Mike Krieger: China Will Blink And Gold Will Soar

Tyler Durden's picture

Submitted by Michael Kriger of A Lightning War On Liberty blog,

Republics are created by the virtue, public spirit, and intelligence of the citizens. They fall, when the wise are banished from the public councils, because they dare to be honest, and the profligate are rewarded, because they flatter the people, in order to betray them.

- Justice Joseph Story

When it becomes serious, you have to lie.

- Jean Claude Juncker, Luxembourg PM and Head Euro-Zone Finance Minister in 2011

The Game Continues
I have no idea why anyone is making a big deal about The Bernank’s testimony to Congress today.  There was no way he was going to come out with anything meaningful.  The only thing our favorite Keynesian sorcerer wants to do is get through the session in as painless a manner as possible.  It would be completely foolish to rock the boat in any way during such testimony, as it would just invite all sorts of aggressive questions and make the entire thing more of a spectacle than it already is.  It would also increase the likelihood of a verbal blunder, so there is just no need.  In fact, I am 100% certain that The Bernank merely wants to toe the line as carefully as possible and at the same time get some nice propaganda out there to the sheeple.  In that sense, I think he achieved his goal.

Mapping the Next Five Months
Everyone has an opinion and on days like today people really like to come out and spout theirs so I suppose I may as well join the club.  In a recent article, I wrote that The Big Print is Coming and in this piece I want to follow that one up with exactly how I think it all will manifest between now and the election.  Of course, no one can predict the future, but what I want to do is attempt to outline how I think Central Planner policy will unfold from now until the U.S. Presidential election in early November.

Ok so let’s start with the FOMC meetings.  Between now and election day there are four.  The first one as everyone know is June 20th, followed by August 1st, September 13th and then October 24th.  Many pundits claim that if the Fed is going to act they may as well do so well before the election so as not to appear to be “influencing the election.”  I’m not so sure about that.  Maybe in times past, when the power structure was a bit more reserved and less blatant about their corruption and manipulations.  They don’t hide that stuff anymore.  The “elites” in America today are simply gangsters.  We have already been officially christened as a Banana Republic.  The criminal behavior that now governs our political and economic system is now all out in the open for anyone with eyes to see.  They don’t care.

What I want to make clear in this piece is that just because I think a massive wave of liquidity is coming from the Central Planners, that doesn’t mean I expect it to happen in June.  There is no doubt that The Bernank is now doubting all of his academic theories of the past and is scared out of his mind to “do more.”  He is afraid it won’t work, he is afraid of the demand for physical gold and silver that it might spark, and he is also afraid to use the bullets now with asset prices where they are.  He wants to save it for when he needs it and he knows he will need it.

So the game continues.  Talk up the economy, talk down printing and pray.  The beige book and today’s testimony represented textbook Fed strategy in 2012.  Strategy that I have discussed many, many times in months prior.  They can talk all they want and give all the reassurances they want but talk from monetary magicians does not alter the reality on the ground.  As I have stated repeatedly in the last two weeks, I think the Fed is more behind the curve than at any point since 2008.  Back then, The Bernank assured us that there was no housing bubble and that subprime was contained.  Big bank CEOs were pimped out on CNBS to claim their solvency weeks before going under or needing a bailout.  The only strategy left was to lie.  Despite the fact that it didn’t work then doesn’t stop them from trying now.  Why?  They are insane.

Barring a market catastrophe in the next two weeks I do not expect the Fed to act at the June meeting.  With rates where they are and stocks where they are there is little upside to action; however, this lack of action is precisely what will set the stage for the massive action that must come later.  One of the main things that has allowed the Fed to kick the can down the road as long as it has is the fact that ever since 2008 they have acted aggressively on the first hint of weakness.  While the beige book pointed to relatively rosy conditions for the U.S. economy, I think that is because they were looking at data from early April through late May together.  If you look at the U.S. economic statistics, the data didn’t start turning for the worse in a serious manner until late in the second half of the month of May.  The Fed knows this but they are purposefully misleading the market.  In reading a Bloomberg article about the beige book the following quote stood out to me:  “’The Beige Book is clearly at odds with the hard data we’ve been seeing,’ said Millan Mulraine, senior U.S. strategist at TD Securities in New York. ‘We’ve seen a dramatic slowdown in economic growth momentum that you’d think would be reflected in a few, if not the majority, of districts.’”  Move along folks…nothing to see here.

As a result, if the market heads into the Fed meeting at current levels it runs the risk of being disappointed.  If this is combined with continued economic weakness then the real set up happens between the June meeting and the August one.  It is in that interim period that the market could throw another one of its hissy fits and beg for more liquidity.  Money supply growth is extremely sluggish right now all over the world.  The velocity never happened and the global economy is rolling over.  The Fed is already behind the curve and so when they are forced to act the infusion will have to be huge just to stem the momentum.  What will really be interesting is if they will be able to stem the momentum.  I have no idea but the longer they wait the less likely they will be able to.

