Danger: The wipeout is still ahead

Treasury market battered

But the Treasury market was the most interesting of all. Even as there was a fair amount of pressure on equities (though they were off their lows), Treasurys were getting pummeled, with the 10-year down more than 2 points. It seems that major deleveraging was a feature in the Treasury market. as all quantitative relationships changed, leading to near chaos. This is a very big deal and I think it's the start of my long-expected repricing of interest rates via market, not Fed, action.

Turning to the precious-metals market, gold was higher by 4% when stocks were on their lows (though it backed off a bit to close up 3%). I bring this up because for many days now, stocks have been weak and gold has been higher (even with a strong dollar). I think there's real information in what the gold-market action is trying to tell us.

• Video: Big Dow drop? Don't panic

My regular readers are aware of the shortages of physical gold. And I think a lot of folks have found that out for themselves when they've tried to buy some coins. (Read "Going for the gold? Be alert.")

What I haven't talked about lately is that gold lease rates have gone through the roof. That appears to be because central banks are becoming credit-averse and not lending out their gold as they once did. I've also heard rumblings about some large holders of gold futures deciding to take delivery, since they're having trouble buying physical gold in sufficient size.

Gold coming up short of demand?

If that's the case, it could cause a mad scramble at the ComEx, the commodities exchange, because there's not enough gold to meet the open interest. It looks like physical gold, as opposed to paper gold, is rapidly becoming the flavor of the day -- meaning that a huge price move may lie just in front of us.

And, if that thesis is correct, when more folks start understanding it, there might not be enough gold around to satisfy demand at anywhere near current prices -- and their attention will turn to the place where they can find gold, namely the gold miners, whose job it is to "make" more. (With the price of energy dropping as world GDP slows, the profit potential for the gold miners is liable to be the best it has been in many years.) So, I think the stage may be set for a dramatic move in gold stocks.

Now, this is just an idea. Will it happen? I don't know, but I've stepped up my gold stock purchasing in the last few days and bought more Wednesday as well. This idea may or may not work. Folks need to think it through themselves and not do something just because I am doing it. But it occurs to me that as the printing-paper-currencies-with-which-to-buy-dollars era ends, a new era for gold may be beginning.

Turning back to the action in stocks, the early-morning disappointment with the rate cut sort of turned to acceptance at midday. From there we started powering higher. With about 30 minutes to go, the indexes were back near the day's highs. But a vicious sell-off into the close drove them back down almost to the day's lows, with the Dow leading the way, down 2%.

Late update: The market had another rough day Thursday, with stocks ending down almost 600 points after another final-hour washout. But is it capitulation yet? Unfortunately not, but it looks like we’re close.

< previous |  1 | 2 |