As far as the gold debate, it is wrong to state gold should be lumped into the commodity sector considering it has little industrial use, which was correctly pointed out, but it also misguided to not label gold as a currency, for it has been considered a storage of wealth for quite some time, the first gold coins appearing around 700 BC. Central Banks around the globe accumulate bullion into their own coffers by the tons.
Gold and gold stocks performed relatively well the last Great Depression, the reasons, it had an anchor price due to we were on the gold standard at the time and also the cost of retrieving gold from the ground fell dramatically in the deflationary environment. The question now, how does gold perform in another deflationary scenario, no longer on the gold standard? I can almost guarantee you Gold will not track the commodity sector. Although, I suspect it might get caught up in the selling tomorrow as leveraged players and money managers liquidate assets, seeking cash anywhere they can find it, but it will still outperform and soon find a bid as the reality sets in there will be no rate increase and more QEs are eventually on the way.
Thus far the all important swing players in the gold market (China, India) have been reluctant to buy due to a rising dollar and consumers simply don't have the means due to poor economic conditions but that should be changing when they realize it makes sense to accumulate Gold to offset their falling currencies. We shall see...
I have to agree with benj17 on this one. I don't place gold in the commodity sector but as an alternative currency. The collapse in the commodity sector is simply a reflection of a rapidly slowing world economy, the misallocation of capital and the resulting overcapacity which is going to take a lot of painful years to heal. I also do not see the recent move in gold as a counter trend rally but the beginnings of a secular bull which will be driven by an intensifying currency war and more QEs.
Since BTU broke $3 bucks I don't pay too much attention, seeing bigger fish to fry. But I know BTU stock is all about the outstanding debt, the willingness of the debt holders to either take their chance in bankruptcy court or restructure via swaps et cetera. Charts and history do not apply in this game. Keep in mind, even if the price of coal stabilized it doesn't have that much of an impact on a leveraged balance sheet. Leverage is what killed BTU. Mgt's decision to expand, their China strategy could not had been more ill-timed. But in their defense many commodity producers made the same mistake. When money is cheap that tends to happen.
The bigger picture is this...The severe problems in Asia, especially China are finally coming to the surface. Yes China has the ability to lower rates and reserve requirements but their debt levels have shot through the roof, especially private debt, add to this malady capital outflows are at dangerous levels. The govt has truly made some bonehead moves of late in their attempts to stop the bleeding, there is no confidence they have the ability to successfully play this bad hand out without causing a major crisis.
Somebody in Asia is eventually going to let their currency free-fall and this will send shock waves around the globe. Truly alarming we face this crisis in a world awash in debt, central bankers with few bullets to fire.
I found it rather comical the myriad of reasons the talking heads on the major business networks hatched to explain the dive in stocks. Not one mentioned the growing credit crisis, the widening spreads occurring across all grades of corporate debt. It was so obvious this was going to present a major problem for equities I posted repeatedly of the pending equity sell-off. Yes there were other warning signs such as severely deteriorating breadth but the turmoil in the credit markets was so obvious and yet, even post plunge, very few are aware or give it mention.
The reason this is quite important, credit events historically are often quite severe and based on the growing crisis in Asia, the commodity collapse and the associated damage to commodity dependent countries, the raging currency war and the $9 trillion plus dollar denominated IOUs held in the emerging markets, well this spells serious trouble. Liquidity in the debt space is already extremely troubling, this could get ugly real fast.
It was such a joke the money center bank stocks were spiking higher to new highs, idiots like bank stock analyst #$%$ Bove claiming another "buy of a lifetime", just like the fool did in 2007 just prior to the financial collapse. I can't think of a worse sector to be in right now than the banks! If my take comes true in the coming months yields on treasury are going to fall big time and corporate debt is going to continue to come under pressure. Defaults will be rising dramatically. Keep in mind hedges will be expiring in the not too distant future which will bring a second leg down for commodity stocks and their debt.
I see China devaluing the Yuan further and other Asian countries will follow suit bringing more chaos and more capital outflows. The dominoes are lining up and in this environment I would be shocked if the Fed chose to come off zero. In fact, before this storm is over they will most likely pursue more QE. I would think gold is a good bet here.
