Thursday, June 7, 2012

More QE Signals

I wish I could borrow big city housing the way you can borrow stocks - I would be shorting the heck out of Chicago and NYC properties right now:  "what's that? you have a $500k bid?  I got one to sell there and two more to go at the price if you want them"  - Dave in Denver
It seems that the market status quo after Bernanke's testimony today is that QE is still on hold.  For instance, the purveyor of had this to say:  "that he’s a lot more relaxed about both the recent US data and Europe than the market thought he would be."

Hmmm, really?  I'd love to play poker at the same table with him...In fact, if you step outside of short-sighted, narrow U.S. perspective, the Finnish Prime Minister, after a being on a conference call with Geithner and Bernanke, had this to say:
“They were very worried about what was going on,” Katainen said in a Bloomberg News telephone interview yesterday. Katainen said he discussed with Geithner and Bernanke the options for recapitalizing banks in trouble.  LINK
That was buried on Bloomberg this morning and I had to search google to easily dig up the link.  That's a quite different tenor than is being conveyed by the media after losing a hand of poker to Bernanke.   Moreover, the S&P 500 is still up over .75% after the Bernanke's b.s.  Someone explain to me please why gold and silver have been hammered 2.5% during Bernanke's circus and yet the stock market is flying.  We can't have it both ways.  Please note, my inquiry is purely rhetorical.  If you don't understand why the stock market is up - reflecting QE on - and gold is down - reflecting QE off - please visit and sift through the archives.

This brings to me my topic on looking for QE signals.  To preface, as a good friend of mine pointed out this morning, Bernanke has to be careful about employing more QE, otherwise he'll be accused of supporting the re-election of Obama.  This is why Mr. Katainen's comment is so crucial.  Bernanke and Geithner aren't worried about the U.S. economy per se, they are worried about the U.S. banks and the exposure to European banks via those off-balance-sheet transactions also known as OTC derivatives.  You know, the ones that led to JP Morgan's $2 billion $20 billion in losses this year so far.  If any of the big European banks blow up on Spain/Greece/Italy/Portugal, the Too Big To Fails in this country will suffer a financial nuclear explosion.

My view has been that more QE will first start with some sort of disguised version of it, like a much bigger dollar/euro Central Bank swap program plus more Operation Twist.  Interestingly, and drawing on a great post on FT/Alphaville from yesterday, a signal from hedge funds not being reported on in this country was reported by FT:  LINK  You'll note in the link that the chart shows hedge funds loading up on long bond futures.  This investing stance is based on the unequivocal expectation that the Fed will expand Operation Twist to include the longest part of the Treasury curve.  So far Twist has entailed the Fed selling short term paper and buying in the 7-10 yr area.  But since the Fed is running out of short paper, I would anticipate that it might sell 2-3yr paper and buy even longer duration paper.  Again, this is veiled version of QE, because when the bond market collapses, which it eventually will, the value of the Fed's long duration Treasury holdings will plummet in value, leaving the Treasury/taxpayer with the tab.

Finally, for all those suckers at Bernanke's poker table in the U.S. media, I wanted to highlight this commentary from the FT post regarding the Fed's stance on more QE in 2011, right before more QE was rolled out:
But the situation is reminiscent of last August. All signals before that meeting were for policy to stay unchanged, not least because inflation was higher than it had been in 2010, the last time the Fed acted, and it was rising rather than falling.

In the last ten days leading up to that August FOMC, however, came the debt ceiling debacle, an S&P downgrade of US debt, and full scale market panic about growth. In the end, that meeting produced the Fed’s forecast of low rates “at least through mid-2013”. The next Fed meeting will conclude on 20th June, three days after Greece holds fresh elections, and the potential for similar market turmoil is considerable.
In fact, I can recall in the summer of 2008 - I believe at this same Joint testimony session - that Bernanke said in response to one of the questions that the Fed was prepared to get "creative" with monetary policy if necessary.  I don't have the source of the quote, but I know recently that Bernanke said that the Fed has a lot of options on the table with respect to monetary policy.

