“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, April 9, 2014

Dovish Fed sinks US Dollar

With no disrespect towards those who actually suffer from bi-polar disorder, if such a thing were not in the world, I would believe that the US Federal Reserve invented it.

Watching them swing from hawkish to dovish in such a short interval makes me understand why our markets are so screwed up. The Fed is consistently changing their assessment of things. That would be just fine and dandy were not the US financial markets addicted to easy money and so utterly dependent on these jokers for their latest fix.

I maintain that our entire financial market system is no longer functional in the sense of reflecting anything resembling reality. As a trader I have to play with the cards dealt me but as someone who cares deeply about the future of this nation, the more I see examples of the kind of crap that we got from these soothsayers at the FOMC, the more despairing I become. Is this what was once the finest example of free market capitalism has become in our degenerate age? The entire marketplace sits around with bated breath waiting, as if some sort of buzzards circling a dying animal, for the pontifications of a group of men and women whom put their underwear on just like the rest of us. Depending on their mood of the month, the markets respond dutifully.

Equities effectively doubled once the news hit the wire and the Dollar proceeded to fall off a cliff, even against the Euro which's zone is struggling with the same "lack of inflation" concerns from their various central bank heads.

The big thing today from the FOMC, in my opinion, was this lack of inflation concern and the fact that the Fed, no matter how much they would love to see it, cannot generate anything anywhere near their target of 2%.

Gold seemed caught in a tug of war between those who believe the near zero interest rate environment, that now certainly seems to be prolonged longer than many expected last month, and those who are keying on this lack of inflation.  The Dollar weakness generated a move into the plus column for the metal but gains were relatively muted as without any sort of serious inflation concerns, the metal run out of guys willing to chase it too much higher, especially with the mining shares relatively comatose compared to the rest of the torrid gains across the equity sector.

Also, brought up was the slowing growth in China and the consequent negative impact on commodity prices, although that was no where to be seen today with the macro funds generally buying through the sector as the US Dollar moved lower.

The Yen actually moved lower against the Dollar as no one seemed to need any safe haven with the spiked punch bowl hanging around longer than guesstimated.

Welcome to the world of our modern markets where a long term trade was cut from 60 minutes to 15....


More later....



26 comments:

  1. It seems JS might have been right all along. When the smoke clears up, QE to infinity remains, so gold IS the ultimate investment as it ceases to be an asset and becomes to be recognized as money. Until such times I expect utmost confusion and madness to intensify. I will trade nothing, until something resembling sanity returns to the markets.

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    1. The problem is that QE is actually more deflationary than it is inflationary. And, it will come to an end. However, low interest rates may last for a long time - which become more and more impotent the longer they are held low. Thus, you have a situation where an exit plan becomes very difficult because interest rates are held low to fix a disease that is a symptom of the treatment. Low inflation is here to stay for a very long time (look at Japan over the last 20 years for an example). Gold is heading down long term – because it was propped up over the thesis that we’d see hyper-inflation – which was priced in as the Gold/CPI moved from a historical value of ~3.0x to a value of 9.0x between 1999 & 2011. Gold/CPI is currently around 6.0x and is likely going to eventually head back to the hundred year average of around 2.0x before moving higher again.

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    2. Eric, how can they keep interest rates low without printing money with which they buy bonds? Once they stop buying bonds, who will buy them?

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    3. Abraxas, Robert Kraft, Jerry Jones, and Hank Steinbrenner will buy the bonds; just look at what they pay their employees who can not speak English, let alone put together one sentence without 3 "you knows"; sparks, of course

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    4. Thanks Dan.
      Regarding the above... "who'll buy the bonds...?"
      Once rates start to rise incrementally (albeit it v-e-r-y slowly) the demand for UST's will be there. I don't see UST collapse anytime soon either.
      All the folks incessantly wailing about the imminent death or collapse of the USD/UST will be disappointed when it doesn't happen in the manner they had eagerly anticipated.
      I think it's possible that the US bought such a tremendous amount of UST's and other assets (MBS's etc.) that the return on interest on the bonds will eventually become a sizable and consistent pool of money they'll basically paying back to themselves.

