Overnight stock and bond markets were roughed up, most likely as a consequence of the escalating developments in Syria. Likewise, our market lost 1%, plus or minus, in the first hour of trading. Some of you may be scratching your heads and wondering, if Syria was the proximate cause for today's decline, why didn't it matter until now? I think that brings up a point I have made many times, though not recently, that markets these days seem to discount next to nothing anymore. My guess would be that is a function of QE, computer-driven trading, as well as so many "professional" babysitters of Other People's Money trying to stay close to their "benchmarks."
A Game of Wait, Then Hurry Up
While computers can read press releases and listen to conference calls and compare the price action at any given moment to any day in history, slicing and dicing the data in a million ways, what they probably don't do is attempt to discount future "big picture" developments, with the strategy being that they can all react faster than the next guy. Thus, large geopolitical problems or long-simmering macro problems literally don't matter until they start to matter, at which point the discounting that should have taken place along the way tends to occur in a short space of time. That is just a thesis of mine, but if it is correct it means that there are going to be plenty of dislocations prospectively as various problems come home to roost.
The indices basically slid all day, losing 2% (with the Dow off 1%), and closing on the lows. Away from stocks, green paper was mixed, but quite weak versus the yen, which is interesting given the Middle East headlines. One might not have expected the dollar to decline against the yen under those circumstances, but that could be a function of the short yen trade being quite crowded.
As for Treasuries, they were higher. To really know where we are in the bond market topping process, as I have said repeatedly, in a perfect world the Fed would decide not to taper and we can see where the bond rally finally fails, but we have a few weeks to go before we can assess that data point. Oil gained 3% for what ought to be obvious reasons, and the metals gained 0.75%.
According to the most recent data, while gold was being puked in July, the central banks of Turkey, Russia, Guatemala, Azerbaijan, Kazakhstan, and the Kyrgyz Republic all added to their gold reserves, offsetting the outflows from the ETFs and a little bit from Mexico's central bank.
If It's Not a Bubble, They're Not Interested
Though I don't watch Bubblevision, I understand that they have pointed out that gold has now risen 20% from its lows. If they were consistent, the headline they would have used would be, "Gold Has Now Entered Bull Market Territory," since they believe a 20% rally constitutes a bull market — a definition I don't agree with. However, I in fact do believe that gold is now in a bull market, with the bear market ending in June (a point I made at the time). Everything we have seen since makes me feel like we are not going to visit prices below $1,350 anytime soon, if ever, though we will see large swings (as we have). The market will still be volatile, and there will be hair-raising declines, so people need to manage their positions accordingly.
