Tag: "fiat money"

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.