The words of Chairman Ben Bernanke have gone down like a lead balloon causing a serious sell off right across the board with the only winner being the down trodden US Dollar, which continued to head higher. Its odd to think that the US Dollar is viewed as a safe haven given its very poor fundamentals, but it was today’s beneficiary.
The above chart shows how the Global DOW has been battered since the Fed statement hit the wires, with the DJIA down 527 points at one time and closing with a loss of 3.5%.
As long time readers know, we do not own any stocks outside those of the metals market, but even they tanked today as both gold and silver were also dumped in the panic to get back into cash. The precious metals mining companies also felt the cold draft as the the Gold Bugs Index, the HUI, lost almost 50 points to close at 564.25.
This is particularly disappointing as the HUI has made two attempts at a serious rally and looked set to go further until today’s carnage ended its progress with a sudden jolt. Our alternative strategy of utilizing options as a trading vehicle instead of buying more stocks has however, paid off handsomely for us. However, we were preparing to increase our exposure to the stocks and have covered a number of our particular favorites over recent months without actually making an acquisition. The reason we have not moved on the stocks is that we were waiting for confirmation that they were about to regain their position as a leveraged performer when compared to the underlying commodity, gold or silver. Today’s battering would suggest that they still do not have the legs for a concerted rally and so its back to the drawing board. Our only conciliation here is that we still have our opportunity cash on the sidelines, in dollars and they are appreciating, despite our mistrust of them and our intentions to redeploy them elsewhere.
The reasons for today’s carnage are not all down to Ben Bernanke, although it looks as though his statement may have been the ignition. Across the pond Europe is in a diabolical mess with the eurocrats dashing from one meeting to another, boosting their air miles entitlement whilst spreading their very own brand of ineptness far and wide. Between the European politicians and the American politicians its hard to say who is the must inept, we just wish that they would get their hands off the economy, off the printing press, off the regulatory machinery, off the backs of the people and go and do something useful.
To finish on a lighter note one of readers sent us this photograph, says its the latest addition to their office furniture!
Stay on your toes, volatility will be the order of the day and have a good one
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Disclosure: I am long SLW, EXK, AG, AEM.