Why can’t we just keep printing more, and more money?
What if our debts were so great – that we just printed all the money that everyone wanted and handed it out to everyone? The European Central Bank (ECB), (fresh graduates of the “Best Crooks that ever Wore a Suit School”) have taken their marching orders from Professors Timmy Turbo Tax Geithner, and Ben Helicopter Bernanke. They have point-by-point instruction via Mario Draghi (the X-Goldman associate) on how to print money ‘forever’ and hand it out to the banks. In lockstep, the individual European banks have gone to the ECB for a handout. The ECB is lending its member banks 3-year money at 0.75% (which they actually borrowed from our Federal Reserve). Where'd the Fed get it - thin air – just printed it! The ECB (with help from the International Monetary Fund) doles it out and we all party like it's 1999!
In years gone by, had the Federal Reserve done what they’re doing now – the investing world would have vapor locked, the markets would have crashed, corporate bonds would be paying 30% yields, and economic life (as we know it) would have come to a halt. But that was the ‘old days’, and it’s lucky for us that these new geniuses have it all figured out. According to them, we can print forever, debts don't matter, and there's economic bliss for everyone. The problem however is that this ‘really’ cannot last.
Does The Ben Bernanke and the boys ‘really’ think they're genius for discovering that if you print money out of thin air, you can perpetuate economic growth? Sorry that’s been done a thousand times. The only thing The Ben Bernanke has going for him is that because our money is now digital, he can press 9 buttons and create an instant one trillion dollar loan to the Treasury. But the problem is that this has never worked. Not for the Greeks, Romans, Thessalonians, Hasmoneans, Herodians, Weimar Germans, Zimbabweans and any other "ians" you can name. In each and every incident of money manipulation and abuse of the currency, the end result was first inflation, and then crushing deflation.
But, the time frame is what we need to put into perspective. While a small country like Zimbabwe can experience hyperinflation that will stagger your mind in just a couple years (my son actually has a genuine Ten trillion dollar Zimbabwe bill sitting on his desk), when dealing with larger civilizations, it takes decades for them to completely ruin themselves. The clock has been ticking since 1971 for the U.S. (when we went off the gold standard). We have put 40 years under our belt using a completely fiat currency. Since the US has been the single biggest economy of all time – it takes a long time to completely screw it up. We're going into year 4 since the Lehman blown up – yet where are we? Unemployment is rampant, housing still falling, and now Europe is blowing up. This is a slow motion train wreck, whose life expectancy is extended by The Ben Bernanke bucks. Rest assured, we will not break the most basic of economic rules. There has never been a "fiat" currency that has survived. The only other choice is just to pull the pin, let all the defaults happen, watch everything crash and start from scratch. That route won’t happen for two reasons: (a) it's very painful when it's happening and even the vaunted bankers who are in bed with the Feds and Politicians would have to crash and burn, and (b) there are never any guarantees that the people in power at the start of a wicked crash and burn are still in power on the rebound.
We all know that the Euro zone is in danger of breaking up. Greece is still destined to fail. They are going to run that digital printing press as fast and hard as it's processor will allow. For those of you who may think that gold and silver have already had their best days, you should reconsider that thinking.
Consider this, when I predicted that we’d invade Iraq – my reason was simple economics. Saddam was tired of the US dollar falling like a rock against the Euro, so he decided to change his central bank holdings from dollars to Euro's. He even said that he'd rather have Euro-states pay for his oil in Euro's. That right there sealed his fate. I stated at the time, that there was NO WAY the US was going to let petrol sell for anything but dollars. The fact is, the dollar is "backed" (if you will) by oil. We made a deal many years back with the Saudi's that we'd keep our oil off the market if they only sold oil in US dollars. It was the grandest "wink - nod" agreement ever. So, when Saddam went rogue his days were numbered.
Well back in December, Iran made a pact with Russia. When the US slapped the embargos on Iran, they said "Okay, we're going to talk to the other big dog on the street" and that was Russia. What they did, was agree to trade Iran Oil for Russian rubles. This is a massive slap in the face to the US, because we can't just go in and blow them up over not wanting to use dollars for oil any more, because they have Russian backing now. If you had any doubts about going to war with Iraq, erase them. We've been provoking them with everything we have, hoping they'll fire the first shot. Instead they did an end around, and buddied up with Russia. So you can bet the rhetoric against Iran will explode, and at some point, we'll be "going in". When it happens, be prepared for the 50+ dollar oil spike and gold will rise a bit on the "tension" side of things.
