Dow Industrials Fall 340 Points
By - September 05, 2008

Stocks on Wall Street plunged on Thursday, but few investors seemed to settle on one reason. A broad sell-off sent the Dow Jones industrial average down 344.65 points at the close – the index's worst performance since June – hours after the government reported that the number of Americans filing for unemployment benefits unexpectedly rose last week. But the sharpest declines came nearly two hours after that report was released, a lag that rarely occurs in today's overheated financial world. The other financial news of the day, including a $1.70 drop in the price of oil, would usually cheer investors. So what gives? "I'm trying to answer the same question," Steve Sachs, who directs trading at Rydex Investments, said. With no clear catalyst, Mr. Sachs pointed out that trading was relatively light on Thursday, which means big trades by a handful of investors can cause major swings. – NY Times

Dominant Social Theme: Sometimes bad things happen. Just wait it out. The good times will roll.

Free-Market Analysis: There is probably never a single good reason for equities in America or elsewhere to go either up or down. Trying to attribute a single, neat reason is a little like attributing a particular emotion or reason to "national will." Having said this, there are certainly reasons why the market carnage has not been worse. Euro Pacific Capital, Inc.'s John Browne recently listed these reasons.

Proceed with caution. A recession is very bad for politics, especially in an election year. So, the potential corrective recession has been postponed by a massive injection of billions of dollars into the economy. At a time when we needed serious physical therapy, the government instead offered four massive pain killers:

– First, the debased U.S. dollar has boosted exports and helped the GDP to remain positive.

– Second, by setting interest rates below the rate of inflation the Federal Reserve discouraged savings and encouraged borrowing and spending.

– Third, massive government lending kept the financial service industry solvent and the mortgage lenders operating.

– Fourth, stimulus checks have kept American's spending money that they have not earned.

Although these government palliatives have succeeded in calming the immediate crisis (by saddling American taxpayers with massive liabilities), they have not cured the disease. If anything the huge doses indicate that the patient is getting far worse, even if in silence!

We agree with Mr. Browne – and then some! What Browne could have added, had he wished, was that there has likely been an enormous manipulation of the metals markets. Were gold and silver to rise to their true valuations, the game would be even easier to deduce and questions would be raised even by casual observers and unsophisticated investors. Legitimate questions can surely be raised as to why, how and even "if" metals markets, which are worldwide, are or could be manipulated. We, however, have sadly concluded that the "if" question is less relevant than the why and how. But don't take our word for it.

Here's metals analyst Jason Hommel writing recently about the reality of these markets – the "facts on the ground" …

For the last two weeks, I've asked my readers to go to their local coin shop on Tuesday, September 2, at 2PM. In sum, for those who acted, they were alone. Most shops were out of silver, or nearly out. Dealers want you to pay up front for silver that may take 5 weeks or more for delivery. No customers. No silver. Those who deny the silver shortage, are increasingly now recognizing the retail shortage, and say that it's record demand that's doing it. Nonsense. Investor demand for silver could not be lower. No lines. No huge demand. The U.S. Mint produced over 500 million ounces of silver in U.S. coinage in 1964. Today, they can barely produce on pace to make 20 million silver Eagles, without horrible shortages developing. That's not a "manufacturing" problem; it's a supply problem. But still, the mints can't supply the market. Why not? The silver market is broken. COMEX broke it. The CFTC broke it. The Federal Reserve broke it. The paper dollar broke it. Hedged refineries and dealers broke it. The broken trust broke it. Lack of knowledge about usury and promises not being the same as real silver broke it. The spot market, the over the counter market, is transforming itself into the futures market that it depended upon. If you try to buy silver at "spot", it's like buying a futures contract for delivery in 1 to 2 months all over again! We now need a new silver market, where people cannot sell silver that they don't have. We need a new spot market to help discover the real price of silver.

After Thoughts

Puzzled about the American mart's sudden fall? Don't be. There are plenty of forces at work driving it down, along with powerful ones propping it up. Yes, of course, markets fluctuate. What can surely be said about this market, this time, is that there are likely more aggressive "fluctuations" of the downward variety still yet to come.

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