Guest Post: The FED Cannot Keep Stocks Up

Tyler Durden's picture

From Mike Krieger of KAM LP

What the future will hold is such a dramatic sharp burst to astonishing new price levels of several thousands of dollars.  This does not even require hyperinflation.  It is not likely that the United States would enter a hyperinflation mode.  The system would collapse long before that takes place.  The much more likely result will be a complete currency default with a replacement of a new currency.  This is one way government defaults by using a shell game so that the average person does not understand he was just taken to the cleaners.

- Martin A. Armstrong on Gold

The FED Cannot Keep Stocks Up

What a difference a month makes.  As I prepared to begin my Labor Day weekend in late August the financial media was abuzz with predictions of stock market doom.  You could barely read anything without being confronted with several references to the dreaded Hindenberg Omen and how the appearance of several of these had all but guaranteed an imminent stock market collapse.  There were plenty of reasons to be bearish.  The market performed horribly in August and the economy was clearly still in the dumps despite a continued endless propaganda to the contrary.  Nevertheless, the constant predictions of doom was indeed a great contrary indicator and barring some monster reversal today we are about to finished the month of September +10% in what is typically the worst month for stocks.  It is set to be the best September in 70 years. 

The truth of the matter is while the relentlessness and strength of the rally did surprise me a bit the fact that we bounced hard did not.  Ironically, the reason I thought this could happen is because I am SO bearish.  At the end of the day, if you are coming from the angle that I am you need to assume the stock market is a political tool for those in charge.  I have said this time and time again.  The manipulators cannot stop the cycles of markets any more than they can the cycles of nature in the end, but in the interim they can create a lot of problems and seriously damage your P&L if you do not know who you are up against.  When it is the system itself that is fighting for survival as it is today, the system will fight back with everything it has.  People in positions of power in the United States today are much more Machiavellian than most good natured citizens could ever fathom.  If you do not wake up to who your leaders really are you will be led to the slaughter with the rest of the sheeple.  I want this to happen to as few people as possible.  This is the main reason I write.   

Ok, so all of this action in the market is ancient history and the bigger question is what happens next?  What I find so interesting about sentiment right now is that it has done an complete 180 from just a month ago.  Those that have bought significant out of the money protection on stocks are suffering big losses on their insurance due to the rally and the action in the VIX.  From a sentiment and positioning standpoint, this was where the pain trade was into September and therefore it has happened.  Bears are terrified to short and this notion that the soon to be extinguished Federal Reserve can prop up stocks forever has entered the psychology of investors and traders everywhere.  This is DEAD wrong. 

What I find so hilarious about the last week or so is the amount of complete garbage that has come out of people’s mouths, which then gets spun by the media and others to justify higher stock prices and keep this ridiculous rally going.  I don’t care if someone is worth $100 trillion dollars and made $5 trillion last year, if what comes out of that person’s mouth is Orwellian 1984 style 2+2=5 drivel I don’t simply accept it like some mindless drone.  I don’t check my common sense at the door because of someone’s paycheck and neither should you.  I also don’t mindlessly worship a billionaire who acts like some dopey/humble grandfather figure in front of the television cameras all the while lecturing us serfs that it was necessary for the government to bail out the elites at the taxpayer expense.  The good news for us is that when I watch many of the elites and power players I see fear behind their veneer of arrogant self-righteousness.  Their statements while seemingly brimming with confidence are becoming more desperate.  They are losing and they know it.  The stock market and money printing is all they have left as a tool to keep people asleep and it’s not working.  What I find so hilarious is that no one seems to ask themselves why a big money manager might come on CNBC and tell everyone stocks can’t go down.  Perhaps in a market with little to no liquidity someone needs liquidity to dump their garbage on some unsuspecting sucker.  Based on the volumes in the market I shudder to think what happens if someone actually tries to sell positions in size.

Are We Near a Major Top in Stocks?      

