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Tuesday, 7/23, Market WrapUp (Things vs. Paper)
FinancialSense.com ^ | 07/23/2002 | by Jim Puplava

Posted on 07/23/2002 4:27:32 PM PDT by Lazamataz

 
Weekday Commentary from Jim Puplava
Home

Things vs. Paper

Index High Low % Change
Dow Jones
Industrials
03/19/02
10635.2
07/23/02
7702.34
27.60%
from high
Nasdaq
Composite
08/02/01
2087.38
07/23/02
1282.65
38.55%
from high
HUI
Amex Gold Bugs
06/03/02
147.82
11/26/01
59.86
76.60%
from low


Storm Watch Update
for 7/19/2002


Financial Sense Newshour
Saturday's Guest Expert
James E. Sinclair
Chairman & CEO
Tan Range Exploration

The Fundamentals on Gold

Be sure to read Q & A with Jim Sinclair, the man Forbes calls "Mr. Goldbug." - comments on the current market in gold

 Tuesday Market Scoreboard
 July 23, 2002

 Dow Industrials 82.24 7702.34
 Dow Utilities 17.81 191.85
 Dow Transports 81.15 2160.35
 S & P 500 27.92 819.83
 Nasdaq 53.68 1228.97
 US Dollar to Yen   117.545
 US Dollar to Euro  

0.989

 Gold 10.9 312.6
 Silver 0.16 4.883
 Oil 0.39 26.31
 CRB Index 3.1 210.99
 Natural Gas

0.06 2.889

All market indexes
The Week in Graphs
Storm Watch
Geopolitical News in Focus
Energy Resource Page

Precious Metals

  07/23 07/22

Change

  HUI (Amex Gold Bugs Index)

Close
YTD
105.73 120.97 15.24
62.16%
52week High 147.82

06/03/02

52week Low 59.86

11/26/01

  XAU (Philadelphia Gold & Silver)

Close
YTD
59.24

66.6

7.36
8.84%
52week High 88.65

05/28/02

52week Low 49.23

11/19/01


Main Page

The Gold Price is
Performing Well!



The Dragon With Many Heads
July 23 Column


 Market WrapUp for the Week 
Monday  l  Tuesday  l  Wednesday  l  Thursday  l  Friday


Monday's Stock Market WrapUp

Volatile Markets Move on News and Emotion
There are three investments in the financial markets, maybe four, that are considered to be the most volatile sectors of the market. They are gold and silver, defense stocks, environmental stocks, and biotech stocks. All of these sectors move on news and emotion. The preparation for war, the break out of hostilities, or a sudden terrorist attack can send defense stocks through the roof. The eruption of Mt. St. Helens or an oil spill can send environmental stocks skyward. A major financial fiasco such as we had in Asia, the bankruptcy of a hedge fund, or a major bank failure can cause investor panic, which sends the prices of bullion and precious metals shares soaring. An announcement of a new miracle drug discovery will send the shares of a biotech stock up like a NASA space launch rising 40-50 percent in a single trading session. These specific sectors over the long run will move on fundamentals but over the short-run they move on 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-90’s. It was greed that drove the markets in the 90’s. 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 70’s 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 80’s. After the 1987 market crash, things began to change under the stewardship of Alan Greenspan. When financial crises presented themselves, the Fed’s 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 90’s 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 didn’t 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
So how to you explain what is now happening in the markets? It is very easy. It can be explained in four words debt, deflation, transition, and things. The credit bubble can explain what you are now seeing in the financial markets along with the parade of bankruptcies that you see almost on a daily basis. Deflation is the consequence of that debt imploding. Transition explains where we are going. It explains the move in gold, oil, and commodity prices this year. Things best explain where that money is going once it exits the financial system. That is what has driven prices of raw materials and precious metal stocks this year. Please review the chart above of the HUI and the Dow and the Nasdaq over the last year. That is the story that the financial industry doesn’t not want you to see or understand. Despite its performance over the last two years, the standard advice given is to sell what is going up and buy what has been going down. This is why Wall Street is losing its credibility. They are scared stiff that investors will bail out of their mutual funds and cross over the road to the other side. So they encourage investors to sell and buy stocks like they always have done. There is only one problem -- that advice has proven deadly to your financial health. Study chart above and ask yourself what you see. Then make the decision as to which road you want to travel on.

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 don’t 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 doesn’t 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 60’s, 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 can’t 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 don’t 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.

Overseas Markets
European stocks fell after insurers Skandia AB and Fortis said lower share prices are hurting results. The Stoxx 50 fell 50.40, or 2 percent, to 2449.99. It's shed 12 percent since Thursday's close. Asian stocks rose, led by Hyundai Motor Co., Honda Motor Co. and other automakers as a rebound in the U.S. dollar led to expectations that their sales in the world's biggest car market will increase. South Korea's Kospi index rose 3.1 percent, while Japan's Nikkei 225 stock average added 0.3 percent.

Treasury Markets
Government bonds gained considerable ground for a second session as safe-haven seekers bid up the fixed-income sector. The 10-year Treasury note put on 20/32 to yield 4.53% while the 30-year government bond piled on 1 6/32 to yield 5.33%.

