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Faber On Gold, And The 800 S&P Barrier
Marc Faber on Helicopter Ben flooding the market with pieces of paper if the S&P were to hit 800 again. The problem with this assumption is what happens to treasury rates. Already all the excess liquidity is bypassing stocks (and definitely bonds which at 3-4% have little room to grow) and going straight into gold. As the US government has to extend and roll maturities, thereby making 30 Years attractive, we would take the other side of the Faber bet: there will come such a time in the near future, when the flight from risk assets, engineered by the Fed, will become as pervasive as today's dollar carry trade. Ultimately the Fed is more interested in low rates than 100x+ P/E's (one hopes, or else a gaggle of retarded monkeys can do Bernanke et al's job better). And with Treasury QE done, and MBS being gamed to the point where the FRBNY is doing all it can to obfuscate just what is really going on in that particular market, one can be sure that Bernanke will be all too happy to sacrifice equities at the bond altar.
After all, as conventional wisdom will have you know, bonds are about 10x bigger than equities. With the upper class already reaping the benefits of a stock market bubble (and likely having long taken profits), at this point it is merely those who are truly gluttons for punishment (and/or the Fed itself) that are buying into stocks. Thus even the liquidity glut may have trouble making headway from this point on: if the Fed is faced with the S&P and Gold both at 2,000, you can be sure stocks will be sacrificed post haste.
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Exactly. But what happens if SPX 800 happens in a matter of days, not months?
Hmmmm...
I think the word you are looking for is FAIL.
But don't worry, Yellen says equities aren't 'massively' over-valued.
days, weeks... It doesn't matter so long as a flight to quality results. After funding a few hundred billion of fed debt at decent rate and maturity, then ben can debut QE2.0. Not before. At least that's my hope.
Actually, I 'm looking for it to go bloody zero, but I guess 800 would work too.
+1
When it gets where it's gonna go , it will nest around there for a long , long time.
See Nasdaq present day to all time bubble high. Methinx 800 is a bit on the high side, too.
It did 250 before. It'll do 250 again. ;)
Interesting analysis, TD. So if the Fed is now moving to a stealth form of MBS buying by eliminating Wellington as an agent, it can continue its process of rebuilding the balance sheets of the TBTFs by means other than the cheap money melt-up, which has been its stealth means of delivering paddle jolts to the zombies to date. Thus, BB is whispering in Mel Watts's ear that he needs more time, lots of time, to continue his clandestine re-enrichment programs beneath the radar. That NY Fed must be a very busy place these days. That trading floor must look like an assay office in San Francisco, circa 1849.
Sorry, but all the printing has had no effect: M2 is down for the year, despite 0% interest rates. The credit destruction is greater than what has been built on new BASE.
The banks are still under-capitalized and will not be able to cope with the coming residential real estate price drop. They will fail a second time.
We are already in the second dip of the recession and will soon have a deflation scare. Wait for the Black Friday sales figures, they will be beyond dismal and may trigger a complete reversal.
And Ben knows it because he is printing again ... (see BASE biweekly not seasonally adjusted).
But as demonstrated a few times, this does not work when you are in a liquidity trap.
ben hasn't been printing since oct 08. Monetary base has remained fairly constant. He has been swapping real crap from maiden lanes, etc for higher quality assets (treasuries and mbs)
Date |2009-09-09 |2009-09-23 |2009-10-07| 2009-10-21 |2009-11-04 Value |1787.215 |1817.364 |1879.843 |1949.781|2024.377
Source: BASENS, St. Louis Monetary Base, Not Seasonally AdjustedSince the date you mention, BASE has increased by 7.7%. That is in just over a month.
m-2 is essentially flat yoy while m-3
is slightly down yoy...in a shrinking economy
these very modest declines are not meaningful...
cpi inflation is now accelerating....monetary policy and cpi
price inflation have a 12-18 month lag....that
lag is now up and we are seeing inflation...
there will be no deflation scare except in real
estate, stocks, bonds - in short assets....
consumables are an entirely different story...
gold is signalling large and persistent
price inflation and trouble over currency
debasement to say nothng of the problems with
the gold market itself...
so yes the depression continues and it will be
with inflation - massive doses of it...
