Posts Tagged ‘bailouts’

Bailouts, Bailouts Everywhere

Gold has officially broken through $1,200.

All it took was the hope of a bailout of the world’s most extravagant real estate bust – Dubai. Well, not entirely.

Japan also promised it would inject another $114 billion into its economy by offering banks cheap short-term loans. It’s also expanding the type of collateral it receives.

Bailouts are happening all around the world. It’s the new “in” thing to do. Think about it: Nearly every major credit catastrophe has been delayed by a big bailout. Only Iceland and Lehman slipped through the cracks. And now the talking heads use those two stories to convince everybody that a bailout is the best option.

So moving forward I don’t see an end to the bailout bonanza.

You also shouldn’t forget about what money printing means for Japan. It could begin another Yen carry trade. A Yen carry trade plus a Dollar carry trade would allow for a massive bubble to blow. The ending wouldn’t be pretty.

But who knows, maybe the Feds will figure out another way to keep the Ponzi scheme going…

With cheap money pouring into the economy by means of the Yen and Dollar, it’s hard to envision the uptrend breaking. But I still feel that by early next year we could see prices 10-20% lower than they are today.

In the short-term, a break above 10,500 in the Dow Jones would signal more gains ahead. As of right now, though, the Dow isn’t able to settle above that level, which will keep me away from getting into any short-term long positions.

As for gold, I’m not a buyer at these levels. I tend to stay away from any asset that’s gone parabolic (like gold). I loved gold at $1,050. But over $1,200 is hard to swallow, especially with no other significant corrections.