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Threshold of Pain
In late September the weak dollar and strong gold story were becoming obvious on the charts. I made a comment on someone’s blog:
“IF
gold gets to 1200 and the Euro reaches 1.5 and the Yen is at 85, then
Bernanke will be forced to give up the QE policy and reverse the
emergency zero interest rates.”
I could not
have been more wrong on that call. We have achieved the levels that I
thought would be a, “Threshold of Pain” for the Fed. As of today the
likelihood of the Fed amending its monetary stance anytime soon is nil.
For
me this means that the pressure on the $ and gold has to continue. We
are already at some galactic levels for gold and the dollar. I would
have thought we would be in a “panic mode” if the screen read 1.51 and
1200. But there is no sense of panic at all.
I am revising my forecast for the threshold of pain: IF the
Euro gets to 1.55 and gold goes to 1400 Bernanke will be forced to
accelerate the timetable for reversing the emergency monetary measures.
(I think the Yen is now a side show, it may add to $/Euro weakness)
Note:
It is not possible to forecast short-term currency/gold movements. I
have learned that a number of times. Therefore do not read this as a
prediction of the next currency blow up. Rather it is a prediction that
the Fed bows to the market to avoid a currency blow up. If we do see 1.55 and 1400 there will be a sense of panic.
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What the hell. Here's an off the cuff questions no one seems to ask: Is Ben Shalom Bernanke acting in the best interest of the US or Israel? I know race and religion don't matter anymore, especially in politics and foreign affairs. I know that sarcasm is a tool of intellectual weaklings, or was I only told that because it can be so effective?
I just want my mom and my in-laws to be safe throughout this whole thing. I don't even know where to begin with explaining this stuff to them. I feel like all long term investors will be wiped out, or nearly so. Is this thing out of control of the FED? I get the sense that they're steering a ship with only half a rudder. Of course the bankers don't give a fuck because they're already loaded up with life preservers in the lifeboats above deck while the slaves continue rowing full speed ahead. Icebergs be damned.
Does anybody here subscribe to Reinhardt's Journal? He's called a shitload of debasements down to the day, months in advance. He's calling for dow 3000 by 3Q10.
put very little into reinhardt or any one other person for that matter.
he made one accurate call on a google finance board in oct 2008 as i recall. he has missed a couple in the last year including a horrific miss for a crash in oct of this year.
he reads like a dan brown book with his obsession on the vatican.....
take a look at just this one thread on zh as an example...there are a wide variety of opinions expressed by some very smart people (present author excludes himself!). pick up information from each of the commenters and read several hours per day from a wide variety of sources. you'll be able to start forming more reasoned conclusions that work for you, your mom and your in laws.
good luck to you.
Threshold of pain?
Threshold of indifference! Since that's an oxymoron, my real point is that it doesn't exist.
Sometime in the not too distant future, I expect the Fed FOMC minutes to hint at an imminent halt to QE and raising rates soon. Accompanying this may be some other "engineered event" that unwinds some carry trades and causes a dollar short covering event. This will give the $ its deceased feline bounce we've been hearing about. Ok, maybe the "don't worry, be happy crowd" isn't calling it exactly that. I expect it to be sharp and short-lived. Of course, it will be the usual jawboning with the usual backbone by Firestone. To give it more oomph, Tim Geithner, on a speaking tour of the country, will state emphatically that we believe in a "strong dollar policy" and that our actions will be to absolutely support the value of the dollar.
Of course, there is no way that rates can be raised or auctions will be allowed to fail. But hey, we'll get some snappy new acronyms and abbreviations for programs from the Fed! They won't be called QE, but they'll sure look, walk, and quack like it. Don't worry, the parasitic institutions will get to play their part as well.
Lather, rinse, repeat.
This will be the same at the current $1,200 gold, if they even bother right now, $1,400 gold, and $1,600 gold. As far as currencies, who cares if we're the least worst, the second least worst, or the third least worst? The real game is to keep the game going until the looting is complete.
Kowalski's prediction:
Fed rates stay low thru 2010.
The stock market spring lambs are nearly ready for the taking, led by CNBC's cheering squad. Dow goes below 9,000.
