Thursday, June 23, 2011

Desperation Sets In...

The delayed market reaction to Bernanke's FOMC comments yesterday is quite the joke.  It is clear, to me at least, that the Government is going to wage a war on commodity "inflation" in order to pave the path to QE3.  Today's bombing of the gold and silver markets didn't commence in earnest until the paper-only Comex market opened at 6:20 a.m. Denver time.   Take a look at your 10 minute charts if you don't believe me. 

The stock market is rightfully getting hammered today.  Most of the corporate/banking earnings that have been reported over the last 2 1/2 years are derived from foreign currency exchange rate gains and the marking up of illiquid garbage positions sitting on bank balance sheets.  Pure GAAP fantasy.

But there's a lot of fantasies being promoted in this country right now, including the idea that there was any real economic growth occurring since the trillions in Government stimulus and Fed money printing were initiated in late 2008.  Although Obama has been gleefully reporting nominal GDP growth over the last 2 years, if you use a true price inflation measure, REAL GDP has actually continued to decline ("real GDP" is the actual number after adjusting for inflation).  And if you undo the statistical damage being done to the employment report released monthly by the Government, and add back everyone who has actually stopped looking for a job into the defined "labor force,"  the unemployment rate in truth is probably closer 20% than the 9% reported by Obama.

How about the fantasy that this country can ever balance its spending budget?  As of this year, the amount of money that the Government spends on just entitlement programs now exceeds the total amount of revenues received by the Government.  Think about that for a second.  That means that if you completely shut down defense spending, and all other non-entitlement waste, the Government is STILL operating a big budget deficit.  Do the problems faced by Greece really seem so bad in comparison?

By now everyone knows that Obama is going to release 30 million barrels of oil from the Strategic Petroleum Reserve over the next 30 days in order to help alleviate the shortages caused by the Libya situation.  But, as a good friend pointed out to me today, why did Obama wait until the price of oil had already fallen 22% from its recent high around $115 per barrel?  How can there be a "shortage" if the price has already dropped like that without the SPR supply?  It tells me that the Government wants commodities prices even lower in order to promote the appearance of no price inflation for the purpose of justifying the next round money printing.

If you don't think that QE3 is on deck soon, take a look at these remarks make by Bernanke yesterday: 
We do have a number of ways of acting; none of them are without risks or costs. We could, for example, do more securities purchases or – and structure them in different ways. We could cut the interest on excess reserves that we pay to banks. And as was suggested by an earlier question — several earlier questions, actually, John’s question about giving guidance on the balance sheet or by perhaps even giving a fixed date, you know, to define extended period, those are ways that we could ease further, if needed. But, of course, all of these things are somewhat untested. They have their own costs. But we’d be prepared to take additional action, obviously, if — if conditions warranted   LINK
Does that sound like comments coming from someone who is not already planning the next massive monetary injection into the system?  It will be interesting to see if, and by how much, they can squash the price of gold and silver.  I believe that the market is already pricing the possibility of another big market ambush similar to the one that was implemented by Henry Paulson in mid-July 2008.   If that's the case and I'm right, we could well see a shocking move higher in the metals this summer as flight-to-safety seekers rush into the metals when they realize more paper dollars are coming their way and the price of precious metals is going to go a lot higher.

But ask yourself this:  if the Government is trying to set the markets up for a big shocker followed by massive monetary stimulation to address that big shocker, like in 2008, what in the hell could possibly coming at us this time around?  Hint:  please understand that NONE of the systemic, fundamental problems that led to the de facto collapse of the financial system in 2008 have been fixed, other than the cosmetic application of transferring trillions from the public to the banking sector.  In fact, the problems have become even bigger and more gold?


  1. (Quinn)

    Strange things are afoot at the Circle K Dave! Great article today.

  2. Dave,
    here is Dan Norcini's take -which I agree with 100 %

    I might add here that the oil release from the US of $30 million barrels of crude is equivalent to less than TWO DAYS TOTAL USAGE here in the US. Call me cynical but while the release was much heralded as a response to the loss of Libyan crude oil in the marketplace thanks to Mr. Obama's "kinetic military action" or non-hostile hostilities over there, I believe it is totally related to the same's poll numbers which are going down the toilet faster than an unwanted baby alligator which has gotten too big for its 55 gallon aquarium. High gasoline prices are threatening to make him a one termer (I can only hope) and what best to do but to dump some oil on the market to try to knock a dime or so off the price at the pump. Here's a new flash to the clueless one - instead of these cheap political gimmicks, stop spending money that we do not have and open the country up to domestic drilling. That would actually be a much better long term fix instead of playing political games with what is supposed to be for emergency purposes. The only emergency that I can see is his sinking poll numbers and that is no emergency as far as I am concerned but rather cause for rejoicing.

