The Need For Speed

By: Captain Hook | Mon, Oct 1, 2012
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At the time of writing this, we are still awaiting the Fed decision on September 13th, with an apparent consensus now expecting some variety of QE3 because of the disappointing August Employment Report, showing gains made occurred in lower paying sectors set against mounting losses in high-tax occupations. What's worse, and a critically important measure associated with a contracting real economy, is that the participation rate of labor in the workforce continues to hit fresh new lows as the gap between reported and propaganda (thank you Zerohedge) also hits a record, setting the stage for an accident in the financial markets at some point. Because it is quite possible, if not likely, that all the central bank / government malfeasance (tinkering) in the markets / expectations has conditions set up like it's 1929.

And while disappointment associated with whatever action is taken by the Fed on the 13th is not likely to be enough to tip the larger apple cart over on its own, at the same time, it's important to note that factors are building in this regard. Under the right conditions (or wrong depending how you are invested) the inflation trade (stocks, commodities, precious metals, etc.) could come unglued even if the Fed 'makes a move' (think Scarface) given so many are expecting this with Bernanke's own recent comments at Jackson Hole supporting such a view. In fact, a good speculator might look at such a set-up and decide 'too many' are leaning on the inflation side of the boat, and that the inflation trade should be faded, if not abandoned temporarily, if possible. Nasty things can happen in a market when sentiment gets ahead of the fundamentals to a large degree; where it could be argued that this is the case right now concerning those viewing more QE as a panacea for sustainable higher prices moving forward.

Now you may be saying to yourself that such a view is wrongheaded because the Fed will continue to debase the currency at an accelerating rate (if not now due to the election) because it must given the monetary system is fiat currency based, and one would be correct in making such an assumption. The very nature of fiat currency based economies (no matter how large) demands such policy in order to avoid wholesale deflation, with our larger (modern day) global economy being no exception. Western Globalization has seen to this. Please, make no mistake about this; it won't matter who wins the election in November - the incumbent or Republican's. The currency will remain an abomination (Obamination) no matter who is in the White House, you can count on this, and the continued 'need for speed' in the rate US Dollar ($) debasement.

Sure enough, Bernanke did not disappoint us in this regard straight-away chiming in with a good sized (but too small) open ended QE program supposedly designed to support a comatose real estate market, larger bubble economy, wealth effect, etc. (but really it's just another episode in the serial bank bailout saga), that of course will need to be increased in the not too distant future. (i.e. because most of this stimulus is already in the market[s].) Some are saying this is the Fed's last bullet, but they are wrong. What Bernanke has done here is live up to his original pledge (think Helicopter Ben) prior to becoming Fed head to print as much money as he deems necessary to get the economy (using its dual mandate as the excuse) rolling again; and more recently he has promised to use any 'unconventional stimulus' necessary to ensure such policy succeeds. This is the QE to infinity that is rightfully being quoted in the blogosphere these days, meaning unlimited stimulus both in terms of frequency and size. (i.e. not that this ploy will work forever.)

Because that's exactly what Bernanke will be forced into as time goes on - bigger stimulus packages more often. This is because fiat currency economies need ever increasing stimulus in order not to implode - the 'need for speed' in currency debasement rates is always on the rise. Hence, because the economy is sputtering right now, the need for speed in currency debasement rates is rising in real time, and Bernanke was not willing to risk waiting until after the election to provide the junkie (the economy) with its fix, especially with his job on the line. (i.e. Romney has promised to give him the boot if elected.) If he had waited and Obama had lost, which would have been the favored view with no action from the Fed, his chances of maintain his position as Chairman would have went up in smoke, just like the monopoly money he deals in every day. He is very familiar with ephemeral things, and he did not want his job to be one of them.

This is the insidious nature of debt based fiat currency monetary systems / economies. The marginal utility of debt in the system is close to zero now, leaving the only option for authorities to prevent a deflationary collapse being wholesale money printing to the point the currency is completely debased over time. (i.e. and that point is not far off now.) What will happen is technical, fundamental, and psychological factors will affect financial markets, the economy, and more specifically the consumer / investors (rising costs, declining real income, etc.), causing the Fed to adopt increasingly radical 'unconventional stimulus' methods. Such methods would likely include increasing the scope (and then size and frequency) of QE programs to include direct support of individuals and smaller businesses, not just the banks and big business, which are the beneficiaries of present.

