“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, December 18, 2013

FOMC - Taper Arrives - Finally!

We finally got the big "T" word today. The announcement by the Fed of a $10 billion cut in the bond buying program was greeted by the markets with the usually volatility as the HFT crowd had a field day picking pockets but once the dust settled down a bit and some saner heads prevailed, traders were able to actually think about what the Fed statement means.

It looks to me like the Fed basically gave the market a near perfect bowl of punch. Cut back on the bond buying program and dispel some of the criticism it has been receiving from some quarters about keeping the program at full size for too long while simultaneously sounding an EXTREMELY DOVISH TONE on the interest rate front. In short, they managed to convey that they are still concerned about DEFLATIONARY forces reasserting themselves but are comfortable scaling back some bond buying as they monitor that situation.

The reaction in the gold market was fascinating to watch as traders tried to figure out exactly what to think about this new state of affairs. The initial kneejerk reaction was to sell on the announcement of a taper; however, I believe the dovish attitude towards interest rates eclipsed any fears of a slowdown in the liquidity injection mechanism. That allowed gold to catch a bid and keep above that now incredibly significant chart support level at $1220.

Basically the Fed left the door open for a period of ultra low interest rates for an extended period of time. One thing I noticed was that they seemed to play with the unemployment number threshold a bit ( "well past 6.5%"). That was something new to me.

What really matters to traders however is not the news so much as the reaction to the news. The equity markets are looking at the announcement of a $10 billion/month taper as evidence that the US economy is actually recovering enough for the Fed to slightly scale back the QE. Also, the Fed's benign view on inflation, means that equities remain the "GO-TO" sector for gains.

Given that view, and the fact that there is still going to be $75 billion/month of bond buying, it was a go on all cylinders for the US stock markets. From what I can see, the Fed under Ben Bernanke has managed to pull off nothing short of a financial miracle. They conjured into existence nearly $4 trillion of new money without completely debasing the Dollar or generating widespread inflationary outbreaks. In the process, they generated an historic rally in the equity markets, a rally which I might add, now looks as if it will continue.

With the decision to taper finally out of the way, with the uncertainty surrounding that decision clarified, investors are now breathing a sigh of relief and going back to what they have been doing for all of this year, buying equities. And why not? - the Fed has given them the green light by restating the "Bernanke Put" is still in effect should economic data justify additional monetary action. Stock investors have never had it better. It is rather remarkable.

That brings us back to gold - in my view gold's progress from this point forward will be completely dependent (as it has been in my view) on whether or not the market believes that inflationary pressures are now more of a danger than deflationary pressures. The Fed reiterated that inflation is consistently running BELOW its 2% benchmark. What they want is the Goldlilocks scenario - inflation not too hot, and not too cold, but just right.

I mentioned last week or the week before that in a post, that the Fed might actually WELCOME a HIGHER GOLD PRICE. Why? Because as long as it does not soar out of control, but manages to stay firmer perhaps within a broad range, it would signify that inflation is not a problem nor is deflation. I believe the Fed would be concerned if gold prices were to experience a sharp, PROTRACTED move lower just as much as they would be if it experienced a sharp, PROTRACTED move higher.

If this is the case, we might have finally found a lasting bottom in gold. That does not mean it is going to enter a strong uptrend in price ( see my thoughts above) but rather that the forces of deflation and inflation might now be balanced, at least in the view of the FOMC. I still believe that gold will underperform the broader equity markets unless we see some sort of black swan event.

It was interesting listening to the outgoing Chairman's comments during his presser. He mentioned as a deflationary force falling crude oil prices but also expressed concerns about the potential for rising health care costs and the possibility of rising wages. I came away with the idea that the Fed is going to remain heavily dependent on the financial/economic data. They are very concerned about the deflation issue, that is beyond dispute.

Let's see how things look when the dust settles for the day and then make some assumptions from that point.

27 comments:

  1. Mark

    Dow! XRT ! XLY! all on fire...Nirvana!

    Here is an analysis.
    http://www.youtube.com/watch?v=2VSYmGSJtCA

    ReplyDelete
    Replies
    1. The fact that you think anyone even listens to what you have to say is hilarious to me.

      Delete
    2. Adam..the message is TO Mark...watch the video...should clear things up.

      Delete
    3. It is meant to be taken as humor.

      Delete
  2. http://www.foxnews.com/us/2013/12/18/us-army-war-college-considers-removing-its-portraits-confederate-generals/#
    Call Carol Kerr and tell her these two warriors were one of our last hopes in States Rights. Rewriting and removing HISTORICAL HERO'S.

    ReplyDelete
    Replies
    1. I don't really have a dog in the hunt. Lee and Jackson were great leaders and generals. With that said, they were and still are traitors. They took an oath, betrayed that oath and their talents and actions led to enormous suffering. Should they be lauded while George Thomas (a Union loyal Virginian)? Should Forrest be lauded for being a great general while he was a slave owner AND KKK founder? I'm willing to bet that Jackson's campaigns are still taught and well they should be. But, let's not think for a second Jackson and Lee are any more worthy than John Reynolds.

