Debt burden Transferring From Local and State To Federal Level

It is this tranfer that many have come to view as leadership in America.

As Jim wrote earlier today on jsmineset.com,

There is no question about if we will experience the event of states failures on debt. In truth it already locked and loaded into many states of the USA.

Expect spin to give the impression that the currency devaluation, called quantitative easing to soften truth, will be highly controlled while simultaneously implying that the markets will be given whatever is necessary to promote success - whatever that may be. It should be an interesting week. I suggest securing your computer monitors and mobile devices from the air turbulence cause by extreme lip flapping.

Municipal Meltdown in Harrisburg, Pennsylvania

As gold costs and cons rise, an area expert works to track crime

If schemes are attracting attention with gold trading a shade under $1,360, just wait until the price approaches $5,000.

As the article suggests, beware of gold investment schemes as "The gold may not exist." While watchdog groups patrol the realm of bullion and numismatic coins, the precious metal ETFs, an absolute behemoth in term of size and scope of the scheme compared to coins, receives very little attention. As the old saying goes, penny-wise but pound foolish, appropriately describes the public focus towards the today’s precious metals ‘schemes’.

The price of an ounce of gold is higher than ever -- more than $1,300. People are buying, and people are selling. And some inevitably will get ripped off.

The Texas State Securities Board issued a warning last week "to be cautious about jumping on the gold bandwagon."

"Beware of gold investment schemes," Securities Commissioner Denise Voigt Crawford said in a statement. "The gold may not exist."

Source: star-telegram.com

Why the Dow Usually Rallies After Midterm Elections

Capital continues to flow into equities as hedge against currency devaluation. This can lead to a rising stock market despite a poor economic backdrop. While long-term seasonal analysis suggests strength in the second year of the four year cycle (see table below), it can be misleading if the data set is not restricted to economically comparable time periods. Historical analysis of a time series that includes long periods of currency stability during a period of aggressive currency devaluation can lead to flawed conclusions.

Year Two
4-Year Cycle Risk Free Total Returns* 1926-2010:


The time to follow ‘connected money’ into the market was July and August 2010. These dates represented ‘easier’ entry points. Will the market rally after the election or sell off depends largely on the commitment of the specs and retail investors to chase strength within the context of a statistically neutral setup (neither overbought or oversold).

S&P 500 and the Commercial Traders COT Futures and Options Equity Diffusion Index (DI):


As I wrote above, capital continues to flow into equities as hedge against currency devaluation. Those trying to anticipate a stock market rally must follow the money flow setup in the U.S. dollar. Selling the U.S. dollar rally (as illustrated in the chart below) will foreshadow another decline in the dollar and rally in the equity market.

U.S. Dollar Index and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:

Democrats and Republicans may both have something to celebrate in the months following the midterm elections: A stock market rally. From 1922 to 2006, the average gain of the Dow Jones Industrial Average over the 90 trading days following midterms (roughly November until mid-March) was 8.5 percent, according to a new study authored by Brian Gendreau, market strategist for Financial Network. That's almost 5 percent higher than the Dow's gains in non-election years.

Source: finance.yahoo.com

Big Banks Told Not To 'Fix' A Fraud

A student of history will notice that while technology advances, certain things within the core of society remain the same. The boom bust cycle, while maintaining subtle differences in description, remains largely the same. Extended periods of easy money based on lax credit terms tends to culminate in what few call acceptable rewards relative to the risks and many other's depict as outright fraud. The description chosen depends always depends on who received those rewards.

In two letters released Friday, Attorney General Richard Cordray criticized a number of banks and loan-servicing companies, including Wells Fargo & Co.; Ally Financial Inc.'s GMAC Mortgage; Bank of America Corp.; and J.P. Morgan Chase & Co. Mr. Cordray said the banks are trying to paper over fraud committed in foreclosures with temporary fixes that don't address underlying problems in the banks' practices.

Source: online.wsj.com
From Bob

Unusual Pattern of Buying Rather Than Selling Strength in Silver

The unusual pattern of buying rather than selling strength by ‘connected’ money in the silver market illustrates a subtle yet distinct change in money flows not see since the price spike of 2005-2006. The massive spike in spreading activity suggests that connected money is unlikely to be the bag holders during a price spike.

Silver London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


COT Money Flow Upper Table:

Why many fear more quantitative easing won't fix economy

The absurdity that the economy can be fixed through infinite rounds of indirect and direct stimulus is only superceded by the suggestion that it will create jobs in an economy with declining private domestic investment.

The treasury auction and TIC data illustrates subtle changes in how our debts are being financed. Direct anonymous purchases have increased as the Chinese have slowly withdrawn their bids. Quantitative easing part two (QE2) simply allows more direct purchases in plain sight.

The Federal Reserve is likely to announce a plan to pump more money into the economy next week. But some economists worry that the move won't work.

The Fed is expected to announce hundreds of billions of new asset purchases, particularly long-term Treasuries, in an attempt to jump start the struggling U.S. economy.

Source: finance.yahoo.com

Economy grows at slightly faster pace in Q3

The operative phrase is spent a little more freely.

Private and government (Federal, State & Local) consumption account for 70% and 20% of GDP, respectively. This means that 90% of US GDP comes from a combination of private and public consumption. While some will argue that government consumption expenditures and gross investment also contains "investment", it is nowhere near as efficient and productive as private sector investment. Private sector investment has fallen to 13% as of the third quarter 2010. This is well below the 50's, 70's and 80's highs that exceeded 20%.

Personal Consumption Expenditures (PCE) As A %GDP and Personal Consumption Expenditures As A %GDP Average from 1947:


Government Consumption Expenditures and Gross Investment (GCEI) As A %GDP Average from 1947:


Gross Domestic Private Investment (GDPI) As A %GDP and Gross Domestic Private Investment (GDPI) As A %GDP Average from 1947:

The economy grew at a slightly faster pace over the summer as Americans spent a little more freely.

The Commerce Department said Friday that the economy expanded at a 2 percent annual rate in the July-September quarter. It marked an improvement from the feeble 1.7 percent growth in the April-June quarter.

Source: finance.yahoo.com

China vows not to use rare earths as leverage

The Chinese, equally adroit at using the media to confuse their intentions, continue to push around investors. You’d think they would have adapted to their tactics from their oscillation between loving and hating gold. I serious doubt the Chinese had any intention of cutting off supply as a tool for political leverage. They already have all the leverage they need through massive US Treasury purchases.

