What's going on with today's markets?

Fleeing the $?

Today (10/5) was a most unusual and fascinating day to watch the markets - from commodities to stocks to gold and silver, the place is going insane. As I write this, almost +200 points on the Dow, +23 points on the S&P, $25.10 rise in gold and $0.83 cents on silver. Oil is popping up above $1.50 a barrel and gasoline is marching up the ladder in lockstep with oil. $5.00 a gallon here we come. Hint: the only thing going down with all dispatch is the $dollar.

It's nuts out there. Production statistics suck, inventory versus refill orders suck, unemployment is getting worse (officially way understated with the real figure at 22% and climbing), inflation continues along at almost 9% (a little higher - by 7% than "officially stated" inflation), shipping tonnage has fallen off a cliff (right when it should be accelerating into the holiday season and consumer demand is in the tank and trying to find the bottom of it. I went to Walmart this week and every item of "Great Value" (Wally's house brand - hence cheaper) was bare in a lot of areas and in others, almost gone while name brand of the same thing were fully stocked (and more expensive).

A week and a half ago, I dumped all my trading positions in the precious metals because gold and silver went up and the stocks just sat there. I've seen this action before and it happend as gold went through $700/oz on the way up back at the last gold run up. I dumped my stocks then and have forever been happy with the decision.

So I did it again and dumped the trading portfolio a week and a half ago as published in an article here on FSO. (The core portfolio remained in place).

Day before yesterday, I wrote "I was wrong" 1 time on the computer, cut and pasted it to a total of 100 "I was wrongs". Then, I threw in the towel, accepted that Mr. Market was not going to behave rationally, decided the world has gone stark raving mad and re-entered a significant trading position in both gold and silver as well as the Aussie$, Brazilian Real, Canadian $ and even went so far as to open some CD's in foreign currencies as well, through Everbank.

I dislike using Everbank because their fees are too damn high (1.5% on a round trip for a 3 month CD) and their web site does not practice transparency making it impossible to see what they are using as a basis for their spread twist buy and sell. But for the small guy, they are the only game in town unless you want to go with ETF's. If you roll over a CD, they do not charge you an extra entry fee so that helps a little.

So why have the markets gone nuts?

My opinion is that we are seeing the smart money has started moving from cash and equivalents (bonds, money funds, CD's, MBS - anything paper and dollar denominated) and everything else that can be easily converted to cash being thrown at whatever is walking or talking that holds the slightest chance of being worth something as the dollar continues to die. Not just after QE2 happens, as it will after the "elections" which may be defined as casting ballots for people you wouldn't want running a chicken house, or the worst of two choices.

As an encore we get the treat of watching the legal system tie the banking system, mortgage brokers, NGO's (like Fannie, Freddie and Feddie (the new name for the Federal Reserve) in knots by making them all prove the chain of custody and transfer of all those hundreds of $trillions worth of MBS, CDO, REDIC, Alt-A and zombie paper was done legally. If you can't prove legal transfer of ownership that satisfies State law, then you can't foreclose on the property.

If a bank has a janitor handy, sticks a label on his forehead that says "Vice President" and has him sign affidavits of foreclosure mortgage transfers at a rate of 700 a day without reading them or signing under a notary's verification it turns out, that's ILLEGAL as hell. And now they've been caught as banks are suspending action on foreclosures right and left and zombie buyers living in McMansions without paying a dime continue to do so- and maybe getting to do that forever!

If there was an ETF for lawyers, I'd be fully invested because until they straighten this out (and they may never manage it without a legislative squeegee) you may, in a short while, not be able to buy a house at all! Banks won't lend the money and the Title Insurance Companies won't sell Title Insurance and it may be described as biggest mess in U.S. legal history. It will be a Bull Market for lawyers.

Therefore, the smart money is running very scared and buying literally anything they can that may provide value when the number of bodies dug up exceed critical mass and the whole MBS mess blows sky high. I see a lot of smoke and a "pop!" and a "bang!" going off at a distance right now!

Not to mention that this is happening right on top of Feddie's stated effort to devalue the dollar "to achieve an inflation rate consistant with the Federal Reserve's policies"! I was floored when I read that little ditty spoken by Bernanke after the last meeting of the Fed governors. I hear the "Whop-whop-whop" of rotors winding up as we speak.

To boil it down to the nitty gritty, I think we're starting to see a panic to flee the dollar by any means it may be done. I'm sure it won't be in a straight line as there are too many ways for the Feddie's to manipulate the currency. But the signs are there, the timing is about right and no one on the street has a clue what they are about to endure.

To paraphrase Ken Denniger: In white collar crime, it's not the dastardly deed (pun intended) that puts you in jail, its trying to cover it up that does the trick!

About the Author

CEO
MRO Trading Systems
mendres [at] atlantic [dot] net ()
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