Rate Hike Cycles, Gold, And The "Rule Of Total Morons"

Tyler Durden's picture

Authored by Mike Shedlock via MishTalk.com,

In response to Janet Yellen’s "everything is OK" speech following today’s balance sheet reduction notice by the FOMC committee, I received an interesting set of comments from Pater Tenebrarum at the Acting Man Blog regarding rate hike cycles, gold, and stock market peaks.

“Rule of Total Morons”

A new bull market in gold started in late 2015 concurrently with the Fed’s first rate hike. That is no coincidence. The gold market is highly sensitive to future changes in liquidity. The more tightening moves the Fed undertakes (which it does in the face of collapsing money supply growth, because its decisions are based on lagging economic indicators), the more gold bullish and the more stock market bearish the fundamental backdrop becomes. Anyone long stocks should actually ask himself how it is possible that gold is up nearly 30% from its low, despite an ostensibly “gold bearish” rate hike cycle.


But they never do ask the right questions, which is why stocks peak with a big lag, particularly in major bubbles. Economic historians found out that the economy was technically very likely already in recession when the stock market peaked in 1929. In the 2007 to 2009 bust, NBER backdated the beginning of the recession to December 2007, but in May of 2008 Bernanke was still talking about how well the economy was doing and how the high oil price was “creating inflation” (thereafter he began to shut up about all that, but not before demonstrating for everyone to see how utterly clueless he was). And of course, stocks peaked in October of 2007, practically two seconds before the economy fell into recession.


In bubble regimes, the final stage is always characterized by the “rule of total morons”. That’s just how it is.

Missing Inflation

Central banks cannot see inflation because they are totally clueless how to measure it: Central Banks Puzzled as Global Inflation Hits Lowest Level Since 2009: Solving the Puzzle

How Much Gold Should the Common Man Own?

Understanding Bubbles

If you wish to understand the nature of the bubbles we are in, a few recent articles of mine will help.

  1. Bubblicious Debate: Greenspan Says “Bond Bubble About to Break”, No Stock Market Bubble
  2. Median Price-to-Revenue Ratio Higher in All Deciles vs 2007, 90% vs Dot-Com Bubble: THE Choice
  3. Debunking MMT, Keynesianism, Monetarism: Reader asks “What theories do you believe?” Mish Reading List

Gold vs. Faith in Central Banks

The above chart also shows the bottom in gold right as the Fed started hiking, in agreement with the analysis of Tenebrarum.

For additional images, please see my 38 slide powerpoint Venture Alliance Presentation on trends in sentiment, asset bubbles, and gold from June 24, 2017.

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loves the truth's picture

gold is money but you will not need it when the Day arrives for salvation.

Zeph 1:14 The great day of Jehovah is near!+ It is near and it is approaching very quickly!*+The sound of the day of Jehovah is bitter.+There a warrior cries out.+15  That day is a day of fury,+A day of distress and anguish,+A day of storm and desolation,A day of darkness and gloom,+A day of clouds and thick gloom,+16  A day of the horn and of the battle cry,+Against the fortified cities and against the high corner towers.+17  I will cause distress to mankind,And they will walk like blind men,+Because it is against Jehovah they have sinned.+Their blood will be poured out like dust,And their flesh* like the dung.+18  Neither their silver nor their gold will be able to save them in the day of Jehovah’s fury;+For by the fire of his zeal the whole earth will be consumed,+Because he will make an extermination, indeed a terrible one, of all the inhabitants of the earth.”+

BaBaBouy's picture

Paper Manipulation is NOT Rocket Science . . .

Gaius Frakkin' Baltar's picture

If gold is so superior why does it always suffer from paper manipulation?

Justin Case's picture

Gold rose from $35 to $197.50 between 1970 and the end of 1974, an increase of more than four times. During that period, the Bank of England’s base rate rose from 5% to 13%. The Fed’s discount rate was 4.5% in 1972 and rose to 8% in August 1974. So, a rising gold price was accompanied by a rising interest rate, contradicting the conventional wisdom of today. Gold went on to hit a peak price of $850 at the afternoon fix of 21 January 1980, when the Fed’s discount rate was at an elevated 12%.

The current belief that rising interest rates are bad for gold was disproved by those events. The reason gold rose had little to do with interest rates, and everything to do with accelerating price inflation. The only way a rising gold price could be halted was to raise interest rates high enough and sharply enough to collapse economic activity, which is what Paul Volcker did in 1980-81. In other words, until the Fed abandons all pretentions to supporting economic growth, people will continue to increase their preferences for owning goods over holding dollars, thereby continuingly reducing its purchasing power.

