Rumble Tumble
Stock rumbled, trembled, and fell like a rock today, down 449 points. The stock market is truly a bear market, and people are going to lose a lot of money. I told you about the “confirmed” bear market 6 months ago, and it’s interesting it has taken this long to really start dropping.
Bonds on the other hand are jumping in value (lowering interest rates) in these uncertain times.
The Dollar fell, and oil and gasoline rose as people are looking for any safe haven – just not dollars.
Gold – AMAZING – rose $70 today. I hope some of you got it at the steal price yesterday when it was below $800. At $851 today, it is still a “buy”. This major move in gold just goes to show you how much people want to protect their money.
In the news today….
The FED bailed out AIG – you knew that, I know. They bought 80% of AIG for $85B – a pittance. Would you have bought it for that price? Tough question – right? But, I think the answer is obvious – NO. Why would you buy a company? To gain the future cash flow – and what could that possible be for AIG – negative in the near term. You pay what the market says its worth, and only buy it if you think it is currently valued at half price. Half price of AIG’s real value is very, very, very much less than $85B. So, I conclude you would not buy it – nor would Warren Buffett – as those are his criteria for buying something.
Rumors, rumors – Morgan Stanley is thinking about merging with Wachovia??? WaMu is “for sale” – anyone want to buy it?
Thanks for your responses – they were great…..
Here is a cross section of the responses I got to yesterday’s questions. I am proud of these responses because it shows you are thinking. I’ve made these anonymous to protect me (not the innocent.)
• Good read. I believe it was going off the gold standard that started this mess.
• Do tell about 1943!!! I wasn’t around then, so I enjoy putting all the pieces together.
• I really enjoy receiving these reports and am sorry I will not be getting them on 18 day our road trip through Germany, Austria, Italy and Switzerland.
• PLEASE continue talking about this subject. I’m one of the younger people who was not around back in 1943 and I’m an absolute sponge for information. Yes I took econ in college however we really never talked about this in my econ class – probably because everything was just fine back then, or so we thought.
• Was it the Bretton Woods conference held in Bretton Woods New Hampshire? This is what took us off the gold standard and move us to an “adjustable-peg” system of exchange rates. Eventually the IMF came out of it.
• My summary of the root problem: Fiat currency combined with fractional reserve banking. The logic consequence is inflation and deflation (or said another way – bubbles and then the burst)
I was sent this quote below. It sounds too good to be true, but maybe it is accurate.
“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
- Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)
• 1943? the bretton woods agreement (quasi-gold) then the switch from that to a fiat (oil) dollar system under Nixon 1971.
But isn’t the culprit always too much leverage/debt (which creates money too)? It’s the shadow banking system, fee driven behavior and securitization. People reached for yield (wanted something for nothing and bought what they didn’t understand) and the wizards of wall street created these products (and the stories and fraud behind them) to satisfy the need.
Greenspan overdosed on Ayn Rand and “free markets”, should have been way more regulation. Makes you wonder, they must have known. So why push it? Something to do with the US dollar hegemony going for broke in a much bigger globalized economy? They all knew about Minsky and that stability leads to instability. Blunder or calculated risk?
I want to thank all of the authors of these notes for their thoughts. Every person has valid thoughts. I will be answering all these great comments at a later time.
Here are Today’s numbers:
Dow Jones 30 Industrial – 10.610 (down 449 points) – dead cat bounce yesterday verified today.
10 Year Treasury Bond – 3.41% (down 0.08%)
Euro – $1.4327
Gold – $851 (up $70) – BIGGEST increase in gold price EVER in one day.
Oil – $97.16 (up $6.01)
Gasoline – $2.46 (up $0.06)
