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Wednesday, September 21, 2011

Plumb out of tricks

Well well. Bernanke did the twist as advertised: to the tune of about 400 billion dollars. And he pledged to keep rates negative for ever. The markets were thrilled and promptly fell about 280 points. That's a preview of things to come. When the markets get exactly what they want and still sell off, take note.

Meanwhile gold got knocked down 20 bucks. That's a gift.

Why is one a gift and the other a preview?

Because with rates negative and falling the value of paper money is doing the same. Surely anyone can see that.

So why did gold drop today? Who cares. Some funds got caught out and had to panic sell. Big Deal.

Here's the difference: Stocks are owned by pension funds and 401 k's and all sorts of Hedge Funds, banks and other professional gamblers. These gamblers guess at what mulitple they think the stocks will sell at based on guesses about future earnings. But the stock's real value is only one tenth to one twentieth of the Market Value. So stocks can fall a long long way when the gamblers' psychology turns negative.

Gold is owned by CENTRAL BANKS. So the professional gamblers can screw with the price a little bit. But the Central Banks control the printing presses. They can overwhelm all other players. And they are big buyers of gold. Think China, India, Russia, Brazil, Vietnam, Indonesia, Korea etc etc.

You don't want to be on the other side of the trade when those guys are buying.

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