"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


Wednesday, July 10, 2013

"TO QE or not to QE, that is the Question"

And the answer is....

Even though I have become accustomed to this madness since the Fed first started its QE programs back in late 2008, I still marvel in wonder at the reaction of the investment/trading world to the words that proceed out of the mouth of a mere mortal, who puts his underwear and socks on just like the rest of us lesser beings.

The initial reaction of gold to the much anticipated FOMC minutes today was one of apparent confusion. It first spiked higher only to then fade and lose most of its gains after the minutes hit the wire. Trading seemed to reflect the confusion arising from what I can only term, "convoluted" remarks from the FOMC. On the one hand there were comments about tapering the program by the end of this year; on the other were the usual remarks about the dependency on economic data releases. Basically what the market got was a big, large batch of NOTHING. No one was the least bit clearer or the least bit more insightful into when the Fed would or would not begin to taper. The erratic trading was proof of that to me.

Wait a little while and PRESTO; out popped Uncle Ben and his Magic Money Machine and that was all she wrote: all hell broke loose in the currency markets, the bond markets and of course, the gold market.

What Bernanke did was to give probably one of the most dovish statements coming out of his mouth in some time. And what did the demi-god of finance declare to the mortals? "highly accommodative monetary policy will be needed for the foreseeable future".

And with that, gold was off to the races. As I stated in several private emails - all this chatter about backwardation and Gofo or Tofu or whatever didn't amount to a hill of beans. What mattered and more importantly, WHAT MOVED THE GOLD MARKET, were the words that came out of the Chairman's mouth. That is what scared the hell out of the Bears who had managed to successfully beat back the initial challenge to Resistance near the $1265 level when the FOMC minutes were released.

They were however, no match for the delicious probability of more funny money for the FORESEEABLE FUTURE.

My guess is that what has happened in  the halls of the Fed was that the spike in interest rates on out along the long end of the yield curve had them terrified. Just today there was a story on CNBC about the impact of rising mortgage rates making it more difficult for prospective home buyers to qualify for properties that just a couple of months ago would not have been a problem.

What to do? Why send out Ben and sound like a DOVE and take care of those pesky bond vigilantes who had the audacity to actually attempt to run the bond market at cross purposes to their lawful masters.

Quite frankly I am unsure what to make of the bond market at this juncture. The long bond would have to clear 137 to convince me that the rise in interest rates has been anything other than temporarily halted. They are still a good way from that level last trading near 134`15 as I type this.

Back to gold - from a technical perspective, it finally cleared overhead resistance on the chart (see above) as the move occurred in relatively thin trading conditions allowing the market to experience only light selling pressure as stops were run. You can see that there are now two levels of chart resistance that need to fall for the metal to get a little more upside excitement. The first is near $1290 which is basically what has stopped this evening's progress. The second is psychological round number resistance at $1300. The latter will be a BIGGIE. If it goes, you will see some more sharp short covering and a good shot at $1350 and a solid end to the short term downtrend.

I want to see those recalcitrant mining shares have a good day tomorrow to give the bullish cause more conviction. It is difficult for me to envision them not doing so, as the US Dollar is now imploding on the Forex markets. The Euro is up over 2% as is the Swiss Franc. Even the sickly British Pound is up 1.5% and the Yen, why everyone is suddenly back in love with it. All this because of some words... amazing, absolutely amazing!

Equities of course are loving it - we will probably see the S&P take out its all time high as the party is back on with tapering fears no where to be found, at least for today.

More monetary crack cocaine for the markets - it was either that or watch the borrowing costs of the US government soar higher in the face of an already insurmountable national debt as lenders demanded higher interest rates to accept its IOU's.