Does this mean the Chinese, whom control 97% of rare earth supplies without meaningful competition from western sources, are about to start selling them at cost around the world? There’s an easy no. The Chinese will likely use the monopoly power to control price. Price, not restriction of supply, can alter competition within the high technology manufacturing space while maintaining what they view as win-win outcomes.

Besides, next week they'll suggest curtailing supply again.

The U.S. and European Union this week said they were pressing for solutions to fears that China was choking supply of the substances used in lasers, computers and superconductors, among other applications, and the issue is expected to figure at next month's G-20 summit.

"China will not use rare earths as an instrument for bargaining," he told a news conference on Thursday. "Instead, we hope to cooperate with other countries in the use of rare earths on the basis of win-win outcomes and jointly protecting this unrenewable resource."

Source: newsdaily.com

GM says to cut $11B in debt, pension obligations

If the government buys the initial stock offering, does that complete the final transfer of the shell game? The stock offering is expected next month. Expect the market to be jumping with QE2 injections with so many billions and the government's reputation as the buyer of last resort at stake.

General Motors Co. says it will cut its debt and pension obligations by $11 billion.

The announcement comes as GM prepares for an initial public sale of company stock.

GM says it will reduce its obligations by buying $2.1 billion worth of preferred stock from the U.S. government. The automaker says it will buy the preferred shares after the initial public offering, which is expected next month.

Source: news.yahoo.com

Real Cost of Living

Cost of Living Chart


Who said government statisticians view the world from behind brick walls?

Gold Stock Slowly Increasing Dividend Payouts

As I have said many times before, the major producers will slowly increase their dividends from miniscule to huge as the secular gold bull matures. Investors tend to act without vision in regards to the gold stocks. They “see” the underperformance of the gold stocks as permanent – the way it is. Investors, often in disgust, discard those lousy gold stocks into any weakness.

Investors that live by the emotions will die by them.

History paints a very different picture for the gold stocks which few investors seem willing to see or understand. The historical correlation of the gold stocks with gold illustrates a strong or tight correlation (> 0.8) between the two assets during periods of aggressive currency devaluation.

Historical Correlation of Gold Stocks to Gold:


The tightness of this historical correlation has loosened since 2006, but I seriously caution against proclaiming that “this time it’s different”. Capital flows will reassert the strong correlation between gold stocks and gold because it will be profitable. Capital is not emotional and it knows history.

A side by side comparison illustrates gold leadership over the gold stocks at breakouts. This leadership, however, does not mean outperformance throughout the entire bull market.

Gold and Gold Stocks Side by Side Comparison


As Selim recognizes with Goldcorp results, the gold stocks not only provide capital appreciation but also significant increases in dividend payouts as the bull market matures.

S&P Gold (Formerly Precious Metals Mining)*
*S&P Gold from 1945, Barron's Gold Stock Index from 1939-1945, 1922-1939 Homestake Mining:


Let the world focus on the size of QE2. The real interpretations lie elsewhere.

Eric and Jim

Just out of interest, I would be curious what you both think about what GG did today. Not only were their earnings/cash flow outstanding, the POG averaged $1239 in the 3rd quarter and their by product cost of Gold was $260 per ounce. And I forgot to mention Silver was in the 19ish and as for Copper ... God knows where it was? And it looks like $4/lb seems to be coming our way!!

A dividend doubling should be a shot across the bow to the shorts. Gold guaranteed over $1300 and silver over $22 in the 4th quarter... Should hugely impact forward cash flow. And one last thing...I would be surprised if they did an acquisition in the 4th quarter,

Let us see is this is a kickstart for our beloved and much maligned HUI index and send GG into the 50's???

Selim

Source: reuters.com

Unemployment claims drop sharply to 434K

Hopeful Sign?

I can't help but think of the following quote from The Shawshank Redemption (1994):

Red - Let me tell you something my friend. Hope is a dangerous thing. Hope can drive a man insane.

Hope is a dangerous thing from an economic and investing standpoint. It can make you recognize trends or inflection points that do not exist. There was a lot of "hope" between 1976 and 1978 that the employment situation had turned the corner. Unfortunately, the power of the economic cycle smashed this misplaced hope and investors positioned to profit from it.

Average Weekly Initial Claims State Unemployment (AWIC) And YOY Change:

Fewer people applied for unemployment benefits last week, the second drop in a row and a hopeful sign the job market could be improving.

The Labor Department said Thursday that initial claims for jobless benefits dropped by 21,000 to a seasonally adjusted 434,000 in the week that ended Oct. 23.

Source: news.yahoo.com

Durable goods orders rise, business spending cools

Ignore the headline spin, CPI-adjusted and gold-adjusted new orders of durable goods (ex defense and aircraft) continue to loss momentum. This suggests an economy struggling to sell big ticket items which tends to be associated with weak economic growth.

Real Business Core Capital Spending: Real or CPI-Adjusted New Orders of Durable Goods ex. defense and aircraft (RBCCS) and YOY Change:


Gold-Adjusted New Orders of Durable Goods ex. defense and aircraft (BCCSGLDR) and YOY Change:

A surge in demand for commercial aircraft lifted orders for big-ticket manufactured goods in September, but businesses spent less on products that would signal expansion.

The Commerce Department says orders for durable goods rose 3.3 percent last month. Overall, it was the best showing since January. But excluding transportation, orders fell 0.8 percent after having risen 1.9 percent in August.

Source: finance.yahoo.com

The Six Trillion Dollar Problem

Courtesy of Greg Hunter’s USAWatchdog.com

When I was an investigative reporter at the networks, the first question we would ask when trying to decide if we wanted to do a story was: How many? How many people have been hurt by a defective product? How many defective products of a certain kind were in use? How many dollars will it take to fix the problem? In the case of the recent mortgage crisis – “Foreclosuregate,” the question of how many has been answered.It has been widely reported that there are a little more than 60 million home mortgages in the Mortgage Electronic Registry System (MERS). If every one of the 60 million mortgages are worth $100,000, that would mean a total of at least $6 trillion in home mortgages that are electronically filed. In MERS, there is no physical written record of a “Promissory Note.” In almost all states, you need that original “Note” to prove ownership of a home. That means in almost every single state, the banks cannot legally foreclose on your home without this document. Some say the loan documents were lost on purpose because the bankers did not want their massive fraud to see the light of day. Whether or not the “Notes” were lost on purpose or accident, the fact is the original “Notes” are nowhere to be found. That is what the “Robo Signing” part of the story is all about. It has been widely reported that “foreclosure mills” were creating massive amounts of counterfeit Promissory Notes so banks could legally foreclose on homeowners.

