“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Wednesday, September 18, 2013

Wash, Rinse, Repeat

That is basically what we got from the Fed today instead of the $10 billion cut in bond buying that the market had priced in. I mentioned yesterday that based on the very benign inflation environment, the Fed might just stand pat due to the recent lousy economic data. They did just that. Personally I think it was two factors which swayed them in this decision - more on that later.

Stocks loved it, bonds loved it and gold loved it. The Dollar hated it. What else is new?

It is perverse in the sense that interest rates on the long end of the curve had been steadily moving higher for about 3 months now based on the increasing expectations of a tapering move by the Fed. We have been paying close attention to the yield on the Ten Year Treasury and have noted that it just missed hitting the 3% level at the beginning of this month.

Here is what I consider perverse about this... consider this... the Fed starts some hawkish talk and begins to prepare the markets for a slowdown in the rate of its bond buying program. The market reacts to this apparent change in policy by bidding up interest rates. This then results in mortgage rates moving higher.

The Fed, obviously alarmed at what they believe will negatively impact the very fragile real estate market then backs away from any tapering plans whatsoever sending interest rates on the Ten Year back down to the 2.75% level where they are currently sitting as I type these comments.

Where does this leave us? Quite frankly, in an enormous mess the way I see it. The Fed does not have the luxury of doing a surprise sneak-attack on the markets without preparing them for a tapering of the bond buying program. For the Fed to announce out of the clear blue sky, without the least bit of warning, that it was going to scale back its bond buying program, would send the stock market into convulsions and rattle the entire interest rate market as well as the currency markets.

They therefore must prep the markets, plowing the ground and giving the markets time to come to terms with any change in monetary policy in order to avoid chaotic market reactions. Here is the catch however - in giving the markets time to prepare, the market response is to sell bonds along the long end of the yield curve thus resulting in rising long term rates. This negatively impacts the real estate market and borrowing in general as the rotten employment picture prevents many people from otherwise qualifying for loans that they might have previously been able to had rates remained at lower levels.

Then the times comes for the Fed to make the actual announcement that they have spent so much effort prepping the markets for only to realize that these same markets have pre-empted any need for the Fed to act. The result? - the Fed does nothing whatsoever!

 In short, I can easily envision a scenario in which the Fed is completely trapped unable to do anything at all well into the foreseeable future. It is going to take STRUCTURAL REFORMS to improve the job market and as long as the current Administration is in power, I do not see that happening any time soon. Thus the status quo continues and goes on and on and on...

In regards to gold, it is scooting higher as a large number of shorts were forced out with today's surprise move by the Fed. It did take out that overhead resistance at $1330 which is a positive and is also now trading above $1350, another resistance level. There is $1360 which I am watching right above where it is currently trading to see how it handles that. Beyond that $1380 is the next target.

The key to gold will be whether or not the speculative world believes that the continuation of the Fed's QE4 policy unabated will generate any long-anticipated inflation. Obviously the bond market does not expect any or bonds would not be moving sharply higher. Thus far inflation has been tame. It is going to take a change in perceptions in that regard to bring in a brand new wave of hot fund money into gold as well as the rest of the commodity complex.

The ironic thing about seeing crude oil and especially gasoline rallying sharply higher today is that rising energy prices, while inflationary in their own right, also have recently tended to be seen more as a brake or drag on economic activity and consumer spending and thus are seen as factors leading to a slowdown in growth rather than a catalyst for higher inflation. If specs begin piling into the energy markets based solely on the lack of tightening from the Fed, then these specs may short-circuit any hopes that the Fed has that its latest NON-MOVE will be stimulatory in nature.

Herding cats will prove easier than herding these destructive hedge funds.

Oh what a tangled web the Fed has created!

37 comments:

  1. This comment has been removed by the author.

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  2. Today is proof positive that::

    1) Ben Bernanke will go down as the greatest Central Banker that ever lived.

    2) Never before in financial market history has so much money been made in such a short period of time.

    3) Under no circumstances will the Fed ever let another recession or market crash again.

    4) Anytime inflation gets out of control, Bernanke will simply "Jawbone" it lower, as he did successfully the last 18 months.

    5) Interest rates will probably go even lower, just look at Japan and the poor predicament of Kyle Bass.