 

China Will Blink and Gold Will Soar
To illustrate the point.  Take a look at China’s M2 Monthly year-over-year growth in the chart below.  Do you really think they are going to allow that trend to continue?  If they do what do you think the implications are for the world?  For the U.S.?  Want to bet on decoupling?  I don’t.

China’s M2 Monthly year-over-year growth


The big point is that China will act and in a meaningful way.  What I suggest people do is go back and look at different asset classes from the prior two lows in China’s M2 year-over-year growth rate.  The first one occurred in late 2004.  The M2 growth rate then accelerated until around mid 2006.  In that time period gold prices went up around 65% and the S&P 500 went up 20%.  In the second period of acceleration from late 2008 to late 2009 gold was up 65% and the S&P500 was up 15%.  We are at one of these inflection points and considering the DOW/Gold ratio is still holding gains from its countertrend rally from last August of almost 40%, this is probably one of the best entry points to buy gold and short the Dow of any time in the last decade.  Oh and if you want more juice, when China blinks silver does much, much better than gold...

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LULZBank's picture

this is probably one of the best entry points to buy gold and short the Dow of any time in the last decade.  Oh and if you want more juice, when China blinks silver does much, much better than gold...

Looks like someone needs some suckers badly...

P.S. FUCK!! The downticks! I meant in the short, near term!!!

gmrpeabody's picture

And let me guess..., you're wondering who the suckers might be...

Mr Lennon Hendrix's picture

Mike, tell Keiser of the idea that was started on Zero Hedge to Buy silver - Crash JPM.  If  he likes the idea tell him to get a hold of me, and I will run it down for him.

-LH

strannick's picture

CFTC Charges South Carolina Company With Running $90 Million Silver Bullion Ponzi Scheme 07 June 2012, 9:44 a.m. By Kitco News http://www.kitco.com/ Editor's Note: Watch Kitco Video News at the IPMI (International Precious Metals Institute) Conference Direct From Las Vegas June 9-12, 2012 (Kitco News) - The Commodity Futures Trading Commission is charging a South Carolina-based firm with operating a $90 million Ponzi scheme, fraudulently offering contracts on silver sales, but never actually purchasing any metal, the agency said late Wednesday.

Judging by the CFTCs action/inaction against bullion banks silver manipulation on the COMEX, I assumed the CFTC existed to perpetuate and rationalize fraudulent silver ponzi schemes

To quote Will Farrel before he shot himself in the neck with a tranquilizer gun while a monkey looked on "Oh sweet irony!".

sampo's picture

Another 3+ years of investigation?

Al Gorerhythm's picture

There's an investigation?

philipat's picture

No surprise there. This is the equivalent of the SEC going after Egan-Jones?

sablya's picture

I can't believe it wasn't obvious there wasn't going to be any QE announcement.  The Beige book already gave the score card and Bernanke said months ago that he didn't expect employment numbers to maintain the then-current pace.  So, the current situation simply doesn't warrant any more QE.  

But all the brightest minds on earth, the "markets", has the collective intelligence of a 3-year old who has been trained to get excited at the thought of getting a treat.  It is utterly pathetic to watch this market flop about like a fish on the deck.  Someone get a club and put the poor thing out of its misery.  It's the only humane thing to do at this point.  It needs to be beaten to death to break it out of its epic self-delusional condition.  It's already dead, like an uprooted tree, but thinks it's alive because it still has some green leaves.  

It's so painful to watch the slow motion death throes of this current economic configuration.  How long, O Lord, how long??

ootofthehoos's picture

This line is goofy:

"The Fed is already behind the curve"

because it sounds like the person endorses Fed policy, while we all bash Fed policy. Is he just cheerleading his favorite investment, like Soro did with his sophistry last week, saying Europe must grow out of its problems.

Alea Iactaest's picture

It's quite idiotic, since the Fed has already embraced gold price manipulation. Fed Sec'y Burns put it in a letter to President Ford in June, 1975. Linked below, or you can Google it.

http://www.gata.org/files/FedArthurBurnsOnGold-6-03-1975.pdf

You almost can't make this shit up. (Especially the part about a secret US-German agreement regarding gold purchases.) The takeaway is that strong gold weakens the IMF, that free market price discovery would lead to inflation (huh?) and that there should be celings for the amount of gold each country can hold. It's straight out of a movie, only no one would believe the plot.

So how do you trade this? If the central bankers have their way then gold will never trade freely and the price will be manipulated from now on. In fact, if I was a central banker I would try to crush China and force them to liquidate their gold holdings. That would drive the price down long enough for some bullshit outer space rendezvous which will discover gold on an asteroid and render precious metals defunct for all time.