BadSpybot's picture

I remember back in 1980 Money Supply M1, M2 was a daily hot topic.  They don't refer to that anymore. I would like to find a realistic guage for inflation.  Would it be fair to say if I had a good guage of inflation it may be useful as a trigger for trading gold?

therover's picture

Because M1, M2 isn't a supply of 'money' any longer. It's a supply of bullshit.

Justin Case's picture

With all of the manipulation, how in the world did gold rally almost 8x in 13 years. These manipulators are obviously the most incompetent ones ever. If the so-called manipulation is true, then the old master manipulators like the great Jesse Livermore, would be totally mocking these modern day bumbling losers. They are apparently a bunch of Inspector Clouseaus. Why won’t one of the gold permabulls (sanely) explain to me how gold had that massive rally even with all of the manipulation.

loves the truth's picture

they allowed the controlled rise,, however they changed their operation when it got out of hand when it peaked in 2011, then they attacked it and have been dertermined ever since to not allow that to happen.. However, their scheme can not go on forever.

loves the truth's picture

On the other hand, after the destruction of the ungodly, Paradise conditions and peace will prevail.

Rev 21:1 And I saw a new heaven and a new earth;+ for the former heaven and the former earth had passed away,+ and the sea+ is no more.  I also saw the holy city, New Jerusalem, coming down out of heaven from God+ and prepared as a bride adorned for her husband.+  With that I heard a loud voice from the throne say: “Look! The tent of God is with mankind, and he will reside with them, and they will be his people. And God himself will be with them.+  And he will wipe out every tear from their eyes,+ and death will be no more,+ neither will mourning nor outcry nor pain be anymore.+ The former things have passed away.”

bilbert's picture

Can we Pleeeeeze cut out the scripture quoting crap around here - this is fight club, not sunday school.

OverTheHedge's picture

"Because he will make an extermination, indeed a terrible one, of all the inhabitants of the earth"

Such a kind and loving God.

loves the truth's picture

You have been living under the rulership of Satan the Devil, the god of this system of things, and how has mankinds evil governments been treating everyone under their rulership with constant wars, killing of 100.s of millions of innocent people, all sorts of injustice, plus we are all dying because of Adamic sin. You prefer this life and whats coming down the road?

Only those who God deems as evil will be removed, he judges.

Psalms 37: 9 For evil men will be done away with,+But those hoping in Jehovah will possess the earth.+
10  Just a little while longer, and the wicked will be no more;+You will look at where they were,And they will not be there.+11  But the meek will possess the earth,+And they will find exquisite delight in the abundance of peace.+



Justin Case's picture

@ loves the truth

Ah yes memories of Star Wars. It was a good flick, but don't get to wrapped up in fantacy.

HRClinton's picture

Gold is money?

Funny, I learned that it was a metal.

Silly me, I should've asked to be paid in gold, not dollars. 

What should I do with the lazy coins I got lying around?  Stocking stuffers? Of course I can imagine a few ladies who would love to get their stocking stuffed with those coins.


RDouglas's picture

When did ZH become a refuge for bible thumping cunts?

The_merovingian's picture

Thought it was another Bitcoin chart until I looked at the time scale. 

Gaius Frakkin' Baltar's picture

Yeah, sometimes you have to wait 30 plus years to breakeven in gold.

Justin Case's picture

I bought in 1984 @ $284.00/oz. Never sold it. It was for savings and insurance. Gold is a long term investment and a store of wealth. I never feared it would go to zero like Bre-X or like Global Crossing. 

All gold-futures short selling is soon followed by proportional offsetting buying. So that 55.1k contracts of shorting in the past couple CoT weeks guarantees 55.1k contracts of imminent buying! Gold's upside price impact is identical from short-side speculators buying longs to close their positions and long-side speculators adding new longs. While normal long buying is voluntary, short-covering long buying is mandatory.

And once short covering gets underway, it quickly feeds on itself due to that extreme leverage inherent in gold futures. At 30x, a mere 3.3% gold rally would wipe out 100% of the capital risked by fully-leveraged gold-futures speculators! So once gold starts powering higher again, they have to cover fast or face truly-catastrophic losses. Their short-covering buying pushes gold higher, triggering even more buying which snowballs.

idontcare's picture

That's what the financial industry calls "investment", isn't it?! 



