Monday, September 22, 2008

A tale of two assets

Paper assets: The government makes it hard to short!
Hard assets: The government makes it hard to buy!

Anyone see oil and the dollar today? At least I turned bullish on oil, and bearish on the dollar at the exact low!
http://aaronandmoses.blogspot.com/2008/09/line-in-desert-sand-on-oil-is-86.html

Anybody see the ramp in oil in the front month contract today? It hit $130! The shorts got squeezed. They wanted oil, not paper. What hard asset has the biggest short position? How about gold and silver! 169 million ounces short in siler; 8.6 million ounces short in gold. Anyone want to bet that they actually have the gold and silver to deliver? Or will they learn like the oil traders did?
http://aaronandmoses.blogspot.com/2008/09/gold-ramps-88-dollars.html

Now when the US Mint stopped production of the gold and silver eagles, everyone ignored it. Then the Canadian mint stopped selling Palladium Maple Leafs. Now gold is over $900, silver is approaching $14, and oil, for the November contract is at $110.

It sure looks like someone wanted hard assets down and paper assets up! But that's not what the market wanted!

Today in oil, we saw what happens when people actually have to deliver the goods.

Who wants a counter-party in gold and silver? Get the physical metal!

This morning, there was supposedly bullish news on Goldman selling a piece of itself, at the same time that Morgan Stanley announced the stock sale to MUFG. What happened to that?

Doesn't Goldman do the bidding for the Plunge Protection Team? Is that why the government panicked when Goldman started breaking down?

But if you think the system started to meltdown because of money markets breaking the buck, wait until Main Street figures out how Wall Street rocket scientists srewed the public with derivative and counter party exposure in these swap-based ETF's.

If you bought property in Florida and California you were supposedly diversified. How did that work out? They all went down together!

Now you have ETF's that are supposedly diversified instruments, cascading under the weight of their depreciating assets, and you have swap-based ETF's cascading under the weight of their derivative and counterparty exposure.

When is a hedge not a hedge? When the hedge isn't a hedge!

And when one swap-based ETF fails, you'll have a run on all of them. Just like the money market buck break, even caused a run on government funds.

This bailout plan, instead of preventing a run on the banks, is now starting a run on the dollar. And on anything paper.

Why shouldn't it? Paulson said the banking system was "fundamentally sound." How did that work out?

What did he say about this bailout? Didn't he say that it would "promote confidence and stability?"

Using his track record, do you think that's a fundamentally sound statement?

Didn't the "annointed" one, Barack Obama say on televison today, that if he was elected, he would keep Henry Paulson on for the transition?

We'll be revisting that statement soon enough!

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