      Just look how much Fannie and Freddie returned back in interest payments from getting bailed out. Imagine the return on the UST's of all sorts of maturity dates flowing back into the Treasury or Fed.
      And then there's the MYRA template where Americans are given the opportunity (or mandated) to buy or invest in UST's.

      In short...there's no shortage of ways for the Fed or Treasury to extend and pretend the viability of the UST of USD for many more years imho if the alternative is to buy the bonds of Italy, Spain France, Russia etc.

      Time will tell but I think the USD/T are going to be around for awhile...and they'll get bought.

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    5. The government really doesn’t “print money” in any meaningful sense. Most of the money in our monetary system exists because banks created it through the loan creation process. The only money the government really creates is due to the process of notes and coin creation. These forms of money, however, exist to facilitate the use of bank accounts. That is, they’re not issued directly to consumers, but rather are distributed through the banking system as bank customers need these forms of money. If the government “prints” anything you could say they print Treasury Bonds, which are securities, not money. As for QE, it is just a form of monetary policy that involves the Fed expanding its balance sheet in order to alter the composition of the private sector’s balance sheet. This means the Fed is creating new money and buying private sector assets like MBS or T-bonds. When the Fed buys these assets it is technically “printing” new money, but it is also effectively “unprinting” the T-bond or MBS from the private sector. When people call QE “money printing” they imply that there is magically more money in the private sector which will chase more goods which will lead to higher inflation. But QE doesn’t change the private sector’s net worth (because it’s a simple swap). QE & low rates, will eventually cause misallocation of resources by altering normal behavior (mostly psychological) into activities that otherwise would have been left alone. As these roll through an economy, and the number of loans top out – it leads to deflation or disinflation. In fact, the threat of deflation or disinflation was always the bigger threat from QE here in America, Europe and Japan. There is a reason we are seeing what we are seeing – it is not a matter of happenstance.

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    6. @eric: This works until the disvesture from the USD begins. Opps! Thanks for the contribution to Dan's awesome website.

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  2. Brassey, exactly. Always plenty of billionaires out there who already have their fortunes no need to take risks, willing to buy Treasuries to support the market. Until the next crisis rolls around where the Wildebeest herd dumps risk assets and flees to the safety of Treasuries

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  3. i am impressed from this post....the person who created this post is a genius and knows how to keep the readers connected..Thanks for sharing this with us. I found it informative and interesting.

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    1. When QE is less than borrowing requirement of corporates & government, stock markets will have no excess liquidity from QE and a panic will ensue prompting Yellen to Untaper.

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  4. Dear Mr. Dan,

    Daily Gold MACD oversold & crossover likely today. Also its above the goldencross 'ing point. Also on your adx, bulls have control. Very bullish. Monthly Macd historically bullish.

    Euro Weekly resistance line from 2008 is being taken out. a 2nd attempt this month. Draghi did not QE. Dollar Index testing key support again near its 2 yr daily/weekly support. Taper&Talk since march 2013 could not help the battered $.

    Markets are expecting huge inflation BECAUSE a 2nd Lehman cannot be allowed. And so the only choice is QE to infinity.

    Simply put, Deflation (debt deflation) cannot be cured without DeathofMoney or a Big Reset. Gold alone can bring trust back.

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  5. Even $GNX daily adx, bulls have taken back control. Also goldenx has occured last month and now its above the crossing point.

    China's Li just announced that he will take steps to jump start growth after today's terrible import data print.

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  6. Indian elections will be very bullish for gold as our nationalist Modi is set to win. He has got 100% endorsement from the gold community and is set to Unban the Imports which the current administration has put in place.

    Infact the gold community is mobilisizing huge money and manpower to support Modi to win.

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    1. Hi Shark...it'll be interesting to see how the US and India relate to each other after (or if) Modi wins. It'll be hard for the US to dial back the tension after revoking his visa and labeling him as an undesirable.