I typically do not talk about the broad market in aggregate unless I feel we are at some sort of major turning point.  I think we may be at one currently.  When you have a stock market up this much on vapors and the belief that the Fed can keep it up you have nothing short of a disaster waiting to happen.  Let’s just think about some of the nonsensical logic out there.  So people think the Fed can just launch QE2 and push stocks higher.  Really?  First of all the market just surged 10% this month and is trading at the highest level since May.  Food prices are soaring, gold is above $1,300/oz and silver is above $22/oz (gold is at a nominal record and silver is at the highest price in 30 years).  Does anyone realize how ridiculous an announcement of QE2 would look in that context?  It would probably freak people out and stocks could collapse.  Ok, so if I am right and they can’t do QE2 with asset prices at these levels what do you think is going to happen to stocks once people realize QE2 is not about to be launched.  Whereas in late August the pain trade was the rally we just had, the pain trade may be an equally powerful although much quicker plunge down to the 1,000 level in the S&P500. 

Oil Closing in on $80/b

This is almost a perfect setup for a big selloff in stocks.  As I have pointed out for several years now, the broad stock market has never sustainably rallied as oil breaks the $80/b level.  We are trading just under that now in WTI, Brent is nearing $82/b and Asia Tapis is above $85/b.  What’s worse is that other commodities are way higher today that than they were the last several times oil approached the $80/b mark. 

Mortgage Gate

If you are not up to speed on “Mortgage Gate” I recommend you get there and fast. While the whole issue of put-backs to the banks has been in the news for a long time I don’t think too many people appreciate the implications of all of this.  What is so interesting to me is that many people seem to think the fraud that happened earlier this decade is behind us and we can just brush it all under the rug like a bad dream.  Wrong.  This is only NOW starting to really hit a head and for once in my life I am happy that we have an excess supply of lawyers in this country because we need an army to go through all these documents and put people away.  If they had succeeded in reflating housing perhaps a lot of this stuff would have just gone away but they didn’t and it hasn’t.  Once people find out how much trouble they will be in they will sing to the authorities and rat out those above them.  This is going to get really ugly really fast.  The best quick summary I have heard on this issue is by Chris Whalen.  The interview is here and is a MUST listen.

GDX/SPX Trade Should Take Off Shortly

One thing that almost nobody thinks can happen is surging gold share prices amidst a falling equity market.  In fact, I see no more attractive trade currently although I do acknowledge that in the initial sell-off (look at today) the gold shares could take it on the chin.  Nevertheless, I wouldn’t try to be too cute about timing it since I do not think we will see the 2008 trade again.  Like I said, I think gold shares will surge as the stock market languishes.  This is because big money will buy physical gold on dips while paper longs panic.  I expect this spread to be one of the most powerful trades we may ever see later this year and into 2011.   

All the best,

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E pluribus unum's picture

It will be fun to watch.

unwashedmass's picture

say goodnight Gracie.....


the smart money moves out this afternoon...wait and see.

Buzz Fuzzel's picture

Beans, bullets and a warm dry place to sleep.

Turd Ferguson's picture

Btw, just as I'm watching for an outside reversal in gold today signaling a possible short-term top, the same is true for the ES.

UI can't imagine the Fed and the PDs will allow it. Expect at least a little 3:30 ramp job just to turn things green on the close.

Shameful's picture


A little off topic, but have to ask, what do you see as the downside risk of gold/silver assets held physically?  All I could think of is a situation of rapid powerful economic growth to power up the delusion that the system can work long term.  But I can only see that with a cheap, powerful, new source of energy, or massive easy oil.  Because of the problems worldwide and the now common knowledge of a currency war it seems that gold can only move up in the long term as every nation tries to impoverish it's workers and savers by destroying their own currencies.

So am I right that only real threat to gold is a new super energy or maybe finding 5ish Ghawar fields someplace easy to get to?  I'm already moved all in, but just trying to think on how I can get screwed here.

ATG's picture

Martin Armstrong noted the $600 IRS 1099 reporting meant gold could break down to 900s by June next year...

Turd Ferguson's picture

Hmmm, you might want to consider that all of the Russian, Chinese, Japanese, Saudi and European buyers of gold will be not subject to this tax. Just sayin.

chistletoe's picture

The #1 downside risk to owning physical gold


is the possibility of one of your neighbors owning a philosopher's stone and turning it into lead.

