Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Surprises Abound - Central Banks Liquidity Flood Fails to Prevent Stock Market Plunge

Stock-Markets / Financial Crash Aug 10, 2007 - 12:17 PM GMT

By: Andy_Sutton

Stock-Markets Just as everyone thought things were getting back to normal. Just as everyone thought that all the bad and ugly stuff had receded into seldom-accessed portions of the subconscious. Just as the bulls were starting to get a little of that swagger back and talk of new records filled the airwaves... BANG! The markets were once again slapped with another dose of reality. The really interesting thing about today was not only what didn't happen, but what DID happen.


What didn't happen..

The week-long rally failed to continue, and the DOW, gave back all but a trivial amount of the ground gained. In the grand scheme of things, this hasn't been much of a correction. The DOW is 5.21% off the record high of 14,000.41 As far as corrections go; so far, this one has been pretty mild. The S&P500 has given up 6.44% from its 1553.08 high. Given the length and severity of corrections over the past 4 years or so, there is at least anecdotal evidence that this one is nearly over. However, the fact is that we still have a long way to go in terms of how the credit mess will shake out, especially now that it is pretty much recognized that this goes well past our borders. Couple that with the fact that the contagion also extends into the alt-a and prime credit markets as well and I'd say this is anything but contained. 

Gold again failed to decouple from the equity markets. We had seen a few small signs of a decoupling late last week as the yellow metal held its own and even advanced in the wake of equity weakness. Gold bears were quick to jump on this lack of a decoupling as a bearish sign for gold. I would urge caution in this regard. Today's gold market is full of smoke and mirrors. Manipulation runs rampant and there is a concerted effort by central banks everywhere to keep the price of gold down. To do this, they are parting with their own precious reserves. This is done to undermine investor confidence in gold as real money and a safe haven. Their mission is not served if you are buying gold. You are supposed to faithfully send in your quarterly IRA contributions so that Wall Street can continue to get rich. If you trade your fiat paper for real money; they don't make a dime. What a pity.

What DID happen..

In what will in all likelihood turn out to be a famous faux pas, the European Central Bank flooded the markets with liquidity today, pledging to make as much money available as anyone wanted to borrow. At last count, the ECB pumped 94.3 billion Euros into the system to keep it awash in liquidity. If this doesn't telegraph the attitude of central banks with regards to credit, the financial markets and inflation, then nothing will. The ironic thing is that the Euro promptly surrendered nearly a full percent of its value versus the dollar. Now Ben; what will happen when you do the same thing to pump up our markets? Surely you've already been doing this, but you'd better keep it quiet. The Europeans can afford to soothe their markets publicly with large sums of funny money. You cannot.

There are now rumblings out of China that if their hand is forced they may decide to use their $1.3 trillion of foreign reserves as a weapon. I wouldn't test their mettle too much on this one guys. The fastest way for the American consumerocracy to find out what's been going is to push the Chinese on this. The Chinese can end the party - and quickly. Remember, the consumerocracy is about at the end of the spending spree. Debt is killing them. This means that they will be buying less Chinese goods going forward. That means that there is less of a reason for the Chinese to continue to offer us the financial equivalent of artificial respiration.

Another note on bailouts..

On March 16th, 2007, I wrote a piece outlining briefly the history of some of our more recent financial bailouts. I outlined the S&L bailout in the late 80's and the LTCM bailout in the late 1990's. Then I made a few observations about the subprime bailout that is undoubtedly coming. We are now beginning to see the bailout begin. For now, the bailout, like its predecessors is contained (I love that word) to the financial players. As an addendum to the March piece, I'd like to get people thinking a bit about the dangers of bailouts. We all know who pays for them. But what is it that they accomplish? What bailouts do is prevent those who have made poor decisions from having to suffer negative consequences. It takes those who make poor investments off the hook. It is a moral hazard because if those who are making the poor investments know they will be bailed out, there is nothing to make them change their ways. We saw this in spades with regards to the mortgage debacle. I am not even going to call it the subprime debacle anymore because I feel that before this is done, it will cut a wide, nasty swath through all types of loans and all types of borrowers. 

Consumers deserve as much of the blame for this mess as anyone. Sure, there were unethical lenders, agents, appraisers and banks. But the consumers are the ones who signed on the dotted line. There is no excuse for getting duped when making the single most important (and often largest) decision of one's financial life. If the government rushes in sweeps this fullisade of poor decisions under the rug with a batch of funny money, what lessons will be learned? It will teach consumers that responsibility and due diligence are no longer required, and that government will always be there to make it right. Our currency and economy have already suffered enough because of bailouts of various types. Now is the time for a dose of tough love.

By Andy Sutton
http://www.my2centsonline.com

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. He currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar.

Andy Sutton Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules