We will see gold at $4,000/oz or the Dow at 3,000 before this corrects.
That is, if the dollar doesn't collapse entirely.
Posted on 02/29/2008 3:21:52 PM PST by TigerLikesRooster
Stocks slide as investors scramble for safety
By Michael Mackenzie and Saskia Scholtes in New York
Published: February 29 2008 19:08 | Last updated: February 29 2008 21:10
Stock prices and bond yields tumbled on Friday as fears about the stability of the financial system sent investors scrambling for the safety of government debt.
The yield on the two-year Treasury note dropped to its lowest level in nearly four years, while the S&P 500 stock index fell 2.7 per cent and the Dow Jones Industrial Average lost 2.5 per cent.
Traders said sharp falls in the prices of mortgage bonds and municipal bonds this week led to margin calls for some investors, exacerbating volatility as traders closed their books for the month and several leading investment banks marked the end of their fiscal first quarter.
“No question, margin calls are driving prices lower and there is more to come,” said Tom di Galoma, head of Treasury trading at Jefferies & Co.
Investors also reacted to dismal US economic data, continuing worries about credit insurers, a UBS report predicting that losses from the credit squeeze could reach $600bn and $15bn in writedowns from insurer AIG after the close of trading on Thursday.
“We are in the middle of a financial crisis,” said Larry Kantor, head of research at Barclays Capital.
The search for safety sent the yield on the two-year Treasury from 2.12 per cent on Monday to 1.64 per cent on Friday – its lowest level since April 2004.
The difference between the yield on the three-month Treasury bill and three-month Libor, the rate banks charge each other, was about 1.2 percentage points. That is about five times its normal spread.
Investors cut “carry” trades that involve borrowing in lower-yielding currencies to invest in higher-yielding currencies, sending the dollar to less than Y104, a four-year low against the Japanese currency. Gold rose to nearly $1,000 an ounce.
“The credit markets do appear to be in the throes of another leg down into the abyss,” said Bill O’Donnell, UBS strategist.
There was good news for one credit insurer as Wilbur Ross, the distressed situations specialist, said he would invest as much as $1bn into Assured Guaranty.
In the last two weeks, I’ve noticed a marked drop in tax free municipals. Those are some of the safest harbors around, but with the current drop, yields may be over 5% soon.
Practically speaking, this is about the same as a 10% or better return on a typical investment. You have to be under a lot of pressure to surrender a safe return like that.
The bottom line to this market is where is the freed up money going? If it is going to cover losses, that means the market is still heading south. If it is to build up a cash reserve to bargain hunt, the market will recover.
What I would suggest is making a list of 10 stock sectors, from safest and stablest on the bottom, to riskiest and high return on the top. When the bottom half of the list is on the uptick, the market is probably going to go north again.
So will Monday bring more of the same?
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."~~Irving Fisher PhD, leading U.S. economist , New York Times, October 17, 1929
"If recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Federal Reserve System would take steps to ease the money market and so check the movement."~~Harvard Economic Society, October 19, 1929
"This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years." ~~R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
We will see gold at $4,000/oz or the Dow at 3,000 before this corrects.
That is, if the dollar doesn't collapse entirely.
Asian indexes are looking steady, with Chinese indexes up a little and most other Asian indexes down only a little for the day. And oil is still high.
It appears that the December plan to lower oil prices and raise the dollar is not working yet. ...will have to lay the rest of the middle class off in order to shut down the larger SUVs. Then maybe oil will go down a little and the dollar up a little. ;-)
That graph seems to indicate that the dollar value will continue to decline.
Gee.....imagine that.
And we keep being told just how “marvelous” everything is and will be.....
That's code speak for mere "brilliance", lol!
That's getting into the range where the Bank of Japan last intervened.
If inflation returns, it's a bad deal..IMHO.
sw
If I'm not mistaken, the Reagan years were a boom for the buck. Another upside trend started when the Republicans were the majority party in Congress.
But if inflation returns, you'll be able to make more than 5% on your loot - guaranteed? Gotta go with what gives the most.
Thanks for the ping.
If I'm not mistaken, however, that graph, and these times, resemble absolutely nothing concerning how things were under Reagan. And I see no kind of Reaganesgue future on the horizon, either.....just a ship that be sinking.
It is an election season, don’t ya know? Markets are expected to fluctuate wildly during the election process. How else would people who own the gold pick the puppet of their choice?
That would be considered 'talking down the economy'. As long as folks have that attitude, I'll find a way to make a FORTUNE.
You go ahead......while we observe the elephant standing in the room, right in front of you.
The comments I am seeing on financial and trader forums indicate that the Market may be coming out of its denial...we’ll see in the days and weeks to come
Indeed!
Thanks! I will. Meanwhile, just keep on bitchin'. (Like the planet doesn't have enough of THAT.)
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