Lest you laugh, Smith and Wesson have been manufacturing them for years ...

Mr Lennon Hendrix's picture

Oh yeah that would go over well.  "Hey give me your gold."  "Yeah ok, let me go and get it from my safe where I keep other things too."  And by the way, the only real philospher's stone is a pen. 

Shameful's picture

It's a fear weapon but ultimately useless.  What is to stop goldbugs from getting fake IDs for their sales.  If it's good enough for teens to go to a bar then it's good enough for me!

"I'm John Smith and I'm here to sell a Krugerrand, sure I have my social right here"

The next answer would be cashless transactions and if things go cashless the next move is simple, GET OUT!  Full wealth confiscation and work camps are not far behind...actually with our legal system and prison pop it's pretty much already here.  Also as Turd points out this does not impact the global market which I see as a bigger driver then the US market.

Hephasteus's picture

Unfortunately the people who would like the price of gold to fall do not have enough of it to make it happen. It's called a good money for bad scam and it ends when the good money is gone.

At this point I almost would like to see 30 more million unemployed just to see the webuygold crowd finally bring this thing to it's inevitable conclusion.

sbenard's picture

I'll just buy 1/4 ounce bullion instead. Stay under the radar!

Turd Ferguson's picture

Shame: I tell you what, that was an amazing day in the gold pit. Gold would have settled unch if it weren't for end of quarter Market on Close orders that took $2 out of it right at 1:30.

The EE has to be scratching their heads. Anytime in the past, they would have gotten $20+ taken out of the market which is at alltime highs in price and OI. Not today, however. Our buyer(s) of size continue to accumulate on any and all dips. The big, ugly black candle they were trying to paint on the chart is instead just a little line that is so thin you need a magnifying glass to see if its black or white. Hah hah hah hah hah! Fuck em!

Now, that said, the EE ain't going away anytime soon. With today's action in their back pocket, you can bet your ass they'll try to take it down when it approaches $1315 again. Anything they can do to scare the weak-handed recent longs, they'll try. But until and unless our buyer(s) of size decide to let them whack it just simply to create an even more compelling buy opportunity, the EE will continue to be frustrated. If I had to guess, because of today we may be pinned in through next week between 1315 on the upside and 1285 or son on the downside. We'll see.

On to your question about physical. You raise some interesting scenarios regarding a resumption of global growth and prosperity. Though certainly anything is possible, I think you have to err on the side of calamity. If you believe as I do that the world is awash in debt, public and private, to the point where only continued debasement of fiat enables that debt to be serviced, then physical gold is your answer. Do NOT, under any circumstances, hold an ETF like GLD and proceed to rest well at night believing you own gold. Buy physical whenever its reasonably attainable. The amount you hold should be commensurate with the degree to which you think fiat/keynesianism is doomed.

Mr Lennon Hendrix's picture

Nice work Turd.  Besides these panic sellers, one also has to remember the effect of the race to the bottom of currentseas.  Even when someone comes in sellside, the weakened currentsea market pushes right back up.  I am still shocked we did not see any massive dumps in September.  Then again, this farce is so far gone that even those who have rigged the game know that they have to find a chair before the music stops. 

What do you think the October play is?  I have the DXY moving to 73 by November 15th (and to 66 by Dec 21st) with gold trading from $1300 to $1400 by November 1st, $1400 to $1600 by Nov 1st, and $1600 to $1850 by the solstice.  You have seen my numbers before, as this has been my frame for awhile, but I was wondering how you think it will go?

PS Flash Crash trends are in line today.

Turd Ferguson's picture

Hi, Jimi. I like the way you're thinking and I'm with you on the trend, though not quite up so fast. I've long maintained $1350 by Halloween and $1500 by 12/10/10 but if you're right about the dollar, your numbers may be low.

At any rate, it is truly all about the dollar at this point. Whether for trading or for long-term FA, dollar direction is certainly the key. That said, I've got to figure there's some dollarbounce in here shortly. Keeping in mind that all the currencies are pegged to each other, not to gold, so the dollar may rally a bit as the euro, yen and swissy decline some. In the end, however, hard not to see the USDX rolling down toward 72, probably sometime in November.

