The markets have been overbought, propped up on Fed intervention, on next to no volume for some time now, so we were more than due for a correction.
However, when looking at the selling pressure over the last few days, I cannot help but wonder if the markets are possibly forecasting that Mitt Romney will win the US Presidential Election… and Ben Bernanke will either be fired or step down as Fed Chairman.
Romney has stated several that he would fire Fed Chairman Ben Bernanke if he wins office. While this doesn’t represent the real shakeup that the Fed needs, it’s definitely a step in the right direction.
Also, Romney is the only one to have even mentioned Bernanke in his campaign. Obama not only reappointed Bernanke but has steered clear of even mentioning his name on the campaign trail (for obvious reasons: Bernanke is politically toxic and Obama doesn’t want to remind people that Obama re-appointed him).
So, if Romney did win, the markets would lose their primary prop: the Bernanke put. Given that most of the market action has been based on anticipation of more Fed intervention, the fact that Bernanke could leave as Fed Chairman combined with the fact that the Fed went “all in” with QE 3 leaves the market with little hope for additional liquidity.
This was the very problem with the Fed intervening so heavily to begin with: by attempting to prop the markets up, the Fed didn’t let the bad debts clear out of the system. As a result, the big reset has been pushed down the road.
If Romney wins the Presidency, it’s quite possible he would let that reset finally hit. After all, he could easily fire the economists at the BLS who have massaged the data, fire Ben Bernanke, and then blame the subsequent market correction and bad, but realistic economic data on Obama (much as Obama has blamed the bad economy he inherited on Bush).
Will this be the case? I honestly don’t know. There are so many negatives facing the markets today that distinguishing what is causing what is more difficult than usual.
However, one thing I do know is that the globe continues to have too much debt and that the only way to deal with this debt is through default (hyperinflation is just a other form of default as the underlying currency takes a massive hit in either instance).
In this environment, Gold and precious metals remain one of the few real safe havens. Whereas stocks, bonds and other assets all have custodial risk (meaning who actually owns what, if anything), Gold, stored by the owner, is one of the few real assets that is “money in hand.”
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Best Regards,
Graham Summers
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