Source: jsmineset.com

H. R. 4646 - Cited As The "Debt Free America Act"

Taxation without (proper) representation, the slogan used by the original thirteen colonies, gave birth to the ideas of constitution rights and was a major driver behind the American Revolution.

H. R. 4646

I have gone into THOMAS (Library of Congress) and printed out and read all 15 pages of this bill which has been given the “Short Title” of “Debt Free America Act.”

Just think, if you deposit $5,000.00 into your checking account or savings account the bank has to take out 1% or $50.00 of that money and send it to Washington . Then, any checks or cash you take out of your bank they will deduct 1% from what is still in the bank and send it to Washington . Total put in the Bank $5,000.00. $100.00 of that you give to Washington .

This bill, spells it out that everyone will pay the Government 1% of their gross income.

Page 9 states the House and Senate shall convene not later than November 23, 2010 and Page 11 states the vote on passage shall occur not later than December 23, 2010.

Jeffrey

Source: govtrack.us

France's parliament approves pension reform

Austerity - balancing the budget during a depression when a large chunk of the workforce is dependent on jobs and benefits from the public sector is certain to bring more social discord. France is not the only nation struggling with these trends. The United States is looking straight down a similar gun barrel. There are no easy solutions to a problem that requires time and further reductions in the overall standard of living.

France's parliament granted final approval Wednesday to a bill raising the retirement age from 60 to 62, a reform that has infuriated the country's powerful unions and touched off weeks of protests and strikes.

The 336-233 vote in the National Assembly was a victory for conservative President Nicolas Sarkozy, who has stood firm despite the protests — a stance that has resulted in his lowest approval ratings since he took office in 2007.

Source: news.yahoo.com

Act Now, CFTC Is Urged

Bob,

Jim and I recently discussed the action in silver and the metals markets.

He suggested that the major metal dealers deal every day in great size with all the world producers. This is true for silver and gold.

Within the context of the discussion, it was agreed that the recent discussion as to the size of the short position in silver are ignoring the transaction realities within the metals markets.

The size of the JP Morgan "short" position has be discussed for years. Simply put, bullion banks such as JP, as well as others, are not foolish enough to sit on exposed, naked short positions. Only the public does stuff like that.

The discussion included a description of the hedging tactic of long physical from the producer while shorting paper (futures). This trade can produce enormous profits if the spread is wide enough. As long as profits can be made, the paper side of the equation will appear imbalanced and overstated when viewed in isolation.

Once the profits are driven out by excessive physical demand, the trade will reverse. The likely violent shift will create bag holders, but it won't be the bullion banks. The bag holder group will be defined by the acronym – ETF (holders).

Eric

A Commodity Futures Trading Commission regulator is putting pressure on the agency to take action in a high-profile, two-year-old investigation of the silver market.

The silver market has long been the focus of manipulation theorists.
.At a CFTC hearing Tuesday to consider new rules to strengthen its commodity-enforcement powers, commissioner Bart Chilton said market players have made "repeated" and "fraudulent efforts to persuade and deviously control" silver prices. Mr. Chilton said he believed there have been violations of CFTC rules that should be prosecuted, though he couldn't publicly disclose trader names.

Source: online.wsj.com
Source: jsmineset.com

Dollar Gains on Prospects Fed Will Succeed in Sparking Inflation

Hello Scott,

That’s MOPE. It often raises suspicion from one’s common sense. Still, if the headline (or variant of it) is repeated often, suspicion can quickly turn into acceptance as human instinct to join the group is strong.

This is why the fear of deflation is pushed so hard. If deflation is to be feared, then inflation, a byproduct of currency devaluation, must be good. Currency devaluation as a solution to mitigate the debt burden of the previous economic expansion is never good for a currency. Your common sense instincts are correct.

RY,
Eric

Eric,

Thanks for all you do! If you have time, would like to get your comment on what I thought was a bizarre headline from bloomberg/businessweek:

Headline: Dollar Gains on Prospects Fed Will Succeed in Sparking Inflation

I don't really get this... sounds like saying "Home sales surge on expectation of falling prices."

Source: businessweek.com


-Scott

Stocks fall amid questions about Fed plan

While investors fret about the size of the announced program, they ignore the fact that quantitative easing has been ongoing since 2000. Have absolutely no doubt that second round of quantitative easing is coming. When market begin reflect its waning effects, have no doubt another round will be initiated.

The election rhetoric may talk of austerity and balanced budgets to win votes, but it largely ignores the economic reality at hand. The growing sovereign debt implosion and rising unemployment will quickly turn austerity into the need for visible “actions” based largely on more currency devaluation.

In time, the public will realize that the economic solutions provided by both political parties differ only in MOPE and presentation. The consequences of the solutions, which will do little to improve the employment picture, will always be the same. At some point, the public is certain to seek answers beyond the solution provide by a binary political structure.

Stocks slid Wednesday as concerns grew over whether the Federal Reserve's plans to buy Treasury bonds might be smaller and slower than anticipated.

Source: finance.yahoo.com

China official: dollar printing causing inflation

Dollar printing causes inflation? The rhetoric has convinced many that dollar printing (quantitative easing) produces economic growth. History sides with the former.

Out-of-control printing of the U.S. dollar is forcing inflation on China, pushing up prices for commodities and labor, trade minister Chen Deming says in an escalation of rhetoric over currency and other tensions ahead of key international meetings.

Source: finance.yahoo.com

Recovery could derail if commodities surge on QE2: IEA

What recovery? Nominal economic growth has largely been a product of quantitative easing (QE) or currency devaluation. When currency devaluation is stripped out of the markets and economic series, it reveals the economy remains in a secular down trend. Another round of quantitative easing (QE2) will simply be more of the same. Stocks, gold, silver, and commodities are simply rising at various rates in response to the universal policy response of QE.

The global economic recovery could derail if commodity prices rise further after the U.S. Federal Reserve's move on further quantitative easing, details of which are expected next week, an official with the International Energy Agency (IEA) said on Wednesday.

Source: finance.yahoo.com

U.S. Companies Hoarding Almost $1 Trillion in Cash

If only this cash was repatriated, it would provide a huge boost to the struggling US economy, right?