Bonds rates will stay low becuase of lower DOW and a foreign "scare" or two.
Gold, crude go down as the USD goes up.
Whats not to like ? (well, the poor serfs who thought their 401K's would offer them the chance to stop working before they die, but hey.. when did serfs matter ?? After all, the Masters at Goldman have better plans for their retirement money)
americans on the street never cared if the Fed crushes the USD since the Fed's creation, how else to explain the USD is worth just 2% of its value in 1913? Fact is everyone here owns some of your assets denominated in USD (unlike Jim Rogers and probably the sage who needs blue pills) nd agree to be paid in USD. The Fed is not afraid of Ron Paul because it has the backing of the average american J6P.
The fucker doesnt give a shit about the dollar. Dont you see that all ben wants to do is avoid another great depression and he wants to be remembered as the guy who saved us from it. He has NO intentions of supporting the dollar. He WILL create massive inflation to prevent another great depression. That I can guarantee that. In his mind hyperinflation is better than deflation. PERIOD.
Ben cares about the dollar as much as milli vanilli cared about singing.
Girl, you know it's true.
Bernanke wants to prove his theory that you can fight deflation by creating inflation. He will not stop printing money. If his theory works he will get a Nobel Prize for Economics. If it fails too bad for for all that participated in the test.
Nice observation. We are in uncharted territory at this point. 'Tain't a thing like the Great Depression.
To expand on your theme, like they say: In life you get the test before the lesson!
All Obama and the dems need is a bunch of republicans and independents running around this summer screaming about how he and the dems destroyed the United States dollar, and about the low interest rates on CD's and savings accounts.
Keep in mind that its the savers who are more likely to vote.
Bernanke remembers Howard Ruff and the flight to gold in the late 70's and the fed under C.W.Miller. Obama's too young.
All it would take is for a third party to establish a beach head in Congress to ignite a political panic. Politics rules the fed.
All Obama and the dems need is a bunch of republicans and independents running around this summer screaming about how he and the dems destroyed the United States dollar,
B.I.N.G.O.
Also, must go along with assetman et al about the Fed (don't forget their allied central bankers in other countries) losing power if the fiat fails. long term the dollar is hurting, but there is lots of time to play her up and down. besides the financial/economic/political aspects involved, people will still run to the dollar when the geopolitical events get out of whack, and they most certainly will. and, there are lots of those both known and unknown.
I still think gold can continue to rise even with the dollar rising in the above scenarios. those who already own the bullion would be a bit crazy to give it up at this point based on a longer term viewpoint.
Yes, Ben has a threshold of pain but it will not be touched until he is fired, behind on his mortgage payment and can not pay his COBRA premium.
The pesky debt limit problem needs to be solved now. And the various critters are scared shitless to deal with it because of HCR......which will not see sunshine til next Spring, if ever.
Layer another Tril onto the debt limit now and HCR is a dead duck. And the critters know it.
I expect some type of major tax event ( clearly, ahem, debt reduction surtax is not a real "TAX" ) or a sacrifice to the debt Gods of some signifigant borrowed spending , either or both . That'll jerk the dollar higher .
For sure, we are at nut cuttin' time and the whole scheme is coming apart sooner than later without some " drama ".
Or could they really be bent on the demise of the USA ??
We need to run a poll on this question.
Pensions, social security, medicare, 40% cut. Military 50% cut. Any questions?
Gold and bonds are similar in that the equities must let them have their day or they will pick up all of their toys and go home. Equities need them in the long haul so they must be careful how they play them.
The dollar is a different story. Not everyone is allowed to own 100 billion of them. Just as equities, gold and bonds must go down in value to begin the game all over again, so must the dollar. Just as people get hurt when equities, gold and bonds nose dive, so do people who hold dollars. Just as Bernanke has given the gold holders their day, he will hurt the equities and bondholders when he gives the dollar its new day.
And in the middle of all this foolishness, up creeps oil and gives a wedgie to the dollar, gold, equities, and bonds. And the threshold of pain is directly related to the type of hemorrhoids one has.
