Reflation efforts look to be largely successful. Just dont look too close. Greenspan's retraction regarding the need for unconventional methods some weeks ago was an obvious signal to go long Federal jawbones. Or short depending upon your point of reference. Whether you were taken in, or not. Current Fed policy, to hold short rates down in the face of recovery portends a steepening yield curve with rising commodity and cyclical stock prices. And Gold? It seems clear that the Fed is still utilizing Gibson's paradox to control the long end. Another jawbone? To short, by going long gold?
Conventional wisdom would dictate that the recent technical bounce in Bonds is due to reverse in the fairly near future. As is the technical bounce in the dollar. And fundamentals would appear to agree.
Overreach By Fiat
Imperial overreach has stretched about as far as can be imagined. Being contrarian in nature, I look for further overreach and alternative perspectives to the conclusion that the US in engaged in a quagmire in Iraq. The battle for Iraq is over. And the dollar has been victorious. Any ambitions for oil priced in Euros have been smashed. And give me the power to print the money... well we all know the quote.
So the door for the retro-Socialists to participate in administrative and military operations has been flung wide open. As is matters not who is "in charge" at this level. Only who prints the money. And the UN took a bullet in the teeth this past week as they stepped through this door. Astonished that their friendly islamo-fascists could possibly have fired the shot. "Why they only hate Americans, right? Where is their gratitude for our left wing ambitions, and our hug-a-thug Middle Eastern policies? This can't be right. Let's blame the Yanks."
The Euro-camp will refuse to recognize the bankruptcy of their ideology, sliding further into social and economic oblivion. Too foolish to get out of the sun. Literally. So lending support to the imperial dollar. Is it little wonder that many in the rest of the world prefer the dollar to the Euro? The invisible hand in the currency markets is not guided by lunacy. At the very least it will give preference to the "least negative" option.
But me thinks the arm of the invisible hand is being twisted as well. And the dollar is being artificially held up in the face of growing international skepticism and fear. Skepticism by some that neo-Keynesian overreach can be maintained, let alone extended. And fear by others that it can. So the neo-Keynesian grip on the arm of the invisible hand is slipping. And currency support operations by our monetary authorities for the dollar will yield to the selling of Yankee bonds in the global market place.
So as the US continues efforts to export deflation the compensatory mechanism is obvious. Import inflation. In the simplest manner, sell US bonds and repatriate. But gently, so as not to devalue the dollar excessively. And trigger the US strategy of Refault. So foreign interests watch each other nervously. Eying the exit as the smell of smoke begins to waft gently among these patrons of the theatre. And stifling, but not silencing, the golden urge to cry fire. Confident that they will be able to beat the other patrons to the exit. But such confidence wanes and the smell of burning currencies spread.
In the short term, foreign stocks are a beneficiary. And nations left with the largest holdings of foreign reserves seem to be benefiting the most. But this repatriation is also driving the price of gold up in foreign currencies: The primal cry of fire is swelling up in the subconscious of the global community.
So the dollar is being buffeted by cross-currents. Repatriation driving it down, and world reserve status coupled with traditional manipulation, err support operations, is driving it up. Which will win out? Manipulations with the clout and momentum of world reserve status will win out in the short run. Followed by increasing repatriation. Unless and until gold cries fire.
So the Feds need to cap gold. Or so it would seem. Perhaps just the appearance of this need will keep a lid on the price. And induce Pavlovian derivatives traders to slathering action in countering recent strength. Furthering the perception among paranoid pundits that some mysterious cabal is in complete control. That the neo-Keynesians have offered a safety net to those who short gold. And thus achieve their ultimate goal of keeping long rates down. But that contrarian in me is screaming. Will they soon reveal this safety net to be woven from gossamer threads and yakking that jawbone all the way to the bank? To the central bank and its owners, that is.
So what to do? Not being able to time such subterfuge, I have used a bit of dry powder and purchase a couple of fundamentally sound gold producers, and speculated in a few more high volume juniors with decent technical patterns. My time horizon is 2-3 years. Shorting Federal jawbones using the non-expiring option offered by gold shares. I do expect the jawbone to continue to work its voodoo magic. Until that primal scream for gold rings out as the theater erupts in flames. Maybe much sooner than I expect.