just in in-tray, fleckenstein
Mr. Bond, His Blood Runs Cold
But the Treasury market was the most interesting of all. Even as there was a fair amount of pressure on equities (though they were off their lows), Treasurys were getting pummeled, with the 10-year down better than 2 points. It seems that major deleveraging was a feature in the Treasury market today, as all quantitative relationships changed, leading to near chaos. This is a very big deal and I think is the start of my long-expected re-pricing of interest rates via market, not Fed, action. (I'll have more to say about this in the coming days.)
Turning to the precious-metals market, gold was higher by 4% when stocks were on their lows (though it backed off a bit to close up 3%, ditto for silver). I bring this up because for many days now, stocks have been weak and gold has been higher (even with a strong dollar). I think there's real information in what the gold-market action is trying to tell us.
All regular readers are aware of the shortages of physical gold. (And, I think a lot of folks have found that out for themselves when they've tried to buy some coins.) What I haven't talked about lately is that gold lease rates have gone through the roof. That appears to be because central banks are becoming credit-adverse and not lending out their gold as they once did. I've also heard rumblings about some large holders of gold futures deciding to take delivery, since they're having trouble buying physical gold in sufficient size.
Lust for Gold Dust
If that's the case, it could cause a mad scramble at the COMEX, because there's not enough gold to meet the open interest. It looks like physical gold, as compared to paper gold, is rapidly becoming the flavor of the day -- meaning that a huge price move may lie just in front of us.
And, if that thesis is correct, when more folks start understanding it, there might not be enough gold around to satisfy demand at anywhere near current prices -- and their attention will turn to the place where they can find gold, namely the gold miners, whose job it is to "make" more. (With the price of energy dropping as world GDP slows, the profit potential for the gold miners is liable to be the best it has been in many years.) So, I think the stage may be set for a dramatic move in gold stocks.
Now, this is just an idea. Will it happen? I don't know, but I've stepped up my gold-stock purchasing in the last few days and bought more today as well. This idea may or may not work. Folks need to think it through themselves and not do something just because I am doing it. But it occurs to me that as the printing-paper-currencies-with-which-to-buy-dollars era ends, a new era for gold may be beginning.
Turning back to the action in stocks, the early-morning disappointment with the rate cut sort of turned to acceptance at midday. From there we started powering higher. With about 30 minutes to go, the indices were back near the day's highs. But a vicious selloff into the close drove them back down to almost the day's lows, with the Dow leading the way, down 2%. (Away from stocks, I've already recapped most of the action. Folks should just check the box scores to see the moves in individual markets.)
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