You will be on here a few months from now stating how wrong you are again (although, I genuinely hope that you are right) because ever since the Federal Reserve was created the dollar has been in secular decline. If you go back to 1913 and measure a dollar it's worth ~2 cents. Their main objective is to inflate the Treasury Department out of its debts.
Wouldn't it be nice to have an unlimited credit card and the power to throw people in prison if they don't give you a portion of their labor in order to pay off the credit card debt?
Who cares if the dollar goes lower? It will make it that much more valuable as a carry trade currency-ever asset on earth goes up while the dollar goes down.
As for gold, what do you think will happen when the Fed announces interest rates increases?
The pain may appear in the run up to the congressional elections.
i think it will be now...they can keep this up into elections, the dollar will be worthless...they need pain now so they can run it back up without destroying the dollar (which would ensure the dems getting tossed)...so flip it for a bit then run it into elections...
I've read that 3-4% interest rates and $1200 gold are incompatible and don't make sense. Either the US Dollar is toast and gold is soaring, but then bond prices should be tanking, or, we're in a horrible recession, low interest rates make sense, but gold should be muted.
One scenario this makes sense is that all asset classes are inflating in price due to ZIRP around the world (except Australia). Stocks, bonds, commodities. All to slow the rate that bad debt goes dead, and prevent financial implosion.
Another scenario is that big money is scared shitless of something, like nuclear war with Iran, and seeking safe havens like gold and US Bonds. The war scenario should be good for oil if you think Obama will do something other than talk (I don't).
if you think Obama will do something other than talk (I don't).
i have said it for quite some time and obama cast the die this evening:
we are going into Pakistan. there is no question about it.
The only thing worrying him is Ron Paul. I am convinced that even if his bill passes it will never be executed. They (White House, Treasury, FED) will cite national security issues, will not sign it, will declare martial law, exempt it by executive order, whatever, that bill will n.o.t. be executed. It worries him mildly though, for it sows discord in the normally complaint Congress.
The only threshold of pain involves the cost of Treasury debt and that's getting cheaper. These aren't normal circumstances and given Bernanke's belief that his strategies are sufficient to fix our economy, gold and the dollar are utterly irrelevant.
But if you take a step back and consider his strategies, they're ultimately designed to ensure the destruction of the US economy because creating a carry-trade for banks to keep Treasury debt low means bank lending will continue to be crowded out. This implicitly tells us that he believes we can escape this downturn without an increase in bank lending.
Do you know why the cost of Treasury debt is getting cheaper? Perhaps its based on temporary factors. An underlying rise in soverign CDS would suggest as much. Just sayin...
Anon - everyone knows why Treasury debt is getting cheaper - the banks carry trade. How long will it continue? I have no idea, but every day they withhold credit from the economy, the more loans go bad, the greater the incentive to hold Treasury debt.
There are 4 primary currency actors, the Chinese (dealt with), the Japs (fuck'm), the Europeans (have rolled over already) and the Arab block (STFU after Dubai, or we will unleash the fury). The Britts are dead, the Swiss are intervening which is exactly as Ben likes to see it, and that's that.
I really don't see the pain from the FED perspective.
Sounds like everyone's in a tank that's filling up with water . . . Who can survive when there's no air left?
With midterm elections next year, the party in power cannot risk a hurricane in the Gulf with oil where it is today, let alone where it will be by May without a change in dollar policy. Ben will comply like the good little bitch he is.
The Japanese are hitting a 14-year JPY/USD high on a moribund economy, 2 lost decades and debt at 200% GDP. For G-ds sake, the JPY, not the Zimbabwan waku-waku or whatever the fuck their currency was once called, but the JPY.
Treshold of pain? Ben has a spring in his step, if the Japs can pull that off without being a reserve currency he can pull off anything.
Where is the pain? Ben is wetting himself with 1,50, last time he managed to get to 1,60 and that was only reversed because of subprime implosion etc leading to carry/credit unwind.
Crude? Is roughly at half the peak of $150.
Gold? What does he care, Comex is not his problem, let them pull a force majeure, good for his objective of an ever lower USD.
