Friday, April 16, 2010

Goldman and Gold

It can hardly be a coincidence that the news of a civil (NOT criminal) SEC action against GS broke on an options expiration day and that precious metals were taken down more than stocks as a whole. The whole thing stinks.

If we see some more of this sort of stuff that will likely lead to GS paying back the government with our own money but that generates good headlines, then we will have the fake downleg of the bear market a la 2002: a post-recession down-move that allows the Fed to stay easy for longer and that provides the volatility that GS and its confreres thrive on.

The S&P 500 VIX is only 18 and should exceed 20 to even classify as a minor correction.

The strongest stocks to hold are in my opinion those that retain the strongest support today and are in a short-term uptrend despite any down-moves today. Think MCD, IBM and ORCL. Traders who don't own "enough" GLD or the like may want to be brave and buy on the close. The rumor is that "they" are taking the precious metals down because Paulson & Co., GS' counterparty on the short side for the toxic CDOs Goldman sold, is long lots of GLD. I doubt this has legs, and to the extent that the SEC action shines a new light on old shady deals, it may remind people of the house of cards that comprises so much of our financial system and thus may draw them anew to gold. On a trading basis, GLD is down much more than the smaller Canadian ETFs (stock symbols) GTU and PHYS, even though they now trade rich, at about 8% premiums to net asset value.

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