Tuesday, August 16, 2011

The Market Crash - Part 2

Well, what a difference a week makes. Or not. Everything seems to be settling down, the Dow, NASDAQ, S&P, and other indexes are settling. But things are settling a bit lower than when they started. Except commodities. Gold and Silver are still very inflated, and a few other commodities are up 10 to 30%. A notable exception is copper, which is slightly lower than it was a couple weeks ago. Oil, while down, didn't drop below $75 (or at least didn't stay there). Gasoline has fallen about 10 -20 cents, and this may remain as is for a few weeks, but not for long. And the 5 year T-Bill has dropped below 1% for the first time in history.

Here is what it all means. Ignore the indexes for now. And the credit downgrade. The indexes are very emotion driven and in the long run, don't mean much. The credit downgrade was something everybody knew was coming down the pike. Oh, yes, congress didn't do their job when it comes to reigning in spending, but rather compromised. But the better of the market managers saw that coming too.

The low interest rate on the 5 year T-Bill means two things. Much of the world thinks the US is very likely to be able to stay solvent for at least 5 more years, and there will be no improvement in the economy for the average man for at least 5 more years.

Gold and silver are way up. Most people don't trust the markets, and some don't trust the governments any more. Gold and Silver are a hedge against both market crashes and against the government printing vast amounts of money, resulting in high inflation.

Copper is down. Copper is used in industry. A rising price of copper would indicate a health industrial and manufacturing sector. That copper is declining is a forewarning that the industrial and manufacturing sector is not so well, and that another downturn is likely. That a pound of is still above the price of gallon of gasoline is a good sign, though. When the two prices reverse, a serious drop in production and thus in all other sectors of the economy is imminent.

Oil, while down, stayed above $75. This tells me the oil speculators think the worldwide economy will remain healthy. These guys lose there asses on a regular basis, though, so I am not so certain how much faith I would have in them.

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