Bill Cara’s Blog for July 2, 2010
July 2, 2010 by Bill Cara
Yesterday, as the Euro soared and the US Dollar plummeted, there was a very strange reaction with Gold and Silver: at first, there was no movement at all; then the prices tumbled. Typical inter-relationships in market prices often go awry for reasons of forced selling,, e.g., margin calls, or forced buying, e.g., short squeeze. But to impact a market as large as Gold and Silver for as long as happened was enough to make traders think the action might have been coordinated by central banks, principally the Fed and ECB, to try to deceive the public into believing the forex move was not their attempt, through quantitative easing, to stave a collapse in equity prices.
The truth is that only a few people really know what happened, showing once again there is a lack of transparency in markets, which may or may not be acceptable depending on the reason. My point is that if government or central banks are the reason of any extreme move in markets, rather than over say weeks or months, to effect policy change, then those moves should be explained to us – all of us, not just Goldman Sachs and JP Morgan.
In my book, when conventional analysis does not work, I step back and not make any decision. It’s the same as a race car driver running off the track, out of control, taking his/her hands off the wheel and letting the crash into a wall happen. That way, at least the arms are protected.
Two days ago, while anticipating an attempt by the Interventionists to stem the tide of falling equity prices, I focused on the Euro, believing there would have to be a bounce off the 1.22 up to 1.24-1.25, pushing the USD from the 86.50 to about 85. In combination, I projected a sizeable upward move in precious metals futures and in the goldminer indexes. What occurred was that, in fact, the forex move was right on-time, and even a tad more extreme than I had figured, but my Gold and Silver related trading decisions were dead wrong. There was a repeat of that 'head on a platter' scenario.
But, I decided to take my hands off the wheel until I could calmly decide what really had happened. This morning, despite a modestly weaker Euro and stronger Dollar, the Gold and Silver have recovered a bit. Traders are awaiting the US Jobs Report at 8:30am ET. As this result, or at least the spin, will immediately impact Europe, the small American investors will be, for the most part, locked out of the action until 9:30am ET, which is patently unfair.
Normally, macro-economic data is so loose as to be not all that important minute-to-minute in equity markets. But with the 2x and 3x ETF’s and futures, and inter-market trading by the institutional trading desks, as well as the breathless “breaking news” presentation by today’s version of financial reporting, anything can happen within an hour or so. In fact, people’s fortunes could be made or lost in that hour. Is that fair?
It is said that life is not fair, but I have always argued for social equity on the grounds that if the people don’t get it, they will ultimately revolt. I doubt the leaders in the US Congress are thinking of the people or of these issues when preparing the legislation on so-called financial services reform. That’s really too bad because they are missing another fact, which is that the people are withdrawing their capital, month by month, out of the market, and for any economy to work, it needs the people’s capital. Liquidity caused by the algo trading software of Humungous Bank & Broker (HB&B) and friends, and by central banks and sovereign wealth funds of the world is just “hot money”, i.e., here today and gone tomorrow. More accurately; here this hour and gone the next. There is, now, no marketplace that functions as a price discovery system that relates to the sustainable values of the assets behind those prices. The prices today are no different than Black 14 or Red 11 in any casino. Change is needed.
Even as I write this piece, the Euro and Dollar have reverted and the prices of Gold and Silver futures have softened. You see, it’s not worth my time to even report what’s going on because the situation has become one of ‘blink and you missed it’.
Have a great day. It’s Friday. The Americans have a long weekend to celebrate the 4th of July although I find that truly ironic. Maybe they were independent on July 4, 1776, but as at July 4, 2010, they are anything but chattels to a system that has been made to work for other people’s interests. It is time that Americans spend their holiday weekend thinking about such matters.
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