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Gold and oil drop, stocks maintain rallies.

Posted by Adrian on July 23, 2008

I prematurity called a bull run for gold going into the high 900’s (please refer here). The reasons behind a possible (although it didn’t occur) gold rally last week, or early this week was at the time the speculation that another US bank would be in dire trouble. Of course, whether speculation or not, the US banking sector is in trouble. But when we now talk about dire trouble, we mean on the brink of bankruptcy. This hasn’t happened on a broader scale, Fannie Mae and Freddie Mac most probably will be lifted out of insolvency problems by treasury and Federal intervention (although it may not end there, there could be further issues with both mortgage banks as for banks and sovereign funds will try and offload all the depreciating Mae and Mac assets).

But stock market rallies in Bear market environments aren’t uncommon, the amazing aspect to these rallies is that whilst the Banking sector continues to downgrades it’s self (from bank employed analyst to bank employed analyst); it still maintained a rise. Despite a massive loss from Wachovia at a reported $8.86 billion loss, Washington Mutual at $3.3 billion loss and online brokerage firm E-Trade at $94.6 million. In recessionary and credit tight environments, there is such a narrow chance that struggle banks and financial institutions will be able to raise capital. So eventually a bank or banks are going to bite the dust, to what point some banks will be revealed as ‘zombie businesses’ will depend on the ferocity of rival analysts, market accounting rules (revealing losses) and so on.

The credit crunch for banks is entering the insolvency stage now.

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One Response to “Gold and oil drop, stocks maintain rallies.”

  1. […] mentioned in Gold and oil drop, stocks maintain rallies, in regards to the recent week of stock market rallies. The global credit crunch will now enter the […]

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