Thoughts on Markets

Friday, October 24, 2008

People are Bailing Away From All Stocks to Paper $$$

The Dry Baltic Index is a general measure of commercial shipping activity which is dismal. The recession is spreading and seems to be here for longer than we would like. This is the reason that central banks and governments are flooding the world with paper currencies. Eventually, this inflation will result in price inflation. The intended purpose is to get the world economies back into positive operation. The actual result may be destruction of the paper currencies. We will see over time. Meanwhile batten down your financial hatches and hold onto your income generating activities. Even add some more, if you can. Perhaps selling through EBay or some other Internet marking operation.
Gold is languishing at lower levels than we have seen or expected as all assets of many investors are being sold into markets to deleaverage; that is, to pay off margin calls and obtain cash for the foreseen rough times ahead. We remain in uncharted waters, as never before have we seen so much worldwide paper currency or so much trash mortgage packages.

Gold is currently 711 and silver 9.05. Both are presently on down ticks. We have yet to see any of the mini rally of yesterday. I was selling my DROOY trading stock into the rally in the range of 4.25 - 4.30. Today it is trading in below 4.oo and the last trade was at 3.30. The DJI are now down some 360+ to 8332. It is early in the trading day, but this is Friday and anything is possible as traders prepare for the week end.

From Casey's Daily Resource Plus:

"Gold’s fans were likely a bit disappointed the metal didn’t do better, in light of the dollar pulling back against the euro and the price of crude rising. However, it was certainly a positive development to see the metal bounce decisively off of $700.

The struggle between gold’s traditional safe haven status in a crisis like this one, and the need of over leveraged hedgers for liquidity, is obviously still playing itself out.

Right now, “The name of the game is to raise dollars,” said Frank McGhee, of Integrated Brokerage Services in Chicago. “People will sell their winners to fund their losers. The best performer since the financial crisis began has been gold.”

There is a lot of unwinding to do. And, while gold’s strength yesterday afternoon was a good sign, it may not be able to resume its bull run until those who are sitting on dollars begin to feel the pinch of the rising inflation that is sure to come with the astonishing infusion of cash into the system by governments.

The bright side, if there is one, is that, “For the moment, gold is holding its relative strength,” says Ron Goodis, of Equidex Brokerage Group in Closter, New Jersey. “Gold is falling more slowly than everything else but everything is falling. In a credit crisis, people don't want anything.”

Those with strong gold positions can take some comfort in knowing that gold will always hold value better than any ‘asset’ made of paper."

From Telegraph London:

Sarkozy lays out radical state intervention

French president Nicolas Sarkozy has pledged "massive" state intervention to support his country's industry, defiantly ignoring EU competition rules in the biggest shift to dirigiste ideology in 40 years.

Read entire article HERE

Also from Telegraph London:

Russian default risk tops Iceland as crisis deepens

Russia's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.

Read entire article HERE

From Investigate a Financial Express Website:

Gold conspiracy: can you afford to ignore it?
By Rob Mackinlay

In London, the “man on the street” appears to be running a similar strategy to some hedge fund managers: buying physical gold and holding it, whatever the price.

According to ATS Bullion, punters are ignoring daily price gyrations and buying in ever increasing numbers – paying a 10%-12% premium on gold Krugerrands, double the 5-6% premium paid in August.

Read entire article HERE

From Resource Investor:

China: Can the Party Really Be Over?

By Stephen Clayson
22 Oct 2008 at 10:51 AM GMT-04:00

The doom-and-gloom merchants have now moved on to China, which this week announced third quarter economic growth of 9 per cent. In these times of financial panic, we seem to have lost sight of just how impressive that number is.

Read entire article HERE

From Mineweb:

STEEL, ALUMINUM, COPPER WILL TROUGH IN 2009

Fitch says gold price will hold up reasonably well over 12-18 months

Some hidden benefits may be found in the current financial crisis for mining companies as labor, energy, power and consumable costs decline, Fitch Ratings advises.

Author: Dorothy Kosich
Posted: Friday , 24 Oct 2008

Read entire article HERE

The world is facing a significant change and no one is certain as to how it will play out. As we study the situation and attempt to make some educated guesses, we see more and more confusion. One thing seems to be certain and that is that America will find it necessary to tightening our belts as we move to a lower standard of living. I believe this will become more apparent as many more will be losing their jobs. Unemployment is rising and will continue for some time. The growth engines of the world will be in Asia unless there is a change in the direction now foreseen.

Our situation is has been allowed to go on and on with a multitude of band aid type fixes to avoid the inevitable correction which is absolutely essential. A capitalistic free market would have already solved most of the problems by allowing inefficient companies, banks, and mortgage companies to go bankrupt or change their method of operation or product to become competitive. The result would be fewer but more efficient operators, and continued prosperity.

Of course, there would be hard times for many, but not all as is the case now. And the corrections would not be of the magnitude we now face. The greatest danger to America is the loss of the benefit of having the dollar as the reserve currency of the world. As mentioned yesterday, we have greatly abused that privilege and are now paying the price for our defrauding of foreigners.

God will see us through these times as all of the maladjustment's caused by the flood of paper currencies and credit unwind. They will and are unwinding now. There will be much financial stress and suffering before the process is completed. God always balances the books in the end, and often, it seems, as He is doing now.

His people rest secure in His promises of love and eternal life with Him as the eventual reward. However, we also have an abundant peace that passes all understanding in times of severe problems. We suffer along with the rest of the world, but not as the hopeless others. We have the sure hope of the promises of He who cannot lie. Praise King Jesus for His unchangeableness and His faithfulness.

Best to each, Doug

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