Market Update May 6 2010 - Wild and Crazy!
Today was one of the wildest days in the market that I can remember and zurbo and I had the fortune to be on the phone discussing the market the moment that the bad craziness went down. We watched the Dow and other stock indices dive about 10% in the course of a few minutes and then recover to 5% losses immediately. We quickly scrambled to fill some orders on positions we’ve been eyeing to accumulate at lower prices, but with only moderate success due to the fast and furious price movements. We do think that some weakness will carry over to the next couple of days so we will be looking for more buying opportunities to present themselves.
There were some important lessons learned today.
One. Gold showed today that the next time there is a flight to safety amid a crisis of confidence, we can expect the gold price to be firm and even strong while other markets are crashing. Clearly there is a different group in charge of gold today compared to the Fall of 2008. The last couple of weeks I have felt that gold could make a tiring move to $1,200 but the Midas metal easily slashed through that level today to reach a high slightly above $1,210 spot. Gold continues to hang above the $1,200 level as I write this. Importantly, the basis measures are indicating that the price rise is being supported by bouts of BOTH paper AND physical buying. For example, at several points today June COMEX gold reached a $10 contango (normally around $1 with about 3 weeks to first delivery notice). As I write this, the contango continues to spike momentarily into the $6 range, which is more than 5 times its normal level. What this means is that there is periodically a wave of buying pressure in COMEX gold as compared to the physical market. But the physical market is no slouch either, there having been a number of trades today with gold in backwardation. Moreover, the Gold ETF Basis has seen some spikes in the NAV premium as well to above normal levels, indicating that even while investors were dumping stocks in general, they were buying the gold ETF GLD. The basis indicators don’t show off very well on a crazy day like this but I will try to post some charts later for Metal Augmentor subscribers.
Two. Silver is not being bought as a crisis hedge, at least not in a widespread manner. The second monetary metal did have periodic indications of strong buying today similar to gold on the basis charts but the price action is quite telling. With gold up $30 or almost 3%, silver was actually down 20 cents or about 1% at one point. In the last few minutes, we are finally seeing some sanity return to silver and it is now up 20 cents for the day. Expect more sanity in the days ahead if gold is able to maintain $1,200. Still, we should not expect silver to be a big performer as long as the market is being driven by fear and flight to safety (which I don’t think will last for long). Silver is apparently still being viewed mostly as a speculative investment and not an instrument to store wealth to shield it from the financial storm. That will change, as it apparently has changed for gold since the Fall of 2008, but we aren’t there yet. Perhaps the change will come in a manner similar to the 1970s when all hell broke lose after only a single billionaire family attempted to move all of their wealth into silver.
Three. When there is panic, fundamentals and technicals are largely meaningless. Today we saw strange and aberrant behavior out of many of the stocks we follow as well as those we don’t. Some stocks were rallying nicely even while the Dow was crashing, only to drop like a stone when the equity markets were recovering and gold was exploding higher. There really was no rhyme or reason as to what the stocks did today. The determining factor seems to have been whether or not some of the larger (and sometimes even smaller) shareholders of a particular company were standing firm (or even buying) as blood ran in the streets or being panicked into selling.
Four. There is now no question in my mind that the Greek and other debt issues will be swept under the rug very soon with large bailouts. The markets today were screaming murder whereas the last few days they were only throwing temper tantrums. The result of the bailout packages, in my opinion, will be a return to the status quo for a while (at least 3-4 months taking us into late summer for the next stage of the evolving crisis). We should see the U.S. dollar start to sink back down from the current levels, U.S. Treasury bond yields start to climb and dare I say the general equity markets to make an attempt at their recent highs. Under these conditions, gold can easily stay in the top band of its recent trading range and even make a move to new highs targeting the $1,325 level. Under these conditions, silver would be expected to finally make its move with the gold/silver ratio dropping back under 60:1. The implication is that silver should finally take out its March 2008 high and perhaps even make an attempt at the $25 level. We are already considering strategies to take advantage of that possibility for Metal Augmentor subscribers.
We’ll have more on this historic day later.
I’m not surprised to see extreme basis - arbitrage between futures and spot physical is not some perfect automatic link and it would take time for a bullion bank to react to a quickly widening basis.
The RBA is not wasting any time (or ‘money’) bailing out its charges i.e. the commercial banks.
Open market operations have kicked into high gear once again. Interestingly enough credit spreads tightened considerably through April, yet the ASX fell. And then fell even more.
ATTENTION ALL TRADERS THIS IS AN ALERT FROM THE NYSE AND CFTC!
