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Mike Krieger: China Will Blink And Gold Will Soar
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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Chinese are masters at the staredown
China is definitely not blinking while selling gold yet again. Don't tell me that gold price goes down because China is buying.
Bastiat
China is buying Physical Gold and not Paper gold where u get to see a lot of volatility
It looks like the hissy fit will start much sooner
first of all, HOLLA!
what's kickin, chicken! great to see you again, brother krieger.
looks like janus will have to start makin the rounds at the krieger liberty blog.
okay, mike, the rest of my afternoon (which is evaporating qucikly -- gotta go climb in the cab in a bit) is devoted to your post. janus even turned off bloomberg so he could focus (never know when sara I-sin will storm in and distract ole janus to distraction..and, btw, sara -- here's a special lil ditty http://www.youtube.com/watch?v=MTSGsGGH2Mw but, sara, i must confess that this lil british cutie caroline, who covers the european open is, well, tempting -- to put it mildly).
one more thing before i set to reading, metabolizing, thinking and then spilling: why aren't we at bonaroo in manchester, tn right NOW? maybe next year.
well, make that two more things: brilliant call on the brent/wti spread from last year (timing is a mother fucker these days -- beware demon-leverage); nobody could've foreseen a cordinated 'liquidity' injection from the globe's coven of counterfeiters. but, my man, you were right. there's been a massive head and shoulders hanger over oil for so long it got gaudy. anyway, just wanted you to know that janus keeps score and never forgets.
alright, onto reading.
but, before i go back, here's one for you, K:
http://www.youtube.com/watch?v=BJUriJqTG9M
no, mike, they don't get it -- never will.
a little wrangler was born,
janus
at first, i thought i would disagree -- thought you were gonna call a june 20 print. but, as usual, you came through with lucidity and sound reasoning.
and let janus step back for a mintue: when i said that there would be no qu3, i meant only that it wouldn't come in the near-term -- of course there's gonna be more qe, ZHealots. but here's the rub -- the mechanism of 'pricing it in' is about to collapse. shit is schitzophrenic right now...we're spiraling down the rabbit hole, and every time ole ben barks, 'eat me/drink me' the effect diminishes -- both the swell and the shrink...the channel is narrowing, bitchez! watch the fuck out, the cliff approaches. after the june 20 disappointment, the first drafts of a panic-stricken hurricane will waft through global markets. the effect will be mild at first (watch ig, hy and sovs, bitchez!), and then existential dread will creep like kudzu across the corpse of this dying leviathan, at first stunting and then suffocating their mephistophalian scheme. and janus is giddy with glee about the whole affair.
ever wished you were living in 'interesting times'? open your eyes and look past the 'sameness' that still pervades the perspective of most. your ability to now 'see' will govern the prospects of your progeny for generations to come. so, be ye therefore wise, you future kings of the earth, you future judges of men...lest the times come and smite you with a curse.
i could go on, but i'm starting to bore myself...i think i should share a cab story with you, krieger:
this story is meant to underscore just how wicked and perverse things are in the go-go world of fiat-statists/corporatists, and i think it will in that regard suffice nicely...oh, and it's true.
boston college (yup, we're goin there again) apparantly holds annual reunions for their alumni, and they're staggered in five year increments...this year was devoted to the 2's and the 7's. and let me tell ya, it was a busy night. i met two CEOs of massive publicly held companies that night, got some decent stock-tips and sized them up to confirm that, yes, janus is not just able to hang with them, but could, if necessity compeled, lord over them. anyway, our saga is not about these irish CEOs (they were acutally great guys), it's about institutional perfidy.
so the night was starting to stall (boston goes to bed on time, bitchez -- it's the city that never misses a good night's sleep), and i was skulkin about coolige corner -- you know "annie's" and other such jesuit drinking halls -- and i happend to pick up a nice enough guy who was lookin to get back to his hotel on beacon. easy enough, i thought.
'which hotel'? i ask.
