What Shall the Fed do? Gold is a Key Tell; Survival Preparations
What Shall the Fed Do?
The mainstream financial press is telling us the Fed can do
little and that the paper money masters are boxed in. I’d like to believe that
the Fed has come to the point of having to lift a white flag, but even if I see
the Fed as effectively dead in the long term and that it can only extend and
pretend, I am still wary of Bernanke and the sort of smoke and mirrors that
they may try to deploy to trick most that they have it all under control. The
central banks are skilled in can kicking. While I see Europe in an advanced
mode of can-kicking, even Draghi was able to jawbone and give the markets a
dose of hopium last week on how he will do everything possible to save the
One Ponzi idea that’s making the rounds is that the Fed
could loan short term securities to banks who would use said securities as
collateral to borrow money from the Fed to then make loans. While CNBC notes
that bank lending has been rising at a clip of 5%, I would note that the rise
has not been able to jump start the economy.
The market is in a Johnny Mathis Denise Hathaway ‘too little,
too late’ state of sentiment. The press is telling us there won’t be much from
the Fed today. That might mean that the gains of last week in stocks and even
in gold might be erased quickly. The Fed press mouthpiece, Hilsenrath of the
Wall Street Journal was telegraphing a low expectation message late yesterday.
Is the Fed managing expectations in order to surprise, or is the Fed really
saying through Hilsenrath that while it is dovish there is not much it is willing
to do? We’ll find out in a matter of hours. All I can say is that there are no
clear messages until accompanied by action these days. Reading tea leaves is
With stock futures rising, it looks like the bulls will have
at least a better morning. But what matters today is how the market behaves
post Fed and how it finishes the day AND how it reacts to potential moves by
the ECB tomorrow. I see a temper tantrum and a lowering of bids for stocks if
the market decides it’s disappointed. Draghi and his save the euro at all costs
talk of last week makes him seem like the odd man out considering the cold
shoulder he continues to receive from Germany to all out bond buying by the
central bank. This could be a central bank debacle of all time if his words
amount to nothing, which is not out of the realm of possibility.
Some days the economic data is conflicting states side. ADP
payroll numbers printed at a better than expected 163k versus expectations of
120k. Bad timing for fans of QE when these stronger numbers appear. However, a
deeper look in the ADP numbers show that better paying manufacturing jobs rose
by just 6,000. The message of the ADP numbers this year and the government’s
numbers coming Friday is that apparent improvement in the job market is based
on improvement in hiring for lower quality service sector jobs. Please absorb
that concept. Even the Fed academics are likely not fooled by this reality in
the labor market. Aggregate jobs creation has seen increases this year, but we’re
not talking about dream jobs. To the new hires of 2012, my instructions are
simple: DO NOT put mustard on my Big Mac! Thanks. Hahahaha, though this is not
a laughing matter and I really shun junk food.
To Repeat with respect to QE:
Part of the motivation for the rally attempt today centers
largely on Fed-head Ben Bernanke. Late yesterday the stock market bounced off
the lows on talk that Bernanke is getting closer to intervening in with some
type of stimulus. Think about that for a moment. The market is getting warm and
fuzzy over the thought that the Bernank is going to ease yet again. It’s not
just a proposition of Fed funds to near zero. It’s really a game of getting
money to flow from risk free assets to risk assets. The efficacy of the
stimulus is what counts. Sure, it will work to boost stocks, commodities,
bonds, etc at least for a time, but we are now in a time of lower yielding risk
assets. Bernanke & Co. has to realize this situation is akin to firing
In other words, the already much lower yields accomplished
in previous iterations of QE, in everything from muni bonds to non agency
mortgages, corporate bonds, etc., will give QE3 less bang for the buck.
While mortgage rates are at record lows, the spread between
a 30 year fixed rate and a 30 year mortgage backed security is actually now double
the historic average – meaning that borrowers are receiving proportionally less
of a benefit despite QE.
Bernanke needs to figure out quickly the best time to deploy
more QE to get the most bang for the buck. Sort of like being on a desert
island with only one can of tuna fish left in the survival pack. Good
luck, Ben. I am pleased to be one of the average simpletons as opposed to
filling the Fed head’s shoes.
I see gold as being the best tell on the outcome of the Fed
meeting. Gold up, Bernanke is putting the hammer down on QE. Gold down.
Bernanke chooses to fiddle.
Let’s get depressed! ZeroHedge | On a long enough timeline
the survival rate for everyone drops to zero http://www.zerohedge.com/news/guest-post-most-often-forgotten-survival-preparations
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Author Jim Kingsland
Market commentator with focus on Gold and Silver after long broadcast career at FNN, Bloomberg, and Fox. #RandomHouse published author on PMs. Jim has also been involved in projects for CAC and Coinplex.
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