Monday, August 8, 2011

Somebody's Getting Very Rich From All the Turmoil in the Markets

From Yahoo News:

The stock market once again proved it can be an incredibly unforgiving and swiftly punishing place, as a two-week long downturn was given new fuel by Standard & Poor's decision last Friday to downgrade the U.S. credit rating.

Gold rose Monday, as did Treasury prices, but the equity market was a horror show across the board. The Dow Jones Industrial Average slumped 635 points, or 5.6%, to put the index below 11,000 at 10,810. Since its recent high of 12,810.54, right at 2,000 points ago on April 29, the Dow has surrendered more than 15%.

The S&P 500, to most people the truest indicator of the U.S. market, was lower by almost 80 points, or 6.9%, to 1119. It's now 18% below its 52-week high of 1363.61. Here's another way of looking at how unnerved traders were: The CBOE Volatility Index (^VIX), often viewed as a measure of trepidation, rocketed up 45% and closed above 40 for the first time in more than a year.

Semiconductor stocks were down 5.4% on average, major oil stocks slid 8.5%, and utilities lost 5.7%. Computer hardware shares and retailers fell more than 5%, and telecom names roughly the same amount. The meltdown was seen virtually everywhere investors looked. Financials, as measured by the Dow Jones U.S. Banks Index, dove 11.7%.

As was the case last Thursday when the Dow sank 513 points, all 30 of its components were lower again. Bank of America (BAC), one of the aforementioned banks, had the misfortune of being the hardest hit, dropping 20.3% to $6.51. Alcoa (AA) was the next worst performer, giving back 11.4% to $11.33.

While the Nasdaq is historically known for being heavy on technology stocks, a number of large-cap tech issues held up fairly well, considering the size of the decline. The Nasdaq was down 6.9%, but its biggest component, Apple (AAPL), lost 5.5%. Intel (INTC), another Nasdaq (and Dow) member was lower by only 3.3%. Google (GOOG) was off 5.7%.

Traders early on noted the heavy nature of the trading volume for the day. Combined with the point declines in the major averages, the level of shares changing hands would be considered committed selling by any observer.

On the upside, gold prices jumped $62.10, or 3.8%, or $1,710. As an aside, according to the opinion of a Breakout guest this very day, the metal is heading to $2,500 an ounce. Meanwhile, silver was up more than 2% to $39 an ounce. In the Treasury market, seen as a place of safety in times of larger-than-normal uncertainty, the 10-year note was climbing 1-24/32, lowering the yield to 2.36%, and the 30-year bond was bolting up 3-7/32 to take the yield down to 3.67%. Both are gigantic moves, the size of which is seldom seen.

The recent sell-off in stocks, not just the latest decline, has been driven by a combination of factors that aren't likely to evaporate overnight -- a series of disappointing economic reports in the U.S. before the S&P downgrade, worries about European debt, political fighting in Washington. The bottom line is that professional traders go where the opportunity is the best and where the trade makes the most sense.

The takeaway: Stocks are collapsing, Treasuries are worth more and more, and Gold is through the roof.

Somebody is getting very rich on all three, and it isn't you and it isn't me. But somebody is.

We're in a new Bubble Economy; the race to the bottom is on in earnest.

It'll be pretty grim once the summer break is over.

Pretty damn grim I'd say.

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