worst run in a 100 years, page-5

Kurt,
This is an example of where my irrational deliverance argument gains traction.

In the article you have provided, the comment is made:
"Gold had its biggest one-session gain ever - a reflection of fear in the market".

Gold went up $70.10 on the day.

Back in 1980, gold rose by $74.50 on 3Jan80 to $634, from $559.50 on 2Jan, then by $74 to $760 on 16Jan (from $684 on 15Jan), and then by $80 on 18Jan to $830 from $750 on 17Jan.

Granted, there were equally as large gyrations the other way.

Today's gold fear appears driven by financial /market risk, with an economy teetering towards recession.

Back in 1981, the Tanker wars had broken out in earnest. Oil was up sharply. America was in deep recession (from 1980 to 1982), with manufacturing jobs being lost everywhere. Housing had had its steepest decline in many years and interest rates were a lot higher. A lame duck president (Carter) was in the process of being replaced by a "new light of hope" (Reagan), and the US embassy hostage in Tehran was nearing its year long end. Iraq was at the centre of attention along with Iran, and just 12 months prior, Russia had done the unthinkable in Afghanistan, just as it did recently in Georgia.

Unemployment spiked above 7.5% and got worse 12 months later (above 10%).

Inflation hit 14% and prime interest rates hit 21.5%.

Following Joe Granville's comments of "sell everything" in early January, the stock market fell sharply (over 23%).

In contrast, several months prior, the Chrylser Corporation has sought a huge Federal bailout which some 15 months later had clearly manifested itself in the wild gyrations being seen on Wall Street.

The point here is this:

One explanation of the irrational behaviour of today, and of the panic driven reactions of some is that they have never, ever experienced anything like this in the past. Fpr many of those same people, history does not go back any more than 5-7 years, and then itsmore likely to be 3.

The reality is that each part of our past has had its own unique stresses and pressures of the time, whether they be economic, social, political, strategic or defensive.

On each occasion, we have addressed those issues and moved forward to tomorrow. However, the one element that each unique period of our history demonstrates is that financially, economically and socially, we will always be characterised by excesses to the upside and equally, by excesses to the downside.

Financially, many of America's corporations are lightly geared from a balance sheet perspective. Those which have traded the riskier end of the market are of course well and truly exposed, but equally, the likes of Walmart, Caterpillar, etc are not.

Many corporations are well placed to take advantage of the shakeout and rightsizing that is now occurring.

After all, how else would you characterise Barclays refusing to come to the aid of Lehmann Brothers over the weekend, but immediately following the bankruptcy filing, being able to step in and acquire, not once, but twice, a range of international and North American assets.

The answer to this is simple:
What if I can buy tomorrow for $1 what it would otherwise cost me $1.50 today, if in those circumstances the intrinsic worth of that asset is still (but for irrational deliverance) $1.50. After all, many of those assets have already fallen by 50, 60 or 70%.

The game (and it is a game) that is now being played is one of trying to buy the assets on the cheapest possible price level, assuming no other competitors are out there.

Trouble is, there are other competitors out there and they could well now be running the ruler over those same assets as you are.

Value always has a habit of finding its intrinsic net worth. That's when fortunes are made (just ask Warren Buffet). Now, however, 3-5-7 year veterans are actually trying to outsmart the 20 and 30 year veterans and that is the seismic shift that we are now witnessing.

A new financial order is rapidly finding its foundations which likely will be based upon a lower appetite for risk, greater concentration towards fundamentals, and less exposure towards financial engineering.

And, in one small way, whilst the Feds may well be criticised for taking over Fannie Mae and Freddie Mac, along with an 80% stake in AIG, it could well translate into the most significant housing of assets in one place within the next 3-5 years which will transform the US Federal Government from deficit focused, towards balanced outcomes.

This could well be Bush's legacy, in much the same way as the New Deal ultimately served the Democrats well for many years. Which just goes to show that Obama (despite my Republican leanings) could well end up with one of the strongest, most fundamentally sound economic platforms going forward (fast tracking 1-2 years, out from today).