“Money for Nothing, and the Chicks…” … Dire Straits
Every once in a while we get something right, and knock on wood, since Dec 1, we're on a roll and up over 21% in the New Year! We’ve gotten the January effect as we suggested and this week we received more ‘easing’ from The Ben Bernanke. Remember, Obama's running for office again, and since the true economy is on life support, one thing The Ben Bernanke can do is manipulate the markets in his favor. The Ben Bernanke will be removed from office if ANY Republican candidate is elected. So you have Obama needing a strong market that he can point to, and you have The Ben Bernanke willing to do the work necessary to create an up market because his job is on the line.
Well, this week, the Federal Open Market Committee (FOMC) finished up a two-day meeting where they were discussing what monetary policy to implement to help the economy strengthen. At noon we got the results of that meeting, and there were two interesting observations. One was that the economy is improving – but not at the speed that they would like; therefore, they are going to extend the amount of time that they're keeping interest rates "extraordinarily" low, from mid-2013 to late-2014 – which is incredible to me. The Ben Bernanke already lowered interest rates to the point where overnight lending rates are 0 - 0.25% to the banks. So, since he can't go lower than 0%, all he can do is extend the time line. He did just that, and basically said to the banks: "You guys get ‘Money for Nothing’ for 3 more years" – and banks love free money. Secondly the number of "dissenting" voters fell to 1. In other words, at these meetings, The Ben Bernanke is the chairman and all the invitees from the 12 member banks get to vote on the decisions. In October/Nov the number of dissenting voters was 3, and now it’s down to 1 – and that ‘one’ just didn’t agree with the timeline. So basically ALL the member banks are “ALL IN” for more Quantitative Easing.
But people are becoming wiser, and people know inherently that printing money is "bad" so instead; The Ben Bernanke talks about other elements such as buying up Mortgaged Backed Assets (MBA’s), and other "unconventional" schemes. Guess what? In order to buy back MBA's, it takes money. And the only way The Ben Bernanke can come up with any money is to print it! Call it what ever you want, the solution to The Ben Bernanke forever comes down to printing money out of thin air.
Let us not forget that this is the man that told Congress (in 2005) on the question of a speculative housing bubble resulting from cheap credit said: “These price increases largely reflect strong economic fundamentals." No Ben, these were liars loans, paid off credit ratings agencies, bribed appraisers, and bucket shops churning mortgages for fees – and you didn’t see that, right? This is the man that said: "There is absolutely no danger of a banking emergency" – just months before the Lehman Brothers collapse? What about in 2007, as the market started to turn, Ben told Congress: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system." Again we are talking about the man in charge of our entire economic policy. In January of 2008, two months before the nationalization of GSE’s Fannie Mae and Freddie Mac, Ben said: "Fannie and Freddie will make it through the storm." And for the worst Pinocchio moment of his life Ben chose June of 2009 when he said: "The Federal Reserve will not monetize the debt." Now, I’ll stop here because my point is that Ben is NOT a stupid man, just a liar – and there’s a big difference. The real reasons for keeping monetary policy at 0% for the next 3 years have nothing do with the housing industry, unemployment, or manufacturing. Not long ago, The Ben Bernanke announced a trillion dollar "swap" arrangement with the European Central Bank (ECB). Greece, Italy, Spain, Ireland and Portugal are broke, and it’s against the law for the ECB to lend directly to "Sovereign Governments". So, The Ben Bernanke, and Turbo Tax Geithner dreamed up this swap arrangement. The ECB borrows money at virtually nothing from the U.S., and lends it to the European Banks for 1%. The European Banks then lend to sovereign Governments by purchasing high-yielding bonds from the countries for 7%. That keeps Italy from crying default, and puts a nice hefty gain on the bank’s ledger. So The Ben Bernanke doesn’t care about unemployment, housing, savings accounts, and inflation – he really cares about his banking buddies in Europe. By the way, Who’s on the hook for those loans to Greece, Italy, Spain, Ireland and Portugal? Well, the U.S. / we are!
As a market measure for this maneuver you need to look no further than the reaction in Gold. Gold was $1,650 per ounce the day before the announcement, and two days later it is $1,740 per ounce. When fiat currencies fall – gold rises.
