A week ago, we asked (rhetorically), whether "Bernanke Has Become A Gold Bug's Best Friend?" While we knew the answer, today's reponse by the market confirms it. Beginning just before 10 am, or the moment Ben's prepared remarks went off embargo, gold and silver have been on a relentless tear (chart 1), with Gold passing $1760/ounce and now just $150 from its all time nominal highs. And while risk is on elsewhere, stocks priced in gold are down 0.9% since their highs yesterday and at their lows in real terms (chart 2), even as they hit new nominal highs, confirming that fear of the coming monetary tsunami will benefit precious metals. So while the lemmings focus on meaningless nominal gains, their real purchasing power just lost another 1%. Thank you Chairsatan - you are a good man.
Federal Reserve Board Chairman Ben Bernanke will testify at House Budget Committee (Chairman Paul Ryan, R-WI) full committee hearing on "The State of the U.S. Economy." The highlight of today's hearing will be watching Bernanke face his nemesis runner up, Paul Ryan, who will surely grill Blackhawk Ben with questions that are far more intelligent than the press corps could come up with during the last FOMC canned remark presentation. Watch the full testimony live at C-Span after the jump.
Punxsutawney Ben, who just saw the printer's shadow, and predicts six more trillion of free money, will address the House Budget Committee later this morning. We will also get the latest BS from the BLS how thousands of mass layoffs every day result in a drop in initial claims.
Corruption is only possible if the benefits to the parties engaged in it far outweigh the potential consequences. However, as soon as the potential consequences become real, that’s when everything changes: people start talking/ confessing, and the corruption begins to come unraveled.
Bill Gross Explains Why "We Are Witnessing The Death Of Abundance" And Why Gold Is Becoming The Default "Store Of Value"Submitted by Tyler Durden on 02/01/2012 09:44 -0400
While sounding just a tad preachy in his February newsletter, Bill Gross' latest summary piece on the economy, on the Fed's forray into infinite ZIRP, into maturity transformation, and the lack thereof, on the Fed's massive blunder in treating the liquidity trap, but most importantly on what the transition from a levering to delevering global economy means, is a must read. First: on the fatal flaw in the Fed's plan: "when rational or irrational fear persuades an investor to be more concerned about the return of her money than on her money then liquidity can be trapped in a mattress, a bank account or a five basis point Treasury bill. But that commonsensical observation is well known to Fed policymakers, economic historians and certainly citizens on Main Street." And secondly, here is why the party is over: "Where does credit go when it dies? It goes back to where it came from. It delevers, it slows and inhibits economic growth, and it turns economic theory upside down, ultimately challenging the wisdom of policymakers. We’ll all be making this up as we go along for what may seem like an eternity. A 30-50 year virtuous cycle of credit expansion which has produced outsize paranormal returns for financial assets – bonds, stocks, real estate and commodities alike – is now delevering because of excessive “risk” and the “price” of money at the zero-bound. We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time." Yet most troubling is that even Gross, a long-time member of the status quo, now sees what has been obvious only to fringe blogs for years: "Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper." Let that sink in for a second, and let it further sink in what happens when $1.3 trillion Pimco decides to open a gold fund. Physical preferably...
You've just crossed over...
Yesterday we asked rhetorically if Ben Bernanke has become the gold bug's best friend courtesy of his FOMC announcement which led to a surge in gold, and a kneejerk whimper in stocks, which has now been completely wiped out courtesy of a subpar GDP number. Today we note that it is not only the Fed, but the US Treasury, and specifically the ravenous Mr. Geithner, who just got a green light to issue another $1.2 trillion in debt, and bring total debt to $16.4 trillion, which would still be 107% of today's GDP (which we don't see growing much if at all over the next year), that can be added to the list of best Goldbug friends. As the chart below demonstrates quite vividly, in addition to global and local monetary expansion, the price of gold tends to correlate quite well with the US debt ceiling. Which means that per yesterday's Senate 52-44 vote authorizing Timmy to go hog wild (which in turn means that Bernanke will have to step in and monetize much of this new debt issuance), the price of gold just got a green light for at least $250 in upside - the implied price just got raised to $1960. Of course, anyone who thinks the US will stop issuing debt there needs a brain MRI stat. Thank you Senate. And thank you Timmy. And, of course, thank you Ben.
