UBS' director of trading floor operations, Art Cashin, discussed yesterday's big selloff with CNBC... including how the media completely missed the issue. Cashin said the floor traders were laughing as the talking heads blamed the selloff on the reported drop in U.S. personal spending. "That was like blaming the Johnstown flood on a leaky toilet in Altoona," he said.
Cashin's point is that the market is no longer reacting to small economic changes in spending, unemployment, etc. It's worried about much larger issues, like entire nations collapsing. In particular, Cashin said "the catalyst of yesterday's eighth day of selling was the fear that Italy was on the verge of imploding – and might do so overnight."
The market rebounded this morning… perhaps because Italy didn't implode overnight. But the rally was short lived. The Nasdaq briefly turned negative for the year. The S&P 500 is at its lowest point this year, down 14% from its April 29 high. If the S&P closes down for the day, it will be the index's eighth straight decline – its longest losing streak since October 2008. The Dow Jones was down more than 100 points in afternoon trading, putting it on track for its ninth straight day of losses – the longest losing streak since February 1978.
The news is all bad. Europe and the U.S. are drowning in debt and are on the verge of collapse. Mr. Market is depressed. Chatter abounds of a double-dip recession. Money is rushing out of U.S. and European equities. Lots of that money was going into Swiss francs. The franc was trading at highs against the euro and the dollar.
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But no longer... The Swiss National Bank unexpectedly cut interest rates to zero percent today, saying the "current strength of the Swiss franc is threatening the development of the economy and increasing the downside risks to price stability in Switzerland." The Swiss' sudden zero-percent interest rate policy only pushed more money into the world's other safe-haven asset – precious metals. Gold ripped to a new high of $1,672.70 an ounce. (It's since fallen to $1,660.) And silver is approaching $42 an ounce.
Now is certainly the time for a true contrarian to step up and buy stocks. The news – barring a country actually collapsing – couldn't be worse. The market is in major risk-off mode. One brave soul, Barton Biggs of Traxis Partners, said it's time to buy stocks "aggressively." Biggs said he wasn't expecting such "ineptitude" out of U.S. and European political leaders. And the market is showing "classic signs of a panic."
Biggs also thinks the Fed could step in again, saying it "isn't just gonna sit on its hands." He believes we'll see a third round of quantitative easing, though it will take a different form. Biggs expects the Fed to buy mortgages and single-family homes. As most Americans have the majority of their net worth in their homes, the government needs to boost confidence by raising home prices. Biggs thinks we could see a 7%-8% market rally in the next seven days. He recommends buying blue chips like Procter & Gamble and Coca-Cola.
Biggs isn't the only bullish guy out there... In yesterday's update, our own Jeff Clark told us the S&P is flashing "buy." Jeff recommended a trade he thinks will double. (He traded the same stock in June and made 80%.) You can learn more about Jeff's trade here... On the same topic, Jeff closed the second half of his Gold Fields option trade today for a gain of more than 100%.
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New 52-week highs (as of 8/2/11): Royal Gold (RGLD), SPDR Gold Trust (GLD).
More satisfied customers in today's mailbag. Send your thoughts to feedback@stansberryresearch.com.
"Thank you. After 20 years of ineffective trading we are making consistent gains regardless of what the overall market is doing and I can sleep well at night to boot. Under your tutelage we were able to post an overall gain of >10% in the last 30 days while the DJIA retreated 5.8%. The drop in the market yesterday earned us our greatest single days gains which has already paid for my new subscription to Retirement Trader. Thank you." – Paid-up subscriber Tim E.
"Prior to seeing the 'End of the [America]' video, I was a typical investor. I had a portfolio of stocks (many of them high yielding as I had figured that out myself) and mutual funds. I wasn't interested in adding gold. I was approaching retirement and wasn't concerned about growing my portfolio, I just didn't want to lose what I had.
"After seeing the video, and subscribing to your newsletter, I sold stocks and purchased gold. I also purchased a Swiss Annuity, and a Brazilian CD and I moved a significant amount of IRA money into physical gold. Gold has increased over $200 per ounce since my first purchase and $130 an ounce since I moved my IRA. When I purchased the Swiss annuity, $100 would buy 88 Swiss francs, now, 90 days later, it will buy fewer than 80. That's an increase of 11% in 3 months. Thank you for your outstanding advice." – Paid-up subscriber Allen Utzig
"Your analysis helped me move outside my comfort zone and add RGLD to my IRA. Thank you! It has been a solid hedge against all of the turmoil in the markets as it has increased by more than 12% since my purchase and continues to move higher. It now represents about 12% of my portfolio and I feel that it will continue to rise during these tumultuous times." – Paid-up subscriber Bill Deiz
"Even a six year old knows [OBAMA!'s] full of bologna... my daughter calls him 'barackorroni!'" – Paid-up subscriber Edwin
Regards,
Sean Goldsmith
Baltimore, Maryland
August 3, 2011
Why the market is panicking... Swiss interest rates are at zero... Gold surges (then corrects)... Biggs says to buy stocks 'aggressively'... Another 100% trade for Jeff Clark... More satisfied customers...