Capmark and CIT ... harbingers of persistent systemic risk
Please don't overlook the significance of these failed institutions. They are each a very big deal in their own way. Due to CIT, retailers and other consumer-focused business are scrambling to find alternate lines of credit within a still stagnant credit market. The banks would still rather sit on slightly leveraged free gov't capital than lend it out to Mom or Pop or anyone else for that matter.
Capmark was formed from the commercial real estate segment of GMAC, and its failure announces the falling of this long-anticipated domino within the much larger sequence of dominoes still at risk within the ongoing derivatives deleveraging event. At $360 billion in total debt serviced, this is no small blow to the credit markets.
“The Capmark bankruptcy reinforces that, in the case of institutions with large concentrations in commercial real estate, current disruptions to the market have the potential to impact their viability,” said Sam Chandan, president and chief economist of Real Estate Econometrics LLC, a commercial real estate consulting firm in Manhattan.
And we still have round II of the residential real estate crisis looming!
If gold breaks below $1,033, it will mean that the crucial 0.76 pivot point on the USDX that I identified for Fools here and here has found support, and any second round of indiscriminate equities selling that may ensue could indeed drive interest in the dollar from those investors who don't know any better. The well-informed investor will be buying precious metals amid the selling, while the ill-informed will flock to Treasuries and thereby construct even greater bargains for the savvy. My discussion from this blog still applies as to expectations for the extent of any gold correction and dollar rally, but if we see another spate of major failures stemming from this CIT / Capmark one-two punch along with the mountng bank failures and everything else ... then those expectations could prove optimistic.
Here are those expectations delivered as a rebuttal to GV on October 12:
For the record, gold already has posted a major advance from $1,005 where you called a top on October 4, to $1,060 ... officially canceling the 18-month corrective range-bound phase between $700-$1,033. Whether that advance is extended or interrupted going forward hinges upon the key technical pivot point of 0.76 on the USDX ... which is presently the line in the sand that will determine the next near-term move within the broader multi-year bull market for precious metals.
It is entirely possible for gold and silver to take a breather here after an explosive run (again depending upon the action in the dollar). While a blip of near-term strength in the USDX is plausible if investors are spooked back into Treasuries by another precipetous decline in the broader indeces (which I agree is imminent), the dollar raly will be far smaller and shorter than the prior reversal as the fundamental environment has changed inalterably.
I think $1,000 now has a chance of holding as a floor beneath gold, but consider $980 as a far greater foundation of support. In the unlikely event that $980 breaks amid a truly miraculous and manipulated dollar rally [Oct 27 addition: or renewed round of panic-induced indiscriminate flight from equities], then $950 and $900 stand as bastions of reinforcements behind the gold price. The likelihood of a test of $900 is extremely slim IMO.