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First with Financial Comment from Arabia

Stock markets about to crash after Dubai debacle?

with 5 comments

Having correctly called the dollar rally and gold correction last week it is interesting to see Clive Maud now calling a stock market crash because of the aftershocks of the Dubai debt debacle:

‘The rate of advance of the broad stockmarket has been slowing for months. On the 6-month chart for the S&P500 index we can see that it appears to have arrived at the top point of a large “Distribution Dome”.

‘If this Dome is valid – and it appears to be so – then we can expect the market to turn seriously lower soon, and we should remain aware that markets generally drop twice as fast as they go up, so it will not have to contact the Dome boundary on the way down – on the contrary, given the parlous fundamentals outlined above it will probably drop like a rock.

‘Bank stocks look set to be particularly hard hit in the event of a second downwave. This is apparent from their deteriorating relative strength in recent months – they are already very close to crashing key support as is clear on the charts for Mordor website – Goldman Sachs and J P Morgan.’

Clive Maud sees the dollar rallying much further in a big sell-off and a flight to treasury bonds. However, the question then is what next as the treasury bond rally will stretch valuations to breaking point. For the dollar the immediate outlook is a big rally, and that will not be good for gold:

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Written by Peter Cooper

December 7, 2009 at 9:22 am

5 Responses

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  1. TARP was just extended until October, 2010. As I said above, they will not let it crash. Ben will just keep hitting that print button until the dollar collapses, or he until feels that we, in the USA, are out of the woods. Which will come first is the great question. Since Japan and Europe are both a mess, the dollar could last a lot longer than most people think. Look how long the British pound lasted. The UK economy is nothing compared to the US economy.

    Bill Simpson in Slidell

    December 10, 2009 at 1:04 am

  2. With due respect to Bill Simpson, who had some good comments, I offer the following:

    “… they won’t let the US stock market crash, even it they have to secretly buy stocks themselves.”
    But, Bill, they have frantically been buying Dow and S&P Futures for the past 2 months; and from March 2009 through October, there have been many occasions when they were buying Dow and S&P Futures.

    They all come from Goldman, so secret stock buying will be no problem.
    These illegal trades, which are massive, come from a subsidiary of GS, so that they do not appear “on the books” of GS. They also come from JP Morgan (JPM); for example, JPM has been desperately trying to hold the gold price down, by entering massive short sells in the gold (and silver) futures market.

    If the gold price rises too much, they will start selling some of the huge US gold reserve
    But Bill, the US government does not have a huge gold reserve any more (there’s a small stash of gold bars being held at the NY FED, but experts believe that those bars belong to Germany!); they “leased” the Ft. Knox gold to the big Wall St. banks years ago, who pay an annual 1% interest charge to the federal government, in return for their illegal “use” of this gold.

    “…then they buy it back after the price falls.”
    Not quite.
    JPM is the most active short seller of gold on the COMEX; using the FED’s freshly printed billions, the JPM folks are the ones who enter massive short positions to drop the gold price by 5%, 7% or more on a periodic basis. This action then triggers automated “sells” from the institutional holders of gold (including gold mutual funds), thereby allowing JPM to make a killing each month (last month was the exception to the rule; their 20 year old strategy finally back-fired on them; as a result, JPM didn’t make much money from these illegal trades). For a real-time look at JPM’s illegal shorts, go here:
    http://www.kitco.com/charts/livegold.html

    For example, look at the big “take-downs” during the Sunday evening trades, 6Dec’09, on the COMEX (sidebar: the only entities in this country that are “allowed” to place commodity trades on the NY Globex are GS and JPM; is it any wonder why the government “allows” them to do this? But as the GS CEO said recently, “we are doing God’s work!” yeah, right!). Notice how JPM “tried” to drive the gold price down, via their massive short sells on Sunday evening. Interestingly, this is the first time in history that the global market is going against them, and driving the gold price right back up after the JPM shorts have been entered; one of several reasons for this anomaly is due to the heavy buying by the Chinese banks.

    obewon

    December 8, 2009 at 9:01 pm

  3. The US Federal Reserve & Treasury won’t let the US stock market crash, even it they have to secretly buy stocks themselves. They all come from Goldman, so secret stock buying will be no problem. They are above the law, because they can get Congress and Obama to do whatever they want. They will create as much new money as necessary to pump the market up, if it starts to really crash. Interest rates will remain near zero to force some investors into stocks. If the gold price rises too much, they will stsrt selling some of the huge US gold reserve, then buy it back after the price falls. I wish I could do that.

    Bill Simpson in Slidell

    December 8, 2009 at 12:39 am

  4. Interesting commentary, Peter.

    No doubt, the “shock waves” continue to reverberate around the world, as a result of Dubai’s “near default.” For sure, there are another 20 or 30 “Dubai-like” financial problems among sovereign nations and other third world countries (e.g. eastern European countries, Venezuela, Greece, Bolivia, Italy, Spain, Ireland, UK, etc. etc.). Even Japan, whose debt to GDP now exceeds 200%, is in deep trouble.

    Unfortunately, it is unlikely that these “shock waves” will end soon. When rumors that another sovereign nation is about to default on its debts, some of these countries mentioned above may likely play “follow the leader” to try to “end their pain.”

    The US government can continue to “prop up” (or manipulate, to state it more accurately!) its own markets for so long; eventually, nature must take its course; financial reckoning day awaits.

    To quote a famous phrase, “we should all be wary of the Ides of March” (or June 2010).

    obewon

    December 7, 2009 at 9:32 pm

  5. Forecasts for the fastest U.S. earnings growth in 15 years are failing to convince options traders that the S&P 500 will extend its biggest rally since the 1930s.

    S&P 500 options to protect against declines in stocks over the next year cost 22 percent more than one-month contracts, the highest since 1999, data compiled by London-based Barclays Plc and Bloomberg show. The gap shows concern that analyst estimates for record earnings by 2011 may prove exaggerated, endangering an advance that pushed the S&P 500 up 63 percent since March.

    Peter Cooper

    December 7, 2009 at 1:15 pm


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