American companies are hoarding almost $1 trillion in cash, but are unlikely to spend on expanding their businesses and hiring new employees because of continuing uncertainty about the strength of the economy, Moody’s Investors Service says.

Not so fast. The growing cash pile is hardly what it seems. The cash buffer also comes with massive workforce reduction, Capex or investment reductions, and a huge spike in corporate debt issuance and refinancing.

And even that aside, the bottom line is that companies have done nothing less than the inverse of what our Keynesian government is doing: they have cut all investment in future business to the benefit of building out a cash buffer (while the government has taken all future benefits to the present day courtesy of an unlimited taxpayer funded piggybank). And since this capex will need to be reinvested at some point, assuming some reversion to the corporate mean, it is only a matter of time before cash levels decline dramatically once again, only this time nominal debt levels, as pointed out previously, will be at fresh record high levels, courtesy of Bernanke's ZIRP insanity.

Source: nytimes.com
Source: zerohedge.com

J.P. Morgan to Launch Copper ETF

JP Morgan wants to list a copper ETF. The fact that they also hold huge short positions in the silver market, a market under investigation for price manipulation, is certain to raise some concerns about its true intentions.

Any manipulation against the trend, however, is destined to fail. Secular demand and devaluation, not manipulation, has been driving up the price of copper (and silver). A copper ETF will introduce the commodity to a new class of investors. This will certainly make the copper bulls happy.

J.P. Morgan Chase & Co. will launch a physical copper exchange-traded product, according to a filing made late Friday to the U.S. Securities and Exchange Commission, marking a further bullish stamp of approval for the metal as prices approach new all-time highs. A start date was not given in the filing.

The product aims to offer institutional and retail investors a way to participate in the physical copper market through an investment in securities without having to buy and store the metal themselves. The logistics of transporting and storing physical copper will be dealt with by J.P. Morgan's warehousing firm, Henry Bath Group, and the related expenses will be built into the price of the shares.

Source: online.wsj.com

The Fiscal Disaster Set to Explode in December

Expect the moratorium on interest payments to be extended beyond December. The budgetary strains of the States have been and continue to be transferred to the Federal level. This transfer is increasingly supported by currency devaluation - better known as quantitative easing.

US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month Moving Average) and Gold London P.M. Fixed:

As businesses lay off workers, fewer payroll tax dollars go into each state’s unemployment insurance

Since March of 2009, 31 states have borrowed billions from the federal government to continue paying out unemployment benefits while keeping their UI trust funds from insolvency. The federal stimulus provided for a moratorium on interest payments until December, 2010. And, as you likely know, that’s a month from now.

Source: minyanville.com

TIPS Yield Goes Negative for First Time

The threat has never been deflation. Yet, that’s what they’ll continue to spin, thus, many will believe. Those that suggest that 2000-present represents a comparison to 1929-1954 ignore the key difference in the U.S. dollar between the two periods. Roosevelt, desiring inflation through currency devaluation, had to confiscate gold as it was directly tied to the dollar. Once gold was confiscated (at $20/oz), it was promptly revalued at $35/oz by executive order.

Check you pockets once. Do you find any $20 gold pieces? Any Federal Reserve notes convertible to gold?

The U.S. dollar has no anchor and can be devalued at will. On going default through inflation is the real threat.

The up turn in the TIPS to nominal long bonds reflects another reacceleration of inflation. It's not the magnitude of the ratio but rather than direction and acceleration that matters to capital.

TIPS to Nominal Bond Ratio:

In its bid to fight deflation, the Federal Reserve seems to be gaining some traction.

On Monday, investors snapped up government securities designed to protect against inflation, generating so much demand that the Treasury was able to sell them with a negative yield, the first time that has happened.

Source: online.wsj.com

Home prices fell in August, near lows: S&P

Sluggish to falling home prices are not keeping pace with the rate of currency devaluation. This underperformance is illustrated by a declining median home price to gold ratio. The chart reveals that the bounce within the steps is not only weakening but also shortening as the price of gold accelerates.

U.S. Median Home Price (MHP) to Gold:


Falling constant currency or “real” home prices means homebuilders struggle to remain profitable.

S&P Homebuilders (HB) to Gold Ratio:

Prices of single-family homes fell in August, hovering around recent lows after the expiration of popular homebuyer tax credits, according a Standard & Poor's/Case-Shiller home price report on Tuesday.

The S&P/Case Shiller composite index of 20 metropolitan areas declined 0.3 percent in August from July on a seasonally adjusted basis, as expected in a Reuters poll. The dip followed a 0.6 percent July gain.

Source: finance.yahoo.com

Silver Exports From China May Slump by 40% This Year

China, the third largest producer of silver, has been withholding more of their silver as domestic demand skyrockets. This is certain to cut worldwide supply as growing global industrial and investment demand soars. The is a recipe for higher prices.

Silver exports from China, the world’s largest, may drop about 40 percent this year as domestic demand from industry and investors climbs, according to Beijing Antaike Information Development Co.

Source: businessweek.com

UPDATE 1-Germany says severely hit by rare earth scarcity

China has monopoly power in rare earth metals. This power has allowed them to control price and various types of high-tech production.

Germany has been severely hit by the global shortage of rare earths, and the government should guard against speculation in raw materials, Economy Minister Rainer Bruederle said on Tuesday.

Germany's electronics industry has said the market for rare earths, used to manufacture a range of high-tech products, had become "critical" due to restrictions on exports imposed by China, which produces 97 percent of the world's supply.

"We are severely affected when it comes to energy resources and ... rare earths which are growing scarce," Bruederle said at a raw materials conference in Berlin.

Source: reuters.com
From Bob

Federal Reserve Asset Buying May Reach $2 Trillion, Goldman's Hatzius Says

The Chinese's direct and indirection reaction to polices chosen to fulfill the Fed's 'dual mandate' will be telling. The Chinese have clearly chosen to incorporate actions rather than words to execute their plan. The trend in the dollar and US long bond market should be closely monitored for changes in money flows and technical deterioration.

The massive outflows in the US Long Bond continue to be a major red flag within a tenuous global economic backdrop.

US TBd (20 Years +) and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:

The Federal Reserve may purchase $2 trillion of assets to stimulate the U.S. economy and start by announcing a fresh round of monetary easing on Nov. 3, Goldman Sachs Group Inc. said.

