The last bubble holding up the stock market has burst. The confidence we held in fiscal policy to swoop down and rescue the financial markets from the financial woes of last year – was for naught. I say this because there’s a correlation between the drop in the S&P 500 and the day our new Treasury Secretary advised us that there’s a plan (sold separately and details not included) on February 10th.
Before getting to the heart of today’s article I’d like to first provide the following definition:
Myopic: Unable or unwilling to act prudently; shortsighted; Lacking tolerance or understanding; narrow-minded; Lack of discernment or long-range perspective in thinking or planning.
As promised, today’s article picks up where last week’s article left off with the focus predominantly on gold, not gold stocks. This year marked an historic event, as something occurred for the third time in nearly 80 years, which is the value of gold exceeding the value of the S&P 500.
The reaction by the market yesterday to Treasury Secretary Geithner’s comments was clearly buy the rumor and sell the news as the markets began to sell off before it became clear his speech was void of any details.
So the big announcement has been made, with the Obama Administration and Treasury Secretary Timothy Geitner unveiling a more then 1 Trillion dollar proposal for a comprehensive rescue of the nation’s ailing financial system. Geithner's proposal will entail making new capital infusions into struggling banks with the government forming a partnership with private capital to invest in troubled banks.
Last week on Thursday February 5th, 2009, The President’s Working Group On Financial Markets held their first official soiree with former New York Federal Reserve Bank President, Timothy Geithner, installed as President Obama’s pick as Treasury Secretary.
It was Senator Mitch McConnell who put it best on Monday, when urging the Obama Administration to strip out the “Buy American” clause from the economic stimulus plan. Quoting McConnell, “"I don't think we ought to use a measure that is supposed to be timely, temporary, and targeted to set off trade wars when the entire world is experiencing a downturn in the economy," said Senator Mitch McConnell.”
Gold has been a leader in the move of industrial commodity prices. By bottoming and topping first, gold anticipates moves in commodity prices. The difference in time from the lead to the lag varies, but the relationship has held true for quite some time.
My all-time favorite movie by far has to be Braveheart (1995). My Father and I both saw it several times in the movie theaters and the film went on to win the Academy Award for Best Picture and Best Director.
Ever since the dramatic sell off that occurred in the markets in the last quarter of 2008, one of the indicators I’ve been watching like a hawk is the exchange rate between the Euro and the Yen.