I don't understand abvincent, you stated Apple would be 130+ by August? Now trading $106? This is not free money! This is losing money in a big way! What an idiot!
This is truly a very unusual market, never have the central bankers been so involved in the process, for that reason it is quite difficult to apply previous market cycles when trying to predict future events in the present day. In my opinion the credit markets represents the closest gauge to truth that we have in this era of Fed manipulation, even this barometer is muddied from the effects of QEs and endless money printing.
The question now, what next? Is the fall in stocks and the devastation in the credit markets finally an admission that keynesian economics on steroids is a failure? Only succeeding in creating bubbles, overcapacity, and the misallocation of capital worldwide? And if this is indeed the case, that the central bankers are pushing on a string, have no more ammunition, we could very well be looking at a very, very serious situation with severe consequences. Or, maybe this is simply a long overdue correction. Whatever we are experiencing, it makes zero sense to me, and appears fraught with danger. I am very surprised Gold has not had a larger move to the upside, I believe it eventually does as the currency war and crisis in Asia heats up.
As far as BTU's recent counter trend rally, I don't see Peabody pushing much above $2, and I don't believe the rally has legs. The fundamentals remain weak for coal and BTU still has some very serious debt issues that are not going away. Soros position is so ridiculously small it is a nonfactor. What is somewhat positive news the Philippines recently announced they will be opening 23 new coal fired power plants, quite odd considering the Philippines are ground zero for the devastation caused by man-made global warming.
Finally, quite predictable Finster the cockroach has come out of hiding. This is a very good indication BTU's run is nearing it's end.
XOM down 10% since the boys over at Goldman added the stock to it's conviction PUMP & DUMP list! There is good reason why Lloyd Blankfein became a $Billionaire this year.
Thus far the equity markets have ignored the widening spreads in the credit markets but that simply cannot be sustained, something has to give, either stocks take a big hit or the cost of borrowing begins to narrow, my firm belief it will be the former. Some would argue this is an isolated event, contained to IOUs that are exposed to the collapsing commodity sector but this is not the case, the spreads are widening on even the most highly rated corporate debt, a huge red flag.
This is an unusual time of year for the markets, extremely low volume, easily manipulated. The big boys on Wall Street & the money center banks are currently on vacation, wining and dining their mistresses, lavishing their comfort girls with diamonds from Tiffany, leaving junior employees behind to man the ship. Normally an easy task in the doldrums of late August but I suspect the crooks that run the markets will be zipping up their pants very soon and returning to the office quickly to deal with a major dislocation.
The planets and stars are aligning for another major Asian crisis as growth stalls, capital outflows increase and the currency war heats up thanks to China's recent entry into the foray. If Yellen pulls the trigger this Sept and raises rates this will push the greenback even higher, exasperating the collapse in the commodity market, putting even more pressure on servicing the $9 trillion dollar denominated debt held in the emerging markets.
The canaries in the BTU coal mines are singing loudly, you best buy some protection for the upcoming storm, it could get ugly, very fast.
Slowly but surely like an insidious cancer our largest financial institutions have overthrown our govt, murdered the free market, infiltrated the Federal Reserve and enriched themselves at the expense of the long-term health of the global economy and the future of our children. No surprise, bank generals such as Jamie Dimon and Lloyd Blankfein recently joined the $Billionaire club.
This has been a very well planned out and orchestrated attack, the beginnings found in the weakening and death of many of the laws intended to prevent such overthrows. Unfortunately over the years the incredibly strong bank lobbies succeeded in ending Glass Steagall, derivatives laws, and basically making any types of regulations so convoluted, complicated, esoteric it would be virtually impossible to prosecute if something did go wrong such as the 2008 financial collapse.
Quite telling, the last Great Depression it was the bankers who jumped out the windows, in 2008 it was the general population who suffered from the banker's sins, their toxic financial engineering. Those directly responsible for the crisis kept their ill-gotten gains, were bailed out with the help of the likes of Timothy Geithner. The argument, they had no choice. And this is the critical point! There should be a choice, they should of been allowed to fail, those who committed fraud, criminal activities prosecuted.