“We expect an announcement of $500 billion or perhaps slightly more over a period of about six months,” Jan Hatzius, the New York-based chief U.S. economist at Goldman Sachs, said in an e-mailed note. “The key question, however, is not the size of the first step, but how far Fed officials will ultimately need to move to achieve their dual mandate of low inflation and maximum sustainable employment.”

Source: bloomberg.com

The Myopic World of Asset Allocation Sees Only Stocks, Bonds, and Cash

In a myopic world defined by stocks, bonds, and cash (usually short-term treasury bills), is easy to call equities top dog. I view this type of analysis as similar to purchasing of a used car without lifting the hood to inspect the engine.

If you lift the hood, you'll notice many of the engine parts are missing. When stocks, bonds, and cash are properly defined in constant currency terms a few things are revealed: (1) Gold has and continues to be real top dog, (2) and repetition is the key to myopic analysis and misdirection.

Large Cap Stocks


Small Cap Stocks


US Long-Term High Grade Corporate Bonds


US Long-Term Government Bonds


US Short-Term Government Bills


Headline: For Many Market Strategists, Equities Are Top Dog Again

But in 2011, strategists expect the stock market to notch double-digit gains and recommend investors boost allocations to ride the wave, whether its lower-risk consumer staples stocks or global companies tapping into emerging market supply needs.

Source: finance.yahoo.com

Greek strikes halt train services

Greece like all nations within the Euro zone is limited by the rules of its construct. The preferred and historically consistent option of ongoing default through currency devaluation is an option. The option to pursue austerity measures is unlike to find acceptance from a society dependent on centralized assistance. Social and civil disobedience, unfortunately, will not alter the market forces driving the default of many Euro zone nations. As long as default through devaluation of previous issued debt is not an option, the markets will press the weaker nations until they either have no choice but to change the rules or force a withdrawal from the currency union.

All train services in Greece have been suspended after state railway employees launched a series of strikes against planned reforms.

The debt-laden country's railways are €10-billion ($14-billion) in the red, and the government has announced plans to cut benefits and move excess personnel to other public sector jobs.

There's Fear Behind the Curtain

The blitz today of MOPE is beyond anything I have ever seen. Somebody is scared to death of something.

Jim

I agree with you Jim. The MOPE blitz is impressive. There are signs growing "economic roll-over" (see chart below) in more than a few series I follow. The solution is certain to be more quantitative easing (devaluation) at a time when global tensions continue to intensify as a result of it (see article below). I think that something is a sequence of events, both economic and social, beginning to unfold across the globe.

Eric

Chicago Fed National Activity Index (CNFAI) and S&P 500 Average:


Headline: China Said to Widen Its Embargo of Minerals

China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted some shipments of those materials to the United States and Europe, three industry officials said this week.

The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further intensify already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese leaders are willing to use their growing economic muscle.

Source: nytimes.com
Source: chicagofed.org

Lead, Follow, Or Get Out Of The Way

Thanks Eric,

Here are my questions, I'd also like to make a donation to your blog, please let me know who to make the check out to and the address to send, thanks in advance.

1. I've been following G & S for a couple years now. One if my sources of info is GATA & Lemetropole Cafe, run by the well known Bill Murphy(http://www.lemetropolecafe.com/). It is known that the bullion banks use paper to short the metals and therefore keep the prices suppressed. In an environment where "gold is the enemy", how effective can techinical analysis really be? A good example would be the recent break out, both the metals looked very strong, and were climbing nicely, then all of a sudden we experience another 'takedown' and we wipe of 60 bucks in three days? What are your general thoughts regarding this manipulation, and how effective techincal analysis can be in such an environment.


2. Jim S. has been a wonderful resource for us all. While he does not like to time the market, he has long held the 1650 figure for gold by end of this year, then referring to Armstrong's numbers for the next leg up. With what has happened this last week, and many calling for a correction in gold because of the healthy runup, do you think Jim's number can actually be reached by end of year?

3. In your articles, you oftern talk of connected money positioning itself for the long side. Can you tell me how long you think this positioning will take? In other words, I'm trying to find out when will the 'connected money actually want to stop suppressing the price and let it rise?

4. Lastly, where do I look to find the footprints of connected money? Any resources would be appreciated.

Thanks again Eric, look forward to hearing your thoughts

Amir

My Responses

1. No market or trend - stocks, bonds, currencies, gold, silver, etc can be manipulated long against the secular trend. History is very clear on the subject of control and manipulation. When the message of the market is ignored or misunderstood it gives rise to the common presumption that a misbehaving market must be manipulated. This is not to suggest that key markets, such as gold, are not controlled. At times the control, such as $20/oz or $35/oz fix, is official. Other times, the control is more subtle. Nevertheless, all control that contradicts or fights the secular trend will be smashed by market forces.

2. Jim’s forecast shows an exceptional understanding of the price cycle. In my opinion, Jim’s point forecast is immaterial for most long-term gold holders. $1650 will be breached, but the focus should not be on time but rather the economic and financial implication of trend acceleration in 2010-2012.

3. Connected money does what they do (right or wrong). Market forces, however, are relentless. As Lee Iacocca often said in the old Chrysler Ads - "Lead, Follow or Get Out of the Way." In gold terms, either Lead – open embrace the secular trends, Follow – quietly embrace the secular trends with money, or get the hell out of the way. The latter tends to force the issue in capital markets.

4. Footprints of connected money. As I have said many times before. Follow the money. Leveraged markets control price. Following this logic, Follow the money in leverage markets.

Regards,
Eric

Bank of America finds foreclosure mistakes: report

Tell us something the markets don't already know. The markets also know that over 1 in 2 documents contained errors is likely a little generous.

Bank of America Corp (NYSE:BAC - News) acknowledged some mistakes in foreclosure files as it begins to resubmit documents in 102,000 cases, the Wall Street Journal said.

The bank found errors in 10 to 25 out of the first several hundred foreclosure it examined starting last Monday, the newspaper said.

Source: finance.yahoo.com

The Strong Follow Capital Flows While Weak Follow Fear

The strong continue to recognize and follow strength while the weak are dismantled from the trend by disinformation and fear. The break of the 2009 swing low suggests an acceleration of the out performance of gold stocks relative to equities. This likely acceleration is illustrated by the green arrows in the chart below.

