IMPORTANT GOLD ALERT FOR 2/12/08 AT STRATEGYUPDATE.COM (This blog's companion web site with updates posted between blog updates.)
GOLD WATCH: Something I've noticed..."Smart Money" (hedge funds/big boys) seems to own Yamana Gold (AUY) more than almost any other gold miner. Here's why I came to the conclusion. When gold is up, or in rally mode...I've noticed AUY is the first gold mining stock to start to go south, when gold prices start to drop. AUY is not necessarily to first to rise back up, when gold prices rally back (however if you do see it rally first, expect the rest to follow), but you can use this "down" indicator to help you be on guard for gold to drop, if you are planning on selling -- or allow you to be ready to buy if you want to buy on the dips.
DOW RALLY (DO NOT BE BAMBOOZLED!): Don't be fooled by the warm and fuzzy feeling that causes Wall Street rallies over these press release announcements like Buffet's $800 billion offer to re-insure municipal bond insurers, as a safety net if they want it. (And one of three insurers Buffett made the offer to already turned down the offer.)
Problem with this nice gesture, is these muni bonds aren't the root of the problem that looms ahead. These are the low risk bonds. However, if they ever get threatened that they are about to lose a "AAA" rating, they can fall back on this offer to avoid the sell off that would occur on a downgrade.
And Paulson announced that the Treasury Department and HUD are going to help keep people in their homes with a new warm and fuzzy, fluff-ball plan that won't make a dent in the subprime problem.
However, Wall Street psychology is a factor, and these announcements will falsely remove some of the fear that has been casting a gloom on the market, and we'll see a short term rally. The Fed, White House, Buffett and everyone else can try as they will to keep the market propped up, and the economic factors in check, but there's no way to artificially keep things propped up in the long run. We're talking stuff of historic proportions ahead.
Please beware -- the credit derivatives market is the big problem here: The spreads are getting wider -- and the problem is bigger (and getting bigger by the day) than the financial institutions have accounted for.
Plus, like subprime affected the housing market, get ready for the same thing to hit the car dealers/auto industry -- and watch for credit card companies to start seeing much later payments, and complete defaults. And as people's homes continue to drop in value, and they end up owing more on the property than it is worth, more and more people will be walking away from the payments and stiffing the banks.
So enjoy any short term rally this month. We think it will be time for a chorus of "Hell's Bells" sometime soon. (Like this month.)
Click here for updates throughout the day, between these daily blog posts, at StrategyUpdate.com. (Investors resource site with news links and 24 live gold, euro and metals charts.) Already posted everything on this blog last night and early this morning. Set a Google Alert for "strategyupdate.com" so these blog alerts will be sent to your email inbox, right away.
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