Thoughts on Markets

Wednesday, August 20, 2008

Talk About Violent Markets - We Have Them!


Both silver and gold have moved higher. Silver has lagged gold thus far. Both precious metals are oversold to the extreme. Can they go lower? Yes, but I suspect we are at or very near a bottom for this contrived "correction." Gold must go above 819 and stay there before it can move steadily higher. Gold has been as high as about 819, but has dropped again to about 802. Silver is at 12.90. This is not encouraging.
The, above, graph by Gene Arensberg from gives a picture of the silver holdings by the silver ETF SLV. Their holdings have continued to grow. We have read over time that there is a delay between receiving new investment cash and purchases of silver to cover the new cash. It would seem that the current low price of silver, though causing a shortage of available silver, would be a great time for SLV to complete the buy. They are very likely using this time to fill to the maximum. The shortage has not yet extended to the large bars of silver.

The London Telegraph had an article "Sharp US money supply contraction points to Wall Street crunch ahead." This could be part of the reason for the recent strong dollar. Check it out here: http://www.telegraph.co.uk/money/main.jhtml?xml=
/money/2008/08/19/cnusecon119.xml
If true, then we could be headed for a severe contraction of the economy.

The Euro seems to be oversold and ready for a rebound against the dollar. Gold is down against all paper currencies unlike yesterday when it was up.

I still do not believe that the U. S. has any way out of debt without inflation - a vast expansion of the number of dollars in circulation. Banks are refusing to lend to each other and seem to be hoarding the liquidity that is sloshing about. Inflation (PPI) was 1.6% for July down slightly from the 1.8% of June.

We have had the crash of at least eight smaller banks in America. Rumors are abounding now that a major bank is on the ropes and will be discovered very soon. Thus, the financial industry is still under a great deal of stress from the bursting housing balloon and the resulting default of mortgages. Housing starts were 965K, but down about 30% in the Northeast.

The Lord is showing us the danger of big government with its associated big spending. Of course, He has given us the government we have sought as we turned to government to solve all our problems and expected something for nothing. We, as a people, demanded free health care, high paying jobs, bail outs for all failing businesses, welfare for all, free housing, and all the other socialistic benefits. Little did we realize that governments can provide these services only by robbing (taxes) from the productive haves to support the non-productive have nots. This is legal plunder, but it is a violation of God's law against theft. There is no such thing as a free lunch. We must pay the piper at some time for the service provided. Our Sovereign God sits in Heaven and laughs at the folly of man. He also judges nations for seeking a messiah in place of His Only Begotten Son: Jesus Christ. He does promise to work all things together for the eventual good of His people. I rest in His promises and rejoice in the midst of today's challenges. Praise the Lord!

Best to each, Doug

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