    6) It pays to ride with the tide of the Fed, and never attempt to be a hero by fighting City Hall.

    7) Stock markets and credit cycles will forever end up in a endless "Wash, Rinse, Repeat" loop which will either crash bond yields or boost stocks, whichever is for the "Greater Good" at the particular moment.

    8) The Bernanke Fed will be reinstated for another term after today's heroic performance.

    9) Those who ignore the gloom and doom crowd and "Stay In The System" will be able to build considerable wealth without the constant paranoia associated with trying to keep your money in secret, hidden places outside of the banking system.

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    2. @Mark -
      I thought your comment about never before has so much been created so fast was simply hyperbolic puffery. But I looked it up and you're right....Here's a table from Merill Lynch from March of this year comparing the various bull markets...If you add the 10% gain in the S&P over the past 6 months, your claim is even better. Interesting that the last time the real rate of growth was this high we were bombing out Central Europe & Japan.

      Nominal % Real % Real Rate
      Start Date End Date Change Change of Growth
      Dec 4, 1987 Mar 24, 2000 582% 361% 13%
      Jun 13, 1949 Aug 2, 1956 267% 222% 18%
      Aug 12, 1982 Aug 25, 1987 229% 181% 23%
      Apr 28, 1942 May 29, 1946 158% 124% 22%
      Mar 9, 2009 Mar 15, 2013 131% 112% 21%
      Oct 22, 1957 Dec 12, 1961 86% 76% 15%
      Oct 9, 2002 Oct 9, 2007 101% 75% 12%
      Jun 26, 1962 Feb 9, 1966 80% 69% 16%
      May 26, 1970 Jan 11, 1973 74% 57% 19%
      Oct 6, 1966 Nov 29, 1968 48% 37% 16%
      Oct 3, 1974 Nov 28, 1980 126% 34% 5%

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    3. I do not think you know Bass' position; swb

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    4. Forgot to add, "Never before has so much wealth been created for so few." Arguably the 40s gave rise to a massive middle class, albeit at the expense of globe. Today your greatest chairman of the Fed has created a class of mega rich at the expense of his own people.

      Delete
  3. they are trapped...trapped i tells ya's....that 'suprise' announcement was jokes! NUGT did about 30 percent jump! how can gold ever go lower and test the 1200 area again after this? i think it really is off to the races from here...oh yeah, then theres the govt shutdown, debt ceiling, sria, yellen, and the inevitable inflation down the road long term...but i dont know how gold and gold sticks react the day afte a day like today...got to go down a tiinnnny but ebefore thrusting higher to test the 1380 area, non? at least bounce off 1350,..anyway, im still holding miners atleast till 1400 level now..

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  4. Thanks Dan for your insight helps to cut through the BS, this was Oh so predictable

    posted September 12, 2013 at 2:25 AM

    As mentioned last week same FED backed BBs using thin early morning market to push down Gold n Silver as expected ahead of FOMC looks like taper will crash and burn, should set up a buying opportunity after this dip. Oil and stocks, Government bean counters not expecting taper.

    posted September 8, 2013 at 5:56 AM

    Since the 1180 low and subsequent rally we have had three pullbacks coinciding with NFP releases, with the day prior to each release being front run most likely by FED backed BBs. This is used by FED and BBs to slow the overall rise in Gold out of the 1180 bottom to support USD and all FIAT, to shake weak longs out of the paper and spot markets, and to create quick turnaround profits for BBs selling shorts creating panic and no doubt immediately covering shorts out of the panic. The other effect is to keep all Gold bulls in fear of the next crash all the time the BBs slowly accumulate. So we have June low $1179 then early July high $1267 followed by July NFP low $1207 and run to $1350 then August NFP low $1272 and run to $1434 now September NFP low $1362 can anyone see a pattern here! This week could be a tell because with taper already priced into Gold and the FED meeting next week look for the front running of news. If Gold moves over $1400 early this week and is pushed down again possibly this friday in similar fashion to NFP it may well mean no taper to prepare for an explosion higher in Gold on FOMC next week.

    Love their work!

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  5. Just a thought had Gold not been carefully maneuvered down $100+ over the last week or so where would it be now. Anyways plenty of time for that later, Debt ceiling and all!

