Next Shoe to Drop

The stock mania from Friday continued in Asia posting a gain of 0.9% but was less enthusiastic in Europe as stocks there gained just 0.3%. In the U.S. stocks gained just slightly on low volume. Precious metals and their mining stocks rocketed higher about 6%. Tuesday, stocks in Asia pulled back 0.5% while stocks in Europe marked time. In the U.S. stocks on low volume. The VXO fear gauge rose over 5% to close at 12.89 while precious metals and miners gave back about half of their spectacular gains the day before, dropping 3%. Here’s a link that puts this stock market bubble in context.

Wednesday, stocks moved little in Asia and were up just slightly in Europe. In the U.S., stocks shot up about 1% after bubble Bernanke first spoke but then reversed direction to close down 0.9% on moderate volume. The FOMC minutes release (and perhaps an early leak) may be responsible for the turnaround. Precious metals dropped 1%, but their mining stocks rose 2%. Fear seems to be building with the VXO up almost another 5% to close at 13.50.

Thursday, things heated up in a big way in Asia. After gaining an incredible 70% since last November the Nikkei 225 Index rose another 2% Thursday before crashing nearly 10% from the peak of the day. This 7.3% net decline in the Nikkei led Asian stocks to their closing loss of 3.4%. In Europe the loss was 2.1%. In the U.S. though stocks closed just 0.4% lower on low moderate volume after being down about 1% at the open.

Friday in Asia, the Nikkei still saw volatile trading, but at the close posted a 0.9% gain, while overall stocks in Asia lost another 0.4%. In Europe they declined 0.3%. In the U.S. stocks closed down 0.4% on very low volume.

For the week, the S&P 500 Index closed down 1%, precious metals gained 3%, and the VXO rose almost 15%. About a month ago, precious metals crashed. This week the Nikkei crashed. With all the leverage out there juicing asset prices, the crash in U.S. stock prices when it comes should be spectacular as the race to the bottom unwinds borrowed-money bets.