
Life in the United States will not be easy in the coming years. Yet the earlier we voluntarily lower our standard of living and adjust to the “new normal” the better position we will be in to lead others to do the same. The majority of the population will not embrace this change. They will fight it. And that is one variable that will make the coming years more challenging. Challenge however presents opportunities.
I find it interesting that we are likely to be presented with some of the same opportunities and challenges the colonists and our Founding Fathers faced. During the birth of this nation, she was not an economic super power. The citizens were under tyranny from King George III. Yet they found the courage to work to put into place a foundation that would allow for their posterity to have an opportunity to build a great nation.
As man’s institutions fail there will be an opportunity to build a new foundation for our posterity. And while it may seem that because of the sad moral state of this nation, our challenges will be greater than those faced by those who gave birth to this nation, I simply see them as different. Just as then, today it will require wisdom from God to help guide us through the coming storm. It will take patience and perseverance that we have not exercised in generations. But it can be done. It would serve us all to begin right now to prayerfully and intentionally engage in the process of preparing to lay the foundation that will allow this nation to be rebuilt once again – because it is going to need rebuilding. The dollar is telling us that fact loud and clear.
Agenda – Grinding America Down (5 star!)
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