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  6. Hi guy,

    I am going to book my profit on the way up fork...

    It seem to me that we will shoot past 1450 mark this time..

    The market have being flirting with tempering news for the past 5 months and the PM have corrected based on tempering news.

    The interesting part is there is no taper...

    Cheer...

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    Replies
    1. hope your right! bought xau:usd when gold was waging war to hold 1300 level. maybe it will give up some gains before resuming higher...time will tell.

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    2. Hi jim,

      I will be reducing about 35% of my position today...

      I don't like the movement of the market to fast in direction..

      Investment is all about profit... see it grab it

      Cheer

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    3. It sure is! nice gg again, Preditor1976!!

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  7. Sinclair was right on this one

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    Replies
    1. have to be right eventually when you're one sided, no?

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  8. Nate, you are right, and so was Egon and plenty of other perma bulls; catching short term moves is very difficult for sure; close monthly over 1550 and I turn bullish; for now, neutral still; swb

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  9. Jims email blast that now the shorts will get a spititual experience - after the spike to 1365 - is hardly prove of jim getting anything right. Its just prove he pumps tops. Hes in bed with a hedgefund that manipulates his stock price. Cant respect a single thing about the man.

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    1. Jasper;

      I have the utmost respect for Jim Sinclair as he is a personal friend of mine. It is not about pumping tops; it is about a man who has a long term bullish view on gold. People need to understand that. That is his right to hold to such an opinion. After all, who in their right mind can look at what the Fed is doing and not be concerned for the long term welfare of the US Dollar, especially when we have a national debt of over $17 trillion and unfunded liabilities over somewhere near $70 trillion or more.

      Remember to just ignore all the predictions from everyone out there and just focus on the market price action and you will be fine. No one has any special insight into the gold market more than others out there who can read a price chart. Eat the straw and spit out the sticks and ignore all the wild predictions. That way you can comment on bad calls without character assassination.

      Personally I deeply believe that the entire gold community would be much better served if everyone who has either a web site or a forum for commenting on gold would stop with all these damned useless price predictions. No one out there knows the future - no one except the Most High and He is not in the business of providing special trading tips to some favored mortals.

      Dan

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    2. Allright Dan, as written below Ill take it easy on Jim on this blog.

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  10. Hi all,

    Short-term, FOMC announcement was a "big" event and created a big rallye, also fed by short-covering, and it's quite hard to trade on this time unit because of all those crazy news.
    The problem I have giving my positions is I must be available live more or less all the time for updates, which is difficult. If not, I'm incomplete in my description of trades.
    Longer-term, not much to say, despite the rallye. So on this time unit, I'm still wait and see.
    imho now that taper is off the table, it's one more small advantage on the bull side, so all in all, it is more and more likely that the june bottom will hold and we won't see it again.
    I was considering a quick drop towards the weekly bol inf (which is forming an interesting range) around 1240 in case Fed news were not favorable to gold, but it didn't happen.
    I guess now the risk to see gold retrace under 1280 has decreased even much more.
    We'll see if the rallye holds its ground after the short covering.
    1275 resistance I'm watching carefully.
    In a hurry, no time for a chart, sorry, quite hectic schedule lately.

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    1. think on verge of another upward thrust...shud be exciting if so.

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  11. Venezuelan finance minister Merentes says another Bolivar devaluation is not going to happen. We know what that means; swb

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  12. Dan, I said I would not make any comment on your blog anymore, but when I read what Jasper said:
    "Hes in bed with a hedgefund that manipulates his stock price." and you do not remove his post, I am thinking that even reading your blog is a waste of time when people can now make statements that could be used in a court of law and you do not react.
    Sad way how your blog has been hijacked by just a few guys.

    Hubert (NOT DU HAUT)

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    1. Hubert,

      To be honest,I find reading your post more perturbing. If you think this blog which, Dan graciously offers to share his knowledge and expertise about the market is a "waste of time", don't visit this site. Simple as that!

      Take care!

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    2. Hubert ( not du Haut);

      For your information - I do not live in front of my computer like you apparently seem to do. I have a life and that life involves me spending time with my family. I cannot sit here and respond to every single comment as fast as they come down the board. I will respond to those that I find particularly offensive as I just did.

