Phoenix Capital Research's blog

If you own these precious metals because you want to hold them as catastrophe insurance or a hedge against inflation, then issues like short-term drops in price should be seen as buying opportunities.

Indeed, Gold bulls have already ridden out 13 corrections of roughly 7%, six corrections ranging from 10%-16%, and three full-scale Crashes of 22-23% since the Gold bull market began in 2001.

So if you’re a long-term bull, you’re used to seeing some serious dips in the price of Gold holdings. And if you bought more Gold during those dips, you’ve profited handsomely.

The most important piece of news announced last week was the Fed’s release of the schedule for its second round of QE 2 bond buying. All told, the Fed intends to buy $105 billion worth of bonds through January 11, 2011. The purchases will occur practically every other day and are broken down into $6-8 billion increments. Now, the Fed has made it clear that it intends to prop stocks up at ANY cost.

Indeed, the US, like all crumbling empires, is so caught up in its self-centered notions of superiority and “bread and circus” entertainment (in today’s world McDonald’s hamburgers and garbage TV like Jersey Shore) that it is TOTALLY “change blind” to the fact that China has not only ascended from a communist backwater to THE key player in the world’s global economic balance (more on this in a moment)… but is now holding MOST if not ALL of the trump cards from a global monetary/ economic standpoint.

China has made it clear that it is NOT pleased with the US’s current monetary policy (China has blamed the Fed for its inflation woes with some officials going so far as to label the Dollar’s status as a reserve currency, “absurd”).

The US has in turn responded by labeling China a currency manipulator and blaming it for the US’s economic woes. Indeed, it seems almost every other week that some US Government official comes out with a “it’s ALL China’s fault” statement.

However, when push comes to shove, it is China that holds the trump cards in the form of interest rates.

Anyone doubting that the powers that be are getting desperate to maintain stock prices should consider that announcements of Bailout Ben Bernkanke’s appearance on 60 Minutes and his proposed claim that he may increase QE 2 was enough to kick off a 3+% ramp job in stocks last week.

Regardless of this mindlessness, Bernanke’s appearance did offer us a glimpse into his thinking or lack thereof. Many commentators have been stunned by his assertion that he is “100% certain” he can control inflation. I wasn’t. After all, Bernanke’s been nothing if not 100% certain of himself while being 100% wrong for the last five years.

Copper is often called Dr Copper as the metal is considered a bell-weather for the world economy due to its close correlation to economic growth (used by many industries, copper typically rallies when the world economy is growing)

Last week’s explosive rally was due to three factors:

1) Stocks came perilously close to breaking down so the PPT stepped in
2) A bullish falling wedge pattern in stocks
3) Euro options expiration/ ECB intervention

Regarding #1, stocks came right on the verge of breaking below their 50-DMA. Given the technical nature of the stock market rally (the market hasn’t traded based on fundamentals in months) this would have heralded a major decline.

What’s truly strange is to see allegedly educated, intelligent people like Ben Bernanke talk as though the stock market is somehow an economic indicator. I’m sure it’s a great indicator of prosperity if you work at Goldman Sachs or are a corporate insider at a publicly traded company.

However, for those Americans who DON’T have flawless trading records (or stock option grants) stocks have NOTHING to do with your day-to-day activities.

After all, your typical American DOESN’T buy food or pay their mortgage with the profits from their day-trading; they pay with the money they earn from their JOB.

Earlier this year, I noted that the European debt crisis was mimicking the US’s 2008 banking crisis almost to a T. Greece was the “Bear Stearns” issue: a minor player that was swallowed up in the drive to maintain the appearance of stability.

Then came the $1 trillion bailout, the equivalent of the Fannie/ Freddie “blank check”: a massive sum of money thrown at a problem meant to convey the illusion that the powers that be have everything under control and that systemic risk is non-existent.

Barron’s recently unveiled the results of its latest “Big Money Poll” on November 1. According to the magazine, 60% of money managers are bullish on the stock market’s performance through June 2011. All in all, the bulls expect the market to rally 6% over the next seven months.

Can a US Dollar rally overcome the Bernanke put? We’ll find out this week. We have a total of six POMOs this week (two today and one every other day). So the Fed will literally be juicing the market by $6-9 billion EVERY day this week. If stocks can’t remain afloat in the environment and the US Dollar strength continues, then the markets are heading into some VERY DARK times in the near future.

In closing, keep your eyes glued to the Euro. The markets seem to view the Irish bailout as a “positive” for the currency. If this view results in the European currency breaking above 37.5, then the inflation trade is back on with a vengeance and the US Dollar could potentially be in SERIOUS trouble.

The only time that Treasuries actually RALLIED (lowering long-term interest rates) was from April-August 2010: the ONLY time that the Fed hasn’t maintained a public QE program in the last 18 months.

The three biggest problems with QE 2 are:

1) The potential for a US Dollar break-down
2) Treasuries falling and pushing interest rates UP
3) China retaliating.

Of these, #3 is the most worrisome for the global financial markets. Let’s be clear here, China is extremely adept at making investing/ financial decisions. And while we do need to take its decision to cut Treasury exposure seriously, I cannot believe China would actually telegraph that it was dumping Treasuries when the dumping really starts.

As the whole financial world now knows, Ben Bernanke wants to actively foster inflation by trashing the US Dollar. Setting aside the fact that this is absolute insanity (inflation has already hit the US), Bernanke’s made it clear that he wants to trash cash to keep stocks up.

The only problem for our esteemed Fed Chairman is that Europe’s banking system appears to be even MORE adept at currency destruction than Bernanke’s money printing trigger finger.