In all, the President's speech was reminiscent of George Clooney’s in Ides of March. We’ve heard it all before, maybe with slightly different words: America lost 4 million jobs before I got here, and another 4 million before our policies went into effect, but in the last 12 months, we added 3 million job. We must reduce tax loopholes, and provide tax incentives to businesses that hire in America. We must reform taxes for the wealthy (though he signed an extension of Bush’s tax cuts.) We must train people for an apparent abundance of expert jobs. We need more clean energy initiatives. We created regulations (big sigh of relief he didn’t use the word ‘sweeping’) to avoid fraudulent financial practices. We will help homeowners. Wall Street must ‘make up a trust deficit.” Like Jamie Dimon cares. In other words, Obama gave Wall Street a pass, while waxing populace. Don’t get me wrong. I expected nothing different. I will continue to expect nothing different, when he gets a second term, given the lame field of contenders all around.
Humans are a flawed species. Our minds are easily manipulated. We don’t like pain. We prefer instant gratification. We are susceptible to mass delusion. We will often choose hope over critical thought. Those with higher IQs will regularly attempt to take advantage of those with lower IQs. Fear and greed are the two motivations used by the minority in power to control and manipulate the majority. The American people have been led astray by a small group of powerful men. We were herded through a door in the wall of perception that promised an American dream of material goods, entitlements and pleasure with no obligations or responsibility to future generations. There is only one choice that can save this country from ruin. Each individual must make a choice to either to continue supporting the manipulative, corrupt status quo or coming back through the Door in the Wall.
“The man who comes back through the Door in the Wall will never be quite the same as the man who went out. He will be wiser but less sure, happier but less self-satisfied, humbler in acknowledging his ignorance yet better equipped to understand the relationship of words to things, of systematic reasoning to the unfathomable mystery which it tries, forever vainly, to comprehend” – Aldous Huxley
I continue to believe that the large difference between the valuation of WFC and C is actually about right and is a function of the high-risk business model at C. Say what you want about the piles of cash, Dick Bove, C has a gross yield on lending assets that is more than 350bp above the industry average, a function of a subprime internal default target for the average customer. This is a deliberate business model choice and one that, frankly, makes it hard for me to justify buying C.
Are the markets already front running a potential announcement of a third round of Quantitative Easing (QE 3)? Maybe so. We had expected QE3 at the end of last summer as the economy weakened substantially from the impact of the Japanese earthquake/debt ceiling debate/Eurozone crisis trifecta. However, with political pressures running high due to the raging battle in Congress raising the debt ceiling there was little support from the public for further intervention. Furthermore, with inflation, as measured by CPI, already outside of the Fed's comfort zone, the Fed opted to institute "Operation Twist" (O.T.) instead. With the Euro-Crisis on the broiler, another debt ceiling debate approaching, the U.S. economy struggling along as Europe slips into a recession and corporate earnings being revised down there are plenty of reasons for stocks to decline in price. Yet, they have continued to inch up. With short interest on stocks having plunged in recent weeks it certainly sounds like the markets are betting on something happening and soon.
I’ve received a number of emails regarding the fact that stocks continue to rally despite Europe being on the verge of Collapse. Once again, investors are forgetting that stocks are the most clueless asset class on the planet.
Indeed, here are three reasons why this latest stock market rally isn’t to be trusted.
We have now entered the fifth year of this Fourth Turning Crisis. George Washington and his troops were barely holding on at Valley Forge during the fifth year of the American Revolution Fourth Turning. By year five of the Civil War Fourth Turning 700,000 Americans were dead, the South left in ruins, a President assassinated and a military victory attained that felt like defeat. By the fifth year of the Great Depression/World War II Fourth Turning, FDR’s New Deal was in place and Adolf Hitler had been democratically elected and was formulating big plans for his Third Reich. The insight from prior Fourth Turnings that applies to 2012 is that things will not improve. They call it a Crisis because the risk of calamity is constant. There is zero percent chance that 2012 will result in a recovery and return to normalcy. Not one of the issues that caused our economic collapse has been solved. The “solutions” implemented since 2008 have exacerbated the problems of debt, civic decay and global disorder. The choices we make as a nation in 2012 will determine the future course of this Fourth Turning. If we fail in our duty, this Fourth Turning could go catastrophically wrong. I pray we choose wisely. Have a great 2012.