Let's take another view of the last few days' events, with another question in mind: What is the bigger message markets are sending us?
Yesterday the Dow lost 1.8% & the S&P500 2.3%, huge moves & easy to overlook in the shadow of gold & silver's plunge. More ominously, Copper, the canary in the economy's coal mine, broke down. Where copper, the bellwether, leads the economy will follow. Broke down from a huge head & shoulders top stretching back to 2009. http://bit.ly/10bYIFC
In summer 2008, Markets were hard to parse, sending messages that seemed to contradict themselves or make no sense. They were telling us a panic was brewing. What are they saying today?
For background, look at a 20 year stock chart, any index. That gigantic head & shoulders seems to make no sense, because it targets a price below zero. How could that come about? Yes . . . How indeed? See chart at http://bit.ly/Zyh38P
The long term US dollar index chart also has an enormous head and shoulders, targeting 40 or lower.
In 2008, stocks, gold, silver, everything except US dollars and those dollar proxies, US treasury securities, fell. Why? Because in a panic, people rush for LIQUIDITY, the most liquid instrument in the system, and that's "cash." For the present, "cash" means US dollars. Depending on circumstances, that might change.
Is another panic brewing? I don't know. I can say with some assurance that if Ben Bernanke weren't fearful of another panic, he wouldn't be throwing another 1.2 trillion bucks into circulation this year. He knows, as well as anyone, how fragile the entire system really is.
After the bond market locked up in Fall 1998, Willy Clinton went to the Wise Men of the CFR & convened the Financial Vulnerabilities Project to develop means to deal with the periodic financial panics. They met several times, even "war-gamed" crises at the Harold Pratt house in New York, & published a report, a model of turgidity, which I, glutton for punishment, read entire. I teased out two conclusions, no, make that "admissions."
1. The Masters of the Universe fear that a crisis one day will result in "systemic collapse," i.e., the entire global house of cards falls down.
2. Against panics they have only two weapons, Liquidity & Blarney. Liquidity is pouring tsunamis of new money into the system. Blarney is my polite word for their propaganda, trotting out Greenspan or Bernanke or O'Bama or Buffett or Soros or other apparatchiki to assure all the stampeding sheep that "the economy is basically sound & we have nothing to fear but fear itself" and such like lying clichés.
In the past 40 years the crises have become more frequent and bigger -- bigger numbers, more participants. One day, maybe tomorrow, maybe 20 years from now, will come the panic that will overwhelm even liquidity & blarney.
After that day, everything will change. After that day, all the wet cardboard backdrop of control & stability will melt. Power will be re-distributed, and all wealth.
A sane man, a prudent man, has to ask himself what he will do when that day comes. More importantly, what will he do the next day, & all the days after.
Based on 6,500 years of human experience, I have always guessed/assumed/concluded that silver & gold would carry value even across the worst gulf of economic collapse. They have in the past, at least. Carrying capital across that gulf of panic has been one of my strongest arguments for silver and gold.
Will they in fact do that? I can't promise you that, nor can anyone else. We don't know the future, & it might turn out that the best carrier of value is cigarette papers to roll joints in, or half pints of whiskey. But I don't smoke dope and don't trust people who drink too much whiskey, so I'm left with silver & gold, and of course, the other metal, lead.
Stocks broke badly yesterday with 90% down days. Both indices dipped beneath their 20 DMAs, but closed above them today. Looks like they broke yesterday, at least for this move.
Stocks bounced well today, Dow up 1.08% to 14,756.78 & S&P500 at 1,574.57, up 1.43%. Notwithstanding, they most likely broke yesterday & will move lower.
US Dollar Index closed below 82 & 81.80 support, losing 0.67% today or 52.2 basis points. This continues the fall off the rounding top. Watch that dollar, because sudden dollar strength might point to a panic.
Euro rose above its 62 DMA today to $1.3181, up 1.03%. Yen lost 1.01% to 102.53. Take no refuge in either.
Cannot tell anything from bounces silver & gold made today. A dead cat dropped from the 2nd story might have done as well. Gold gained $26.20 to $1,386.80 while silver rose 26.7c to 2362.2. Ratio, however, is only very slowly rising, today at 58.708.
At this point, another leg down is possible, taking gold to $1,250. Today's high was $1,395.09, low came at $1,340.50. Silver's high was 2379 and low 2255.6c. Can only wait for the picture to clear.
Argentum et aurum comparanda sunt —
Silver and gold must be bought.
— Franklin Sanders, The Moneychanger