'i'm not sure, i'll know it when i see it...it's just right down the road.' says "brendhan"
and while this sounds a bit off (and, little did i know how 'off' it was at that partiuclar time) it's not outside the realm of possibility that a drunken irishman would forget the name of his hotel. so, being the charitable and accomodating sort, i decide to oblige. the cab ride goes on, and the conversation ensues.
let me here say that janus has no 'gaydar'. i've been conditioned to expect that homosexuals be easily discerned by their limp-wrists and feminine comportment. not so, ZHealots -- they can craftily conceal their lust for ass-sex with another man. now let me also say that i don't give a fuck one way or another; just so happen to think sodomy, especially with another man, is the vilest thing imaginable. i mean to say, it's downright disgusting. but, again, janus has his vices and does not intend to change any of them -- nor do i care to change homosexuals...i wish them all the best and whatnot, but, please -- some of us love pussy and the women attached to them...and had you taken the time to learn how to work a pussy, maybe you wouldn't have to slither around bath-houses. to each his own, i suppose. or, as bugs bunny always said, "one man's meat is another man's poison." and, yes, i do believe that bugs intended the pun.
so, no need to elaborate the many ways in which i was propositioned, how much money i was offered, nor the noises i heard leaking from the back seat. it is enough to say that i was exceedingly vexed by the time he'd failed to abide my gentle warnings...THREE OF THEM, GOD DAMN IT!
i at this point park the cab and reveal to brendhan that he is not being conducted about by the typical cabbie. at first he refuses to pay the sum i decided was required. you see, i'd told myself that i was going to force him to abandon his will and yeild...and that is exactly what happened. let's just say i gave him the ole jedi mind trick. works everytime.
i didn't think i had an audience for this lil spectacle, as i didn't want to embarrass him, just shake him to his soul. now, don't get me wrong, it doesn't take volume -- just a certain mustering of, well, it's tough to explain. but those who taste a bit of control are stunned for quite a while after it happens.
turns out, one of his old friends from school happened upon this scene with her husband. when he saw her, he tried desperately to regain some of his old self...he was flustered with wild-eyed fear. so he naturally tried to warn her not to get into my cab. but, as i've said, charm always takes the day.
the happy couple settle in back, and i ask them for a second to regain my composure. think what you will about janus, but i was myself flustered -- i mean to say, it took every ounce of self-control to keep from beating that sodomite into a slurry of pulpy flesh. and if you'd heard what was said to janus, you may sympathize...but again, i truly don't give a fuck -- i am the master of my fate; i am the captain of my soul.
janus then gets the address and punches it into the not-so-trusty GPS (gps is fucked in boston...craziest roads in the world).
'where are y'all from?' inquires a curious janus.
'ny-ny.'
'manhattan, i assume.'
'yes.'
'what part of the island?'
'downtown basically.'
DING! janus now knows...it's showtime, bitchez!
'either of you guys traders?'
'um, yes, actually.'
'mind if i ask who you work for?'
The husband:'i do something called credit derivative swaps at xxxx.' and janus could sniff out the condescention in his voice; and it filled me with a subtle satisfaction -- ah, the power of being underestimated.
The Wife: 'i work at XXX.' one of the MAJOR credit ratings agencies.
now, bitchez, do you smell the stink already? i mean to say, it's pretty fucking pronounced. don't forget that wives and husbands do not testify against one another; and when insider trading is conducted over pillow-talk, well, my friends, we are now up to our eyeballs in the fecal swill of the ninth circle of HELL.
oh, my brothers, it gets much, much bettah from here. but janus is mulling the dynamic as it unfolds, "do i continue to play dumb and plumb for more juicy tidbits, or do i start to reveal and purpose this conversation to my own diabolical ends?...what to do...only about 15 minutes remaining till downtown center."
i've got to go in a second, so i'll bottle the ends here -- don't have time for the humor and other such and such.
this guy, the husband, knows weinstien (SABA), maitland and iskill personally. damn it! i'll have to tell the whole story -- can't abridge it...fuck. it's just amazing.
for the time being, know that that young trader left my cab freighted heavily with the FOG -- Fear of GOD. it didn't take much either...not much at all. these people are fundamentally weak because they've never been challenged. their thinking is not thinking it all; it's simply the regurgitation of hackneyed and calcified institutional boilerplate...corporate speak. i remember one of his frail and fleeting responses, 'we just try to do the best for our customers.'
really, have you sold yourself on that one, too? janus can feel a lie; and that one stung me on the spine.
we are coming, money-masters; and we're bringin hell with us.
gotta run...no time to edit, here's the song i had in mind for ya, krieger:
http://www.youtube.com/watch?v=DuFMzCrHL4A
AMERICA:
i'm an american aquarium drinker/
i assasign down the avenues/
i'm hidin out in the big city blinkin/
...i am trying to break you heart,
janus