Skip to comments.Tuesday, 7/23, Market WrapUp (Things vs. Paper)
Posted on 07/23/2002 4:27:32 PM PDT by Lazamataz
Monday's Stock Market WrapUp
Volatile Markets Move on News and Emotion
I would like to suggest that to you that we no longer have fundamentally-driven markets. Markets are driven by emotion whether it is greed or fear. It has been that way since the mid-90s. It was greed that drove the markets in the 90s. Instead of fundamentals, investors were encouraged to trade. Gone were the days when investors bought stocks based on value and held on to those stocks until the financial markets recognized that value. When I got in this business in the late 70s I was influenced by the investment philosophy of John Templeton, Ben Graham, and Warren Buffett. They taught me that you buy a stock based on fundamental values and then wait patiently for the markets to realize that value. The average holding period for stocks bought by John Templeton when he was managing portfolios was 3-5 years. That philosophy held true up until the late 80s. After the 1987 market crash, things began to change under the stewardship of Alan Greenspan. When financial crises presented themselves, the Feds response was to pour money into the markets and reliquify the markets. The standard prescription to any financial crisis was money -- lots of it. Money was added to the system until the financial fires were put out. The consequence of such action was that the markets became more volatile as the new swarm of money danced around the markets looking for a place to land. Wherever that money landed, a bubble was created -- whether it was healthcare stocks, technology, or the Internet.
Trading became more prominent. Instead of "buy and hold," we now had "buy and sold." This culture still permeates much of our financial culture to this very day. In the 90s it became so prominent that professionals were encouraged to quit work and trade for a living. It became so easy to make money in the financial markets that you didnt need a professional. All that was needed was a computer; a trading software program with a data provider and the rest was easy.
That was the past. Now we have the present. The reason I bring this up is that what we have today is a technical trading and emotion driven market. There are very few convictions that are held today by either bulls or bears. Very few people know where this market is heading. Those that do are in the bear camp. How else can you explain the economic and financial forecasts that have been completely wrong for three consecutive years? Today there are no convictions that are held long-term. When you find them in an individual, they are rare. Most fund managers trade positions like lottery players. Most on Wall Street tell investors to do one thing; while they do the opposite. So we have the volatile markets that we have today because convictions and beliefs are nonexistent. These are shallow markets with investors looking for leadership when none is given. Today we have is a technically trade-driven market with no long-term beliefs. To this market, "long-term" can be defined as either an hour, a day, a week, a month, or maybe a quarter.
Another aspect to this market that is not explained is that we are in transition from a bull market and a booming economy to a bear market and a depression. All the financial and governmental forces with all of their powers are at work to prevent its occurrence. Both Washington and Wall Street want to keep the sheep corralled in their pens. The problem is that the sheep are getting skittish. They know instinctively that something is wrong. They see the scandals. They see the fraud. They know that they have been lied to. They are looking for something to believe. Washington and Wall Street are losing their credibility with each new passing scandal and bankruptcy. The financial system is breaking down and the multiple bubbles created by the Fed are starting to deflate. The only bubble left is the housing market and even that is on a shaky foundation of debt.
Four Words Sum It All Up
The second phase of the bear market in equities has begun; while the first phase in a new bull market in metals is in a corrective phase. This corrective phase has been helped along by the financial industry, which is selling off shares after taking profits, and scared investors who have seen their accounts pull back over the last few weeks. The financial industry is hoping that the sheep stay in their financial corral and dont break lose for the other side. So they will do all that is possible to discredit this new bull market. Even after today, the HUI is up over 62% for the year in comparison to losses of 23% for the Dow, 31% for the S&P 500 and 37% for the Nasdaq. The HUI was up over 127% before pulling back. It is still up over 62%.
As mentioned earlier, gold and silver are emotional investments they move on emotion, especially fear. There is no better barometer of fear in the financial markets than gold. This is why the financial industry doesnt want to see its rise. But bare in mind, this is a thin market. There are 1500-ton annual deficits in gold and 100 million ounce annual deficits in silver. The above-ground stockpiles of silver are dwindling; while gold is kept low by a constant supply of gold being sold into the markets by central banks and gold leasing. This game cannot last forever unless central bankers are prepared to tell the citizens of their country that there is nothing to back their national currency. Eventually, like the London Gold Pool of the 60s, this game will be abandoned as it is realized that it is hopeless to stop its transition from a commodity to its historical role as money. That is exactly what it is doing now.
Look around and tell me what you see. The financial markets are imploding. Bankruptcies are becoming a weekly, if not daily occurrence, scandals and fraud are being exposed almost on a daily basis. What you are seeing is the evaporation of confidence in the financial system. What remaining confidence that is left will disappear when we get a string of bankruptcies in the financial system, especially in the banking sector. That is what is coming next. You cant have all of these bad loans, leveraged derivative plays, and overextensions of credit, hidden loans, frauds and scandal without consequences. Look at the charts of all of the financial sector from the major banks, credit card companies, government sponsored entities, mortgage insurance companies, to regional banks. The financial system is headed for trouble. That is what the rise in gold is signaling.
This is not the time to hesitate or the time to be without firm convictions or beliefs. If you dont have them, get into cash and be content with what you have left. For those of you that believe what the rise in gold and fall in the financial markets are telling you, it is time to take advantage of those who are subsidizing the price of gold and silver. It is the time of mice and men. It is a time when those who have convictions must stand by their beliefs because those who have none will eventually follow.
© Copyright Jim Puplava, July 23, 2002
Uh oh ! Usually I'm alone in my paranoid delusions. Stop agreeing with me, its freaking me out.
Seems like fiat would be better than gold in a deflationary environment?
And you were ribbing me over my rose colored glasses.
My plan A. is shorts & companies likely to benefit in deflation.
Plan B. is fiat
C. is gold
D. is 7.62 mm
I prolly shouldn't talk about plans E-Z in a public forum.
Somebody somewhere needed to raise cash.
You couldn't help buy take note of the overnight move to push the market up today. Futures were strong by 6:00 am ET and the market popped for 100 points on the DOW. PPT or foreign hedge fund? Who knows, but there are rumors -- lot'sa rumors floating around. Those who know, aren't talking.
Anyway, from 100 up to 80 down is a considerable drop again. The manipulation didn't work or the player didn't have enough support to keep it going. We might explain it as simply gold being sold to buy dollars, but I have a feeling that this is a move that didn't work out as planned and someone took a hard hit.
I have a bad feeling about tomorrow because of todays failed rally and the investigation of JPM and C. It could get ugly. . . but that's just my opinion.