Helicopter Drop On The Way

November 12, 2008 Inflation, Market Updates, Politics No Comments

A quick recap of the markets at this time before we begin. The DOW is down 366 at 8,327, the NAS down 67 at 1,513 and 24hr gold at $710.20 down 21.20. This is getting ugly and there seems to be no end in sight.

One would think that if the government would not say anything for a week, we might get a chance for cooler heads to prevail and allow the markets to catch a breath. No such luck. We had bad news coming from Macy’s and Best Buy which points towards further tightening of the consumer’s purse strings. Everyone is in conservation mode, not buying mode. That in and of itself was enough to send the markets lower, but what came next is simply mind boggling to me.

Let’s hear it for Henry Paulson’s news conference. I have been of the mind from the beginning that Government intervention in the markets would not be a good thing and would not cure the problems (aka unregulated derivatives). His statement today vindicates my position. The bailout that we had to have immediately to prevent the situation we are in now obviously has not worked. Now the people in charge of the bailout, the very same ones who were charged with the oversight to see that it never occurred in the first place, are saying that we don’t need to buy up the bad paper, but rather now we need to inflate our way out of this deflationary situation. Who is in charge here and how do you go about getting a gig like that?

Ok, sorry about the rant, but this is really beginning to frost me. Mr. Paulson’s decision to shift the focus from buying up the bad paper to putting money into borrowers (bad housing mtgs) and non banks (credit card lenders) changes the game 180 degrees. No wonder the markets have rolled over. No one knows what is coming day to day!

This uncertainty is boosting the value of the dollar (how counter intuitive is that?). This situation is accelerating and soon the dollar will have a sharp retrenchment when the markets see the effect of this latest Ben Bernanke style helicopter drop of liquidity into the global system. It is not a question of “if” the dollar will fall, but simply a matter of how far and how fast.

With all the excitement going on in the markets, gold slid right through the $720 support and is nearing $700. As discouraging as this is, it is a temporary situation and offers new lower levels at which to acquire more shares. I would like to sit through the opening tomorrow and get a feel for where this is going. If buyers come in gold may stabilize before it goes through $700. I hope so, but it is not looking promising right now.

A run down to $628 is not out of the question. I will keep my powder dry and nibble as we step lower. When gold detaches itself from the commodities and the markets and starts acting like money, the snap back will be dramatic and will most likely leave most traders behind.

Till next time, good luck and good trading!