In the meantime, watch that Crude contract. Might be some money to be made if you can pick some up on a pullback near $78. Damn near every single other $-based commodity has been screaming higher. Looks like crude has finally decided to participate.

Mr Lennon Hendrix's picture

Trading gold, silver, platinum, and oil is a perfect combo play.  Although they correlate, sometimes one out does the other, and there is no reason not to catch those moves.  As the dollar falls, the...EE (what is EE?) will spin the losses towards these "commodities" one at a time.  I think that the only thing stopping gold from hitting $2000 will be small players trying to sell what the MSM will undoubtedly call, "a top".  It will be an inversely ascending waterfall, hitting a few rocks on the way up.

I thought there would have been a dollar pullback around a week ago, but alas, the doll ain't as pretty as she used to be.  Other CBs are trying to devalue their currentsea, I think this works well for dollar devaluation.  The more foreingers buy, the more BS Bernanke "prints".  So CBs buy dollars to try to get their own down, but the question is, who will be left holding the bag?  Or better yet, who is not holding the bag?  The way I see it, anyone holding gold is in the clear, which is interesting once one considers that CBs have massive reserves in tungsten, er....I mean gold.  That and corporations should do well when the bond market moves from buying T-bills to buying corporate.  Watch corporate bonds track T-bills inversely when this all happens.  Note, I am not for this corporate takeover, but want to remind you that I think that this is the overall plan.  One that is too seldom discussed.  THIS, THIS WHOLE FIASCO, IS A CORPORATE TAKEOVER OF SOVEREIGN FREEDOMS.

Turd Ferguson's picture

Jimi, I took to calling the JPM-led, bullion bank cartel the "Evil Empire" (EE) some time ago. Its an image that always worked for me. The cartel is the Empire and their Death Star is the Comex. However, we "rebels" have the "force" of truth behind us and the laws of economics on our side.

Fascist Dictator's picture

Thanks for asking Mr. Hendrix, I thought it meant Evil Economists.....

Shameful's picture

Well I took to putting all my savings into the metals because of my lack of faith.  I see the breakdown as inevitable because it will break without growth.  We can't even handle a no growth model, the system was not built that way.  Thus far they have shown that they will do whatever it takes to try to save the present system so I can only assume that action will continue.  I'm not even saying there is peak oil or energy, but we need something soon to reignite growth up to the level where we can manage the debt loads.  Otherwise we are faced with a round of sovereign and private defaults which should rattle the currency market or a wave of debasement which should rattle the currency market.  It seems to me that both doors out of this involve the fiat faith-based currencies getting pulverized.

This buyer in size is clearly not playing ball with the big boys.  So any opinions on who it might be? Foreign central banks, billionaire investors?

And all in physical.  Resting in a safe in a home full of Rottweilers and guns.  It's about as safe as I can make it at the moment :)

DoChenRollingBearing's picture

Great trialog Turd, Mr Lennon, Shameful.

Gold is BIG PART of what we as individuals can do to keep us and our families through this.

Let the EE try and bash gold down.  Let 'em do it, and when I come back, I buy, buy, buy.

Until we reach $55,000.

SGTbull07's picture

"So any opinion on who it might be? Foreign central banks, billionaire investors?"  - I trust you've already seen this, but in case not...  ~ SGT

Turd Ferguson's picture

Yes, I saw that earlier this week. Ole Jim Willie may very well be right on. The chart certainly looks to confirm what he says.

That said, the slick production and spooky music kind of detract, for me anyway, from the validity of his hypothesis.

The Rogue Economist's picture

One thing to watch out for. When the paper and physical markets disconnect - ie, the paper gold holders figure out that their paper claims are unenforcable - then the "market" price of gold may plunge to near zero as all of the paper holders attempt to sell that paper and it reveals it's real value of zero. Just know that if gold "prices" are plunging as a shortage is revealed, that's what's happening. Physical gold, while technically priced with the paper gold, will keep it's real value, so don't sell into that trap.

Strider52's picture


If it's worthless, nobody would buy GLD or SLV.  

