This equity rally is doomed.
It’s a dead cat, a suckers bet.
Sure, if you throw a trillion dollars at the world, things start to happen.
Last week, the European Central Bank did just that… They tossed in the Marshall TARP to “save” Greece and prevent a dept/currency crisis from spreading to the rest of Europe.
As you can tell by this chart of the QQQQ’s, which tracks the NASDAQ 100, this plan worked.
Equity markets came flying back from the edge of the abyss. (Please note the “flash crash” on the sixth.)
But don’t buy into it — it won’t last. Volume is falling and we are putting in lower highs.
Goldman as the Illuminati
The EU and IMF might have saved the markets in the short run — but at a severe cost to credibility.
If you had hard stops in last week, you could have lost a fortune as many stocks fell to a penny for five minutes.
My favorite “flash crash” conspiracy theory at present has been dubbed the “Goldman Sachs Revenge.” This theory maintains that when the Obama team decided to go after the world’s biggest investment bank, Goldman Sachs (NYSE: GS) crashed the market and asked, “How do you like me now?”
And it’s not hard to imagine now that we are seeing the toothless Wall Street regulations coming out of the Senate.
The upshot of all of this is that no one trusts the markets. The lack of volume on the chart above illustrates a lack of conviction.
This market will retest the recent lows.
More Debt Will Save Us
The simple fact is that you can’t solve a global debt crisis by creating more debt.
In the aftermath of three bubbles in the past ten years, it could be that investors are starting to believe that the “full faith and credit of the U.S. Government” that backs the dollar isn’t really all that great.
Here’s another chart. This is the SPDR Gold Trust (NYSE: GLD); it just had a jailbreak on big volume:
Gold hit record highs near $1,250 an ounce in Europe last night.
And it wasn’t just futures…
According to Reuters:
Investment in physical bullion was strong as buyers sought safety, with holdings of the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, at a record high 1,209.5 tonnes on Thursday. The fund’s reserves have risen 68.5 tonnes or 6 percent in the last four weeks. The SPDR ETF is the world’s sixth largest holder of gold, ahead of Switzerland, China and Japan.
The Sheep are Bleating
Investors are starting to put gold in the “safe-haven” category for the first time along with the U.S. dollar.
I know… Gold bugs have been talking about gold as a safe-haven forever.
But until this week, gold has been trading as a function of the dollar as a commodity.
Then everything changed…
This next chart shows the dollar ETF versus the Gold Trust SPDR. Take a look:
You will notice that in the past, gold went up as the dollar fell — and vice-versa. This is because gold, like oil, is priced in dollars.
But this week, as the dollar rallied on euro fears, gold went up as well.
The price of oil went down — nice and normal.
But gold and the dollar both went up at the same time.
This is a big deal!
Famed German banker Barron Rothschild taught us that gold normally trades like a commodity. But when investors lose confidence in currencies, because the pool of gold is so much smaller than the pool of currencies, demand for gold can effectively become unlimited.
The recent gold/dollar action would strongly suggest that gold is now trading like a currency.
Editor, Energy & Capital