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"People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome."
George Orwell
A wild day in the markets as fears of a European credit crunch, and possibly a eurodollar squeeze, combined with renewed fears of a US double dip recession had equities reeling and investors flying into the safe harbor of gold, and to a lesser extent, silver.
The miners were beaten bloody with a few notable exceptions. You may wish to note those who held their ground and even moved higher today.
I think the Philly Fed contraction brought the Ten Year Treasury yield down to the 2 level which is quite amazing. Does that signal deflation? Perhaps, but the CPI came in quite high at .5%. I suspect there is a lot of hot money floating around looking for a place to hide, and it ran into Treasuries and gold.
What next. It really depends on how the equity option expiration goes tomorrow, and how the market frames itself up for the Comex expiration next week.
I would not be buying new gold or silver bullion positions here on a risk reward basis until I see how it goes next week unless we get another curve ball from Europe. But that does not mean I would be shorting them either, except for hedging.
Gold can run higher to the 1850 area without a lot of effort just on a failure to correct and short covering into the weekend. After that, we will have to see. I would like to see it pause occasionally, to avoid a repeat of the silver parabolic rise and craftily engineered smackdown.
And of course next week is the KC Fed sponsored Jackson Home EconoFest. Something is quite possible to come out of that august gathering.
Even with its bounce today, take a look at the dollar chart and ask yourself, 'if that was a stock, would I buy it?'
I noted yesterday that the failure to rally appeared a little ominous.
Stresses in the European banking sector had worried of another Lehman like spike in LIBOR and a eurodollar squeeze had the markets off balance all night.
The US market went down on weak economic new in initial claims and company prospects, but the Philly Fed came out with a dramatic contraction, and that sent equities tumbling and Treasuries soaring.
There was a pronounced flight to safety in the dollar and especially gold.
Tomorrow is option expiration, so the real market action will show up after the opening trades. Keep your eye on support levels.
"We committed our crimes at Crazy Eddie for fun and profit and simply because we could. We had no empathy whatsoever for our victims...
I eventually pleaded guilty to three felonies: conspiracy to commit securities fraud, conspiracy to commit mail and wire fraud, and obstruction of justice. I was sentenced to only six-months of house arrest, 1,200 hours of community service, and paid approximately $10,000 in fines...In my settlement with the victims of my crimes, I avoided all civil liability...
I did not cooperate with the government and victims because of any sense of morality or remorse for my crimes. I simply cooperated with them to avoid a long prison sentence and reduce potential monetary penalties. If my crimes had remained undetected and the government did not seek to prosecute me, I would probably still be the criminal CFO of Crazy Eddie today."
Sam Antar
This report was at least partly responsible for the plunge in stocks and the rise in gold. It gave the markets a Lehman flashback.
This is the kind of moment where Greenie would announce he was ready to put out any and all fires in the markets with his großen Dollar schlauch.
In Bernanke's defense, when Greenspan was boss the US government was still a going concern, without crazy Uncle GOP trying to crash the car into a ditch to show Babbling Barry who is the boss.
And the politicians are only doing what the Banks have been doing for years.
Say what you will about it, the dollar is still the reserve currency, for now. And the financial system, in addition to the equity market carnival show, is based on nothing more fundamental than greed and fear, and short term positioning. The only capital allocation being done is from the real economy into the pockets of the financiers.
And that is the failure of Monetary Theory, Parts 1 and 2, and the Chicago School of Carny-nomics.
The market action here is a bit cynical, even by current standards, and tailor made for an option expiration this week and next. But the backdrop of danger is real. That makes it a tough play.
Bloomberg reports that 75% of the volume is High Frequency Trading. It adds no real liquidity, it only distorts and extracts. When one needs it, it is either gone or reinforcing the short term trends. That it still exists is a tribute to the dodgy nature of the markets, and the failure of US governance.
I took my profits. When in doubt, stay out.
