Thoughts on Markets

Tuesday, September 09, 2008

Precious Metals Hammered Again (Still)

Gold is certainly under pressure. It is not overbought by any means, but we are not involved in a free, but controlled market. Therefore, we should expect more of this. With the great and increasing demand for gold, such prices would seem unbelievable. It is hard to imagine the broad preference for the paper dollar as a "safe haven." But it seems to be true in view of the strength of the dollar. Many assets are being sold to obtain the FIAT currency.
The downward move in silver with the severe shortage is simply unbelievable except for intervention which must be massive. The following quote from Casey's Daily Resource Plus gives the perspective which I believe it totally accurate. We are being had!

"Yesterday was another low in silver for this move. Ted Butler says that everything that the boyz are doing now shows that they are only after the silver market. They are desperate to cover their shorts...by forcing the price lower and getting as many spec longs to cover as possible. The boyz have lots of gold they can get their hands on if they absolutely have to deliver bullion...but the cupboards are virtually bare for good delivery silver. All we can do is watch, because the authorities will not help save us from these criminals. We're all being raped, and even the mining companies won't lift a finger to help themselves...let alone us! How can they help when they're all bent over like that?

So...until the boyz are through doing whatever they have to do...and doing it in whatever way they have to do it...the silver chart will continue to look like this in the short-term."

From Daily Pfennig:
"Let's get to this Credit Default Swaps stuff, because this is important stuff folks... There will be a meeting today to discuss how this is going to all fall out... But here's some perspective on the situation... First and foremost, there's a question as to whether the Gov't's conservatorship constitutes a "CDS event", which would force the settlement of the CDS contracts that are outstanding... Fannie and Freddie have roughly $1.5 Trillion in debt outstanding... But that's chickenfeed compared to the notional amounts of CDS contracts that could be multiples of that $1.5 Trillion!

If the Gov't's conservatorship does constitute a "CDS event" there won't be enough debt to settle the contracts, which will lead to a need for cash... And that could lead to major problems, with the least of them being the holders needing cash, might have to sell other assets to raise the cash needed...

I know this all is confusing, it took me a time or two before I fully understood these Credit Default Swaps... But in essence they are simply an insurance policy, as it can be used by a debt holder to hedge, or insure against a default under the debt instrument. This would be under the heading of "derivatives" that you've heard all about. When the "credit event" or "default" occurs, then these contracts get unwound, and Peter pays Paul, and Paul pays Robert, and so on... In other words... It could get very ugly out there! The Association that governs the Credit default swaps, ISDA, will meet today to discuss how this will all come down or fall out..."
It will be interesting to see this play out. At the very best, it should provide a temporary band aid for the finance industry. Paul Volker said recently that our finance industry is broken. That seems to be true, but it is always amazing how it can be patched together by the government and the Federal Reserve.

It looks as though Houston will not receive a direct hit from Ike. Corpus Christi and Houston will be on the north eastern side of the hurricane which is the side most likely to get a lot of the storm which will hit south Texas. Of course, the direction could change.

As of now both precious metals are pushed lower - Gold to 781.70 and Silver to 11.65.

We are reminded once again that physical wealth is not forever, as is the soul. We are to "Seek ye first the kingdom of God, and his righteousness; and all these things shall be added unto you." (Matt. 6:33) We are also reminded that "The love of money is the root of all evil: . . ." (1 Tim. 6:10) Note that it is the love of money and not money. Thus, it is the attitude of the heart which is addressed. We must be born again as the Holy Spirit brings us to be a new creature who serves the Lord Jesus Christ. He is the answer, sustainer and only way to reconciliation with God the Father.

Best to each, Doug

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