Smokes and Mirrors

For months now after the subprime mess hit the mainstream news, astute investors could basically count on the following pattern and make good money at each stop.



Media : "Oh no economy is slowing down and subprime mess is coming!"
Consumer confidence lowers --> Companies earnings down as less people spend money
Analyst earnings fall short --> downgrades companie's price targets
Actual market cap goes down as stock price drops

To stabilize the company and inject confidence back into the economy, the Feds have been lowering the US interest rates to "temporarily" address this issue.

Everytime interest rate's lowered the general market took it as a sign of confidence that the government will endlessly back up financial errors and in some cases, blatant greed.
Fed Lowers Discount Rate to Calm Markets

Fed Lowers Discount Rate to Calm Markets

The Federal Reserve said Friday it has approved a half-percentage point cut in the discount rate - a dramatic move aimed at calming markets roiled by a widening credit crisis.

In a statement explaining the board's action, Federal Reserve Chairman Ben Bernanke and his colleagues said that while incoming data suggest the economy is continuing to expand at a moderate pace, "the downside risks to growth have increased appreciably."

The Fed acknowledged that conditions had "deteriorated and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward." The central bank said it was "monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.

Jim Sinclair, one of the longest reining pioneers of gold value investing has this to say recently:

Posted On: Monday, July 21, 2008, 11:15:00 PM EST

Because Fannie and Freddie Can't Go Down, Gold Can Only Go Up

It is just that simple. Fannie, Freddie, all primary government dealers and all entities with significant counter parties of OTC derivatives cannot fail. One by one they will be rescued one way or another, in the sunlight or in the shade.

Central banks cannot go broke because they have a blank check to reboot their capital if required. What central banks can and will do is destroy the currency of their country.

Gold is not a lubricant (crude), but in the final analysis is a currency. The euro will trade at $2US and gold at $1200 before it moves on to $1650.

All the spin and verbal camouflage cannot stop the implosion of balance sheets.

The Formula is in charge.

This is the real story. This is the total story. This is the only story. All else is noise and propaganda.

It's shaping up to be an interesting summer after all... deals are everywhere, especially in the early stage juniors with quality networks and management... which one will you pick?