Have We Hit Too Much Liquidity?
By now it is no secret why the stock market goes up on a virtual flatline. In case there is any confusion, the almost daily release by the NY Fed of such excess liquidity tidbits should clue one in. Yet, in its over-zealousness to pump up equity markets, has the Fed gone too far? Are all the billions of free dollars now tired of chasing the risky and safe assets (at the same time... yes, think about that for a second) and going straight into gold, be it as a dollar crash backstop or simply because all other assets have run up beyond too far? The one asset class that is riskiest to the Fed from an appreciation stand point is, and has always been, gold. Yet the market action from the past two weeks should make the Fed nervous. After meandering in the $900-$1,000/ounce range for a long time, gold has finally exploded and started closely correlating with risky assets.
In fact a long-term chart of the S&P expressed in ounces of gold, demonstrates that we are once again starting to approach the 1.00 barrier. If this support level breaks, the upside moves in gold will likely make the Fed consider other alternatives to stimulating inflation than mere paper printing. Alas, not many come to mind. The counterargument would go that the Fed has (un)officially abandoned the strong dollar policy, and any claims to the opposite are merely for soundbite purposes before the camera. Since this would merely be a preamble to a hyperinflationary episode, gold would become very valuable to the administration, for that point in time when the first round of dollar devaluation cracks (about where you would pay a few hundred million dollars for a bottle of milk). Thus the prevention of hoarding of gold, and its outright sequestration, in many ways comparable to what FDR did with Executive Order 6102, will be the next big step, once the Fed starts projecting forward what needs to be done as the initial bout of hyperinflation needs to be contained. At that point, as always, the amount of gold held in various underground bunkers will determine the new price point of the dollar's far more valuable, post hyperinflationary descendant.
(2 votes)
»
- Login or register to post comments
- Printer-friendly version
- Send to friend
on Thu, 10/08/2009 - 15:14
#93358
Has the Fed set a trap..a surprise 25 bps rise would be all but meaningless in the grand schemee but would be a limp shot across the bow of the dollar shorts. of course it wouldn;t change an iota but it might reverse the trade for a week or so
on Thu, 10/08/2009 - 15:17
#93361
Someone will have to come up with a new name for the Dollar Store company in the two cases for when i) we have hyperinflation in the US, and ii) when the dollar ceases to exist. Unless, of course, if the Dollar Store ceases to exist before the aforementioned.
on Thu, 10/08/2009 - 16:27
#93482
Unless the Dollar Store becomes the destination for high end, luxury goods.
on Thu, 10/08/2009 - 17:47
#93573
made in the USA natch
on Thu, 10/08/2009 - 17:04
#93536
The dollar store will revert to it's old name...the 5&10. Only this time it will mean $5 & $10 as opposed to 5 cents and 10 cents.
on Thu, 10/08/2009 - 15:16
#93365
It's like telling 100 school children that you've handed $500 each, you can buy any of the 1000+ toys in these racks and bins - all the same price low price of a buck. You can't have any of the 7 cool Star Wars figures over there on the shelf. Gold market (PM for that matter) is so small (7 Chewbacca's) that when you get a bum-rush of kids, they'll start throwing 50, 125, heck maybe even $400 of that money to just one.
It's all about flow right now - if it leaves, it will have that SPX/DXY relationship where a sucking sound will appear when those seven "lucky" kids will have buyers remorse when they only get an offer for $15.
(Mind you it's not quite that simple, but the concept and application are similar)
on Thu, 10/08/2009 - 15:16
#93366
Marc Faber CNBC India video here.
http://www.fundmymutualfund.com/2009/10/marc-faber-on-cnbc-india.html
Eagerly awaiting blowout trading profits from Goldman and JPM next week on the path to S&P 3500!
Back to the printing presses.
on Thu, 10/08/2009 - 15:20
#93372
What better way to discourage gold ownership than to make sure that stocks outrun gold in the upcoming week(s)?
on Thu, 10/08/2009 - 15:22
#93376
Answer: Pound the crap out of it back into the low 900's. That's like burning the fingers of the momo's now coming to the table.
Problem: To pound also means to pound equities, etc.. lovely paradox.
on Thu, 10/08/2009 - 15:30
#93390
The goal these charlatans have then is to make sure the ratio holds support at 1 and goes higher. If they convince the investor once again that paper is a superior investment to gold by having stocks win the race, either way by falling less or rising more, then that paradigm sets in for a longer timeframe.