"We have known for some time that the ECB has been holding both the Euro-based interbank liquidity market and the sovereign bond market together with its balance sheet. But as I reported late last week the international liquidity being provided to banks is drying up and this is an Achilles heel for the European banks. They have been borrowing short in US dollars to fund long term Euro-denominated assets. This means they constantly need a rolling supply of $US in order to meet the repayments on their prior short-term funding obligations as their Euro assets mature more slowly. If the holders of $US no longer think they are a safe bet then they are caught in a good old fashioned banking liquidity trap."
ECB Moves Into FX - Macrobusiness
At least some of the friends of Ben have dollar reserves, but they are hardly enough to hold off a panic, a modern variation of the classic bank run. These Ben Bucks are being used to put a little Spine-a-Cola into their balance sheets. Show-cash. A wad of Tens covered with a C-note.
From Phil's StockWorld's review of Sam Antar. This is a nice description of what I have called 'the CEO defense.'
The Art of Spinning:
■ Sell people hope. My cousin ‘Crazy Eddie’ Antar taught me that “people live on hope” and their hopes and dreams must be fed through our spin and lies. In any situation, if possible, accentuate the positive.
■ Make excuses as long as you can. Try to have your excuses based on at least one truthful fact even if the fact is unrelated to your actions and argument.
■ When you cannot dispute the underlying facts, accept them as true but rationalize your actions. You are allowed to make mistakes as long as you have no wrongful intent. Being stupid is not a crime.
■ Always say in words you “take responsibility” but try to indirectly shift the blame on other people and factors. You need to portray yourself as a “stand up” guy or gal.
■ When you cannot defend your actions or arguments attack the messenger to detract attention from your questionable actions.
■ Build up your stature, integrity, and credibility by publicizing the good deeds you have done in areas unrelated to the subject of scrutiny.
■ If you can, appear to take the “high road” and have your surrogates do the “dirty work” for you. After all, you cannot control the actions of your zealots.
■ When you can no longer spin, shut up. For example, offer no guidance to investors or resign for “personal reasons.” Your surrogates and so-called friends can still speak on your behalf and defend you.
■ If you are under investigation always say you will “cooperate.” However, use all means necessary legal or otherwise to stifle the investigators. Remember that “people live on hope” and their inclination is to believe you.
■ When called to testify under oath (if you do not exercise your 5th amendment privilege against self-incrimination) have selective memory about your questionable actions. It is harder to be charged with perjury if you cannot remember what you have done rather than testify and lie about it.
■ Try not to have your actions at least appear to rise to the level of criminal conduct or a litigable action. Being stupid or being unethical is not always a crime or tortious action.
Based on my own exposure in the distant past as a consultant to national politicians and news commentators, both Republican and Democrat, Sam Antar is a talented amateur who makes up for a lack of finesse, and a seeming lack of willingness or ability to use blackmail and violence, with chutzpah.
There are many, many good people in government and the financial world who only wish to do the right thing, and serve their country faithfully. I admire them, with gratitude. They stand a lonely watch, unnoticed by the world.
But there are times when the tainted few grab the reins of power for whatever reason, and things get a little crazy, and those are difficult times for the honest individual, to say the least.
As a reminder, this is an options expiration week for US equities.
Next week is an option expiration for metals on the Comex.
SP futures fell hard on the overnight and early morning to short term trend support. Gold soared.
The economic news sucked out loud.
Stocks must hold 1110 on the futures or they may activate what appears to be a bear flag.
"The woods decay, the woods decay and fall,
The vapours weep their burthen to the ground,
Man comes and tills the field and lies beneath,
And after many a summer dies the swan."
Tennyson, Tithonus
This is probably some portion of an option expiration scam, but the backdrop of financial danger in Europe is real. So it becomes a difficult play. The volumes remain light on the upside and heavy on the downside, and if one is playing bounces, a downdraft could take down weeks of profits. I don't like to play near corners.