HRClinton's picture

"Yeah, sometimes you have to wait 30 plus years to breakeven in gold."

It takes only 30 minutes, if you're a gold coin dealer.


Hugh_Jorgan's picture

To the author: Be careful not to mistake ineptitude for deliberate subversion and obfuscation. Bernanke, for example, is not dumb, he is an evil elitist working with other powerful evil elitists.

Barfetto's picture

Last time it was the flood but in the end, it's all gonna burn. 2 Peter 3:10

J J Pettigrew's picture

The CPI weighs Health Insurance costs at the same level as firewood and magaiznes....

Now which of these items have soared in cost, and you are required to buy like clockwork?

The CPI is as absurd as the Fed pushing for Inflation......which is in diametrical opposition to their mandate of Stable Prices.

rosiescenario's picture

Excellent point.....the CPI as currently orchestrated has one purpose and it is NOT to report actual inflation.

Peak Finance's picture

LOLZ "Morons"

What bullshit, wake up buddy

They know EXACTLY what they are doing EVERY STEP OF THE WAY

This is all 100% completely by design

Herdee's picture

If any of the religious quacking ducks can show me any historical evidence that Jesus even existed, please post the information. Lots of virgin birth stories out there, too bad all the dummies don't understand it all to be symbolic, not literal.

Quinvarius's picture

There is enough documentation to support that Jesus existed.  Nobody credible claims he didn't exist as a human being.  If you claim otherwise, you are basicly saying there was a global conspiracy among historians of the time, Jewish, Roman, and other, to invent a guy named Jesus.  It is bad logic.  If you need an actual piece of Jesus to prove he existed, then to you, there is no way to prove any historical figure existed.  You can just say everyone is lying abut every historical figure.  It is a ridiculous position.  And if you are just unaware of all the historical accounts, that is a failure on your part to research.

Boing_Snap's picture

Well an academic study of the bible and Jesus shows quite clearly that no evidence of his existence can be found, the only real evidence found on the subject is that the bible was the construct of the Flavian Romans, and you have to look at the first four saints of RC faith to confirm, all Flavian family members. The bible and the Jesus story was used to get the slaves of Judea to worship Roman leaders, put down their rebellions, and accept Roman rule.

Today as through out history the bible was a slave's manual, pay unto Caeser, turn the other cheek, etc. etc.. No different today, the Zionist agenda is the controlling factor now, that is all.

Here's an academic look at the above issues.


RDouglas's picture

ALL religions exist to keep the slaves in line. You do as your told and you receive your reward in heaven, or the next life, after your dead of course. Total bullshit never had any use for any of it.

spankedoo's picture

Check out Josephus... 

Arrow4Truth's picture

Jesus never existed? Sure he did. His grandson lives down the block, and he's Jesus as well. It's pronounced hey-zeus. 

Apeon's picture

You really have to do it yourself-----You obviously won't accept as credible anything you get here.


HOWEVER---if you g00gle Goedel's Theory of Incompleteness, you will have many, many sources to read.


"A world without time"-----------"Godel's Proof"---------"Godel, Escher, Bach"

Apeon's picture

Historically there is more 'Proof' of Jesus, than most historical figures.

TheSkipper1967's picture

Silver Eagles 1oz coins are under $20.00   Damn I need more of that fake money to turn in for more real money.

therover's picture

I hear ya brother. Everytime those babies fall under $20 I trade some of my bullshit paper garbage into shiny silver.

Lord Raglan's picture

So what is the "Rule of Total Morons?"  Not being able to see the buble at its end?  That would seem like a difficult task for even a smart person as smart people get caught up in bubbles.  Look at all the smart people caught up in the current stock and/or bond market bubbles.  I've thought the end of these bubbles what going to be years ago.  It seems like they just keep bubbling up. 

hanekhw's picture

'Drooling Dolts' also fits and 'Fatuous Fatheads', 'Greedy Gnomes'.........

All you need to know to really understand in a nutshell WHY the World's Banking System is such a catastrophe is ponder HOW Paul Krugman could ever win a Nobel Prize and what WERE they thinking.

JibjeResearch's picture

Gold is the 79th element of this natural world.  It costs over $1000, and just like bitcoin, only a small percentage of people own physical gold.  If you don't hold your physical gold, it's not your gold.

You can't eat gold, but you can trade it for money with those who value gold; thus, trade it among your selected few.  I hope you feel good being rich with the high total value of your gold, bitcoin, or any other forms of value.

People must have ammo/guns, land, chicken, water, and shelter...