THIS IS NOT YOUR FATHER’S STOCK MARKET
On Monday- we saw a one thousand point swing in the DOW IN ONE DAY! As we wrote last week, we are seeing unprecedented volatility in the Dow Jones Industrial Average and in the broader markets, the S&P and The NASDAQ. The chart below shows the market action in the DJIA for Monday, August 24. What we are looking at is a total cumulative stock price swing of 4500 DOW points! IN ONE DAY! Further, this past week the DJIA has swung a total of over 10,000 DOW points. That is 60% of the value of the entire Dow Jones Average stocks. This has never happened in the history of the DJIA. This is not merely volatility. These price swings are an indication of systemic failure.
Here is what Deutsche Bank, the third largest bank in the world has to say about this– “The fragility of this artificially manipulated financial system was exposed over the last couple of days…”
So far this year, Americans have lost $1.8 trillion in the stock market with most of this loss in the last week. The Volatility Index (VIX) surged 120% last week, another record move, the like of which has not been seen since 2011 when gold soared to its high near $1,900 an ounce.
We must ask, is a this correction in a bull market or is it the beginning of a meltdown? Since the financial crisis of 2008, after QE 1, 2 and 3, zero interest rate policy, TARP bail outs and non-stop central bank intervention in stock, bond and currency markets, are the world’s financial problems fixed or are they worse than they were in 2008?
Remember, the DJIA consists of the thirty largest companies in America, the most conservative, low risk investment in stocks that you can be in. Does this price action look conservative and low risk to you? This is a warning of a serious market dislocation with worse to come. Physical gold and silver offer investors a safe haven to preserve assets in chaotic times.
EROSION OF THE DOLLAR AS CHINA DUMPS U.S TREASURIES
In March of this year, the US Dollar Index (DXY) was at a twelve year high of 103. Shortly thereafter, China began selling significant numbers of US Treasury (UST) bonds in April this year. The dollar began to sell off. China has stepped up the pace of UST sales and in the last two weeks alone, China has sold $106 billion in US Treasury bonds (UST) to support the Yuan after its official devaluation this month. On the news of this sale, the USD plunged to 92.
This is critical. The Chinese strategy is to weaken the dollar by selling treasuries and this is what we saw happen in April and over the last week. Previously we have written of the interdependence of world economies and the profound ability that China has to affect our economy here in the US. China has sold a total of $213 billion in UST this year which has capped the strength of the dollar in international markets.
According to Bloomberg, China controls $1.48 trillion in US Treasuries, so China has plenty of ammunition to execute a currency war against the US dollar. David Woo, head of global rates and currencies research at Bank of America Corp., said on Bloomberg Television on Wednesday, “China has a direct impact on global markets through U.S. rates.”. In other words, China is in a position to manipulate the value of the dollar at their discretion. If China were to dump treasuries en masse, it would drive the value of the dollar down to unrecoverable levels. Ron Paul has warned that our standard of living would decline by 25% if such an event occurs.
China has moved aggressively to become a major player in the international gold pricing mechanism through the Peoples’ Bank of China membership in the London Bullion Market Association (LBMA) and the Shanghai Gold Exchange (SGE). As the largest buyer and producer of gold in the world, China has both the ability and the motivation to drive gold prices higher to their advantage when it suits their purpose. It makes sense to be on the same side of the China dollar/gold trade by owning gold.