Portfolio Log-inSome Breather Time for Various Markets as Potentially Explosive Events Loom
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9/17/12
Last Week the focus for markets was on Ben Bernanke and the decision by the Federal Open Market Committee to take his lead into the world of ‘open ended’ QE. Good luck with that, Ben. Ben’s actions were beneficial for bulls in gold, silver and broad market U.S. stocks indexes and for shorts in long dated treasuries and in many dollar pairs. Yes, rates will most assuredly remain near zero for as long as the digital money creation charade continues. Once Fed money counterfeiting comes to an end, then it shall be curtains for the dollar, an outlook that shall be a ball and chain for dollar index bulls.
This week, stocks are off to a slightly weaker start and gold is little changed. For the denizens of both markets, it looks like a time for investors to get their heads around the shameful (for the human race) state of geopolitical political events where tension and violence are accelerating and how that fits in with open ended QE. Some consolidation for markets that have experienced large moves would not be surprising. What also may not be surprising, especially for stocks, is that QE may actually not automatically guarantee a ravenous bull market in the face of the tinder box like state of the world. Long time readers know that I have adhered to finding the momentum and sticking with it (the trend is your friend), but these pesky problems like the potential for bombing Iran, the Muslim Brotherhood protests could put a monkey wrench into an assumption that stocks go up longer term when QE is announced.
Should oil skyrocket due to ME tensions, or the market latches on to the notion that QE is less efficacious than ever in this new open-ended iteration – then stocks may have a rougher time than the bulls expect.
For gold, it is still likely to be a bullish situation, since QE is still QE and can only lead to more dollar buying power destruction.
What I am getting at here, is that it will take a particular level of acumen to discern ‘which way the markets’ as influences beyond what Ben Bernanke can control directly may result in a much higher than expected drag coefficient for QE.
The oddest thing about all of this? Is that receiving the truth will be harder than ever. As I’ve discussed, Ben tried to pass his new and desperate open ended QE as a routine exercise in an economy that’s not so bad if you were to casually read and not parse the FOMC statement. Let me address this on few planes to come to more solid expectations of what QE shall do. Not only is there the inherent erosion of dollar buying power, there will be the mis pricing of risk as Uncle Ben further distorts the bond market that will lead to greater market volatility. If the mouthpieces of the Fed say one thing, look for the opposite reality.
Expect much the same with the ECB. No one should be surprised that Spain continues to hang in the wind. Nothing more done over the weekend. Last month the EBC president vowed to shock and awe the euro markets with grandiose intervention to save the euro. No surprise, no shock and awe.
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Linkage
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GASOLINE AND POLITICS
There are numerous commentators who are saying last week’s ‘open ended” QE initiative announced by Fed Chairman Ben Bernanke is a deliberate move on the part of the Fed to save the Presidency of Barrack Obama. I won’t jump into that political speculation directly, but I would like to point out that the Fed’s work may be all for naught in the coming months if the price of gasoline hammers consumers to the point of taking their frustrations out on the D.C. incumbents, including the President, on election day.
On September 13th, I commented on the ill timed rise in gasoline for the President:“Sorry to my Obama fan readers. But this needs to be said. The high price of gasoline is just the oil industry’s way at settling some scores with Obama. How convenient that prices go UP before the election this time? Just bad timing, or planned? The higher prices shall be worth some near term pain, if it can get that guy out of the White House. No one forced the big O to waste so much money on green, or to act as he did with the XL pipeline, or to put the Middle East region in a state of greater tension because he favors the “brotherhood”. I could go on and on. Sure, Brent has remained persistently high, but that’s just one factor. The recent fizzled storm that shut in some Gulf production is a tiny factor and is over emphasized by the financial press. Sorry to politicize gasoline, but I see this move as more than just a coincidence in an election year. If these prices don’t miraculously soon come down, this high profile pocketbook issue might very well tip the scales to Romney who needs all the help he can get.”I made that comment on my http://www.financialbalderdash.comblog. One subscriber even cancelled after I made the post! Lol. Yes it was on the partisan side – how dare I point out a few failures of our present leader.
As it is turning out, perhaps it is not a conspiracy by ‘Big Oil’ against Mr. Obama, but one of the first unintended fruits of the world’s central banking policy of unlimited printing. Gasoline is up over a half dollar a gallon in the last two months, or since the European Central Bank moved to a stance of blind creation of reserves (printing).
Did someone forget that as the U.S. and Europe race to fiat currency oblivion that maybe commodities prices, such as gasoline, might just rise?? It makes me chuckle in a disparaging sort of way as these Central Bankers are such fools.
It may very well be that they forgot that in the daily grind for the average person (a majority of whom do not own houses), that the price to fill up a tank to enable the grind to continue might draw more negative scrutiny than the thought of mortgage rates coming down another ½ a point in the coming weeks? Are these policy makers a bunch of schlubs, or what? One must always consider Unintended consequences and think outside of one’s reality. In the case of the Fed head, I would wonder the last time he actually filled his own car with gas? Or, if he recently has done such an average thing (which I am doubtful of unless he puts on a toupee, sunglasses and skinny jeans to go out incognito), pump price might not resonate in his mind since he could pay any price for gasoline as part of being of the elite class.
In other words, they either never thought about what could be a brick wall to the QE tricks, or they forgot about the masses who would be hurt by high gasoline and what that could mean for the election outcome if there was pressure put on the Fed to act in September to help the president.
Obama could very well lose the election come November if gasoline prices continue to trend higher.
The SPR Solution Non Solution
BUT, and this is a big BUT: The president has already talked about using the Strategic Petroleum Reserve (SPR) to attempt to force pump prices lower. This little saga could bring some further surprises, though an SPR gambit to lower gas prices might fail. Here’s why:
The SPR is intended for real emergencies like a sudden cutoff of overseas of supplies, or to supply crude oil for national defense purposes. The SPR was not intended to be a solution to lower the price of fuel before an election.
Given the state of the oil industry, a release from the SPR would bump into constrained refinery ability. The solution is not more oil to lower pump prices. Another four years has passed with little progress on the issue of national energy. While I am thinking that Romney would not necessarily make a greater difference over the next four years on the matter, I highly object in the short term for the potential that the SPR may be misused.
I can already see it now. What was supposed to be an energy savings account (SPR) gets used to try to lower pump prices for the convenience of holding on to political power, setting a new precedent that would fritter the energy savings account away.
The solution to getting whacked at the gas station would actually be to have a sane Fed, better foreign policy for a more peaceful world and a long term energy plan to reduce the need for oil from most countries that hate us to begin with! But that would be hard to do as the real solution lie in the real of serious structural reform and in today’s society it’s all about taking the easy way out with band aid repair that fail to cure the core problems.
And when push comes to shove, the situation will boil down to an Administration’s power grab and not something aimed directly help people reduce to cost to drive. They will sell it as help to us, but you should know better that it is really help for them.
Nothing would surprise me anymore – even a vain attempt by the present Administration to use the SPR for political gain. If they do, they should be wary of unintended consequences. Stay tuned.
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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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