      I have already asked those who post here to not character assassinate. I do allow comments on predictions out there however because anyone who does that needs to understand that they open themselves to criticism by so doing that.

      Comments on analysis are fair game as long as the comments do not personally attack the individual's character. Look, I watched many people involved with my some of my friends over at GATA personally attack Dennis Gartman merely because he does not agree with GATA's views on gold market manipulation. By reading those comments, one could get the impression that Dennis was some sort of son of the devil. That is pathetic in my opinion as he is a seasoned trader who just happens to have an opposing view.

      Same thing goes with this backwardation nonsense. It is just that in my opinion. I will attack that theory because it is simply not true but I am not going to get into questioning the motives or character of those who advocate it. Sadly, some of them do not return the courtesy.

      You are free to either read or not read here. That is your option.

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    3. Hubert = Gene Arensberg, correct?

      Why don't provide your opinion on this board under your real name. You use your real name on your blog, why not here?

      You have promoted the backwardation meme on your blog as part of your PM market analysis, if your analysis has merit that will withstand scrutiny from, and debate with, a seasoned market veteran such as Dan, why have you chosen not to offer polite rebuttal to his opinion regarding this topic here on this blog? I personally think it would be an interesting conversation.

      Choosing to use an alias when visiting this blog diminishes your credibility, both here and on your home turf.

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    4. Andyrama - not sure what you saying here but I felt like I have made my point about what backwardation really consists of in the futures market and the distinction between that and the BASIS, which is what those who keep advocating the gold backwardation theory are actually confusing.

      Anyway, upon what basis are you equating this guy named Hubert with Gene Arensberg? I would let that go unless you have some clear evidence.

      Even better - why not just drop the entire matter - I have said all that I am going to say on the topic of backwardation as I took some of my valuable time to write a post defining and explaining what it is and what it is not here on this site. If anyone is not convinced by that, they never will be and thus spending any more time trying to change their minds is an exercise in futility.

      Besides, it is more an academic discussion than anything for as I have repeatedly stated, the only thing that matters to a trader is the PRICE ACTION. Nothing else!

      Delete
  13. But its true Hubert, I can even prove it. Many people adore Jim. Not a thing he promised about his company has happened. Buckreef production in 30 months promised in 2011. Not happening. Kogosi PEA? way overdue. Buckreef revised 43-101? Not there. I was in London hearing him say there will be production on three sites this year. Care to bet, Hubert?

    Ill stop commenting on Jim on this blog in respect of Dan.

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    1. you saw the negative write-up 2 wks ago on Tanzanian Royalty Exploration in Barron's, right Jasper? swb

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    2. Im very aware with anything that is (not) going on with the company Steve. Thanks.

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  14. Dan,
    OK, OK if saying that a very well known person (Jim Sinclair) is manipulating his own company share price is acceptable on this blog it is OK with me. I will contact the TSX and ask them to investigate the matter.

    As spending my time on the computer and reading your blog is done because I have nothing else to do is a very nasty way to reply to my comment. First, I did not read your blog since my last post a few weeks ago and second it is an obligation, under the TSX rules for companies to check what is said about their company on websites and I am sure someone is about your blog. However I am not related to TNX and do not own any shares of the company. Why don't you ask Jim Sinclair what he thinks about this type (manipulation) of comments?

    Jasper response has nothing to do with his claim of "manipulation" which is illegal and can put CEOs in jail.

    Finally, I don't know who "Gene Arensberg" is but again posting my name and associating it with this man is one more proof that there is something wrong with the way you deal with comments.

    You are right on one point: I don't have to read your blog. My mistake and this will not happen again.

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    1. Hubert;

      I have already given a defense of my good friend Jim here.

      I have repeatedly asked those who post here to refrain from personal attacks and to deal only with information that is out in the public. Most who visit and post here abide by those requests. Some do not. I try to deal with those as time permits. I think those who regularly visit here know full well how I feel about that. Apparently you are too damned ignorant to understand.

      Please, do stop reading and visiting the site. Your comments add nothing to this blog. If anything, they are a distraction from what I am trying to do here which is to educate people on market price action and how to interpret it.

      Good riddance.

      Delete
    2. Hubert, dont take it all personal. Its not good for your (financial) health.

      Delete