StychoKiller's picture

Right, and Ben Franklin's pic on the $100 makes it a rival in value to a Rembrandt.

DosZap's picture


I thought you were a Swaimee,the prices of Gld and Slvr dropped under 1,300.00,for about 10 mins...and I thought your train was on TIME.

Tommorrow they suceed.Until Monday morning.

Sudden Debt's picture


NOTW777's picture

bunch of gaps - 1109, 1090, 1049; downdraft time

MrTrader's picture

Well said, Mike ! David Tepper´s comments are just ridiculous hilarious !

DonnieD's picture

You've got to give that guy credit for correctly interpreting governmental action on stocks over the past year but that interview did have a "famous last words" tone to it.

It's almost like he was tempting karma to bitch slap him.

StychoKiller's picture

Don't know just who he was trying to persuade to buy stocks, but it didn't work on me.

rocker's picture

That's what Elliott Wave's Robert Prechter said too. Since Jan. Feb. he has said the market should start a strong decline real soon.  Well, how wrong can one be. It is even rumored now that he is telling his regular subsrcibers to short and his institutinal investor to buy against it.  Prechter has also said the FED does not matter for more than a day or so.

Woooooo, How wrong can that statement be. Prechter even said to sell, (short), silver at 16 and 17.

I believe this, follow who has been right. Marc Faber, who gives free advise, says the FED will print like crazy every time the dow goes under 10,000.  He has said you will never get him to give up his Gold.  So far, he's the man. Go Marc.   

Turd Ferguson's picture

Prechter is an A+ douchebag of the first order.

rocker's picture

Your too kind. How about a F- Scumbag.

Turd Ferguson's picture

That works, too.

He's a criminal thief praying upon unsuspecting dupes. A charlatan like a 19th-century traveling snake-oil salesman. He can "cure your ills" with two spoons full of his worthless, nonsense TA.

StychoKiller's picture

Phrenology is making a comeback! </sarcasm>

akak's picture

And meanwhile, the establishment's shills and their media lackeys are frantically peddling the intellectual laudanum of pseudo-deflation on every streetcorner.

VWbug's picture

faber has been the most right of any of the talking heads.

what i really like about him is he has a good time while proclaiming 'we're all doomed!'

he realizes it just means economies will go to hell, but the smart ones will still make money and live very well indeed.

i think i'll go join him in chiang mai soon.

ATG's picture

right up there with Paulson's $4000 gold and buy a home.$4,000+Gold+and+Says+%22Buy+a+Home%22/6003620.html


ro.sniper's picture

Someone tripped over HALs power cable and commodore lost its internet connection... probabbly IP address conflict.

Goldilikes permabear's picture

"Does anyone realize how ridiculous an announcement of QE2 would look in that context?  It would probably freak people out and stocks could collapse.  Ok, so if I am right and they can’t do QE2 with asset prices at these levels what do you think is going to happen to stocks once people realize QE2 is not about to be launched?"


wtf is this guy on?  i vote that if someone even thinks there is a chance bennie wont unleash wave after wave of QE their article doesn't deserve to be posted.

brodix's picture

A paper tiger is still paper. We'll certainly find out what happens when it hits a stiff headwind, because eventually it will.

Cobb's picture

I agree.  He's saying they're not going to announce QE2 because it "would probably freak people out".  Seriously?  That's all he's got?  Sure this is an interesting piece, but his whole premise of stock decline is based on the Fed not doing QE2 becuase it might freak people out.  No supporting or historical just might freak people out.  Wow.

Bay Trader's picture

I think the point he is trying to make is that the market has to decline from here before they can safely administer QE2. If we have a 2 month, 3-400 point selloff in the S&P, declining economic indicators, declining homeprices, and increasing unemployment, a lot more people will be against QE2.

ATG's picture

i vote that if someone even thinks there is a chance bennie wont unleash wave after wave of QE their article doesn't deserve to be posted.

Amazing how quickly some people will discard the First Amendment.

Good luck with that QEII trade.

Fed chiefs said yesterday it ain't happening, thus cancelling out BSB's bluff.

0 needs better poker players.

StychoKiller's picture

There IS a difference between censorship and "deserving" a hearing/reading.