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At
the time of writing this, we are still awaiting the Fed decision on September
13th, with an apparent
consensus now expecting some variety of QE3 because of
the disappointing August Employment
Report, showing gains made occurred in lower
paying sectors set against mounting losses in high-tax
occupations. What's worse, and a critically important measure associated
with a contracting real economy, is that the participation
rate of labor in the workforce continues to hit fresh new lows as the gap
between reported
and propaganda (thank you Zerohedge) also hits a record, setting the
stage for an accident in the financial markets at some point. Because it is
quite possible, if not likely, that all the central bank / government
malfeasance (tinkering) in the markets / expectations has conditions set up like
it's 1929.
And
while disappointment associated with whatever action is taken by the Fed on
the 13th is not likely to be enough to tip the larger apple cart over on its
own, at the same time, it's important to note that factors are building in this regard. Under the right
conditions (or wrong depending how you are invested) the inflation trade (stocks,
commodities, precious metals, etc.) could come unglued even if the Fed 'makes
a move' (think Scarface) given so many
are expecting this with Bernanke's own recent comments at Jackson Hole supporting such a
view. In fact, a good speculator might look at such a set-up and decide 'too
many' are leaning on the inflation side of the boat, and that the inflation
trade should be faded, if not abandoned temporarily, if possible. Nasty
things can happen in a market when sentiment gets ahead of the fundamentals
to a large degree; where it could be argued that this is the case right now
concerning those viewing more QE as a panacea for sustainable higher prices
moving forward.
Now
you may be saying to yourself that such a view is wrongheaded because the Fed
will continue to debase the currency at an accelerating rate (if not now due
to the election) because it must given the monetary system is fiat currency based, and one would be
correct in making such an assumption. The very nature of fiat currency based economies (no matter how large) demands such
policy in order to avoid wholesale deflation, with our larger (modern
day) global economy being no exception. Western Globalization has seen to this. Please,
make no mistake about this; it won’t matter who wins the election in
November – the incumbent or Republican’s. The currency will
remain an abomination (Obamination) no matter who is in the White House, you
can count on this, and the continued ‘need for speed’ in the rate
US Dollar ($) debasement.
Sure
enough, Bernanke did not disappoint us in this regard straight-away chiming
in with a good sized (but too small) open ended QE program supposedly designed to support a comatose real estate market, larger bubble economy, wealth
effect,
etc. (but really it’s just another episode in the serial bank bailout
saga), that of course will need to be increased in the not too distant
future. (i.e. because most of this stimulus is already in the market[s].)
Some are saying this is the Fed’s last
bullet,
but they are wrong. What Bernanke has done here is live up to his original
pledge (think Helicopter Ben) prior to becoming Fed head to print as much money as he
deems necessary to get the economy (using its dual mandate as the excuse) rolling again; and more recently he has
promised to use any ‘unconventional stimulus’ necessary to ensure
such policy succeeds. This is the QE to infinity that is rightfully being quoted in the blogosphere these
days, meaning unlimited stimulus both in terms of frequency and size. (i.e.
not that this ploy will work forever.)
Because
that’s exactly what Bernanke will be forced into as time goes on
– bigger stimulus packages more often. This is because fiat currency
economies need ever increasing stimulus in order not to implode – the
‘need for speed’ in currency debasement rates is always on the
rise. Hence, because the economy is sputtering right now, the need for speed
in currency debasement rates is rising in real time, and Bernanke was not
willing to risk waiting until after the election to provide the junkie (the
economy) with its fix,
especially with his job on the line. (i.e. Romney has promised to give him
the boot if elected.) If he had waited and Obama had lost, which would have
been the favored view with no action from the Fed, his chances of maintain
his position as Chairman would have went up in smoke, just like the monopoly
money he deals in every day. He is very familiar with ephemeral things, and
he did not want his job
to be one of them.
This
is the insidious nature of debt based fiat currency monetary systems /
economies. The marginal utility of debt in the system is close to zero now,
leaving the only option for authorities to prevent a deflationary collapse
being wholesale money printing to the point the currency is completely
debased over time. (i.e. and that point is not far off now.) What will happen
is technical, fundamental, and psychological factors will affect financial markets, the
economy, and more specifically the consumer / investors (rising costs,
declining real income, etc.), causing the Fed to adopt increasingly radical
‘unconventional stimulus’ methods. Such methods would likely
include increasing the scope (and then size and frequency) of QE programs to
include direct support of individuals and smaller businesses, not just the
banks and big business, which are the beneficiaries of present.