  3. (Dave) LOL Quinn

    Agree Robert

  4. Why don't they release the bad loans? There seems to be many still out there...

    Bill Black: Dawn of the Gargoyles – Romney Proves He’s Learned Nothing from the Crisis

    There are several reasons why the economic recovery is weak and there is a great danger of recurrent recessions. My colleagues on this blog have explained the macroeconomic reasons so I will concentrate on the regulatory barriers to recovery. Suffice it to say that my colleagues have shown that the recovery is not weak primarily due to credit restraints by banks on lending to corporations. The regulatory barriers to recovery are the opposite of what Romney asserts. Financial regulation in the U.S. remains extraordinarily weak. President Obama has largely kept in power and even promoted Bush’s financial wrecking crew. Larry Summers and Timothy Geithner are fierce anti-regulators.

    Attorney General Holder has largely continued the Bush administration’s policy of allowing the elite bank frauds to proceed with impunity.

  5. "It tells me that the Government wants commodities prices even lower in order to promote the appearance of no price inflation for the purpose of justifying the next round money printing."

    not sure i totally disagree with this statement but i think the relation to QE3 is irrelevant/not there. High gas prices can be blamed on alot of other things aside from inflation. If they start instituting price controls on other commodities ill concede.

  6. Not fond of her but this quote is good...

    “You can ignore reality,but you can’t ignore the consequences of ignoring reality.” -Ayn Rand

    To sum up,those areas that have lived highest on the hog in the dollar paradigm will most likely be the worst places to live when the dollar collapses. Many of you will find this article with passing interest,but rest assured this dollar collapse is coming. It is a mathematical inevitability. We will not be as fortunate to muddle through this collapse like we did in 2008 when it was a corporate problem. This time around,it is a national and global problem. The global Ponzi scheme has run out of gas as the demographics decline,as cheap abundant oil declines,as hegemonic power declines. This comes at a time when we reach the exponential or collapse phase of our money. The Irresistible Force Paradox says,“”What happens when an unstoppable force meets an immovable object?”We are about to find out,when infinite money hits a very finite world.

  7. (Dave)

    Great quote

  8. Black Swans From New Normal

    •G-8 Meeting is pushed aside, as the Anglos deal with broad insolvency
    •G-20 Meeting takes center stage in a power play, led by China and the BRICs
    •China buys discounted PIGS sovereign debt, to redeem later in central bank gold
    •Chinese FX reserves exceed $3 trillion held in sovereign wealth funds
    •China owns most world major ports, as part of a strangulation process
    •China conducts the great Idaho experiment, toward re-industrialization of America
    •Swiss faces hundreds of $million lawsuits, for refusal to deliver Allocated gold
    •Saudi Arabia cuts new deal for Persian Gulf security protection, see Petro-Dollar
    •Citigroup has high hidden exposure to Greek Govt debt default
    •Chinese vengeance over reneged USGovt gold & silver lease, as part of the Most Favored Nation granted status, has motivated its extreme pursuit of precious metals
    •Containers hold $300 to $500 billion in EuroNotes at Greek port warehouses
    •Internet strides light years ahead of USGovt regulatory hounds at syndicate offices
    •Chemtrails, storm steering, lingering droughts, fallout falling, haarps a playing

  9. "It tells me that the Government wants commodities prices even lower in order to promote the appearance of no price inflation for the purpose of justifying the next round money printing."
    It tells me that this administration is very afraid of voter backlash in next year's presidential election, just as their decision to announce troop withdrawls from Afghanistan at this point in time.


  10. What better way for the Bamster to rally his democratic base
    Than to announce he is going to lose the war in Afganistan?!

  11. Mike Krieger Sees Widespread Panic

    By saying that he is “more sympathetic to central bankers” he is saying that theories are one thing and he now realizes that. This is HUGE. The Bernank has no clothes.

    Ok, so what else did we learn? Well, what happened after the press conference was very significant. For one thing the stock market tanked. Interestingly, guess what else happened? Oil prices started to soar and closed up. While off their highs gold and silver were also strong on the day and the gold miners were up. This drove these guys absolutely nuts. Remember what happened after the first disastrous press conference? Gold soared and then flew higher again the following day. What was The Powers That Be (TPTB) response to that? Well they miraculously rolled out Bin Laden and then initiated the monster raid on silver immediately afterwards. The lesson that we all learned from that prior episode is that TPTB are petulant little children. When markets do not act as they decree they whine and lash out. Since they possess all of the mechanisms of control they can create certain moves in the short term and “pain” for those that bet against them. In light of that, we should have all expected a panicky response today…and boy did we get it.

  12. Listen..very interesting...Don Coxe is the only other guy I know of that knows this kind of climate history and how it relates to markets.

    William Houston:

  13. Sono tranquillo. Ho la casa piena d'oro.

  14. Great piece, Dave. Crude oil is just another manipulated commodity now. If Obama's starting this 16 months before the election, we should have good ol' fashioned price controls by voting time.