U.S. Large Cap Stocks Capital Appreciation Index (LCSCAI); S&P 500 to S&P Gold Ratio (GPM)*:
* S&P Gold from 1945, Barron's Gold Stock Index from 1939-1945, Homestake Mining:

Silver's Footprint of Control

The normal footprint of control by 'connected money' is revealed by the combination of opposite arrows. That is, selling strength (green up and red down) and buying weakness (red down and green up).

This footprint of control was first broken by late 2005 - early 2006. Connect money began buying strength rather than selling weakness. The introduction of the silver ETF (SLV) in April 2006 and Buffett's coincidental decision to sell his silver holdings (largely assumed to seed or front the paper silver ETF) provided material redirection of physical demand towards paper. The normal footprint of control had resumed by the fall of 2006.

The footprint of control, similar to 05-06, is once again showing signs of strain. Connected money is uncharacteristically buying rather than selling strength to contain the advance. Could this second and even-more powerful surge in demand for physical demand finally overwhelm the controlling mechanism of the paper market? It's likely that something material is going on here.

Silver London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:

7 banks closed in Fla., Ga., Ill., Kan., Ariz.

The list of failures keeps growing.

Regulators on Friday shut down a total of seven banks in Florida, Georgia, Illinois, Kansas and Arizona, lifting to 139 the number of U.S. banks that have fallen this year as soured loans have mounted and the economy has sputtered.

Source: finance.yahoo.com

Hawaii birds confuse Friday night lights with moon

At first blush, it’s doubtful that most would create a financial linkage with this interesting problem. Whether it’s infinite liquidity to bailout a failing system and damn the consequences to benefit the few over the many or the sacrifice of nature for our amusement or entertainment, the overriding constant remains the human ego. Ego, the perception that I or we are greater than the sum of the parts, creates many of the problems that plague society. Many of the real treasures in life can only be seen through ego-less eyes.

The tradition of Friday night football on the island of Kauai has been disrupted by an unusual culprit: Young seabirds migrating to the ocean mistake stadium lights for the moon and stars, causing them to become disoriented, drop from the sky and fall prey to cats.

At issue is a bird called the Newell's shearwater, which numbered about 80,000 in the mid-1990s. Its population has plunged 75 percent in recent years as Kauai grew in size and added more lights that confuse the birds.

Source: news.yahoo.com

Capital Already 'Knows'

Bloomberg had an interview this afternoon with Professor Black who is the author of " The Best Way to Rob a Bank is to Own a Bank." He could not be silenced.

Professor Black said, among other javelins in the heart of MOPE, the
following:

1/ The Securitized Mortgage instruments are all frauds.
2/ The Fed is holding a huge amount of these as collateral.
3/ They are valueless.
4/ The manufacturers of these are, under commercial and criminal
statute and law, criminals.

The interview almost swallowed her tongue.

Gold will trade at and above $1650.
QE to Infinity is not a choice among alternatives. It is all that is left.

Jim

Jim,

Gold, following its historical role, has become the last safe haven. Those that believe that capital is unaware of Professor Black’s assertions are not listening to the messages of the market. That is, they are not listening to the "real" secular trends. Capital already knows, and it doesn't need consensus agreement or approval from centralize control.

Regards,

Eric

Banking Stocks (BKX):


Banking Stocks to Gold Ratio (BKXGLDLR):

Leveraged Money Flows In The Dollar Will Setup the Next Gold Advance

Gold, silver, and equities will to mark time as the U.S. dollar bounces after heavy selling. This technical bounce was no accident as "connected money" had begun positioning for a counter trend rally in early October. A bullish setup, a closing above the 80 percentile, was confirmed on October 5th. This is revealed in the chart below. A reversal of money flows from buying weakness to selling strength will mark the second leg down of the September 2010 down wave. When the money has been repositioned, silver and gold will lead the way higher once the weak hands have been cast off.

U.S. Dollar Index and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:

Fannie and Freddie may need another $215 billion

This is certainly dollar friendly, right? Don't think so.

Fannie Mae (OTC BB:FNMA.OB - News) and Freddie Mac (OTC BB:FMCC.OB - News) may need as much as $215 billion in additional capital from the Treasury through 2013 to offset losses and maintain a positive net worth, their federal regulator said on Thursday.

Source: finance.yahoo.com

Gold Drops After Geithner Says Currencies `In Alignment,' Boosting Dollar

Holy MOPE, Batman! Let's file this assessment for review towards the end of spring 2011.

Gold declined after U.S. Treasury Secretary Timothy F. Geithner said that the major currencies are “roughly in alignment,” boosting the dollar and curbing demand for the precious metal as a haven.

Source: finance.yahoo.com

News Hub: Outside View - A Bull's Case for Gold

Guggenheim Partners's Scott Minerd discusses why he thinks that despite record highs, gold can be expected to rise even higher.

Source: online.wsj.com

Geithner Weak Dollar Seen as U.S. Recovery Route Versus BRICs

"It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to [be] competitive," he said. "It is not a viable, feasible strategy."

Source: edegrootinsights.blogspot.com

It took one day for a complete flip flop. Confidence in the leadership behind the U.S. dollar greatly influences its exchange rate.

For U.S. Treasury Secretary Timothy F. Geithner, a weaker dollar may now be in the national interest.

The dollar has dropped more than 7 percent since Aug. 27, when Chairman Ben S. Bernanke signaled the Federal Reserve is prepared to ease monetary policy. Where once such a decline may have been met with resistance from the U.S., Geithner may now be tolerating it as a way of bolstering the recovery.

Source: nytimes.com

Warren Buffett: Forget gold, buy stocks

These types of arguments, positioning gold against productive assets such as stocks, have a tendency loosen the weak hands from the secular trend right about the time ‘connected money’ quietly covers more of their controlling short positions. We’ve seen this argument before. Would you take this big cube of metal that produces nothing and yields no interest, or a productive asset such as an equity investment?

It’s not that Buffet is wrong. Over very long periods the logic of this argument is correct. The upward sloping trend or angle of ascension of large- and small-cap total return index to gold ratio illustrates this out performance.

U.S. Large Cap Total Return Index (LCSTRI); S&P 500 Total Return Index to Gold Ratio


U.S. Small Cap Total Return Index (SCSTRI) to Gold Ratio


A close inspection of these charts by astute investors, however, reveals periods (better classified as cycles) of massive underperformance of productive assets. Clearly, there are times when that big cube of metal that produces nothing and yields no interest, significantly out performs productive assets such as stocks for an extended periods of time. Here lies the other side of the argument that if often selectively withheld, because it wouldn’t scare the hell out of you.