I'm betting it will crash when treasury has a lot of long dated treasuries to splash on the market...
With all the bubbles out there I'll bet yields could be held down for a while... That is time tobet the farm shorting them...
I'm betting it will crash when treasury has a lot of long dated treasuries to splash on the market...
With all the bubbles out there I'll bet yields could be held down for a while... That is time to bet the farm shorting them...
Not a chance Assetman. The only reason spx fell from 1150 to 800 last year was because of the failure of Fannie, Freddie, Wamu, Lehman , Wachovia, AIG. There is no way we will have this type of environment now as most of the really bad paper has been bought by the fed or is marked to model.
You watch ... the private sector is much more efficient in credit (and therefore money) destruction than Government Ben is good at printing :-)
But what happens if C, WFC, STI, and PNC collapse? What about some of the larger pension funds? What about the states themselves (not just California!!!)
The paper being marked to myth probably doesn't *really* matter, to be honest. The companies involved aren't fooling anybody--they're just riding a big wave up and a lot of government guarantees. Once the wave crests, nobody's going to be stupid enough to hold on to their paper just based on the claim that their models say that everything's just fine.
don't forget gm, chrysler, and a host of retailers
who evaporated after last year's crapulent
holiday season....
as economic activity continues to grind to a
halt, stocks will fall....right now the
countervailing power of cheap credit is keeping
asset prices propped up or stabilized (except
perhaps in real estate)....
the dow will have to drop to 3000-5000 to clear
out the crud still in the system...i thought
it would happen this year but i under-estimated
the power of a determined fed....
fas 166/167 will trigger a correction especially
coupled with unimpressive holiday sales....which
no one seems to be talking about....
My gosh... there's always a chance of the unexpected happening in these markets.
For example, investors may well be reconciling the narrow nature of this equity rally and considering whether the fundamentals have really changed that much between March 2009 and today. This rally has been based on low volume, HFT activity that could frankly find some very heavy volume on the downside.
Some aspects of the economy have admittedly improved, but unemployment has still yet to peak, and foreclosures continue to dot the landscape at an unhealthy pace. The lack of any meaningful improvement in consumer confidence, and continued contraction in consumer credit do not provide much in terms of real fundamental improvement.
And despite saving the financial system from ruin this past year, we are far from out of the woods on larger bank failures-- as TBTF is becoming even more politically unpopular. And the Fed is nowhere close to having bought all the "really bad paper" for the simple reason that continued defaults are still turning "good" paper into "bad".
When the Fed decides to sacrifice equity prices to protect the Treasury markets (and secondarily defend the dollar), who really knows what will happen as investors flee to the exits. I just don't think it wise to be in the way of it when it does occur.
I think the Fed knew they had to prop up this market before the next wave of major bank failures occurred. Instead of 6500 to 2000, the Dow goes from 10400 to 5000. If gold goes much higher those naked shorts will cause major problems for the Comex and the bullion banks. As you said that need to issue $2 trillion in Treasuries along with having to protect the Gold manipulators means gold has to go down. What's the best way to keep interest rates and gold down-crash the market. If they don't and gold goes to $2000 we've got a currency crisis.
As you said that need to issue $2 trillion in Treasuries along with having to protect the Gold manipulators means gold has to go down. What's the best way to keep interest rates and gold down-crash the market. If they don't and gold goes to $2000 we've got a currency crisis.
People are not lemmings, just lilliputians. They may not see the clear picture right away, but they aren't mindless either. They live in the real world, but can be awakened from their daily quai-slumber.
If the market crashes again, people lose confidence in the stock market and in paper in general. A market crash impacts leveraged long gold plays immediately, but it also pushes money out of the market and into other safer asset classes. It weakens the faith already delusioned and concerned investors. And in an elaborate currency system built on confidence and credit, faith is what they desperately must try to instill.