Ben has made a deal with the Chinese (have you heart them lately?), whoever falls fastest and lowest wins.
Game on.
Bruce... good stuff, again.
What's more important to measuring the breaking points is realizing there is a threshold of pain that will be reached-- and that the Fed will act accordingly. Perhaps we're near that point today-- but there's little reason why we should fine tune it.
My "threshold point" is when the DXY breaks 71.50, which remains a few points, and perhaps, weeks off.
Doesn't mean that I'm already hedged, though.
Comfortably numb.
I say Ben and crew could care less about the dollar. They are on step 6 of a 12 step plan taking the world to the next level of the game. Sooner you figure out the game--you can front run with the best of them
Would like to see your 12 step theory for curiosity's sake.
Amen, for me the "tell" was in March. $1.25T for MBS? Get me the hell out of the USD.
I think Uncle Ben cares very much about the dollar because in the end, preserving its value keeps the Fed in business.
The call in March from the $1.25 trillion in MBS purchses to escape USD (the relation trade) was a very good one in retrospect, though by that time gold was near $900. Well, that's STILL a great trade. Problem is, the $1.25 trillion has a limit attached to it, and if the USD drops through the bucket we may not even see the full purchase. Chances are we will... but announcing something above and beyond that becomes a big problem, given the competitive devaluations we've already seen.
Sure, reflation may still be the underlying theme... but I wouldn't bet the farm on it.
That's just silly.
The fed can't stay in business. IT knows it. You know it. I know it.
So what is going to replace the FED.
Has 3 letters.
Anyone, anyone, anyone.
This is the mistake many deflationists are making. Fiat currencies come dime a dozen, but only those who hold the Gold - as they say - make the rules.
Uh, I think the saying goes "those who hold the guns make the rules."
If the dollar is worth zilch/zero, will the FED be forced to issue new currency? That is, if all the FED has is worthless USD to issue, what good is the FED?
Also, won't civil society cease to exist? What good is the FED then?
It seems that the FED has to keep some value in USD to keep some purchasing power or else you wind up with Weimer Republic and collapse of the US government with all the fun that would come from that.
buy land - when the $$$ gets worthless there wont be a point in blocking people from growing weed and killing all the pharma pushed drug market... it will lead to a new type of economy .... where many things are too expensive and worthless at the same time (no market in this country - a different country takes the hyper consumer churn torch away from us...) we just end up like some worn out european country or worse, like the poor side of china
The $1.25T has no limit, it was an arbitrary number to begin with.
Also, as I documented well on these pages, my initial move in March was into oil, and only this summer moved from oil into gold.
Though now I am thinking of moving some money back into oil, I am thinking we see $100 in oil by the end of January.
1.51 euro, gold 1200.70...enough? Bruce this is a bowl of spaget, with a lot of sauce. Pull one strand or two and you get a mess. Not so simple as just two vectors. Stay tuned as Dubai showed a bit of flesh.
Uh, what makes you think Ben gives a damn about the dollar? Has he ever done anything to show that he actually wants a strong dollar anytime in his career at the Fed?
I hope your right and he does have a threshold of pain like you say and at the numbers you give. However I'm more apt to think that Ben's threshold of pain right before the dollar hits 0.
We ain't seen nothin' yet in the Gold market Bruce. Although this may sound insane, Gold even at $2000 will be only in the early stages of it's bull run. $1200 is a bargain.
paraphrasing a quote from the 80's movie Rollover- $2000 gold will be considered cheap by tonight
http://www.youtube.com/watch?v=GPYLJoq_40Y
Agree, I stand by my call that gold will go to $2000 by mid next year, could reach $5000 by the end of next year, the S&P will be at 2000 by the end of next year. Oil $150, etc.
As for the USD vs other failed fiat currencies, who knows or cares?
Beranke WANTS to kill the dollar. He has said so many times, why wouldn't we believe him?
Who care about the price of gold, I'm more interested in its purchasing
power. Given the fact, I don't know if we will end up in a inflationary
recession or what else. My vote for Gold is my vote against the present world
leadership.
Then about $, I think Fed will have a hard time to run to the bottom.
Also other currency will do the same.