Wednesday, August 29, 2007

Over, Under, Sideways...Up Or Down?

How amusing...

On Tuesday the market tanks because the Fed minutes didn't telegraph an impending Fed Funds rate cut. Never mind that the Fed minutes are from a meeting that took place more than a week before the Fed was forced to cut the "discount rate"...just to "DO" something "psychologically" meaningful to the markets.

On Wednesday, the market soars: AP - Stocks rebounded sharply Wednesday as investors, growing more optimistic about chances for an interest rate cut, sought bargains after the previous session's huge tumble. I'm sorry, but this is hysterical. So the market tanks Tuesday, and on Wednesday everybody "thinks" that because the market tanked Tuesday, the Fed will come to the rescue with a Fed Funds rate cut and there are "bargins" to be had.

Sad thing is, the Fed will almost be forced to cut the Fed Funds rate. Because if they come out of that meeting in September, and don't cut rates, the stock markets are going to get crushed. Let's face it, the stock markets are addicted to "easy money". And Easy Money Al retired two years ago. Will they get their fix on Wall Street, or will Helicopter Ben be Cold Turkey Ben? History is being made right before our eyes folks. This is the closet any of us may ever come to watching a nuclear bomb go off, and live to tell about it.

Has anybody noticed that Gold has recently become "attached at the hip" to the Yen? Golds inverse relationship to the Dollar is legendary, but lately it has been the Yen tugging on Gold's chain. The charts above are all to similar to dismiss this observation. Most of you probably look at the yen on a chart like this: which is a chart of the Yen Index. The chart above is the Yen vs. the Dollar chart. An explanation of the chart and how to "look" at it are on the chart. The charts are eerily similar. And it would appear that unless the Yen breaks down soon, Gold may not be taking out $700 anytime soon. Just an observation, but one worth noting perhaps.

Gold and Silver were "healthy" today, but then so were the schizophrenic stock markets. Until I see Gold rising substantially on days that the Dow is getting trashed, I'm going to keep my excitement well contained.

670 remains an obstacle to any advances in Gold. 11.95 / 12.00 remains a HUGE obstacle for Silver. I suspect that Silver will break through this wall when Gold knocks down 670. Until that occurs Gold should continue to find support between 658 and 663 / 664. Silver has support at 11.70 and 11.60.

Continue to pay attention...History is in the making...and the future is now.

Recommended reading:

The Gathering Financial Storm
By: Paul Tustain

The current lull might prove an opportunity for the prospective gold buyer. Gold has not yet moved up; in fact, it has dipped a little as stretched investment funds have sold whatever they can to raise cash and reduce their margin calls.

Nor can any serious comment on the gathering storm fail to remark on the apparent "flight to quality" which on Monday last week saw US Treasury bonds put in their strongest day since Black Monday 1987.

US Treasury bonds are part of the fast-growing and utterly irredeemable $9 trillion public debt now outstanding in the United States . The US trade deficit was also on record-breaking form again last month. Only a few short weeks ago these dreadful statistics drove the US Dollar to record lows against a basket of major world currencies.

Only a lack of imagination would allow investors to think suddenly of the US Dollar as today's "quality" refuge. Any respite for the Dollar will surely be temporary; indeed, the bounce we saw during the sharpest stock-market losses so far may have simply been short-covering by Dollar bears (of which there are plenty) rather than fresh buying of “quality”.

Everything that has just happened in fact makes things worse for the US currency. At the heart of this current crisis lies the bubble in poor-quality US home loans. It is US consumers who are being pinched; it is the return on invested US Dollars which is now being cut.

Lower US rates on the back of America 's weakening domestic economy will re-kindle a Dollar slide in due course. So the current lull may offer only a brief window, in which fewer, stronger Dollars buy more gold than they soon will.

Market Directions
− Sunday, August 19, 2007
Joseph Trevisani

The Fed has attempted to call the market to its senses by Friday's unusual actions. The discount rate cut is aimed directly at the panicky psychology that had gained so much momentum as the week progressed. The goal and the hope is to give the banks and other holders of questionable debt and securities time to figure out exactly what they hold and what it is worth. It is likely that given the time and space for analysis the banks will find that the threat to their balance sheets from sub prime mortgages and their packaging is far less than feared and that an orderly or at least semi orderly return to the lending markets will follow. The operational effect of the rate cut is almost purely psychological. For a non-trader, and now I am speaking as a former bank FX trader, Mr. Bernanke has an instinctive grasp of the psychology and the occasional herd mentality and sheer panic that can overtake any market. It is my guess that Mr. Bernanke would have made a very fine trader. If the markets resume normal operation shortly this 'discount intervention' will become the grist of market legend.

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