Here’s my take on why the stock market bolted up out of the blue and gold got hit at the exact same time.
We are now in the stage of this crisis where the financial authorities are going to be using every trick in the bag to keep asset prices up and in safe territory.
Every trick except honesty and transparency, that is.
Today’s rule change was to limit ‘short sales’ of stock, and to further hint that maybe they’ll be eliminated altogether.
For any individual or fund that is short, the market, which is a perfectly reasonable method of controlling risk and is every bit as legitimate a method of speculating on stock price movements as being ‘long,’ even the prospect of such a rule change requires immediately shedding any short stocks as rapidly as possible.
[quote]
Sept. 18 (Bloomberg) — U.S. stocks rose on prospects the government is formulating a "permanent” plan to shore up financial markets and regulators and pension funds took steps aimed at curbing bets against banks and brokerages.
Morgan Stanley and Goldman Sachs Group Inc. erased most of their earlier plunges, as regulators in the U.S. and U.K. stiffened rules against so-called short sales and the nation’s three largest public pensions stopped lending shares of Goldman and Morgan Stanley to short sellers.
[/quote]
There it is. The UK went a full step further:
[quote]
Britain’s stock market regulator on Thursday banned short selling in financial companies and said it might extend the ban to other sectors. The move followed the Securities and Exchange Commission’s curbs on the practice that went into effect Thursday morning.[/quote]
What do you get when you force shorts to cover? A short covering rally, of course.
The part about all of this that is so transparent to people who are familiar with markets is that prices are no longer as meaningful as they used to be. Stock prices and institutions are now deemed to be "too important to fail," and so they are officially supported.
Other things like gold are deemed to be a threat to the larger plans because of the way that they send signals that are counter to what the officials are trying to convey.
Here’s a perfect example from today. Note the precise, interlocked behavior of gold prices and stock prices. Right at 12:00, both assets reversed violently in the opposite directions from where they were headed. Either you have to believe that "investors" collectively decided to take an opposite view from the one they held only minutes earlier, or you have to suspect that a far smaller number of interested parties made the decision to reverse the direction of two important markets.
Occum’s razor; one of these two possibilities is far simpler and more probable than the other.
I see no real reason, at this stage, why gold should trade in direct opposition to stocks like this, so when I see a near-perfect correlation like this, I get slightly suspicious. Especially when it comes on a day when the Treasury ups its debt offerings by $100 billion, and several money market funds experience a run and consequently halt redemptions. Those don’t seem to be especially supportive of the action charted above.
My view is this: There’s going to be a tremendous battle between trying to prop paper assets for as long as possible while preventing clear signs about the true state of affairs. The name of the game now is "preserve confidence."
Given that we have a Ponzi economy and money system, this is no small matter. The key here for us is going to be keeping a clear eye on what’s real and what is fake.
The stock rally (and gold slam) above shares more in common with Donald Trump’s hair than it does a fine work of art.
That’s my take.
by jgreco