They're calling it a market meltdown. It's an awful thing to watch an economy self-destruct, but that's what we're watching. Today, the stock market is down yet again. At one point, it was down over 500 points for the day. Then it was up 100 points. At the close, it was back down 128 points. For the week, it's down well over 20%, and it's down more than 35% below it's highest point ever a few months back. The market meltdown is happening right now, and no one knows how low it will last, but it's not going down easily or quietly. The bulls and the bears are battling it out, and the blood is everywhere.
Cash is currently king (despite it's enormous weaknesses), and without having a strong alternative currency to rush to, frightened investors are saying that their safest place to be is in dollars...one minute. The next, they're flying back into stocks, saying, "Hey, the ride isn't over yet!"
The hard metals are suffering too, primarily because they're not legal to use as currencies. Thus the market is only valuing them for their industrial and commodity uses, not for their currency value. We see silver down about 16% for the day and gold down about 7%, despite the fact that silver coin dealers have no inventory on hand in most cases! Yesterday, while the market was plunging, both metals went the other direction, straight up. Today, as the market plunged, they plunged too. As the market ran back up, the metals did not. No, precious metals are definitely not being valued by the broader market as currencies. They know that the law won't allow it.
The major online suppliers of precious metal coins are all wiped out of stock. Kitco.com, for example, has had a message on their boards for weeks now, saying that they've suspended filling silver coin orders, and they're only buying back at $1.35 over spot. That suggests that they see the coin shortage as temporary.
While the spot price of silver has slipped below $10 an ounce, you can't buy a one ounce silver eagle coin on eBay for less than $17. As I write this article, a quick check of eBay auctions show there are eight such coins in auctions that are due to finish within the hour, and the current bids range from $17.50 to $23 per coin, with the $23 coin being the auction that's going to end soonest.
Normally, silver coins sell for only a premium over spot, but not twice the spot price or more! This is a market that's completely out of whack, similar to the overall marketplace. Investors are dumping silver investments because...it's not legal money. In our society, silver and gold are only industrial commodities, and if industries are going to collapse (as some investors fear), then the industrial demand for metals will also collapse. Similarly, they're dumping stocks, while others buy them up.
Oil is down below $80 a barrel from a recent high of $147 a barrel, and some are now forecasting that it will fall down to historic averages in the $35 a barrel range. That's great for consumers for now...but how long before the layoffs start? And how long will the price stay down? Well, that depends on whether the overall crash continues, whether or not the deflationary trend remains, and whether or not the economy turns inflationary again in the long run. In other words, no one knows exactly how it will play out.
What's important to know, so we are told, is that the entire affair is being orchestrated by the Fed, the U.S. government, and the other central bankers around the world. Will they succeed in reinflating the economy this time? I'm guessing they will, but oscillations are definitely getting worse as time goes on. Meanwhile, they've already got our personal guarantee (a $700 billion bailout) that we the people will pay for any more messes that the banks and industry get into. They're just trying to figure out how exactly they want to spend that guarantee. It's kinda silly, really, because they'd already created at least $810 billion in new money the previous month (sources here and here). The Fed really didn't need the extra $700 billion right away. What they really wanted was the guarantee, because that way they can sell the idea that the bankers really aren't a bunch of carrion birds and that they're here to help us, not to suck us dry. How do we know? Because if they get in trouble, the bailout guarantee promises that they won't have to pay for that trouble out of their own pockets.
This Fed-managed mess is supposedly an argument in favor of fiat money and Fed-managed economics. Yeah, right. I may not know much, but one thing I do know for sure is that none of this is a good argument for the claim that fiat currencies are great for providing a stable, growing economy. Instead, they're great for perpetrating the boom/bust cycle. We've been through the latest boom part. Welcome to the bust. It's the show that never ends. Monday's market should be something to watch. I hope you're not an investor caught in the middle. Hang on; it's going to be a bumpy ride!
©2008 Walt Thiessen, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Friday, October 10, 2008
Last modified: Friday, October 10, 2008
The views expressed in this article are those of Walt Thiessen only and do not represent the views of Nolan Chart, LLC or its affiliates. Walt Thiessen is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
Report violation by Walt Thiessen of Nolan Chart LLC's terms of use policy.
| More Articles By Walt Thiessen |
Reader Comments:
Posted By: David S
Date: 2008-10-10 17:20:01
Well as someone who is invested in both gold and stocks I can tell you that it only hurts when I laugh. So I try to avoid doing that. :-(
Posted By: Tom
Date: 2008-10-11 02:34:56
This is the ONLY article i've found that mentions the fact that silver fell 20% in one day. I guess the fact that the metal lost nearly a quarter of its value in one day is not news worth to 'main stream media'.
I was watching the market when this happened, you could literally see the buying frenzy when it hit 9.50. It'd go down to 9.50 then jump to 9.80 then jump to 9.50 within seconds, then to 10$ then back and then back up again. Trying to force its way up, and everytime halted as someone (central banks probably) liquidated billions of the metals.
I smell government market manipulation.
Posted By: David S
Date: 2008-10-11 09:42:27
What I find most ironic about the current situation is that the thing which is doing best right now is the dollar. And the dollar is the thing which has the least reason to be valued. Precious metals have some inherent value. Oil has value. Stocks have value, at least some of them do. But the dollar is backed only by the full faith and credit of the government, a government that is technically broke. Seems strange to me.
Posted By: R.G.
Date: 2008-10-11 14:12:28
Isn't it about time that people learn to seperate paper silver from the real physical silver market?One is 90% plus settled in cash with no intention to take delivery whilst the other is the actual purchase of the real thing.
Silver investers in the US, Europe, Australia are reporting shortages of silver coins and bullion yet the pathetic take down of the Comex paper silver is executed at the same time almost every day when it's price is about to take off. I have watched this in amazement for the last four years.
Gold and Silver are yardsticks to how well the economy is doing, so it's in goverment's interest to keep the price down.How can they tell you that everything is fine when these metals would make them out as liars.
Hopefully, the investigation by the Commodity Futures Trading Commission into a possible market manipulation will expose these crooks for what they really are.
Posted By: trd
Date: 2008-10-11 14:13:35
David:
The dollar is not the best thing right now. It is the least bad. That's because people don't know where else to put the money so they turn to cash even though cash is trash. They liquidate all of the other investments into cash becauswe you may need it to survive since it is the only legal currency. You may need that cash for your essensials like food and gas rather than leave it in investments. That's why the cash right now seems like the least bad to most people.
Posted By: Billy Joe Allen
Date: 2008-10-11 14:50:25
"The hard metals are suffering too, primarily because they're not legal to use as currencies."
That is like saying the valuse are too low because government has not artificially propped them up. Precious metals haven't been legal to use for currencies for decades, and their recent drop in value has nothing to do with the government's (admittedly stupid) ban on their use as a currency.