DUE TO MARKET DISLOCATION AND LIQUIDITY CONCERNS PLEASE FOLLOW THIS PROCEDURE:
CAREFULLY REMOVE THE LETTER T(TRILLIONS) FROM YOUR Q.W.E.R.T.Y KEYBOARD WITH A SMALL SCREWDRIVER AND DISCARD.CONTINUE THIS ACTION FOLLOWED BY THE LETTER B(BILLIONS)AND FINALLY REMOVE THE LETTER M(MILLIONS) AND CLOSELY WATCH THE OPENING BUY AND SELL VOLUMES FOR ANY ANOMOLIES.IF LARGE SELLING OCCURS AT THE OPENING DUE TO THE EXTREME MARKET STRESS ALL TRADERS WITH FAT FINGERS ARE URGED TO COMPLY BY HAVING THEM CUT WITH A MACHETE OR LARGE KNIVE DUE TO THE DANGER THEY POSE AND RISK OF CAUSING A FURTHER MARKET METLDOWN.
NOTE,IF YOU ARE BUYING STOCKS BECAUSE THEY LOOK CHEAP PLAESE IGNORE ALL THE ABOVE.
ALERT!
FUNERAL SERVICE FOR EURO CANCELLED 06/05/2010
Sorry,Tom, SrSRocco and the rest of you.
The funeral service which was to be scheduled for end of this month has been cancelled as the priest has informed me he has declined in performing the last rites for EURO as he will be heading for Vatican and the PIIGS Nations to perform an unusual blessing in the coming days.Therefor he’s instructed me to prepare a D.I.Y. funeral and prepare alongside the burial ground for the POUND STERLING,the YEN and the DOLLAR.Having spent a boatload on purchasing the granite tombstone for the Euro and having very little change left over i’ve nailed together some 2X4’s stripped from my next door neighbours fence to make a cheap wooden cross.
If any Silveraxis reader could volunteer by contributing to this great cause you are more than welcome.Any one wishing to volunteeer will have the great pleasure by reciting….”ASHES TO ASHES BUST TO BUST”
UPDATE ALERT
I’ve just been on the line speaking with my hired priest who was due to leave on the PIIGS ceremonial blessing in the last half hour.He’s found evidence of poltergeist activity at Citigroups trading desks that were the cause of yesterdays unusual crash.His sources have informed him that the investigation has revealed the in-house computer system keyboards are possessed by an evil spirit.An exorcism will undertaken to rid of this evil presence which wiped almost $1 Trillion from market values late yesterday afternoon. As a precaution he has suggested that we all springle some holy water on our computer keyboards as there is a chance it may be multiple manifestation.
Pardon type errors:”springle some holy water”, should have said “sprinkle some holy water”.Maybe my keyboard is also possessed..lol!
@Frederico K.
Good to see you in RARE FORM. Looks like we are watching the end to the system….or at least a PREVIEW of more to come. We have a confluence of events all at once:
1) Disintegration of World Financial Markets
2) Bankruptcy of a majorty of U.S. States
3) Collapse of US Bee colonies 30%+
4) Shortages of World Food Supplies on track for this summer
5) Gulf Oil spill gone VIRAL…probably leaking 100,000 barrels a day
The list goes on and on. Anyone in their right mind who sees a SILVER LINING in all this….needs a GOAT MILK ENEMA.
Being a computer scientest I wonder whether yesterdays turmoil was a trail run to exploit the high-speed trading algorithms that just went too far.
As you might know the high-speed trading algorithm (of GS) was “stolen” and probably forwarded to interested groups. I am certain that I could have developed a counter-algorithm if I would have had to chance analyze the orignal algorithms. I did some work on heuristic optimization strategies which go berserk when fed with inputs specifically designed to fool it.
The inputs in this case could be some high-volume sales of specific stocks which not necessarily are executed. It might suffice to cancel them as fast as possible before entering the next trade (with lower limits). Since naked short selling is allowed and probably used by the high-speed trading entities it is much easier to try the trick on a “down” day as on an “up” day.
If somebody really fooled the high-speed traders it is probably as legal as the high-speed trading itself and all trades should be considered binding, i.e. should not be reversed by the SEC.
I always thought that the SEC had shut down the high-speed trading on the grounds that it represents a kind of front-running. The current press releases seem to indicate otherwise. Any hard information about this here?
@Bron Suchecki
Unless of course the bullion bank is front-running the trade, which I don’t think would be a very shocking thing to do.
@Justin
Yes, I think we’ll see more of the same for years to come.