The executives of our largest banks, our legislators, the rating agencies, Fannie, Freddie, the financial product division of AIG, the incompetents at the Fed and our regulatory bodies, this was an inside job perpetrated by many, many players in very high places. Proof of just how corrupt our system had become, and sadly nothing has changed, if anything it has only gotten worse. So prepare yourself for a world of serial bubbles, further concentration of wealth, a lower standard of living for the masses. The free market, and in many ways America has been murdered.
No there is no official plunge team but with that said, it is only semantics not to refer to what the U.S Fed employs and what the Chinese govt has no problem admitting, they actually purchase stocks to prop up the market with the hope the wealth effect creates spending and permeates the overall economy. The only difference the U.S. central bank does the same thing just in a bit less transparent manner with the help of money center banks.
And you are correct, a very important aspect of the equity rally the past 6 years has been corporations borrowing cheap money and purchasing their own stock. Approximately 1 in 7 stock purchases has been buy back related over this time period, truly astonishing. What many fail to take into account, this practice might artificially boost earnings but it also adds debt and weakens the balance sheet. This is one of the reasons you have seen stock prices rise yet corporate bond debt under pressure. The classic rob Peter to pay Paul.
Corporate executives have a lot of incentive to focus on stock performance only, the short-term, one of those being stock options, much of their compensations takes this form, also CEOs are under a lot of pressure by Wall Street to perform this "financial engineering" as you say.
I don't think a lot of people comprehend that our largest banks, Chase, Wells, BOA, et cetera, are not truly lending institutions, this is not where they make their money. Their big cash cows are trading, the huge derivatives market, which they own, a true monopoly. Even with the watered down Dodd Frank this is still the case, not much has changed the past 3 decades in this regard.
Easy money, zero rate policy, QEs, sets the table for these guys to place easy bets with almost assured outcomes. If you examine the trading of our largest banks their winning percentage nothing short of remarkable, unless you consider this game is rigged thanks to the Central Bankers, who have a very close relationships with these banks
Very predictable, plunge protection team very hard at work in their attempt to keep S&P 500 above key 2068 level at the close. Free market murdered years ago.
Most likely what is taking place are the individuals who have a large bet BTU will be filing for bankruptcy purchase way out of the money calls on the cheap for protection. I would not read too much into the activity, in many ways it could be viewed as a negative.
As I have emphasized the past six months keep an eye on the credit markets, especially critical junk debt. A troubling trend of U.S. treasuries falling in yield and distressed debt rapidly rising in yield has firmly taken place and continues unabated. This is a rather serious warning sign that equities could be in for a major downfall.
The recent entry of China into the currency war has magnified the severe problems facing the credit markets pushing the U.S. dollar ever higher which is extremely important considering over $9 trillion of foreign debt is denominated in our currency (As the dollar rises servicing that debt becomes more and more arduous). Keep in mind much of those IOUs are already close to default.
Now the criminal money center banks with the help of the central bankers possess a certain amount of power to manipulate stocks but controlling the huge debt market is another story. Eventually the health of the credit markets will determine the fate of stocks and the global economy.
Much like the Chinese govt, the plunge protection team composed of our largest banks (financed by the Fed) will be buying stocks towards the close in their attempt to push the S&P 500 above the critical 2068 level. If we do close below 2068 it is a very good wager we drop to 1960 in the next few weeks. We definitely reside in treacherous times, the free market and price discovery mechanism murdered by the central bankers, all in the name of recapitalizing our largest criminal banks, making the likes of Jamie Dimon and Lloyd Blankfein billionaires, but at a horrific price, which we all be witnessing and feeling soon.
Apple longs just don't get it! Will pay a very severe price for their ignorance.
I will buy $50 Google phone instead, or a cheap Chinese brand. Must be very cost wary now with currency being devalued.
China's state controlled economy cannot be saved by more debt, devaluing currency, supporting bankrupt industries, halting stock trades. For too long China's economic model has been building infrastructure via debt, relying on selling products overseas below cost. Those days are now over and the pain has just begun! It was very predictable that China would enter into a devastating currency war in their last vain attempt to prop up their exports and moribund economy. It is going to get ugly as the Ponzi scheme collapses and Apple stock will follow the plunge. Civil unrest on the way! Apple stock could easily trade $75 in the coming months as Asia enters into crisis.