Does anyone take the Merkel-Sarkozy dog and pony show seriously any more? Perception management is not a solution. (see link below for quote source)When I got onto my futures software yesterday and saw that the S&P 500 futures were up quite a bit I began to look for any credible news that might be the source of the ebullience. Of course, the partial "bailout" of Dexia was not good news, especially with regard to paper currencies, and the bond market is rewarding Belgium for its action with higher sovereign bond yields today (that's a negative, in case you were wondering).
Then I saw that Merkel and Sarkozy, who were putting their heads together to solve the EU's problems over the weekend, had issued a statement that they would make sure that the EU Einsteins would eventually have a plan that would prevent the big banks from collapsing. They would issue their plan for that plus saving Greece in three weeks.
Huh? Seriously? For whatever reason, the equity markets in Europe and the United States seem to be willing to suspend disbelief and put more blind faith into empty rhetoric. Sounds like voters in the U.S. who still think Obama is doing good job.
So I queried someone who's view and market knowledge/perspective I highly respect and who has plenty of his own skin in the game with this: "Your thoughts here? My inclination is that this is a low volume holiday short-cover ramp on basically no news and that we will sell-off either this afternoon or later this week. That Merkel/Sarkozy statement is full of 'fluff.'"
His response was "my thoughts exactly," and sent me link to this brief commentary by Charles Hugh Smith, who I rarely read but with whom I often agree:
The problems of the global economy are not based in perception, but in the reality of prices, balance sheets and income statements, vast concentrations of wealth and power, precarious systemic imbalances, ruthless exploitation, and command economies mismanaged by Central State/Bank policy and manipulation. Sarkozy and Markel's absurdist theatrics--"we have a secret plan right here in our pockets"--are not just incredible, they are uncredibleHere is the LINK The same "gut" reaction I had when I saw the "Merkozy" statement last night and now I feel even more strongly about this conviction.
What this means is that I expect the markets to retrace today's theatrics once everyone in the U.S. has returned from their Columbus Day break. I still believe there is a lot of disappointing and bad news ahead of us and the markets will soon reflect this by heading south again. What I do believe is that the probability increases by the day that the next big downside "event" will be reflected in the markets by a massive rush into physical gold and silver. This has been going on all along in India/Asia/Russia/Middle East anyway, while the short term-oriented U.S. funds dump all of their paper gold and silver (futures, GLD, SLV).
Hold on tight because once the downside volatility in the metals has "washed out," the upside will be breathtaking.