We've got a currency crisis whatever the PPT does. If they crash the market they will only exacerbate this problem. Crashing the market = bullish for gold.
Is losing faith in paper a bad thing?
Wouldn't all that money then go into Treasuries and the real economy? Fund US deficits/ save, cover losses/pay down debt? Isn't that the end game of the Fed providing liquidity?
can't do stealth buying of mbs. It will show up in weekly fed reports on the balance sheet regardless of who buys it.
Yes, let's hope ben is smart enough first crash risk assets to drive flight to safety in USD & treasuries, and then and only then to announce QE2.0
Why do we asume that what we read is true?and can't they monetize even the 30 year tbs in a clandestine manner?can anybody explain how could the 10 year yield drops from around 3.5% last week to around 3.31% this week with the melt up in equities,gold and oil and dollar heading south?now sound economics will tell you you are crazy if you say something like that is possible. So we go back to Allan Grayson questioning a transfer of 1 bil dollar to a secret account in Swizerland:isn't possible that the fed has secret accounts around the world through which they buy any kind of debt,thus keeping yield down while insuring that equities stays up?. Isn't that probably the reason that foreign goverments cbs,knowing this through their inteligence services,are buying gold with their extra dollars thus driving the gold up?. And since it seems that every economic activities and plan is centered now around the stock market only,this could go on for a while,simply because the fed knows that the short vilains of the market are sitting and waiting for a sign to attack(lol).
When you look at what is coming down the pike in the next couple of years in residential mortgages and commercial real estate, saying "it ain't gonna be pretty" may be a contender for understatement of the year. The Fed has bought a lot of Treasuries these last few months. Unless TPTB finally decide that it's time to give the TBTFs some tough love and rediscover moral hazard, the Fed will need to prepare for QE round 2.
How better to do that than to have risk assets plunge, scaring folks back into bonds, and selling those Treasuries into strength? Voila, some extra room and cash made for round 2 purchases, along with the printing presses. Gold and other commodities might not fare so well during this time frame. However, if stocks plunge and bonds don't move up so much, and gold doesn't drop so much, then that would be a tell that the Fed's prior playbook is not working so well.
Sounds like a plan. After the Fed/Treasury sells or auctions into strength and after the dollar has strengthened during the scare, then they can debase (devalue) and default as they see fit. There are many possible futures and the path to them will not be a straight line.
Agreed. But, wouldn't they just do a encore performance afterwards? Devalue/ revalue? TBTB and TBTF making money both directions? Question is, how many times can they get away with it before everyone becomes a defacto insider? Long enough to fund the US deficits and cover losses?
Excellent post.
As you point out, this ain't over. IMO there is no tough love for banks from this administration (wholly-owned), this Congress (wholly-owned), or this Fed (wholly-owned). There is still no majority political constituency for fiscal sanity, though there is now a very vocal minority for this.
This runup in gold has surprised me; I am one who's been expecting a liquidity withdrawal / stock smash to scare money back into bonds, and I started expecting it in September when the money for "Treasuries QE" ran out. I am one who's advocated holding a large cash position as a hedge against a long deflationary sag, as a means of protecting the gold portfolio against forced liquidation. IMO an unchecked deflation leads to a sovereign debt crisis from falling revenues and then, of course, a currency crisis; we might just get a period of deflation for the reason you outline, getting people to buy the long end. I also agree that the telling indicator would be how far gold dropped under such a scenario.
I also thought that we would see an equities decline after QE ended. Fortunately, the losses from my attempts to catch a couple of illusory downdrafts have been offset and then some by my precious metals holdings, which I have been scaling back on this week [probably a sure sign that gold and silver will go ripping from here].
If the gov't were to attempt to tackle this mess in a responsible manner, we would probably have a deflationary bias as private and public debt is unwound, in addition to the current demographic shift bias, which won't favor consumption.