      And then there's the female Indian diplomat debacle on top of that. FUBAR or what?

      Nice to see some new names and lurker newbs on here lately coming out of the shadows and putting forth some fresh and impressive thoughts on multiple subjects. The common theme throughout has been the acknowledgement of Dan's insight and steady, objective tone on here.

      Like always, I encourage the lurkers or newbs to chime in and join the crowd here. }:^)

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    2. Dark Purple,

      This is Dan's Blog, not yours. Save your encouragement & judgements for your own blog.

      Btw, US has to dial back tensions with many! Eg Ukraine, iraq, afghanistan, syria, egypt, Sudan.

      It may have the best military, but if its generals do not accept orders due to legitimacy, of what use is it?

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    3. Something must've been lost in the translation.
      Sorry for being encouraging, positive and complimentary :-/

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  7. Well more proof that paper rules.

    Who needs hard assets?

    Greek bonds issued today at 4.95% and 8x oversubscribed.

    Anyone who bought fiat paper in Europe in 2011 at the lows when everyone was screaming "This Is It!!", made vast fortunes.

    Meanwhile, mining juniors like McEwen and Tanzania are still flopping near multi-year lows like dead fish.

    Stay in the System.

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  8. Mark is wearing the red mini skirt today. Stay in the system..right up to the point they steal all your money. Then he gets a big bonus. Whichever way you roll, certainly do it with your own mind and soul. A great quote from a NT Wright on a study of Johns Revelation. "The problem comes when those structures arrogate to themselves powers beyond those of being humble servants of Gods good purposes for his world and his image-bearing creatures. The part of Gods faithful people has always been to discern the point at which the one passes into the other, and to have no hesitation, when that happens, in LEAVING, either physically or spiritually. Like Lot, pleading to be allowed to stay in the vicinity of Sodom, it is all too easy even for the followers of the lamb to become embroiled in the imperial sins, and to run the risk, of sharing the plagues". Great line for today.

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  9. I think of Lyoyd Blanfein famous quote during the 2009 meltdowns, "We are doing Gods work". That is not even funny. It is a perilous position and like Babel, his world will crumble as he like most others will suffer this "inferno of hell" for blasphemy.

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    1. Wolf;

      One does not hear the word "blasphemy" used very much in this godless age but that is a perfect example of it.

      to quote the Lord Christ:

      "This is the work of God, that ye believe on Him on whom He has sent"

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  10. "Stay in the system" works until it doesn't. It was probably a good idea up to 1986, or 1999, or 2001, or 2008 ... but then you loose all and some more. So, when is the time to get out?

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    1. Abraxas, Now? But what the heck does getting out of the system mean and how many people really can / want to do it? First who can afford to move / get Singaporean citizenship fly there to put gold in his personal vault? Nearly every other country will tax the dickens out of you no different than the US. The alternative is to live a pre-industrial life (which I'm O.K. with) in subsistence agriculture?

      By the way, Not a good sign, the GDX in negative territory despite gold's move.

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    2. MDLGTO, by "getting out of the system", I mostly meant getting out of mainstream investments, such as stocks, options or bonds, but your point is well taken. Subsistence agriculture sounds attractive to me too, but I will not make that move unless I am forced to (which might be too late at that point). Perhaps we are all insane for getting along with this madness of trading financial vehicles, eating nothing but processed corn and soy and debating to death whether gay people should be allowed to marry or not. I have nothing against homosexuals, but the entire issue has been brought to the point of grotesqueness... but now I digress.

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  11. Can't hear those words enough DAN. GOD IS ALIVE AND WELL. It is US that have again turned away. God help us all.

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  12. Just to let you know that the legendary David P. has just announced that silver is set for a staggering $70 surge. I didn't read the article, as I am running out to buy as much silver as I can with my kid's education fund. Oh boy, oh boy, I hope there will be some left by the time I get to the coin shop.

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    1. Abraxas, yes kwn is hilarious with the mysterious David. P. (putz);; sparks

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