Bond insurer fears sunk the market yesterday. And of greater import: the longer out government bonds didn't pick up the slack.
Despite the Fed announcing that it had reduced the interest rate to 3%, the stock markets sold off with the Russell 2000 leading the way down, as fears over debt insurer AMBAC (ABK) arose.
And shares fell in Europe and Asia over recession fears.
In as much as yesterday's action confirms a bear market, one should be short the stock markets: I provide a database of "Bear ETFs" And " ETFs To Sell" with common opportunity and higher risk opportunity.
Also of significant note, an "investment sea change occurred in the bond markets on January 24, 2008": the bond marketplace independent of federal reserve action, declared an interest rate hike, which is taking government bonds lower: "the short selling opportunity of a lifetime" arose at that time.
And yesterday that opportunity was confirmed by the the fact that money that came out of stocks did not flow into bonds; the US Treasury Bond ETF (NYSEARCA:TLT) continued lower, and the Rydex mutual fund [RYJUX], which operates inversely of the 30 Year Treasury, moved higher.
The reason for bond marketplace rates, not central bank market rates, turning higher is inflation: it's a bond killer and a gold thriller. The recent report of a surge in inflation to a 17 year high is finally sinking in; and the the yield curve's steepening -- $TNX:$UST2Y -- rising portends even more inflation in the near future. U.S. Treasury Bonds are dead investment vehicles, they are no longer means of garnering and preserving wealth.
Those who enter a short of government bonds, as well as municipal bonds and closed end municipal bond funds very well may have much better results, than those who short with stocks.
For those who own the gold ETF, a short of American Barrick is recommended, as it is likely to fall lower with other natural resource stocks over time -- when stocks really go on a tear lower, American Barrick will really break loose from the price of gold, providing a wonderful reward to those who are short.
GLD could fall to 88, 86, 84 and even on an intraday basis to its 50 day moving average of 82; yet the long term direction for gold is higher as:
2) Bond investors seeing a liquidity trap flee bonds for gold.
3) Regional currencies arise in the Middle East, South America and Africa, are developed, accepted and are partially based on gold.
The dollar, $USD, closed yesterday at 75 -- at the very edge of critical support. A fall below 75 could easily commence a run on the dollar, and a massive exit from U.S stocks by overseas investors, as well as propel gold even higher.
A falling dollar, is a strong reason why one will want to have a gold denominated short selling account.
Yesterday, the Euro and the Yen both reset to all time highs.
The Euro, having made full retracement to 149, will now start to manifest lower in relation to the Yen with two results.
First, the unwinding of the Yen Carry Trade will continue, causing on-going dissolution of emerging market wealth (NYSEARCA:EEM) and disinvestment in the BRICs (Brazil, Russia, India, China), EEB.
Secondly, a stubbornly high Yen will continue to decimate the Japanese Small Companies (NYSEARCA:JSC).
Stocks commenced an Elliott Wave 3 of 3 down December 26, 2007; there is no turning back: wealth can only be preserved by owning gold; it can grow wealth when coupled with short selling.
For one's retirement account, I recommend one buy GLD and obtain margin credit to go short a small amount of stocks, a medium amount of the Treasury ETF (TLT) and a large amount of the closed end municipal bond funds Van Kampen Trust for Investment Grade Municipals (NYSE:VGM) and MFS High Income Municipal Trust (NYSE:CXE), as their insurers AMBAC and MBIA (NYSE:MBI), are continuing to have financial difficulties.
For those with investment wealth, I recommend one open a currency trading account, and go short EUR/JPY; and that one start to 'dollar cost average' buys of gold at an Internet trading vault such as BullionVault.com.