Tuesday, August 2, 2011

Today Was Ugly For The Stock Market

If financial systemic disasters frighten you, today should have scared the crap out of you.  Gold and silver have been dislocating from their directional correlation with the stock market and today gold and silver decisively moved higher while the S&P 500 index shit the bed.  Just as troubling of an indicator is the collapse in the Treasury bond yield curve, which is has been falling in yield and, over the last couple of days, has been flattening.  The latter is a signal that big money finally understands that the economy has fallen off of a cliff.  Plunging short-term yields and the flight to gold/silver are the ultimate flight-to-safety safety flags.  Cash has been piling up in money market funds and in banks.  The banking stocks themselves are collapsing similar to the way they tanked in 2008 before all hell broke loose.

These indicators are potentially symptomatic of the onset of an economic depression and an imminent acceleration in inflation.  To be sure, I have always believed that the second great depression started in 2008 and the trillions thrown at the system (with most of it gushing into the pockets of the banking and political elite) created the brief illusion of economic stability and growth.  But really all that occurred was the massive transfer of banking system debt onto the public via people like Hank Paulson, Tim Geithner, Ben Bernanke and, likely unwittingly, Obama.

Now all of the problems that were momentarily papered over are now resurfacing and the paper used to cover them up will begin to manifest in accelerating price inflation.  The debt-limit extension circus was really nothing more than a distraction and a menial part of the overall larger catastrophe that is percolating.  Greece has financially collapsed.  Italy, Ireland, Portugal and Spain are next.  The real money will be made betting on how long it will take for the U.S. to collapse.  You make this money by loading up on gold, silver and mining stocks and getting the F%$K out of any dollar-based investments (except the mining stocks).

The mining stocks have been badly lagging gold and silver.  HOWEVER, the mining stocks are very very cheap in relation to the price of gold and silver when compared to where they have been valued vs. gold/silver for most of this 10-yr. precious metals bull market. I think part of the drag on the mining stocks is a general fear of a stock market collapse. I don't know what the miners will do, short term, if the stock market craps out.  But gold/silver have dislocated from the stock market in a flight to safety flood and eventually the mining stocks will follow the metals.  The mining stocks could see high two-way volatility for awhile if the stock market continues to tank, but it's one of those things where you have to be in them when they take off or you will end up running to try and catch a runaway freight train.

So other than that, Mrs. Lincoln, how did you like the play?


  1. Had planned to grab some GPL from a screen last night but that thing was long gone in the morning. The "traditional" money was moving today.

  2. Just how much of a beating can the TBTF banks take until they are back begging for another hand out? I hope they can hold out till the next election.

  3. Something to watch...

    The one thing that the Swiss National Bank has said is that they would
    “resist deflationary forces”. Well they’ve got those forces in spades
    as of today. They also have the banks leaning on them hard.

    The SNB is powerless to resist the currency markets. They are much
    smaller than the BOJ and we know the Japanese can’t control the
    markets. The SNB knows this all to well. They got their faces beat to
    pieces the last time they tried. There appears to be no options.

    Much more troubling than the currency moves is a developing problem in
    money markets. There are liquidity considerations that are impacting
    traditional funding sources including money market funds, the repo
    market (all asset classes), currency funding markets, Libor markets


  4. Interactive Brokers Bulletin Board

    Aug 03, 2011 10:43 EDT

    NOTIFICATION - Margin Increase on Silver Derivatives

    In light of recent unprecedented volatility in silver markets, the exchanges that offer trading in silver derivative contracts are increasing the margin requirements on these products. In an effort to adequately address the inherent risk resulting from this volatility, IB is increasing margin requirements on silver derivative contracts to a level exceeding that which the exchanges are implementing. Please monitor and manage your risk accordingly.

    Interactive Brokers Customer Service

  5. Where would you be if you failed like this?

    Ex-Directors of Failed Firms Have Little to Fear

    Do the former directors of the institutions that collapsed during the
    financial crisis have anything to worry about? If the experience of
    Enron is any example, the answer is a resounding no.

    A look back at the career paths of onetime Enron directors indicates
    that the former directors of Bear Stearns and Lehman Brothers will
    continue their prominent careers.


  6. Stock market bubble is part of the cycle in which the securities and other business assets at artificially high prices.
    What Is Stock