Of course if this is really the plan, why to central banks hold a barbarous relic on their balance sheets? Couldn't be because it actually is money, could it?

Quinvarius's picture

Until the gold price rises to back all the dollars and credit by at least 40%, the economy will never recover.  No point going into detail if no one can figure it out after living it for the past 40 years.

ChrisFromMorningside's picture

Only the small fries who aren't part of the cartel get busted.

It's similar to how only Golden Triangle heroin producers, who don't play ball with Western financiers or politicos, get busted. While Central Asian heroin producers get their product personally airlifted out of the nation by NATO and Latin American heroin producers are provided free weapons by Eric Holder and the CIA.

These guys in S.C. stepped on the big boy's toes so now they're facing the music.

Marginal Call's picture

Suckers might be the ones running into paper gold on this pump.  Buy and hold phiz is another thing, but gold is pretty range bound and looks like it's getting set up for a squeeze for all the new long invetory that's gotten in during the last bump up.  They'll probably be able to run it back down to 1550-1560 on a liquidity hunt.

 

The gold play is around late August/September when we are running up on the debt ceiling.  Gold always breaks into a new range whith new debt ceiling hikes.  Gold goes into the 1900-2000 range and stays there, maybe higher on the move. 

mossme89's picture

What about the miners? While I agree everyone should have physical, what about buying some physical and using other cash to buy miners? The thing I like about that is that it provides easy liquidity.

The Monkey's picture

If you have a big liquidity squeeze in front of you, you might just be best off holding those worthless paper dollars a while longer.

theTribster's picture

Good point on the debt ceiling dilemma, that will be a fiasco which will drive up PMs.

KandiRaverHipster's picture

i gave you an up vote.  twas on point!

smb12321's picture

You are right.  Just because gold will eventually skyrocket is no reason to assume it will do so every single day of the year like some ZHers.   Smart traders know when to sell and when to let go.  This drop has been seen before and it's hard to explain in classical terms.  I guess someone can claim yet another conspiracy behind the drop but let's face it - market components are subject to huge drops or rises on whim. 

sablya's picture

I think the previous comment about liquidity hunting is right on target.  The markets are in a debt-driven deflationary period during which cash is king.  These are like the last gasps of a dying man who has no energy to inhale.  He would naturally exhale his last breath as his lungs collapse.  But .... the machine ... keeps pumping up his lungs periodically, until it doesn't work any more.  

q99x2's picture

Oma soma thoma chroma wayo miti goo goo.

I only kill chickens and wheat's picture

That's it I'm selling all the PM's and investing in the white rock. 1 Lite, instant Hopium. Au/Ag is for suckers. It just doesn't burn good.

PS, cheers, DCRB, great posts, hope the blog is going well.

gaoptimize's picture

Don't agree on shorting DOW.  Look at the price of NYSE:DXD in those two periods.  I agree gold will do better than the DOW.

SilverIsKing's picture

"I agree gold will do better than the DOW."

That's the point.

jus_lite_reading's picture

I agree mostly with Mike says except that you NEVER, NEVER EVER SHORT A PONZI... because that is what the entire stock market has become and the mad man at the wheel of this turd will print to infinity, savers be damned!!

 

ChrisFromMorningside's picture

Savers? What savers? In the U.S.?

Arrest them!!

Seasmoke's picture

everytime i am ready to buy 25 ounces of gold, i look at silver and it looks like the much better value.....so i always buy the silver

Ratscam's picture

everytime i look at paltinum, since october of last year, i want to buy it instead of gold. it is 15 times more rarer than gold put most of the time cheaper and mainly coming from S-Africa or Russia.

smb12321's picture

I love gold but Jeez, do some research folks.   The platinum group - platinum, palladium, rhodium, iridium, osmium and ruthenium - are FAR more likely to surge than silver for many reasons (and I hold lots of silver).  This group is increasingly used for industrial uses and in fact about $300 of palladium is in each PC.   Not only is demand present but mining is much more difficult.  Iridium with its density and heat capacity aspects is especially vulnerable to huge price rises.

dogbreath's picture

300 worth of pallladium in each PC ,,,,,,,,,,,,,,,,,,you sure about that.    can't hardly give them away for scrap

Ookspay's picture

One of my schaudenfreude friends emailed me earlier and said "my" pm's were taking a beating... So I went into the bunker and checked, my stacks look as shiny and powerful as ever.

i will be at the coin shop tomorrow at 8am, bargain hunting before the sale ends.

Ookspay only pawn in game of life. But I can buy the dips when tptb play their manipulation games.

NotApplicable's picture

Better go quick. My coin shop guy is about cleaned out with the recent sale, and even he is paying $1.50 over spot for Silver Eagles (normally offering spot for them).

Ookspay's picture

Where I live there are far more sellers than buyers, things are bad, it's a Union State. There is plenty to be had, for now.

