US MARKETS
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You may have noticed that oil and gold prices did not respond one iota to all the madness in Georgia and Southern Ossetia. This shows you in spades that gold prices are being suppressed by the cartel, and that oil prices are not driven by news, but rather, the news is used as a pretext for big oil to move oil prices to levels, which they have predetermined in advance. After all, the Illuminati control both the events themselves, and the news coverage about those events. They can push gold down all they want, but it will bounce right back up again because the fundamentals demand it.
In spite of some spectacular one-day gains in the market, which are very common in a bear market what we are witnessing is ongoing de-leveraging. That is why the “Working Group on Financial Markets” is having such a difficult time keeping the stock market up. That is why commodities and precious metals (PM’s) have had such a quick move to the downside. Stocks, bonds, commodities and PM’s with gains have been sold to cover losses elsewhere. Markets are changing gears. This has nothing to do with the issues and their values and everything to do with de-leveraging. Lenders have cut back in a major way and the amount of speculative funds available has diminished in a big way. This isn’t a bust in all the above, it is a correction in everything. The only areas of relative strength are stocks and the dollar and that is because they are being manipulated by our government.
The dynamics are changing. We may be headed back to market normality. A market in which the antics of the PPT would stick out like a sore thumb; where no one professional or otherwise will have any doubt what the elitists in our government are up too. The speculative bubble has burst and a new game is in play. A game of value. The decline in speculation has already seen formerly market neutral strategies foundering. The results at hedge funds have been dismal, victims of wild volatility and creeping illiquidity. The easy days of leveraged spread trades, such as borrowing cheaply and lending at higher levels has become more difficult. All world markets are performing poorly so making successful bets on the long side of the market gets more difficult. That brought about spread trades, long commodities and short financials. That was for specs a trade made in heaven. Both sides were enormously profitable. At the same time everyone was short the dollar – another sure fire winner. The specs were almost all drawn to the same trades. When they exited you saw the results of falling commodity and PM prices and rising prices in the financials. About that juncture, because of further pending bad news, the Treasury and other central banks decided to take the dollar back up if only for the short term. That caused some bullish short covering that drove the USDX from 71.77 to today’s levels close to 76. The results of all this is we have seen massive de-leveraging that has probably not as yet been completed. Now that we better understand what has transpired we are in a better position to deal with it. What is important is that we can see that the stock market and particularly the financials will remain under downward pressure. The dollar’s strength will soon dissipate and commodities and PMs will resume their upward bull markets. Leveraged speculation did play a strong role in commodities price gains, but the basic gains in this venue were due to exceptionally bullish fundamentals that are still strongly in place.
The extreme market volatility in all markets has made trading conditions next to chaotic. The worst volatility that we’ve seen in 48 years. All we are seeing in stocks and the dollar are melt- up bear market rallies.
What most investors do not consider because they are not involved in all markets is that agency debt is under severe pressure as are Treasuries and MBS spreads which have widened, while global bond prices have offered little performance help. Corporate debt has performed poorly and junk bonds even worse. Mortgage related derivatives are in the tank and the municipal market is almost frozen. The gains in financial stocks peaked a week ago. The short covering rally is over.
Earnings reports are fair to poor and they are going to get worse as corporations scramble to pass on increased costs to the consumer. Tightened credit is going to make life miserable for corporations, small businesses and consumers. That will grind on the stock market in a major way. Fannie is not making any more subprime and ALT-A loans, not just because of the risk, but because they do not have the funds to do so. It’s 20% down and good credit or you do not get loan. Both Fannie and Freddie are no longer lenders of last resort. This will further depress an already deeply depressed housing market.
There has been a significant unwinding of short positions and for the time being it has probably exhausted itself. Commodities and PMs have been oversold, but the stock market hasn’t been. Nor has the dollar as yet felt the sting of de-leveraging. At the end of the year expect major hedge fund redemptions, which could wreck havoc on the stock market right after the November election. Commodities and gold and silver have already had their correction. It is time to set new positions in the biggest gold and silver bull market in history.
Over the past 37 years since gold was abandoned and the dollar became a fiat currency, every time the economy got into trouble interest rates were lowered and the supply of money and credit was increased. We believe this time it is going to be different. The banking system is broke and on its knees. A scenario far different than any of the previous crisis situations. Banks cannot lend support because half of them are broke and the other half is trying to shore up their balance sheets. Of course, the Fed could go for broke by lowering interest rates to 1% and increasing the supply of money and credit by 30%. We expect they will eventually do that in desperation. That would collapse the dollar, bring 25% plus inflation, much higher gold, silver and commodity prices and a collapsing dollar and stock and bond markets. The only question we have is when will the Fed go to the next level? We can envision the Fed supplying $2 trillion a month to the financial sector.
It could also be that the Fed has lost control. We don’t think they are there just yet. The signal will be when foreigners start selling Treasuries and refuse to buy more without substantially higher interest rates. In that scenario interest rates would rise rapidly in the real market. That would force a rise in the Fed funds rate, which in turn would take the US economy and the world into depression. That would virtually freeze the issuance of credit to business to business and consumers. We are into credit contraction and de-leveraging. This will strangle economic growth and further deflate asset prices. Gold and silver will continue to be the best place to store your value and watch your assets appreciate.
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