© Copyright Jim Puplava, July 23, 2002




TOPICS: Business/Economy; Editorial
KEYWORDS:
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1 posted on 07/23/2002 4:27:32 PM PDT by Lazamataz
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To: Lazamataz
Laz bump
2 posted on 07/23/2002 4:29:07 PM PDT by Unknown Freeper
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To: sinkspur; bvw; Tauzero; robnoel; kezekiel; ChadGore; Harley - Mississippi; Dukie; Matchett-PI; ...
Market WrapUp is delivered...


3 posted on 07/23/2002 4:30:25 PM PDT by Lazamataz
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To: Lazamataz
Market WrapUp (Things vs. Paper)

_______________________

Yeah just wait untill that *thing* known as housing gets it's bubble pricked. Katey bar the door!!!
4 posted on 07/23/2002 4:34:17 PM PDT by dennisw
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To: Lazamataz
BUMP!
5 posted on 07/23/2002 4:34:55 PM PDT by Cool Guy
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To: Lazamataz
At least you are no longer alone in being 'pantsless'...

...or shirtless or shoeless..;^)
6 posted on 07/23/2002 4:37:17 PM PDT by headsonpikes
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To: Lazamataz
Does gold count as things? Gold took a little hit today; the gold index took a big hit.
7 posted on 07/23/2002 4:40:37 PM PDT by RightWhale
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To: dennisw
Housing and derivatives. This will not be fun to watch.
8 posted on 07/23/2002 4:47:25 PM PDT by DarkWaters
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To: dennisw
Yeah just wait untill that *thing* known as housing gets it's bubble pricked. Katey bar the door!!!

Uh oh ! Usually I'm alone in my paranoid delusions. Stop agreeing with me, its freaking me out.

Big Scary Monsters

'Fannie and Freddie Were Lenders': U.S. Real Estate Bubble Nears Its End

Fannie Mae Enron


9 posted on 07/23/2002 4:51:24 PM PDT by AdamSelene235
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To: RightWhale
Re the gold slump today: Sounds like a damned good buying opportunity to me.
10 posted on 07/23/2002 4:54:01 PM PDT by StockAyatollah
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To: StockAyatollah
Re the gold slump today: Sounds like a damned good buying opportunity to me.

Seems like fiat would be better than gold in a deflationary environment?

11 posted on 07/23/2002 4:55:21 PM PDT by AdamSelene235
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To: StockAyatollah
The $EU dropped a couple cents also. What is going on?
12 posted on 07/23/2002 4:59:52 PM PDT by RightWhale
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To: AdamSelene235
"Seems like fiat would be better than gold in a deflationary environment?"

In a calm, gentle, predictable textbook deflationary environment, yes, I think so.

But in a volatile geopolitical environment, with sundry currencies and political regimes in chaotic freefall, gold will probably be easier on the nerves than paper, and will probably be more likely to reward the patient holder, as well.

All IMHO. ;^)
13 posted on 07/23/2002 5:03:28 PM PDT by headsonpikes
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To: Lazamataz
'Excessive valuations': Franklin Templeton equity guru says two more years of pain
 
Mark Mobius, the Franklin Templeton fund manager and emerging markets specialist, predicts the bear market is here to stay for another two years because valuations remain "out of whack" and investors have yet to reach the point of "disgusted selling."
 
"It's a bear market that's not going away anytime soon," said Mr. Mobius, the Singapore-based manager of the company's Emerging Markets fund and one of the industry's heavy hitters. He was in Toronto yesterday for the annual meeting of the Templeton Growth Fund, one of the benchmark products of the Franklin Templeton Investments family of products.
 
"People are not willing to face the fact that valuations are excessive from a historical point of view, which they are," Mr. Mobius said during an interview with the Financial Post. "You have to reach the point of disgusted selling, and we haven't reached that yet. When you reach that, then you will see the bottom form. But I don't think we are there yet. There's still too much hope out there."
14 posted on 07/23/2002 5:09:07 PM PDT by razorback-bert
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To: headsonpikes
But in a volatile geopolitical environment, with sundry currencies and political regimes in chaotic freefall, gold will probably be easier on the nerves than paper, and will probably be more likely to reward the patient holder, as well.

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.

15 posted on 07/23/2002 5:09:07 PM PDT by AdamSelene235
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To: RightWhale
A review of how the major European markets have performed (even compared to the Dow) would likely answer your question.
16 posted on 07/23/2002 5:10:13 PM PDT by DeaconBenjamin
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To: AdamSelene235
There is no E-Z way, I'm thinking. ;^)

Honesty becomes not the best policy, but the only policy, at certain points. This may become one of those points in time.

Folks are going to be some choked by the time the dust settles; they may be ready for free enterprise, once again.
17 posted on 07/23/2002 5:14:10 PM PDT by headsonpikes
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To: headsonpikes
bump
18 posted on 07/23/2002 5:14:16 PM PDT by RudeJude
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To: Lazamataz
Congratulations on your new guest host duties, Laz.
19 posted on 07/23/2002 5:16:55 PM PDT by Dukie
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To: RightWhale
Gold took a little hit today

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.

Richard W.

20 posted on 07/23/2002 5:18:59 PM PDT by arete
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