Overfed's picture

Just bought some silver eagles today, but my boat capsized on the way home.

MrSteve's picture

That is so unfortunate about your boat ride home. I hope you got to shore safely. I also hope you could convince anyone able to hold a job that your story was true. Perhaps this will help:

Around here, folks are always throwing solid gold Krugs and Eagles and sovereigns and napoleons and Buffaloes into Salvation Army kettles at Christmas.  Add several large silver coins too. Make sure that happens in your hometown and then just clip the local news reports. Year after year. When you have dumped "all" your meager coin collection into the kettles, its just a simple donation: no receipt, no transaction report, pure charity. So spot a coin in the kettle and create a viable backstory in the public record (legend as it is called in the intel biz) and there will never be any question as to where your gold went. When three or more folks in a town do this, everyone with  similar mindset is protected, so you story gains strength with numbers.

It all went to a good cause that keeps on giving and doing good. The Salvation Army is an exemplary charity, if anyone is interested in such reality.

I'm sure they would support your actions to help others and your family. It is written, it is more blessed to give than to receive. In this case, you give and receive which is extremely cool. This Christams season, start dropping off the heavy metal, everywhere!

 

 

 

putaipan's picture

that's the spirit. never liked all these 'boaters'...selfish lot all. charity baby!

MrSteve's picture

That is so unfortunate about your boat ride home. I hope you got to shore safely. I also hope you could convince anyone able to hold a job that your story was true. Perhaps this will help:

Around here, folks are always throwing solid gold Krugs and Eagles and sovereigns and napoleons and Buffaloes into Salvation Army kettles at Christmas.  Add several large silver coins too. Make sure that happens in your hometown and then just clip the local news reports. Year after year. When you have dumped "all" your meager coin collection into the kettles, its just a simple donation: no receipt, no transaction report, pure charity. So spot a coin in the kettle and create a viable backstory in the public record (legend as it is called in the intel biz) and there will never be any question as to where your gold went. When three or more folks in a town do this, everyone with  similar mindset is protected, so your story gains strength with numbers. Imagine 20 people doing this!

It all goes to a good cause that keeps on giving and doing good. The Salvation Army is an exemplary charity, if anyone is interested in such reality.

I'm sure they would support your actions to help others and your family. It is written, it is more blessed to give than to receive. In this case, you give and receive which is extremely cool. This Christmas season, start dropping off the heavy metal, everywhere!

BOOYAH! Money in the kettle and goodwill to all!

Peace,

MrSteve

 

 

 

Ratscam's picture

just turned down a 7% net yield on a berlin condo building at prenzlauer berg. maybe i,m an idiot but i rather save my PM,s for better investment times.

Rynak's picture

No it won't.

PM spot prices since 2011 have been in an iron grip of the banksters, engineering rapid pumps and dumps to create volatility and fear, and this way drive out strong hands..... but of course, ZH being the "please stay with your left foot in illusion, and lift your right foot into realization"-advocant it is, never points this out. It will continue to give people the impression, that there are any natural market forces left in the paper-PM market, going as far as when a giant millisecond pump happens to tell the ZH-sheeple, that "the market just suddenly remembered fundamentals, in a fraction of a second, and so everyone decided to buy" - while never mentioning that gold and silver since mid 2011 have basically overally been FLAT, and BOTH the rapid pumps and dumps glarigly obviously artificial. They have created a constant ceiling and a bottom, leaving the suckers to play paper games in the range in-between.

Here is what has/will happen:

Gold and silver won't go ANYWHERE close to inflation, while the TPTB are in control. All you as physical buyers get to choose from, is a slightly better or slightly worse point to load up more.

Then when one way or another shit hits the fan, the free official PM market will be abolished (yes, there will still be the illegal black market).

At that point, you will not be able to buy or sell for a prolonged time.... until sometime in the future, the quasi-bans will be lifted. And if you managed to go through this phase with your stash intact, you will be have managed to channel through some wealth (no one knows the prices after the ban is lifted), instead of getting -everything- stolen from you.

And if the above turns out to be true, there is only exactly one reason to load up on PMs: It is to conserve some SURPLUS wealth (meaning, wealth you will not need in the midterm) from now, to way after "recovery"... which's timespan may very well be 20 or more years. As some of you like to call it: "Generational wealth".

Everything in between.... every faked rise or fall of PMs in the meantime..... will mean nothing and go nowhere.

Bullionaire's picture

Stopped reading after

"advocant"

Rynak's picture

Awesome! This at the time of this post means 12 downvotes just being grammar-nazis... which means that the current vote balance of that post - minus grammar nazis, is:

4 downvotes

16 upvotes

On a pro-PM community.

I can more than live with this, goldman sachs and JPM!

Bless the true "longs", and rape the short-term gamblers for the jackpot... isn't that what you are all about? :-)