But how about the lies we were told less than 60 days ago: “Black Friday was the best in 10 years!” And now we find out that the retail numbers stink, company after company is lowering guidance, chipmakers say there's a global slowdown on everything from smart phones to Televisions, Jim Cramer has called a bottom in housing 4 times in 3 years – yet last week we learned applications to buy again fell like a rock. Oh, and one more item – of course QE3 is coming. In many ways it's already come, as there is absolutely no charter that states that our Fed can bail out Europe, but they just did. Likewise, because our numbers here in the states are just manufactured lies, another round of stimulus is coming. Just this past week they let 3 members of the Fed board run around the country suggesting they wouldn't be against more stimulus spending and more purchases of assets. I wouldn't be surprised at all if The Ben Bernanke comes out later in January and announces himself that they are working up the new plan.
The Market:
We are definitely "in January Effect" mode, but it’s going to be herky-jerky and fraught with pull downs as European news crosses the wires. Same shirt, different day. But right now – it is a proverbial day-trader’s market. For example: on Thursday, we had 8 open positions that we had initiated on various days since the start of the year. As they'd rise, we'd sell half positions, and let the other half ride. So, coming into Thursday these 8 were doing really well for us. Then the news hits on Friday am BEFORE THE OPEN of the market that S&P was going to downgrade a slew of European debt. Boom, our stocks fell like rocks – before the open – so there’s literally nothing you can do about it. Now, when the market was falling on that Euro news, was there any proof that it wouldn't be a 300-point down day? So as the market was falling 80 to 120 points, do you hold your short-term stuff, and "hope" this isn't the "big one" and you're going to lose all your profits? Don't let anyone ever tell you that you can look at a chart and know the answer – because you can’t! So you have to use your best judgment and risk management. We sold some half positions on really strong stuff, and held anything that didn't violate our stops – which were all set for “at entry” or higher.
I think that this current rally has more legs, but ONLY for a couple reasons. A lot of fund managers didn't make big numbers last year. In fact, almost 80% didn't do as well as the indexes themselves, so they are desperate for a good quarter, even if it's only one. Secondly, there's no question that with The Ben Bernanke's goons talking about more stimulus, we are probably getting close to QE3 here in the states. (Granted I guess it should be called QE4 because QE3 is the "interest rate twist" game they've put in place to get longer-term rates lower.) Thirdly, if a Republican takes the office, you know that The Ben Bernanke's days are numbered. Thus, he better do what ever it takes to put lipstick on this pig and keep the market up, because without Obama in the Whitehouse, The Ben Bernanke is going back to teaching perverted economic theory.
Depending on the size of QE3, it could propel the market up for a few weeks to several months, but it’s a fake rally. Just like QE1 took us from 6.6K to 12K, and then we faded. So did QE2 took us from 11k to almost 14K, and then we faded. Now that the interest rate twist isn't provoking more home buying, The Ben Bernanke is going to do QE3, and if it's big, we'll see all new market highs this year, before the wheels fall off. If QE3 is not big enough, we'll pop and drop, and likely trade sideways.
Tips:
So for all the Twitter followers – thanks – and to reinforce what we’re holding:
- UA at 75.69 (currently 77.36) – stop at 76.50,
- SPY at 124.08 (currently 129.24) – stop at 128
- STX at 18.61 (currently 19.56) – stop at entry,
- SE at 30.20 (currently 30.89) – stop at entry,
- GDXJ at 25.77 (currently 26.37) - stop at 25.90,
- STLD at 14.68 (currently 14.32) - stop at 14,
- FWLT at 20.00 (currently 20.96) – stop at entry,
- PFE at 21.91 (currently 21.81) - stop at 21.30
- GLD at 159.49, (currently 159.40) - AND
- SLV at 28 (currently 28.95)
This is a full-boat for us – so normally we won’t carry more than 8 stocks (outside of the GLD and SLV ETF’s). We’ll be very quick on the trigger next week in terms of sticking true to our stops.
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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