Y'all need to understand one thing: I have no crystal ball. So what I say about the US debt downgrade may be right or wrong. I hope it's logical, at least.
Timing was impeccable, after all markets were closed & everyone was trapped, after Europe had begun disintegrating earlier in the week, after the Dow had dropped 500+ points. It appeared that S&P INTENDED to push the crisis over the cliff.
Doesn't really change much, as US government hasn't been creditworthy for some time, but in the America where we elect actors to the presidency, etc., appearance is everything. Thus the debt downgrade has accelerated the decline of confidence and, ultimately of the US dollar.
In the event stocks were hurt worse than anything. US Treasury debt was up across the board, perhaps benefiting from money fleeing stocks, but up nonetheless. Stocks stepped into a bottomless well. Gold jumped an understated $61.40 [sic], & silver couldn't decide whether to rise or fall so finally rose 117.7c.
Most earnest lesson to draw from the sneak-attack debt downgrade is YOU MUST BE POSITIONED BEFORE A CRISIS. Fiddling around trying to buy silver or gold 5% cheaper or sell stocks 5% dearer or eke a little more out of real estate is fatal. Liquidity is everything, & in a crisis, it's more.
And maybe it's just my suspicious nature speaking, but this timing was too perfect to be co-incidental. Someone big, bigger than the NGM, wants to push the world economy into a panic. Surely they have nothing good for you and me on their agenda.
Or let us act like bank-trained economists: surely major inequities lurk yet upon bank, corporate, & government balance sheets and as they are discovered much more economic turmoil will follow.
Or, let me give you the Tennessee rule for avoiding bar-fights: LEAVE THE BAR BEFORE THE FIGHT BEGINS.
I suppose the Nice Government Men around the world, certainly those who work for central banks, have since last Friday evening been feeling like they were flossing their teeth with barbed wire: stem the tide of euro-selling, turn aside the flood into the dollar, keep the yen out of it. I would feel sorry for them if they were really nice, but truth is, if you work in a sewer, you have no right to complain about your bill for cologne.
US DOLLAR INDEX chart makes little sense, rising from 73.85 on Wednesday to 75.40 on Thursday, dropping right back down to 74 on Monday morning, then rising back to 75. Trading now at 74.86, up 45.8 basis points or 0.59%. Dollar index today closed above its 20 dma (74.61) but traded in a net range from 74 to 75 (NGM like round numbers), therefore no great change. But when you parse that with the euro down 0.82% at 1.4173, you get the feeling the euro is very sick. Once it breaks 1.3950 it will want to slide for 1.2000, & won't mind sliding square over the NGM & parting their hair. In the Land of the Rising Sun the NGM had sliced their Yen to ribbons, but the ribbons came back to life today and gapped up to 129c/Y100 (Y77.52/$). Lots of scared money racing around the world looking for a home. Dollar will keep on trying to rise. Investors seem to believe it's better to take your chances with the AA+ US government & its dollar than stocks.
Stocks continued plunging over the cataract that began about 1 August. Dow today closed on its low at 10,809.85, down a staggering 634.76 points or 5.55%. S&P500 bettered (or is that "worsed"?) that with a 79.92 point drop, down 6.66% to 1,119.46. I'm beginning to believe that I really WASN'T seeing apparitions when I kept on warning about that broadening top in stocks. My 10,700 Dow target doesn't seem so silly now.
I warned a few days ago that the Dow in Gold Dollars (DiG$) was breaking down, sending stocks lower against gold. From G$157.10 (7.6 oz) eight days ago, the Dow has now reached G$130.03 (6.29 oz).
Stocks: the perfect picture of how profitable & strategically wise a partnership with the US government really is.
GOLD broke above its upper trading channel line today by 1.8%. What meaneth this portent? It could mean nothing, could be a simple throwover caused by momentary enthusiasm, then fade and drop. OR, it could signal a much higher move. How much higher? When a market trades over an upper trading channel line, you can double the channel, like flipping the channel over so that the bottom line is over the top. If the channel is 100 points wide and breaks out, just add 100 points above that to draw the new channel line. Right now that channel is about 170 points wide, so add that to, say, $1,680 & you get something like $1,850. Point & figure target is about 2090. I hasten to add that those are not predictions, just numbers that say something about expectations.
If the panic isn't reined in within a couple of days, then gold will simply keep on rising. Limits here are plain: a close below $1,675 turns gold down. Two more days' higher closes above today's $1,710.20 ) mean gold has launched another rally.
I hate to chase markets, but I have been buying gold here. Long term even if that proves a timing mistake, it won't make much difference as gold will double or triple from here at least.
SILVER has not yet proved it will tag along with gold, even though a 117.7c rise today to 3937.4c suggests it wants to. However, today's high at 4029c doesn't even recover half the ground silver lost from Thursdays 4224c high to Friday's 3749c low. Chart might be pointing at higher prices since today's 3843c low floated so far about Friday's 3750c low. However, silver must first beat 4000c without any excuses, then speed up toward 4200c and crash that. Otherwise, we have to expect that silver will follow the direction if not the size of stocks' fall.
Above all, silver must hang on above 3750c.
Gold/silver ratio rose today to 43.434, not far from the reaction high at 44.8. The ratio is widening out, which whispers silver will not join gold for the ride.
Crisis will worsen. Gold will rise. Silver is wavering, drawn to the downside as scared money piles into gold.
Remember that in crises that central banks & their governments have only two weapons: Liquidity & Blarney. They will be vigorously shooting those two cannon in the next few days. Little Timmy Geithner, Bernard O'Bama, Ben the Bernancubus & all the rest will be trotted out to remind you how sound the economy is & how wonderful stocks are. Right, and if frogs had wings they wouldn't bump their little butts when they jump.
On 8 August 1896 was born Marjorie Kinnan Rawlings, in Washington, DC. She graduated from the U. of Wisconsin in 1918 then moved 10 years later to the north Florida backwoods and wrote novels as if she were one of them. Who could forget The Yearling, or South Moon Under? SPECIAL OFFER
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Limit five (5) lots of US coins per customer.
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Argentum et aurum comparanda sunt —
Silver and gold must be bought.
— Franklin Sanders, The Moneychanger