A rising CNY would, in the long term, would start reducing the massive economic instability embedded in the current (and unsustainable) "Chimerica" relationship, and lead to the possibility of a more solid foundation for both in the long run. However, this would come at short-to-intermediate-term costs to both countries - less-competitive export position for China, significant loss of remaining $ foreign reserves, and likely lower dollar value for the US (inflationary with respect to consumer goods at least). Would gold rise or fall in this environment? The drop in the dollar would lead one to think that gold and risk assets would go up. However, if the world perceived these as solid steps to getting on an economically sustainable path, then over time it could be neutral or even deflationary.
I truly hope that China manages a shift to a consumption-driven economy in record time, and winds up being a stabilizing economic force. However, I just don't see it happening in the time frame needed. As Chanos commented in an interview a while back when discussing China's (and other Asian countries') massive capacity overhang, "There's no "there" there". I think that their current liquidity bubble has been masking this. On the other hand, a floundering China is not the stuff comforting thoughts are made of. They wouldn't be the first country to create a diversion to deflect growing domestic unrest. And unlike the US (I hope), I believe that their current political system's legitimacy is very much intertwined with the Chinese government's ability to deliver economic growth.
In the meantime, our government still seems to want to follow failed policies. Until TPTB can articulate AND act upon a credible plan to restore stability longer-term (and not Obama's plans to shot our wounded economy in the foot, and then the abdomen), we will likely continue to see bouts of massive and destructive volatility as the pendulum swings from one extreme to the other. Great for a trader. Not great for the US.
Guess it's time to take the soap box away...
Agree. I've been thinking for the last 2 months that this seems the only plausible way to get out of them out of the woods for now. All those ARM resets coming absolutely need ultra low mortgage rates and the Fed can't do it all by themselves for fear of scrutiny. They need some help on the long end and nothing better than all that foreign and domestic equity money getting into treasuries, as insane as that sounds for the long run. I don't even think the foreigners would mind, hell Brazil has been trying to stem the inflows through various mechanisms already. Plus, from a certain perspective, who cares about lower equity markets from here in reality (unless it falls off cliff and panic ensues). Everybody and their mother already issued loads of new debt and raised more capital via equity offerings (try pulling that off this past Q1), insiders likely done with all their selling.
Time to talk to GS to reverse their algos to kick start the public QE. With the bullishness out there it just might be a slow grind down with buyers at every step, Cramer will be making sure of that with his buy buy buy it's cheap mantra. Again, the middle class will get hit the hardest because they'll passively hold their investments, but the poor and elderly outnumber them in votes and the rich have political influence and in the know financial advisors. It's political to a large degree at this point. What's new.
I don't know what they are doing with flash that is so screwy but those clip videos don't play on my system. My guess is they don't know how to buffer right.
Try the following:
http://www.bloomberg.com/avp/avp.htm?N=video&T=Marc%20Faber%20Interview%...
or better yet paste the following directly into a media player:
mms://media2.bloomberg.com/cache/vMiRnaebC63Y.asf
That is the main one. The other is just an abbreviated version.
All those 401K's. This is about electoral politics, nothing else. It will be almost impossible to abandon the S&P.
Most people with 401K's are chuckling and smiling to themselves at the plight of the bears. Wiping that self-satisfaction out will cost the Democrats many, many elections.
The Fed is and will buy stocks with its catamite Blankfein doing the heavy lifting.
I don't think they have a choice ... not with all that debt to sell. They need to force a flight to "quality" (don't laugh - it's all relative).
My personal take on "their story" to the 401K-ers is this ... "Don't worry folks - the market will bounce back from this decline exactly in the same way that it did in the massive 2009 rally" (and it will, with more QE).
I think a bigger problem when it comes to the electorate is real estate. Before the next national election, there must be tougher action with the banks including cram-downs ... or the Dems don't have a prayer ... even if their 401Ks are mostly back. More people have more of their retirement "hopes" resting on their homes than in their (mostly) under-funded 401Ks...