So don't be surprised if you start getting checks in the mail for no apparent reason at some point in the future. This will just be Ben and his buddies down at the Fed attempting to prolong the lifespan of our floundering fiat currency economy (and their jobs), along with buying your affections of course. And this is why gold (and the entire precious metals sector) is destined for far higher prices moving forward, because prospects for the dollar (s) are terminal, with important long-term technicals pointing to declines dead ahead. (i.e. you cannot debase the world's reserve currency and not have it lose purchasing power.) Many are either completely oblivious to this or simply cannot wrap their head around the concept. Perhaps it will get through the thicker skulls when crude oil is $200 and gold has doubled again. (See Figure 1)

Figure 1

No matter for those who are positioned for this however, where in fact growing numbers are waking up to the concepts of QE to infinity, currency debasement, and how to protect one's wealth from central bank (stealth) wealth confiscation. It's all about the $, which is why the above is the only chart that will appear in this article - because this understanding is so important for people to wrap their heads around. One owns precious metals to escape the insidious nature of the currency debasement process, which again, as pointed out above, will do nothing but accelerate and morph as time moves on and monetary authorities (with the Fed at center) become increasingly desperate. Therein, and if the primary message in the chart above has technical merit (Fibonacci resonance related projections are often traced out in a secular and trending move), increasing desperate measures on the part of the Fed should eventually have the effect of crashing the $, possibly sending it all the way down to 30. (i.e. the $ is on 'crash alert'.)

An impoverished world has had enough of self-serving and repressive US (Western) foreign policy and is increasingly fighting back. Lies are no longer sufficient to plicate the masses with their economies imploding and the next big step short of a world war (and the straw that breaks the Camel's back in spurring the next great world war) will be dropping the $ as a medium of exchange. This is when it's really going to hit the fan. Credible sources (Gerald Celente) are predicting that by spring of next year all hell will break loose (imploding economies, world war, etc.) and I happen to agree with this view, where I can also see not only the $ losing reserve currency status, but also the Fed accelerating the debasement of the currency in an attempt to hold the US economy together. You see the Fed action last week is unprecedented in the sense other QE programs were introduced when both the economy and stock markets were on the ropes, where it appears they are the other way around right now. This is an illusion however, and it shows just how far into the 'fiat currency economy lifecycle' (think crack-up boom dead ahead) we are at present.

Again, eventually enough people will figure out (and the ones that already have but are 'team players' [Team America, bureaucrats, etc.] or 'in denial' will finally be forced to act and buy precious metals) what is going on because rising prices will force the reality of the situation on them and this will in turn compel increasing numbers to protect their assets in tangibles. (i.e. precious metals, commodities, real estate, etc.) What's more, it should be realized that the velocity of money of money could also turn back up at some point as well if the Fed stops paying commercial banks for holding reserve with them as one of their possible 'unconventional and increasingly desperate measures'. Such a move by the Fed would force the banks to lend out their reserves into the larger economy again which would send prices much higher than otherwise would be the case. You should know Bernanke will be forced to play this card at some point, so watch for it.

Correspondingly then, this is the kind of game changer that could send gold and silver sailing much higher in short order. Therein, and although a minor degree correction may soon be in the works for an overbought precious metals complex, after a few weeks of what could prove to be a relatively shallow retracement, if the prognosis for the $ (economy, world tensions, anti-US sentiment, etc.) unfolds, rapidly rising gold and silver prices are bound to be the result, likely extending gains well into next year, as per Dave's Contracting Fibonacci Spiral (CFS) thesis. (i.e. just search our site or Google Contracting Fibonacci Spiral (CFS) for more information.)

Clearly, the Fed wishes to keep stocks, the economy, and perceptions buoyant going into the election in order to get Obama re-elected. And although one cannot like the set-up for the stock market post-election given continued weakness in the real economy, earnings, and fiscal cliff considerations, at the same time we have now witnessed some very strong 'buy signals' in the precious metals sector, signals that should not be ignored. Thus, I am now heavily leaning towards Dave's view that the broad stock market will top out sometime in and around (possibly extending into next year) election time, with Obama winning (the Fed is attempting to make sure of that with all the money printing), putting in a multi-month topping process, and then plunging into Grand Super-Cycle lows in late 2014.

Precious metals (both bullion and shares) should continue higher (out-perform) during this topping process in the broads as increasing numbers of investors become enlightened about what really goes on behind the curtain (currency debasement) well into next year, possibly extending right into early summer. (i.e. if the broads don't top until next year.) My personal targets for gold and silver are $3,000 and $100 before the cycle top is put in place, however you should know very credible sources are looking for far higher prices to end the next impulse. If gold can make it up to $4500 by next year, silver should be able to vex inflation-adjusted targets in the $140 area, providing in excess of a 500% return off of recent lows. If JP Morgan is forced to cover its naked paper short position this target is not impossible.

Furthermore, and to reiterate previous comments on this subject, please do not believe talk of the Republicans possibly re-instating a gold standard in the States if they win because this will never happen voluntarily - never. What's more, it's obvious the incumbents are working overtime to paint a 'good picture' for an easily duped voting public (ex. knocking crude oil down today), so don't be surprised if they pull it off and Obama gets back in. If this occurs Bernanke will have 'carte blanche' in the money markets to do whatever he wishes. He will undoubtedly take this as license to monetize everything that isn't nailed down eventually - again - as hypothesized above, sending checks to anybody with a pulse who will go out and spend it.

This will be the new, 'American way' along with solving the need for speed problem temporarily.

Good investing all.



Captain Hook

Author: Captain Hook

Captain Hook

Treasure Chests is a market timing service specializing in value-based position trading in the precious metals and equity markets with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested in discovering more about how the strategies described above can enhance your wealth should visit our web site at Treasure Chests.

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