      Delete
    2. White Wolf;

      I have nothing but the utmost respect and admiration of both Lee and Jackson, not only as men, but also as soldiers. They were both patriots of the highest order who believed that the leadership in the North had overstepped their constitutional boundaries and taken power to themselves illegally.

      The decision to take up arms against their former friends and comrades ( many of them had fought side by side during the Mexican/American conflict) was an extremely difficult one for both of them. Their loyalty however was FIRST to their own STATE, not the federal government.

      Too many revisionists nowadays fail to understand that in the early days of this nation, citizens were first citizens of their own states and then secondly of the Union. That speaks to the idea of Federalism with only limited power being delegated to the Central Government with the States retaining all powers not expressly granted to that government ( see the 9th and 10th amendments).

      To call them traitors is to betray a serious misunderstanding of the times and an insult to every southerner today who is proud of their heritage.

      Delete
    3. Dan, this really is despicable. The revisionists are indeed out of bounds. I hope to see the day we can accept the past as it was, not compare liberal progressives views as they want to view history. The fight goes on. Thank you for your comments, they reflect truth.

      Delete
  3. Ready to move To any state willing to fight Washington at this point. Stone wall was a God fearing fierce and POWERFUL hero. We need some more like him. Carry on .

    ReplyDelete
  4. Casualty coming? http://ir.intlfcstone.com/releasedetail.cfm?ReleaseID=814422&CompanyID=AMDA-MQNVA

    ReplyDelete
  5. gold bearish wedge on verge of breakdown. stay fully hedged

    ReplyDelete
  6. Hilarious.

    All the "Acclaimed Experts" and gold gurus dead wrong again.

    Homebuilder index up 6%, retailers on fire, gold getting completely obliterated.

    Stay in the system.

    LOL....

    ReplyDelete
    Replies
    1. Time to buy TECH STOCKS all the way. The internet of everything and transhumanism complete with robotic replacement technology is on it's way. Mark you won't even have to think for yourself anymore. You'll automatically buy more stocks and short gold and silver contracts. If you can't beat em short em.

      Delete
  7. New world record highs for XLY.

    Now watch all the CIGA's throw in the towel and start chasing that thing.

    LOL....

    ReplyDelete
    Replies
    1. Why not go leave a message on say SGTbull07 and BrotherJohnF's site and lean into them? These guys around here aren't a bunch of pumpers. They need a good beat down. You must own gold and silver.

      Delete
    2. Mark - hope you're right...count towels. When they are all thrown in, it time to buy them back. Or just watch "Trading Places" again.

      Delete
  8. It's Official.

    All the "Gloom and Doomer" experts have been officially discredited with reputations ruined.

    Wonder if any one of them will utter an apology and admit their horrific error.

    ReplyDelete
    Replies
    1. Mark go leave some message on The News UNIT. I'd love you to smash some of them blockheads. Here it's an oasis away from it. I clobber them quite often which is why I come here to hide out and relax.

      Delete
  9. Imagine the backpedaling from guys like Marc Faber and David Stockman who were calling for a huge crash and reset just 3 days ago, LOL....

    ReplyDelete
    Replies
    1. Faber is in equities. He even says so himself. He's 25% equities, 25% real estate, 25% cash, and 25% gold and silver. I think something like that. So now it's time to just go 100% Wall Street. No big deal. Trust CNBC and go for it.

      Delete
  10. I felt sick to my stomach with all my DIA and SPY calls going into the FOMC meeting. I felt like a sucker with all my gold and silver shorts, and even sold two gold and a silver emini in the mid 30's and 20+ to bring a full hedge back once again. What a day in my account. Nice to see....

    I like gold, whether it's 1200 or 500. Just hedge...

    The trends may be reestablished here. After the FOMC minutes, the shills on CNBC were saying that gold will trade higher throughout the day. I guess GS told them to say that.

    ReplyDelete
    Replies
    1. Yea I thought that was weird too when that woman said shorts were covering in GOLD and it would move higher. That was strange. There's a load of coordination going on on the set.

      Delete
  11. Interesting that Uncle Ben, whose policies were being villified until 2 pm EST today, is being deified in the press as a " miracle " worker; the person all religions have been so anxiously waiting for, for centuries ( Muslims, Jews, Christians, etc.( To parphrase Yul Brynner in the KING AND I, " its a wonderment ". !! Heck why did he not do $170B per month insetad of $85 B !! Resurrection would be guaranteed three days later. Amen. I can now die in peace.

    ReplyDelete
    Replies
    1. In nomine Patris et Filii et Spiritus Sancti. Amen.

      Delete
  12. Janet will be $170B per month.

    I am surprised that everyone gets so excited over short term moves after a FOMC meeting.
    There could be hangovers tomorrow.

    ReplyDelete
  13. We are the best and cheapest place to buy Gold. Visit us and that will be your best way to buy gold. We are top rated and highly recommended from our previous customers.

    ReplyDelete

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