I would guess that the story will go like this, for the net couple trading days the SP and gold will keep pretty close, but at some point SPX will start performing better and that will put selling pressure on gold to make the switch into the better performing asset. Its the best solution, just keep pumping equities so that they do better than gold and then leave it on autopilot.
on Thu, 10/08/2009 - 16:47
#93505
I think it depends on the group of people you're looking at;
Goldbugs will take an out of control SPX as a sure sign of inflation and elephant it. Money managers will chase the appreciation and favor SPX over gold. Those with the deepest pockets and best timing wins.
on Fri, 10/09/2009 - 06:22
#93924
The likelihood that the Fed and Treasury are actively manipulating markets barely elicits a yawn. It's either casually discussed as part of a trading strategy or treated as an unremarkable assertion. Considering the implications how is this not an elephant in the room?
on Thu, 10/08/2009 - 15:22
#93374
"The counterargument would go that the Fed has (un)officially abandoned the strong dollar policy..."
The feds strong dollar policy has caused it to lose 99% of it's value since 1913.
Hang on to your gold!
on Thu, 10/08/2009 - 15:27
#93379
good beginning, bad ending
better don't bet against Bubblenanke while he is still at the FED, he's really crazy, just look at all those acronyms, who knows what he's up to next
on Thu, 10/08/2009 - 15:45
#93412
Next is the Commodities Relief Assistance Program to help out the Hedgies...
Which assets to assist? Gold, Oil and food primarily...
He was going to call it the CARP but that sounded too fishy...
on Thu, 10/08/2009 - 15:29
#93383
Anyone know whatever happened to that big bad IMF gold sale that was supposed to take place, when was it, last week?
Once again just hot air and empty threats.
on Thu, 10/08/2009 - 15:47
#93416
Wasn't that issue already pre-placed?
on Thu, 10/08/2009 - 15:29
#93384
Treasury/Fed is placing the burden of a falling dollar on the world community. Their conjecture to replace the dollar is more of a medium to long term need. short term, they are going to hold their finger in the dike to avoid a meltdown that none of the world markets could withstand. The fed and treasury know this. I believe short term the dollar is oversold and just as with the stock market, they will crush the shorts. Anything too obvious is an obvious disaster. Beware of the obvious, folks. Politically, a scarey dollar environment gives the democratic controlled govt the cover to take politically non-popular steps to support the dollar such as deferring a public health option, tax credits for business and wealthy individuals. They are now thinking about the gameplan for the next year so that they can appear center wing as elections approach. A potential black swan is
always close by with Derivatives, etc.
on Thu, 10/08/2009 - 15:30
#93389
If this support level breaks, the upside moves in gold will likely make the Fed consider other alternatives to stimulating inflation than mere paper printing...
You funny!
on Thu, 10/08/2009 - 15:32
#93395
I lol'd.
on Thu, 10/08/2009 - 15:39
#93404
Talk to me at Dow 15,000. Just kidding (I think)!
on Thu, 10/08/2009 - 15:39
#93407
If, during the financial crisis, correlations "failed" and instead went toward (more or less) +1.0 or -1.0, what about the converse? Does correlations lining up at +1.0 or -1.0 constitute a financial crisis?
Just a random musing question...
on Thu, 10/08/2009 - 15:42
#93410
Inflection is coming at lightning speed toward BB.
Hmmm.. To beat the shit out of the dollar? or not?
That is the question.
What say you??
on Thu, 10/08/2009 - 15:46
#93415
if the dow is not at 36,000 then the answer to the question is no.
on Thu, 10/08/2009 - 15:47
#93417
all the consumer scrap gold is has been pawned or resold. now, all the jewelers who are going out of business are selling their unsold gold merchandise to the refiners creating plenty of supply. until this wave starts to subside you will not see another new gold floor materialize. once this wave of refining is finished and the bullion on the market and then sold.........., gold will paradoxically go down, you will find whether or not a new floor or cieling for the gold price is established. elliot waves won't tell you anything. so for another 6 months you will not know where a new floor will be built , because the 1000 floor is so 2007.
for everyone who thinks is about time the dollar stops weakening. remember the saying is what goes up must come down, not the other way around. debt goes up, currency goes down; any temporary stabilization of the dollar will be short lived as the dollar re-establishes its trend downward for the next decade.
on Thu, 10/08/2009 - 15:49
#93420
The Fed could print $$$ and buy gold with them. Problem solved !
on Thu, 10/08/2009 - 15:50
#93424
The Fed needs to temporarily halt printing paper and allow the market some corrective room to breathe. At the rate it's going this will end in a nasty market crash very shortly.
on Thu, 10/08/2009 - 15:52
#93425
This stlye of compeition between gold and assets is going to lead to a very nasty market crash shortly with both falling in tandem.
on Thu, 10/08/2009 - 15:54
#93427
I think my Blog has a picture that will clear this up.
http://doomerupdate.blogspot.com/2009/10/inflation-is-our-friend.html
on Thu, 10/08/2009 - 15:55
#93428
To the thought of the Fed outlawing holding gold again...i think not. BUT what I think far more likely is pulling an Argentina and appropriating the country's 401K's for mandatory Treasury and government debt. Just a thought.
