The futures were right, as I mentioned in yesterday’s early morning post, and the markets picked up the momentum from Europe and galloped higher, although they closed well off their highs for the day, as the chart above shows (courtesy of MarketWatch.com).
One of the reasons for the pullback was increased uncertainty caused by problems with home foreclosure proceedings. It appears that finally Attorneys General from all 50 states have joined to examine foreclosure practices.
At issue is not whether a non-paying homeowner should be foreclosed on but whether all state laws were properly followed. Adding more confusion is the fact that most mortgages were sold several times and the questions has come up as to who would now be the legal party with the right to foreclose. At least that is my understanding at this time.
The effect was that the major indexes pulled back as lenders, such as Chase with 115,000 mortgages, will now have to increase reserves for litigation costs, which will not only reduce profits but also could extend over an unknown time frame.
Nevertheless, the indexes ended to the upside with the S&P; 500 now honing in on its 2010 high, which occurred back in April. The big performer, however, was gold with a new intraday high of 1,376.
Again, the happy trio (gold, stocks and bonds) continues its upward path with gold being the asset class that makes the most sense in this environment. The destruction of the dollar, along with global economic uncertainty, were some of the forces pushing the metal to its current levels.
I would not buy gold outright here, because it can be subject to violent corrections, but we own it indirectly via a mutual fund that has broad exposure to it.
Amazingly enough, the stock market is able to locate only good news, or turn bad news in a positive. As a result, the focus remains on recovery hopes, whether they are substantiated or not.
I may be one of the few who always seems to get concerned when markets rally with utter abandon, as it’s just a matter of time when the inevitable downside comes into play.