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Market Gets ‘Real’ With Huge Dive

By: Rick Ackerman, Rick's Picks


-- Posted Thursday, 16 October 2008 | Digg This ArticleDigg It! | Source: GoldSeek.com

Rick’s Picks

Thursday, October 16, 2008

“Phenomenally accurate forecasts”

  

Anyone who was worried that the stock market had taken leave of its senses should have felt greatly relieved after yesterday’s 733-point drop in the Dow Industrials.  Added to the plunge from the previous day’s fleeting high at the opening, the Indoos have now given back 1264 points of their ill-gotten, 1900-point gain from Monday’s low.  Could it be that Wall Street isn’t so crazy after all?

 

Some have attributed the latest bout of selling to scary numbers from the retail sector, others to the mounting specter of recession-or-worse, or even to the prospect of the left-most member of Congress becoming our next President. But we’d like to think investors are focused on the more immediate, and worrisome, matter of what will happen next week when insurance payments on several hundred billion dollars worth of Lehman default swaps come due. As the Wall Street Journal noted yesterday,  “No one quite knows who owes what and if they’re good for it.”  Indeed. Small wonder, then, that Paulson and Bernanke have been working so feverishly on the final details of their latest handout to the banks -- a $250 billion “injection,” as it is being called. (We will have more to say about this in the days ahead, and if you’d like to receive Rick’s Picks commentary free each day by e-mail, just click here.)

 

$250B Divided by 9

 

The $250 billion will be apportioned among nine banks, and although this sum would have been considered a big number just two months ago, these days it is just pin money -- an indeterminately small, and presumably ineffectual, handout coming from who-knows-where. Our take is that, spread among the nine banks, it won’t be enough to cover even three days’ worth of bad news from the banking sector, much less the psychological cost of buying calmness until Election Day.

 

Some had thought the market’s 1000-point rally the other day signaled a return of confidence that would buoy the markets for another two or three months, We differed, and said the respite would probably last just a day or two. Despite yesterday’s selloff, we’ll give bulls the benefit of the doubt for the time being, since it’s always possible that another monster short-squeeze is lurking to dismember however many bears survived the historical run-up from Friday’s bottom.

 

“Lend, or Else!”

 

On the lending front, Paulson has taken the concept of “pushing on a string” to the threshold of absurdity.  This economic metaphor refers to a condition in which borrowers are too tapped out to borrow, even at relatively low nominal rates. Paulson has warned the banks in no uncertain terms that they will have to start lending out that $250 billion with reckless abandon. But suppose there are no takers? This is what we foresee happening, and perhaps it is yet one more reason why stocks have faded so quickly after their spectacular display of exuberance a couple of days ago.

 

***

 

Survivalist Manifest I

 

We’d like to believe that Rick’s Picks readers are more prepared than most for a truly hellish downturn in the economy.  “Buy ammo!” was the terse message we received from one subscriber. Immediately below is a more thoughtful letter from paid-up subscriber Art Vanden Berg:

 

“…the inflation/deflation debate gives us some perspective on the evolving nature of the beast.  The main argument in favor of deflation was that with all this debt collapsing important money was disappearing, and the ‘rules’ did not allow a printing press solution.  How wrong we were.  They will simply change the rules to allow the Treasury to monetize the bad debt.  That means even though the debt is collapsing due to default, the amount of dollars in circulation (M1, possibly) is actually going to go up by the notional amount of that debt!

 

“And eventually the game will move over to Treasury debt.  Once Paulson &  Co. starts monetizing Treasurys to prevent them from falling, the money supply will go parabolic.  China, Russia, Japan et al. will be sitting on a mountain of dollars that they will rightly suspect they need to spend before the other guys do.

 

Gold, Silver No Good?

 

“But that doesn’t leave much for preparedness, your topic. Gold won’t be any good for exchange because most people don’t know what it is, and because it is far too valuable for day-to-day transactions.  You can dig out old silver coins -- but again, because the population is so uneducated, the average store clerk is going to be hard pressed to understand that it’s legal tender. The clerk will see the words “One Dollar” on Miss Liberty’s flip side, and that’s all she’ll give you for it. What does she know about real money!?

 

“But there are certain items that store well that will always be in demand:  whiskey, cigarettes, canned food, freeze-dried food if you really want to go overboard, and even gasoline if you have room for a tank in your back yard. Just don’t let your neighbors see you stocking up your basement, because the other thing that stores well is ammo, and one thing that doesn’t is foresight.”

***

 

Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com 


-- Posted Thursday, 16 October 2008 | Digg This Article | Source: GoldSeek.com




 



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