Again, my point is that you can't go by Bernanke's prepared, highly massaged statement.  His statement did what it was intended to do which was to trigger a sell avalanche in the paper gold/silver Comex pits. Instead, look at the signals below the smoke being blown and use today's market action as a gifted opportunity to buy more gold and silver before they really take off.  I know the Chinese, Indians and Russians will:  LINK

One last question:  why is the dollar down today if QE is off the table?  With China cutting rates overnight, the dollar should have been flying today...


  1. At this point in the sequence of events (which clearly signals political support being globally withdrawn from the USD) I think the timing of the next Lehman (cubed) type collapse will be critical.

    If they can forestall this event until October (as in 2008) than the Western central banks will still have control of the can (and kick it further). If the SHTF this summer, as many have predicted, then we will know they have lost control.

    In this crooked and fixed game of poker, where the house can print derivative aces, that would be the Nank's only "tell".

  2. gives new meaning to "short sale"

  3. "Trigger a g/s paper avalanche?"

    Dave, I appreciate you for speaking from your convictions, but gold ran up last Fri on pure emotion, stopped on it's downward sloping trendline from $1920 and now has retraced exactly 61.8% of it. We all know what happens to gold's 3%+ rapid moves.

    You can't for a second think investors are willing to put their nuts on the line here. I see the buying pressure, but happy days are far far away.

    1. The cartel DMZ for gold right now is $1630. And no doubt Bernanke's speech was designed to trigger an avalanche of selling in gold/silver/oil. Look at your intra-day charts, especially gold/silver. Oil was down $3 off it's intra-day high. Gold and silver were well bid overnight and didn't sell off until exactly the 6:20 a.m. (Denver time) Comex open. That's pure paper manipulation. If your postulation held any water, gold and silve would have been selling off overnight. Gold was actually higher than yesterday's globex afternoon close until the Comex opened.

      Gold didn't run up on pure emotion. It ran up because the large hedge funds got caught at near record outright short interest positions against their dwindling long positions (see the COT report for the last 4 weeks). They covered their shorts, especially as it's becoming more apparent that the non-western CB's are hoovering physical gold. Physical buyers, especially Central Bank physical buyers, don't give a flying fuck about Fib fans, Fib retracements, moving averages, pivots and other gay chart patterns. They do give a fuck about things that matter fundamentally like the fact that the now-2nd largest producer of gold - and formerly the largest until surpassed by China last year - South Africa, reported a 12% year/year decline gold production.

      Don't get swayed by the nonsense you read on most commentary posting aggregator websites...

    2. Well put, Dave. I tire of the "chartists" who assume some magical mathematical formula is driving the movement of gold/silver at any given time on any given day. As you so aptly point out, it's all manipulated by TPTB - always has been, always will be. TPTB must have a hearty chuckle every time they see yet another "chartist" attempt to explain away the blatant manipulation.

    3. I agree. Gold (and silver and pretty much everything else) is being manipulated. I've come to the conclusion that its impossible to predict where the price is going using charts and all that other nonsense. I have also refused to read any articles predicting price movements in the short-term.

      All we (myself and central banks) care about is getting our hands on as much physical as possible before this whole thing implodes.

      -Sicilian Gold

  4. No shit.
    The only charting worth an "ounce" is the long term.

    This short-term PMs chart analysis is mental masturbation of a glossy.
    Not real.

  5. Bernanke doesn't care about inflation or deflation per se. He cares about the ability of the TBTF banks to weather whatever shitstorm is coming their way. Look closely at the Z1: everything the Fed has done since 2008 has been done to allow the TBTF banks time and opportunity to deleverage. Some of that can be seen on the Z1. Maiden Lane style purchases, ZIRP, QE, Twist, etc. have allowed the TBTF banks to get some not insignificant debt off their books (nearly 3 trillion). Of course, the Morgue (and does anyone think that Dimon is the only one) has notoriously used the grace period and Fed backing to extend its leverage in the derivatives market, so the deleveraging apparent on the Z1 is not likely to be the whole story. "Sure Ben, we're deleveraging just like you told us too...pssst, hey Iksil, get on another 100 billion in side bets out of the London office, no one will notice."