As we are writing this Sunday evening, we notice one of the big moves in the overnight markets is the precious metals. Gold is down about $13, breaking below $600, and silver is down about 10% to $11. These are huge moves and should get some attention in the morning. We have been avoiding the precious metals complex as we have been waiting for a good correction in order to participate in a better value play. Patience is difficult due to the big rally these stocks had along with the corrective rally in the metals themselves. We wait.
Monday is the fifth anniversary of 9-11 and we only mention this because it was a large market event five years ago. The day itself holds a lot of continued emotional meaning for many people but the anniversary should not affect trading this week. We do think the market is on borrowed time at this point but the catalyst for a decline will not be the anniversary of 9-11.
In our opinion, there are many other good reasons for the market to go down. For those of you who have been regular readers, you know that our main focus has been the cooling housing market. The natural course of events would have the home prices drop causing the housing ATM to vanish from existence. The housing ATM has allowed people to spend more than they earn and has been responsible for the “healthy” economy.
The edges are starting to show some signs that the consumer is getting exhausted, mostly exhaustion of funds. There comes a time when the credit buildup of the past must actually be paid back. As long as the housing ATM allowed people to pay off their credit cards with their home equity, as well as home prices continuing to rise with interest rates staying or going down, the credit buildup could continue. This scenario is about to be reversed. The “deflating” real estate bubble will test the durability of the Fed.
We expect that recognition of this thinking will prove to be the catalyst the market needs to drop and drop hard. The safest place to be in times like these is cash or Treasury securities. We of course are short but that is not for the faint of heart. Any questions? Please leave us your question in the comments section. Let’s make some money.
Dow Industrials: 11,392.11 +60.67