So
don’t be surprised if you start getting checks in the mail for no
apparent reason at some point in the future. This will just be Ben and his
buddies down at the Fed attempting to prolong the lifespan of our floundering
fiat currency economy (and their jobs), along with buying your affections of
course. And this is why gold (and the entire precious metals sector) is
destined for far higher prices moving forward, because prospects for
the dollar (s) are terminal, with important long-term technicals pointing to declines dead ahead. (i.e.
you cannot debase the world’s reserve currency and not have it lose
purchasing power.) Many are either completely oblivious to this or simply
cannot wrap their head around the concept. Perhaps it will get through the
thicker skulls when crude oil is $200 and gold has doubled again. (See Figure 1)
Figure 1
No
matter for those who are positioned for this however, where in fact growing
numbers are waking up to the concepts of QE to infinity, currency debasement,
and how to protect one’s wealth from central bank (stealth) wealth
confiscation. It’s all about the $, which is why the above is the only
chart that will appear in this article – because this understanding is
so important for people to wrap their heads around. One owns precious metals
to escape the insidious nature of the currency debasement process, which
again, as pointed out above, will do nothing but accelerate and morph as time
moves on and monetary authorities (with the Fed at center) become increasingly desperate. Therein, and if the primary message
in the chart above has technical merit (Fibonacci resonance related
projections are often traced out in a secular and trending move), increasing
desperate measures on the part of the Fed should eventually have the effect
of crashing the $, possibly sending it all the way down to 30. (i.e. the $ is
on ‘crash alert’.)
An
impoverished world has had enough of self-serving and repressive US (Western)
foreign policy and is increasingly fighting back. Lies are no longer sufficient to plicate the masses with
their economies imploding and the next big step short of a world
war (and the straw that breaks the Camel’s back in spurring the next
great world war) will be dropping the $ as a medium of exchange. This is when
it’s really going to hit the fan. Credible sources (Gerald Celente) are predicting that by spring of next year all hell will
break loose (imploding economies, world war, etc.) and I happen to agree with
this view, where I can also see not only the $ losing reserve currency
status, but also the Fed accelerating the debasement of the currency in an
attempt to hold the US economy together. You see the Fed action last week is
unprecedented in the sense other QE programs were introduced when both the
economy and stock markets were on the ropes, where it appears they are the
other way around right now. This is an illusion however, and it shows just how far into the ‘fiat currency economy lifecycle’ (think crack-up boom dead ahead) we are at present.
Again,
eventually enough people will figure out (and the ones that already have but
are ‘team players’ [Team America, bureaucrats, etc.] or ‘in
denial’ will finally be forced to act and buy precious metals) what is
going on because rising prices will force the reality of the situation on
them and this will in turn compel increasing numbers to protect their assets
in tangibles. (i.e. precious metals, commodities, real estate, etc.) What’s
more, it should be realized that the velocity of money of money could also turn back up at
some point as well if the Fed stops paying commercial banks for holding
reserve with them as one of their possible ‘unconventional and
increasingly desperate measures’. Such a move by the Fed would force
the banks to lend out their reserves into the larger economy again which
would send prices much higher than otherwise would be the case. You should
know Bernanke will be forced to play this card at some point, so watch for
it.
Correspondingly
then, this is the kind of game changer that could send gold and silver sailing much higher in
short order. Therein, and although a minor degree correction may soon be in
the works for an overbought precious metals complex, after a few weeks of
what could prove to be a relatively shallow retracement, if the prognosis for
the $ (economy, world tensions, anti-US sentiment, etc.) unfolds, rapidly
rising gold and silver prices are bound to be the result, likely extending
gains well into next year, as per Dave’s Contracting Fibonacci Spiral
(CFS) thesis. (i.e. just search our site or Google Contracting Fibonacci
Spiral (CFS) for more information.)
Clearly,
the Fed wishes to keep stocks, the economy, and perceptions buoyant going
into the election in order to get Obama re-elected. And although one cannot
like the set-up for the stock market post-election given continued weakness
in the real economy, earnings, and fiscal cliff considerations, at the same time we have now witnessed
some very strong ‘buy signals’ in the precious metals sector, signals
that should not be ignored. Thus, I am now heavily leaning towards
Dave’s view that the broad stock market will top out sometime in and
around (possibly extending into next year) election time, with Obama winning
(the Fed is attempting to make sure of that with all the money printing),
putting in a multi-month topping process, and then plunging into Grand Super-Cycle lows in late 2014.
Precious
metals (both bullion and shares) should continue higher (out-perform) during
this topping process in the broads as increasing numbers of investors become
enlightened about what really goes on behind the curtain (currency debasement) well into next year, possibly
extending right into early summer. (i.e. if the broads don’t top until
next year.) My personal targets for gold and silver are $3,000 and $100 before
the cycle top is put in place, however you should know very credible sources
are looking for far higher prices to end the next impulse. If gold can
make it up to $4500 by next year, silver should be able to vex
inflation-adjusted targets in the $140 area, providing in excess of a 500%
return off of recent lows. If JP Morgan is forced to cover its naked paper
short position this target is not impossible.
Furthermore,
and to reiterate previous comments on this subject, please do not believe talk of the Republicans possibly re-instating a gold standard
in the States if they win because this will never happen voluntarily –
never. What’s more, it’s obvious the incumbents are working
overtime to paint a ‘good picture’ for an easily duped voting
public (ex. knocking crude oil down today), so don’t be surprised if
they pull it off and Obama gets back in. If this occurs Bernanke will have
‘carte blanche’ in the money markets to do whatever he wishes. He
will undoubtedly take this as license to monetize everything that isn’t
nailed down eventually – again – as hypothesized above, sending
checks to anybody with a pulse who will go out and spend it.
This
will be the new, ‘American way’ along with solving the need for
speed problem temporarily.
Good investing
all.
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