on Thu, 10/08/2009 - 16:18
#93461
"appropriating the country's 401K's"
Okay, then we really would have the revolution people are always talking about around here.
on Thu, 10/08/2009 - 16:42
#93501
Steak has it. But it will be called something pretty, like Government (or Guaranteed) Savings (or Retirement) Accounts. You can cue up the South Park 'And It's Gone' video soon.
on Fri, 10/09/2009 - 01:57
#93881
I'm sorry, this line is for people who have money with the bank only.
on Thu, 10/08/2009 - 18:21
#93604
The experiment for this sort of action has already been carried out in Puerto Rico. See Bloomberg:
http://search.bloomberg.com/search?q=Puerto%20Rico%20UBS%20Pension&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date%3AD%3AS%3Ad1
on Thu, 10/08/2009 - 16:24
#93479
Unfortunately the NCUA has this strategy for it's coming failures. Another round of hide the (supposed) assets into Timmay's dwindling auction participation.
Obviously the enclosed link doesn't say that but when you have the treasury "facilitating" failures one can only imagine that another round of inflate the asset and exchange them for T-notes is coming.
http://www.cutimes.com/Issues/2009/April%201%202009/Pages/NCUA-Seeking-Treasurys-Help-to-Ease-Burden-of-Corporate-Woes.aspx
MS
on Thu, 10/08/2009 - 20:14
#93685
Fed might issue IOU to 401k or 403b.
on Thu, 10/08/2009 - 16:00
#93439
There is only one way and Chris Martensen stated perfectly and clearly.
Open the Federal Reserve's books.
on Thu, 10/08/2009 - 17:01
#93531
Too much Liquidity? No. BACK THAT TRUCK UP.
This whole debarkle smells rotten. China threatens to sieze treasury purchaces, but then buy somemore. China threatens USD with 'new reserve currency' nonsence but then cheer it through their deflation exportation racket. All these Fed policies are clearly in support of maintaining China's growth at the worlds expence. Too much federal and corporate investement/interest to turn back now.
on Thu, 10/08/2009 - 17:42
#93567
give that ozz a cookie.
on Thu, 10/08/2009 - 17:56
#93583
Gold confiscation is not feasible or likely. Forcing Americans to buy US debt, sure. Forcing Americans to continue to us dollars, sure, but gold confiscation, no way. Politicians are on slippery ground right now and they know it. We are far less patriotic than we once were and we are far more, umm, 2nd Amendment friendly than 75 years ago.
on Thu, 10/08/2009 - 18:08
#93597
You keep the paper, I'm buying other things while I still can.
on Thu, 10/08/2009 - 18:33
#93611
It seems to me that the Russians and the Chinese have set a nasty trap for the Fed.
Since the banksters want to use our military to illegally invade Iran, our creditors are
thrashing the dollar to prevent just such a scenario.
Wars can only be financed with deficit spending based on a viable currency. But if the
dollar were to suddenly collapse dramatically, then war with Iran would become impossible.
on Thu, 10/08/2009 - 18:37
#93613
When FDR enacted his gold act, gold was still the official basis of US currency, along with silver.
Even when gold was no longer utilized for domestic currency, the dollar was still on a gold standard, and this did not end officially until Nixon closed the gold window in 1971.
So, if today the government decided to seize gold, what would their rationale be? That they "need it?" Why don't they seize diamonds, platinum, all your foreign currency holdings, and 90 percent of your wages?
Yes, the government *could* begin to confiscate private property. But to handwave a reference back to 1933 makes as much sense as saying that the Federal government *could* decide to restart the war of 1812 with England. Or start housing troops with you in your homes at your expense. Or requiring you to have a chip implanted in your head, in order to buy or sell anything with purely electronic digits.
Yes, they *could* do it. But they will not because people, if they have any sense, would resist it as being unconstitutional.
Why do people get so silly when it comes to things like gold?
on Thu, 10/08/2009 - 19:17
#93648
A Nestle 100 Grand bar (used to be called 100,000 dollar bar) will cost $100,000...litterally
on Thu, 10/08/2009 - 19:53
#93670
Funny to see this post.
Two days ago I put on a pretty big long gold/short S&P pair to play a break below 1 on the S&P/Gold ratio -- and I'm damn near terrified about it. I keep telling myself, gold is wide open to the upside, and equities are way overdue for some kind of correction, but still, these are perilous times.
on Thu, 10/08/2009 - 20:40
#93706
an interesting interview today on this topic with Levente Mady
http://watch.bnn.ca/#clip221987
on Fri, 10/09/2009 - 06:40
#93928
I think the Fed isn't concerned with the price of gold. Especially with all the other crap they have on their plate, gold is the least of their worries.