During periods of aggressive devaluation, which I characterize as depressionary boxes, gold significantly out performs both large- and small-cap stocks for decades. This devaluation, often a byproduct of today’s quantitative easing used to combat the massive debt burden of the previous expansion, can send stocks soaring in non-constant or nominal currency terms. The growth in the trend, however, is an illusion based on currency devaluation. This is an illusion that the Germans know far too well.

It’s not that Buffet is wrong about the secular trends in place. Stocks tend to out perform gold over long periods of time. The only exceptions are depressionary boxes which are characterized by aggressive currency devaluation. The suggestion to forget gold and buy stocks recognizes the long-term trends in place but ignores the reality currency devaluation (quantitative easing) across the globe with a depressionary box that started in 2000. The "Forget Gold and Buy Stocks" strategy which is certain to be repeated numerous times in the coming years will continue to frustrate investors betting on the resumption of the long-term trend. The fourth depressionary box since 1871 won’t reach is cyclical low for another 5-6 years.

My first question, as I sit there on the couch in his office, is: "What about gold? Is this a classic bubble or what?"

"Look," he says, with his usual confident laugh. "You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"

Source: money.cnn.com

Pimco, New York Fed Said to Seek BofA Repurchase of Mortgages

The presence of the NY Fed in this potential litigation says that the Fed is holding paper which does not qualify for holding according to its own indenture.

This is the end of the majority of a pile of garbage two trillion dollars high. This is one of the best reasons to own gold, regardless of the mindless actions of algorithms impacting price today.

The New York Fed, Pimco and others threaten litigation via demand letters to force the Bank of America to buy back $47 billion in OTC derivatives known as securitized mortgage debt.

Because the OTC derivative cannot stand the light of day in court, a demand letter is a powerful first tool.

Respectfully,
Jim

As a Fed official suggested today, quantitative easing must be big.

Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.

Source: finance.yahoo.com

French retirement protests take violent turn

One cannot play favor to one sub sector of society without repercussions from the others. Once the helping hand of socialism is offered to society, it is nearly impossibly to remove without some sort of social disruption.

Masked youths clashed with police and set fires in cities across France on Tuesday as protests against a proposed hike in the retirement age took an increasingly radical turn. Hundreds of flights were canceled, long lines formed at gas stations and train service in many regions was cut in half.

President Nicolas Sarkozy pledged to crack down on "troublemakers" and guarantee public order, raising the possibility of more confrontations with young rioters after a week of disruptive but largely nonviolent demonstrations.

Source: news.yahoo.com

Fed's Lockhart: Quantitative easing must be big

Infinity (∞), while technically is not a number, suggests a quantity without bound. Infinity in terms of quantitative easing implies printing as much money as it takes to stabilize the imploding debt pile without having to officially recognize default. 'Big' suggests a finite limit, while whatever it takes to get the job done, a more accurate assessment of strategy being pursued, is far more ambiguous and difficult to explain.

"If we're going to pursue another round of quantitative easing, it has to be a large enough number to make a difference," Lockhart said in an interview on CNBC.

Source: finance.yahoo.com

The New Tax Man: Big Banks and Hedge Funds

Cash strapped municipalities desperate to fill budgetary holes generated from false, maybe better characterized as naive, expectations sell taxes owed in exchange for collection and legal rights to the same institutions that received massive taxpayer bailouts. Even a blind man could see that the decision of local governments to make this exchange without considering the consequences of their actions and “connected money” to profit from it has great potential for backlash.

The Wall Street investors, which include Bank of America and JPMorgan Chase & Co., have purchased from local governments the right to collect delinquent taxes on several hundred thousand properties, many in distressed housing markets, the Huffington Post Investigative Fund has found.

In many cases, the banks and hedge funds created new companies to do their bidding. They gave the companies obscure, even whimsical names and used post office boxes as their addresses, masking Wall Street’s dominant new role as a surrogate tax collector.

In exchange for paying overdue real estate taxes, the investors gain legal powers from local governments to collect the debt and levy fees. At first, property owners may owe little more than a few hundred dollars, only to find their bills soaring into the thousands. In some jurisdictions, the new Wall Street tax collectors also chase debtors over other small bills, such as for water, sewer and sidewalk repair.

Source: huffpostfund.org

Thanks Bob

US Treasury chief Timothy Geithner says America will not engage in dollar devaluation

Anyone dressing (and playing the part) as a mindless zombie for Halloween should probably read the following quote. It will help you get into character later this month.

"It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to [be] competitive," he said. "It is not a viable, feasible strategy."

Source: telegraph.co.uk

China to reduce rare earth export quotas

China has a relative monopoly on rare earth elements (REE) production. REE are important component in the production in numerous high technology goods such medical equipment, lasers, cell phones and advanced weaponry, etc. Over-exploitation is another way of saying control of a key component of high-tech production. Shrewd investors might smell an investment opportunity here.

China will "further reduce" quotas for rare earth exports by 30 percent at most next year to protect the precious metals from over-exploitation, said an official from the Ministry of Commerce.

Source: chinadaily.com.cn

Thanks Bob

French strikes hit airlines, trucking, gas pumps

Shortages (emphasis here) and social disruption arise quickly when Frances proposes to increase the retirement age to 62 from 60. The could easily happen in the United States as society, already stricken with the consequences of the bursting of the credit bubble, says enough is enough to direct, highly visible solutions. Of course, social responses such as these only further entrenches quantitative easing (QE) or currency devaluation as the preferred, indirect tool too minimize the excessive debt burdens of western economies.

Airlines flying into France were ordered to slash schedules — and to bring enough fuel for the trip out. Gas stations ran short or dry, while truckers jammed highway traffic Monday by driving at a snail's pace, a tactic known in French as "operation escargot."

Strikes over the government's plans to raise the retirement age to 62 from 60 disrupted daily life and a wide swath of industry — from oil refining to travel to shipping — as protesters fought a proposal they say tampers with the near-sacred French social contract.

Source: news.yahoo.com

Rising Stock Prices Are Not Always A Function Of Economic Activity

A rising stock and gold trend is a product of Currency Induced Cost Push Inflation. If you have eyes to see the future, it’s hiding in plain sight.