Also, there are rumors that India and Iran have completed steps to trade Iranian oil for gold, NOT going thru dollars first. This is a BIG deal, and we’re seeing a lot more ‘deals’ where the U.S. dollar is being circumvented. China and Iran are dealing directly in Yuans, while Russia and Iran deal in Rubles. As the true value of the dollar decreases, people are clamoring to get away from it as the world currency.
We see more sabre rattling concerning Iran. The elites want desperately for Iran to throw the first punch, so we can rush in and bomb them. This is pretty high stakes poker we’re playing here. We’ve put dozens of “sanctions” on Iran, trying to force them into giving up any (and all) nuclear ambitions. Now Iran is threatening to stop selling oil to Europe. If this comes to be, energy prices in Europe will spike, further weakening a very fragile, European economic situation.
The Market:
What happens when you promise "Free Money for 3 Years?" Well, the market loves it, and the banks (financials) get to use all that low cost money and make a fortune; because a part of what they do is to go speculate in the markets. But, I tend to think that there's even more to come. What the media will call QE3, is still in the wings, and it's my guess they will unleash it in March. We’re honestly on a path that’s impossible. All the central banks around the world have expanded their balance sheets to insane sizes, and the only way to keep it together is to continue to print money. In the past, civilizations that have "printed" money have fallen in disgrace, completely bankrupt. This time it's the entire world that's swimming in an excess of printed money. In reality, no one knows exactly how this will all shake out, but look at Gold and Silver. They are rising now that Central banks are buying it instead of selling it, and we’re hearing more and more of Gold being used as a currency. If that is the case, then Gold is destined to go higher. My estimate from 10 years ago was that Gold would ultimately see $2,400 dollars. I still believe that, and I see Silver hitting $70 as well. My point is, as they play more and more games with the fiat money, trying to prop up an entire globe swimming in debt, there's really very few other choices for a stable ‘currency’.
The perpetual manipulation of the precious metals will certainly continue. The JPM’s and other big guys naked short these (especially Silver) at will. In fact, we could see some weakness on Monday, since they generally have a habit of beating on it around options expiration. So, if Monday holds strong and into Tuesday, then something odd is going on and maybe (just maybe) the JPM's of the world are backing away for a while. We'll see.
In stock land, the "good news" from Bernanke didn't last long, and that was to be expected. The market was in a jungle of technical nightmares, from overbought stochastics, to double tops that have held since July. So, while they loved the idea of an extension of free money, they didn't get a true stimulus shock, and they decided to take more profits.
For a couple of reasons, I tend to think we're going to remain soggy for another week or so. First, while extending free money to 3 years instead of 2 is a good thing to bankers, there was no immediate injection of cash. They wanted the instantaneous printing of stimulus money, and they didn't get it; therefore, they may pout a bit and take some profits. Secondly, there is a huge bond auction coming on Feb 9. Recently people have been selling bonds and sticking their toes in the stock market waters. If they have an auction and no one shows – then rates will have to rise and The Ben Bernanke just said that’s a ‘No-No’. So, I could see the bankers taking the market down some in order to purchase more bonds. The big banks would borrow from The Ben Bernanke and then instantly use that cash to buy Government bonds. So, if the big institutions swing from using their "free money" to speculate in stocks, and instead use it to buy up bonds, I can see the market not getting the volumes it needs to swing higher.
Tips:
We had some really spectacular gains lately, as we leaned long at the right times. This week we sold STX for an 11% gain in two weeks, FWLT for a 15% gain in two weeks, CLF $4 dollars per share, TMO for $3.50. So, we really cannot complain at all, and are having a very good start to the year. Now I think it's time to be a bit cautious. I could be wrong and they run this puppy, but...I'm not convinced yet.
So for all the Twitter followers – thanks – and to reinforce what we’re currently holding:
- ADBE at 30 (currently 31.12) – stop at entry,
- KBR at 29.80 (currently 32.34) – stop at 31.50,
- SE at 30.20 (currently 31.63) – stop at 31.10,
- GLD at 159.49, (currently 169.00) - AND
- SLV at 28 (currently 33.04)
As you’ve seen – we continue to exercise a lot of discipline in terms of selling at our stops and just moving on to another stock. We’ll continue that philosophy especially next week.
To follow me on Twitter and get my daily thoughts and trades – my handle is: “taylorpamm”.
Please be safe out there!
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