"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


Friday, April 8, 2011

Federal Reserve adds $22 billion in Treasuries to its Balance Sheet this week

Since the beginning of December 2010, the Fed has purchased an average of $24 billion of Treasuries each and every week. They are now holding an astonishing $1.345 TRILLION in US Treasury obligations making them the largest holder of Treasuries on the planet, larger than even China with its reported $1.116 Trillion in Treasury holdings.

Fears still remain that Japan will become a net seller of US Treasuries to fund the rebuilding of their shattered nation. Current holdings for Japan are $882.3 Billion.

The question remains unanswered - who is supposedly going to step up to purchase any Treasuries that the Fed might wish to sell in order to reduce their balance sheet given the fact that their yields remain abysmally low compared to other nations around the world?

When you see crude oil over $112 and Brent knocking on the door of $130, with corn at record highs and the CCI (Continuous Commodity Index) attempting to retest its all time high, it is a given that food and energy costs are soaring and that severe inflationary pressures are building in the US economy. Anyone who buys Treasury debt at current yields, especially in the face of a falling Dollar, is practically guaranteeing themselves tremendous losses. 

So to whom will the Fed sell this stuff to? Those that answer the primary dealers will buy it back are seemingly ignoring the fact that were this the case, the stock market would drop like a lead balloon as noted by the direct link between the size of the Fed's balance sheet and the level of the S&P 500.

The answer is that there is no solution to QE. It cannot be undone without creating havoc somewhere.

Gold chart - Pit Session close

HUI at an all time high

Gold and silver shares are moving strongly higher at noon EDT. Based on what I have been seeing this past week, it appears that the ratio spread trades which have kept so much pressure on this sector for the last two years are finally coming off.

I have long suggested that if the hedgies wish to play the spread trade game with the mining shares, use them as the long leg of their spread against a short against the broader market. That would have been a far more profitable trade than plying shorts against the mining shares when the primary trend in the precious metals is higher.

We'll see if they remain stubbornly wedded to this trade or continue further unwinding and attempt a new and more profitable strategy.

Silver continuing to hold above $40 at noon EDT.

Silver punched through $40 overnight in Asian trade and held its gains going into London and into New York. That is quite remarkable given the fact that runs toward round numbers can engender profit taking as price targets are reached. If it holds its gains above $40, it could begin accelerating towards $50 relatively quickly. I will want to see how it fares as it nears the close of pit session trading.

Trader Dan predicts UConn to win the NCAA tournament

Yes, I know what you are thinking - how does he do it? What kind of uncanny abilities does he possess to predict after the fact such a victory?  Along that same line, check out the following headline:

Please note - I have no problems with firms making FOREcasts. But that is the point - it is a FOREcast, not an AFTERcast. Anyone could tell you that the average price for the year is going to be higher, AFTER the fact.

Where were these firms a year ago when investors could have actually profited if they had made a FORECAST back then.

The article goes on to state that MS predicts an average price of $31.39 for 2011. Is that gutsy or what?

DJ MARKET TALK: Morgan Stanley Ups Silver 2011 Forecast By 20%

Fri Apr 08 11:31:58 2011 EDT
Article headline courtesy of Dow Jones Newswire.