Thursday, 11 August 2011

Even the quick stock market recovery is uncertain.

All that glitters is not gold.

The markets are rebounding. Gold prices are dropping slightly. There is a desire to return to normalcy. However, what will tomorrow bring?
One day of market nonsense took the markets down a lot. Suffice it to say that as the markets dropped world wide, gold went over $1800 US per ounce. Today as I write at 4:45 PM it seems to have settled to about $1763 US per ounce. In addition, the stock markets are rebounding for the moment.
As I said yesterday at these prices gold is an indicator of a lack of confidence in the performance of the world's markets and economic systems. This high price is not a vote of confidence. It is in fact a vote for hedging bets against another recession. It is also an inflated price against the US dollar. 
So where do we go from here? Again the US has yet to solve its debt crisis or even start the process. The European banks and the European Central Bank still have the same problems they had at the first of the week in Spain,Ireland, Portugal and Greece. Nothing really has changed.  
The market upswing today is not based on the modestly good US employment numbers alone. It is based on the fact that the mini crash yesterday set in motion smart money profit taking and provided a lot of market players with buying opportunities this morning.
How will all this market volatility change anything that the US government has to do? It will probably lull some US Congress members into another round of denial and posturing politics. 
In Europe they will all catch their breaths and President Nicolas Sarkozy will be able to return to his vacation that was so rudely interrupted yesterday by the economic crisis and the thought that some French banks may be close to defaulting.
The markets will recover. Perhaps there will be a dip or two but everything will now go back to normal. It is hard to believe that Standard and Poor's rating of the US could cause such a fuss. 
But I could be wrong. Maybe this fast recovery is the lull before the real storm and  meltdown.  Maybe President Sarkozy should remain in Paris? Maybe the status quo is so strong that we are pretending that nothing is wrong?  Maybe the recovery was just profit taking on the stock markets?
You see there is still uncertainty and therefore there is still negativity in the air. I sense change is coming but it is only after the old economic ways are stretched to the limit that it can emerge. Actually the new economy is emerging. More on that later after as the marketeers and central bank bureaucrats go at each other before the weekend.
© Copyright 2011, Tom Thorne, All Rights Reserved.

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