Jim

Jim,

Currency induced cost push inflation (CICPI) is the reason why nominal (U.S. dollar) stock prices must be adjusted into a stable currency to “see” the real trend. There’s big difference between nominal and real trends. The media, however, makes no attempt to differentiate between them. Rising stocks prices are not always a function of economic activity. When the U.S. large cap total return index is adjusted for CICPI, the real and quite cyclical trends become obvious.

Eric

U.S. Large Cap Total Return Index (LCSTRI); S&P 500 Total Return Index to Gold Ratio:


Source: martinarmstrong.org

South Korean central bank looks to gold

Central banks are quickly waking up to the fact that gold is a currency.

The other epiphany is that this time gold will, as always, be prone to reactions at key points, but this is no repeat of 1980 for reasons I have told you many times.

Jim Sinclair

Jim,

It’s also becoming politically acceptable to recognize gold as currency now. One can fight the trend for only so long before judgment is questioned.

And, yes, gold will be prone to reactions. As I have written many times before, when TIME is right price will follow.

Regards,

Eric

South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering buying gold to diversify its dollar-heavy portfolio, the country’s central bank said, adding it would be cautious in making any final decision.

Source: ft.com

Builders glum on housing market despite uptick

Builders are pessimistic about the housing market, but are seeing a little more foot traffic after the worst summer for home sales in a decade.

The National Association of Home Builders says its monthly index of builders' sentiment rose in October to 16, the first increase in five months. The index had been at 13 for the past two months, the lowest level since March 2009.

The chart below illustrates the evolution of another step down in housing. Don't bother with surveys or indices, follow the money.

Housing Stocks to Gold Ratio:


Source: finance.yahoo.com

'Real Panic Going on' in Dollar Index: Charts

A characterization the dollar's decline as a 'real panic' could still be viewed as premature in 2010. This does not suggest, however, that this trader’s comments should be dismissed as “talking one’s book” (position).

The technical damage in the dollar is undeniable. The neckline of the head-and-shoulders pattern (an inflection pattern) has been smashed on a surge in trend energy. This is clearly illustrated by the sharp drop in REV(E) in the dollar index ETF chart.

The breach of the neckline (NL) yields a minimum downside projection. These are illustrated as blue and green columns in the dollar index ETF and dollar index, respectively. Both projections imply a retest of the 2008 lows.

A break of the 2008 lows, likely in 2011, will generate some ‘real panic’.

U.S. Dollar Index ETF (UUP):


U.S. Dollar Index (DXY):

The dollar index looks set to continue its rapid decline and could fall below 72 point before the end of October, a level not seen since mid-2008, independent trader and technical analyst Bill McLaren told CNBC Friday.

Source: cnbc.com

Growing Strain of Control in Silver

Commercial traders continue to cover their short positions into strength in silver and gold. The size and speed of the short covering is particularly acute in the silver market. This unusual activity relative to price, first discussed as a money flow footprint, suggests a subtle shift within highly controlled markets. Any shift should be monitored close as it can imply growing strain on control.

Silver London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:

Gold London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:

Government reports $1.3 trillion budget deficit

The Obama administration said Friday the federal deficit hit a near-record $1.3 trillion for the just-completed budget year.

The following charts illustrate falling real revenues and surging outlays relative to revenues. While “the formula” has taken a back seat in recent months to other headlines, its consequences remain omnipresent through the local, state, and federal sector.

If you think gold has seen its run, my response is not a chance.

Real or Gold Adjusted Federal Total Receipts 12-Month Moving Average (TR12MA) AND Federal Total Receipts 12-Month Moving Average Year-over-Year Change (TW12MA12LN):


US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month Moving Average) and Gold London P.M. Fixed:


Source: news.yahoo.com
Source: fms.treas.gov

Mortgage Mess May Costs Big Banks Billions

One billion dollars? Six billion? Ten billion? More?

After scratching their heads for weeks over how much the foreclosure mess will hurt banks’ bottom lines, investors got out their calculators Thursday to tally the potential costs — and sent bank stocks plunging.

The markets are beginning to discount the growing balance sheet problems presented by what is being characterized as the second wave of the mortgage crisis.

The counter trend rally of banking stocks relative to the stock market (S&P 500) and gold ended in July and May of 2010, respectively. The break of the counter trend rally was the first sign of trouble.

The resumption of the downtrend which began to accelerate in 2007 is far more pronounced in the banking stock to gold ratio. The breach of the December 2009 swing low suggests a retest of the March 2009 panic low.

Capital, always balancing reward relative to risk, senses that the fuse on the powder keg has been lit. Perhaps the Fed’s announcement MOPE and measured liquidity is not enough? If so, is the market beginning to discount the reality hyperinflation and the possibility of more public funds? As always, the market trends will reveal themselves long before an official answers are provided.

Banking Stocks to Gold Ratio:


Banking Stocks to S&P 500 Ratio:


Source: finance.yahoo.com

Bernanke: Fed wrestles with size of aid program

"Whatever it takes" rather than the illusion of “wrestling” as a description of the size of the aid program would be a better representation of the actions in the coming months and years. The game of controlled devaluation, based largely on the management of perception rather than reality, demands the more subtle headline. The Fed also suggests that jawboning or communication (backed by the printing press) could be used a tool manage perceptions. When communication is completely divorced from action, it’s half-life of effectiveness deteriorates quickly.

Federal Reserve Chairman Ben Bernanke says the central bank is prepared to take steps to rejuvenate the economy through the purchase of Treasury bonds but is wrestling with how big the program should be.

Bernanke also says the Fed could use its communications powers to prevent the United States from slipping into a deflationary spiral.

But Bernanke says the Fed must proceed cautiously in deciding how big a program to buy Treasury debt should be. Bernanke said it is a challenge for Fed policymakers to determine the size of the program and how the debt purchases would be paced.

Source: finance.yahoo.com

U.S. is currency war's "tomb maker": China economist

Devaluation of the currency after a huge accumulation of debt during the previous expansion has been going on long before the recent media recognition of burgeoning "currency wars". China, which still maintains a soft peg to dollar, is also printing money in effort to support the current global financial system. This has been going on for years. What's new is the growing anger towards the extent to which the solution will be carried at the expense of those whom support it. Watch the government bond auctions and China’s US Treasury holdings. Changes their will represent actions. Actions are more important than words.

Chinese leaders have warned before that loose monetary policies in the United States pose a serious challenge for emerging markets, but rarely in such strident language, a window onto the rising anger in Beijing.

Source: reuters.com