All those 401K's. This is about electoral politics, nothing else. It will be almost impossible to abandon the S&P.
Most people with 401K's are chuckling and smiling to themselves at the plight of the bears. Wiping that self-satisfaction out will cost the Democrats many, many elections.
The Fed is and will buy stocks with its catamite Blankfein doing the heavy lifting.
those clip videos dont work properly in firefox (3.5.5), but using ietab (plugin for firefox) they play ok
Come on. The remark that liquidity is bypassing the bond and stock market for gold is one of the most absurd remarks I have read this year. Do you have any idea how deep the bond or stock market is versus gold? Gold is minuscule and easily manipulated.
There have to be multiple Tyler Durdens because some of those posts are ridiculous
Agreed. How about some quality control ZH?
We will make new lows according to my charts.
We will drop thru the March lows as the primary trend remains down.
This was always just a bear market rally.
http://www.zerohedge.com/forum/market-outlook-0
The explanation offered up here is a good as any to convince the "don't fight the Fed" crowd that equities will be trashed. Most seem to think the FR are here to prop equity prices. That is true in many cases; however, it is not true when the Treasury has to fund massive upcoming deficits.
Faber: "As long as Benanke is Fed Chairman gold will be a good investment."
Yep, he's right. Bought gold yet?
California's own finance guru predicts a $ 21 B deficit for next year's budget.
That means public sector jobs have got to go . Fuggitabout the fantasy furlough bandaid.
Unemployment rates today will look like the good old days once the public sector jobs machine comes to a screeching halt and goes into reverse. Right now, employment in this sector is on extend and pretend stimulus......like everything else.
A high price on gold will be what defines Bernake as a successful Fed Chairman. Why you may ask? Because Bernanke is at the moment trying to reinflate the economy. A high price of gold indicates coming inflation - reinflation. So if the market percieves that he is going to be succesful reinflating the market, gold will be the best indicator. The last thing that Bernanke wants to see is the price of gold collapse. If that happens, everyone will thinking that we are in a deflationay mode and no amount of QE is going to help. So the question will be .... will Bernanke be succesful in QE. Paulson and crowd would say yes and that that is why they have done long gold. I would otherwise disagree.
Nope. A high price on gold is a sign that people believe the Fed will continue to devaluing the currency.....problem is, at some point this process runs on it's own, and doesn't give over lightly to reversing itself, no matter how many times the Fed says "come on guys, come back, I was only joking!".
Nobody is worried about "inflation", in the "wage-price spiral" sense....it's only in the "dollar buys nothing" sense, so your definition of Fed success is not useful here.
Nope. A high price on gold is a sign that people believe the Fed will continue to devaluing the currency.....problem is, at some point this process runs on it's own, and doesn't give over lightly to reversing itself, no matter how many times the Fed says "come on guys, come back, I was only joking!".
Nobody is worried about "inflation", in the "wage-price spiral" sense....it's only in the "dollar buys nothing" sense, so your definition of Fed success is not useful here.
Nope. A high price on gold is a sign that people believe the Fed will continue to devaluing the currency.....problem is, at some point this process runs on it's own, and doesn't give over lightly to reversing itself, no matter how many times the Fed says "come on guys, come back, I was only joking!".
Nobody is worried about "inflation", in the "wage-price spiral" sense....it's only in the "dollar buys nothing" sense, so your definition of Fed success is not useful here.
"Already all the excess liquidity is bypassing stocks (and definitely bonds which at 3-4% have little room to grow) and going straight into gold"
The Fed can't afford to have this liquidity move into gold. If this happens, then the US government will outlaw gold like FDR did in the 30s. The Fed needs stock markets to remain high for confidence and pension performance.
http://www.businessinsider.com/gold-tanking-2009-11
Gold tanking? Backed with a half-intraday chart showing 0.5% loss?
Looks like someone really eager to produce bad news about gold price.
I do want to hear the arguments of current gold bears, no permabears or delusionists please!