@Frederico K.
Love the gloom and doom comedy hour, we need to find humor in this stuff otherwise it is way too depressing.
@SRSrocco
So are you saying silver is not a good thing to hold when the last pile of SHTF?
@DiscreetSilverBug
To my knowledge this trading is legal, part of what appears to have happened is not that the high speed trading went into overdrive when the market started to crash, but instead it’s possible that the trading systems were actually closed down and that resulted in most of the bids being pulled in a falling market. When you have a particular type of trading constituting up to 75% of market “liquidity” and all of a sudden that trading freezes in the midst of volatile market action, the result isn’t going to look pretty.
@silverax
TOM…..of course not. I love silver so much I got my dentist to make a set of FALSE TEETH in it, so when I get older, I can walk around town in STYLE.
TOM…when the system crashes…and crashes it will, we will find GOLD and SILVER BULLION the best physical money assets to own. Then we will find Suburban Real Estate and Commercial some of the worst. Automobiles will become the next SUBPRIME DISASTER after COMMERCIAL. You will be able to get an ESCALADE for pennies on the DOLLAR. The best autos to own will be simple high mileage sedans and small trucks that you can pay cash. Probably between 3-5 years old. They will take a PREMIUM
I imagine the COLLAPSE of the DOLLAR, and US TREASURIES will but the final NAIL in the CMB market as well as HOUSING PRICES. Food inflation is just starting to kick into gear. I am at my step sons wedding this weekend in sunny California….a great contrast to my sleeping farming and ranching town in the west. Unfortunately, these poor COMPUTER YUPPIES will be caught like a deer in the headlights. The amount of traffic is unbelievable
Folks…..the END OF THE PONZI FINANCE SHOW is just about here. Ain’t nothing like a good MARKET COLLAPSE to humble WHITEY. We ain’t seen nothing yet.
Don’t be too hard on the stepson for not holing up in a farm although I hope you’ve given him enough scarin’ and frightenin’ that he gets at least a contingency plan in place! Nice to see that it wasn’t enough to get him so depressed worrying about things to ask “why even get married?”.
@silverax
HAHAHAHAH….Tom, you might be shocked, but I do entertain a bit of restraint when dealing with these issues on extended family members. I did convince good ol MOM to buy GOLD. During a vacation last year in MOAB, my wife and I had a sit down at a local coffee shop and gave her the WATERED down version as not to scare her to death. Believe it or not, my wife listens to a great deal of the interviews ands stuff I read. AND NO….I don’t have to handcuff her to make her listen.
I am amazed though at the so called LIBERALS out here who are just going along like there is nothing wrong. The size and scale of the suburban economy out here is breath-taking…as well as the leverage. No one owns their car out here (or very few). It’s either on a payment or lease program….one that implodes when the REVENUE STREAM has disintegrated.
Yes, I did say LIBERALS. I have no empathy for the so called CONSERVATIVES either. Both parties are on opposite ends of the TITANIC. When the ship sinks….it takes no prisoners. Well maybe the end that RUSH LIMBAUGH is on might sink first….a fitting conclusion to a person who takes being an EGOTISTICAL FAT SLOB to new heights.
Lastly……EGGS and GOAT MILK are some of the best forms of animal protein you can get. Fresh Goat milk from a healthy goat is a miracle worker and health builder for those poor city folk with degenerative diseases. The whey (high in natural sodium) is great to keep a person active and young until they are in their 90’s. Only America raises COWS for milk and slaughter at such a high percentage compared to other countries. COW MILK is extremely acid producing on the tissues of humans. GOAT MILK is much healthier and is actually akaline…thus it extends health and life expectancies.
There are more GOATS in the WORLD than COWS….unfortunately….WHITEY here in AMERICA wants profits and not health. Another NAIL in the coffin, on top of numerous others.
GOD BLESS WHITEY.
Please forgive some of the typos and mis-spells….I write to fast to do actual proof reading.
My wife just let me know what a COMPLETE MORON I am….by reading my last post about the typos. She informed me that I made to more mistakes including mis-spells and “To” fast to do actual proof reading.
Thank GOD for a good wife to bring me back to earth.
to more mistakes…..OH MY GOD…..I GIVE UP
Don’t worry about the spelling, the free association of ideas that comes off your fingertips would not be the same if you paid too much attention to the niggling details. This stuff about goats and goat milk is quite interesting, I can definitely see why goats would be a survivalist staple. It seems like after cockroaches, goats might be the second most likely species to survive whatever natural or artificial hell is wrought upon the Earth.