A lie always contains a certain factor of credibility, since the great masses of the people in the very bottom of their hearts tend to be corrupted rather than consciously and purposely evil, and that, therefore, in view of the primitive simplicity of their minds, they more easily fall victim to a big lie than to a little one, since they themselves lie in little things, but would be ashamed of lies that were too big - Adolph Hitler, "Mein Kampf"Most of you are aware by now that the FOMC minutes for the December meeting released yesterday contained a statement that suggested more FOMC members were interested in ending the Fed's bond buying progarm - aka QE - by the end of 2013. The precious metals were immediately hammered, while there was very little reaction in the bond market and no reaction in the S&P 500 or the housing stocks. Hmmm.
There's two problems with the above. First, if it were indeed true about the Fed ending QE by the end of 2013, think about what that would mean for interest rates, mortgage rates, the housing sector and the economy overall. If the Fed stopped buying Treasury and mortgage bonds, interest rates would spike up several hundred basis points and the economy would really tumble off the cliff.
Second, who will buy all the new Treasury debt issuance? The Fed has purchased well over 50% of all new Treasury issuance in the last three years. If there Fed were not buying this paper, who would? Seriously. Either future Treasury bond auctions will fail OR it will take significantly higher interest rates to induce new money into Treasuries to make up for the trillions the Fed has been buying. Or, of course, the Government will balance its spending and won't require additional Treasury issuance...I would lay all my money on any bet that the latter will never happen.
So I guess the FOMC minutes were a big lie. It's not the first time the Fed has suggested that QE would not continue, only to be expand it within 6-9 months. Government deficit spending = de facto QE. The second Big Lie today was with the BLS employment report. As it turns out, I found a big gaping hole in the employment report today and I have not seen anyone question the number in any of the prolific material which explains why the BLS employment report is fictitious.
You can read my analysis here: The Big Gaping Hole In The BLS Jobs Report
Needless to say, the Fed has already committed to buying a $trillion more in Treasury and mortgage debt in 2013, and unless the Fed is prepared to shoulder the consequences of ending that program rather than expanding at the end of 2013, yesterday's plunge in precious metals can be seen seen as a true gift from the markets by anyone who takes advantage of it.