James,
A few interesting things happened in the market [on Tuesday]. This wasn’t in the market, but is relevant. Hearing lots of chatter generally about things moving to “the final phase”.
“Gold is moving as the last phase of the crisis appears to have started,” said Martin Hennecke, associate director with Tyche Group in Hong Kong.
I’m assuming that the last phase starts out with gold, silver, Treasury notes, and the dollar all moving up, together. (It is quite unusual for the dollar and gold to move together, even though that’s been the case recently.) Then at some point – like a tired marathon runner that can’t keep up with the leader, the dollar quits climbing but gold doesn’t. That would be the real indication of the beginning of the end.
The Dollar drops, Treasury bonds start to go unpurchased causing yields to start soaring, tax collections come up short, States start defaulting on their bonds, Uncle Sam follows suit, and it all takes one final big swirl around the commode before collapsing.
In other metals trading, March copper tumbled 7.4% to $1.425 a pound, while March silver rose 3.6% $14.11 an ounce. March palladium added 1.2% to $219 an ounce, and the April contract for sister metal platinum rose 2.9% to $1,091.70 an ounce. I’m not even going to comment about oil today. What’s much more important is that the copper market essentially collapsed today. Copper is the industrial metal. It predicts manufacturing and production for the next 6 months to a year. You don’t build anything – certainly nothing electrical or electronic, without it. It’s used in chips, cars, houses, bridges, airplanes, tractors, and dozens of other places – you can’t even build roads without it.
A collapse of copper like this says that things are falling apart fast, and the economy has no direction to go but down for at least the next six months.. Given the Dow closing under 7,800, we should soon see a flood of bank and other financial institutions fail. It doesn’t appear that things will be changing direction any time in 2009.
Frankly, I don’t have a good feeling about our prospects of making it through the end of the year – it’s looking worse every day. Y’all might want to start thinking about moving to condition yellow. Double checking supplies, having your vehicles serviced, buying stuff by the case next time you go to the store, rather than by the can. – RSB