So Where's the QE3??? (Updated)

As you all know by now, the Federal Reserve boldly announced plans "to boldly go where no man has gone before" and purchase each and every month, the tidy sum of $40 BILLION in US Mortgage Backed Securities (MBS ) to "aid the recovery". This was supposed to begin in September of this year and continue on out as far as the eye can see, into infinity, as my friend Jim Sinclair has stated, or until economic conditions warrant a cessation of the program.

Here is the problem however. I have been closely monitoring the balance sheet of the Fed each and every week and I simply do not see it! Take a look at the following chart I have constructed of the overall balance sheet but detailing also the sum of mortgage backed securities contained therein.

Can you see how both lines have basically flatlined since the cessation of QE2 last year? Does anyone out there see a climbing MBS line on this chart especially to the tune of $40 billion higher each month? I sure don't!

Here's a closer look at just the Mortgage Backed Securities listed on their Balance Sheet. Does anyone looking at this see any sort of SUSTAINED move upward on this graph as of yet?

By now we should have seen at the very least a jump of $40 billion for the month of October. We did get some buying seeing a jump from 835,000 to 868,069 ( a rise of $33.1 billion - less than $40 billion) but then we fell right back again. Obviously the Fed is selling some of these assets as they have been doing for some time now but in my mind, this defeats the entire reason behind an addtional stimulus effort involving $40 billion in new purchases each and every month. It may be that if this is the trend (purchase new MBS's and add to the balance sheet while selling some existing MBS's and remove those from the balance sheet) that the actual QE3 effort is going to fall short of an increase of $40 billion each and every month.

Here are the big questions which I hope someone out there who is more versed in these things than I am can answer - Where's the QE3 going? What is the Fed buying or are they even buying anything? If they are not buying, why not? If they are buying, why is the size of their balance sheet not increasing by at least the tune of $40 billion each month? How many existing MBS's already on their balance sheet prior to the onset of QE3 are they planning on selling?

Gold Chart and Comments

I am posting a weekly gold chart to provide a longer term perspective on the metal's prospects so as to eliminate some of wild swings in price associated with both pre-election sentiment as well as post election sentiment.

First notice that the range trade is still solidly in place with $1800 capping the top and $1530-$1550 supporting the bottom.

Note that while gold broke the downtrend pattern in late summer this year when it pushed through 1680, it still remains within that broad sideways pattern.

This week produced what is known in technical analysis jargon as a "bullish outside reversal pattern". It occurs whenever a market makes a new LOWER low price and then reverses higher to make a high ABOVE THE HIGH OF THE PREVIOUS BAR and then closes above that previous high. That is normally a sign that the selling has exhausted itself, being overdone, and that valued based buyers believed prices were too low and thus, rushed in to scoop up a bargain.

This particular pattern has more validity to it when it occurs after a period of prolonged selling. It also is reinforced when the low price reaches into a region on the price chart that has in the past, formed a technical support level.

Take a look at the first reversal pattern that formed on the chart back in late May of this year. Notice that it reached down into a previous support level near $1535 and then shot sharply higher moving some $100 points off the low. That was a sign that the sellers had exhausted their ammunition and that the bulls had now seized control of the market. The market rested a bit before it then powered on to test the $1800 level. A very impressive rally indeed!

This week's pattern comes after a 4 week interval in which the market ground steadily lower after having failed to once again best the critical $1800 level. With the low on this pattern coming in very near to the exact center of the broad sideways range, the pattern needs to be respected because it would seem to indicate that the "VALUE REGION" for gold has now been set at a much higher level than the previous value level down near $1535-$1550. In other words, the big physical market buyers apparently believe or have at least grown accustomed or acclimated to a gold price just below $1700 as cheap.

If this is indeed the case, and we will certainly know this if price were to subsequently retreat for any reason and uncover enough solid buying above the $1700 so that the price were to not dip below that level and hold firm, then gold looks set to make yet another run to try that stubborn $1800 level.

The onus is on the bears to overwhelm the buyers down near $1700 if they are to invalidate this pattern. The bulls on the other hand will need to attract sufficient momentum based buying (hedge funds) to this time take prices up to and then through $1800. If they fail once again to better $1800, back down the market will go although my guess is that based on this new chart pattern, it will not dip below $1700 should that occur but will much more likely attract new buying closer to the HIGH of this week's reversal pattern near $1740.

Stay tuned - the one impediment to a march higher in gold right now seems to be the mediocre performance of the mining shares as evidenced by the HUI. It is always much more constructive to the upward progress of the yellow metal to see the bullish engine firing on all cylinders and that means that we need to see the HUI back above 500 but particularly ABOVE the high of that most recent BIG DOWN WEEK.

A lot depends on what the broader stock market is going to do as far as the mining sector goes. Take a look at the last chart of the S&P 500. It has collapsed as a result of the Obama election as business knows full well what is coming their way. The interesting thing to note is that the THREE DAY POST ELECTION collapse has taken the index back exactly to the halfway retracement point of its rally since June of this year. It did temporarily run out of sellers on Friday and mananged to bounce off of that level as shorts booked profits. If the market can stabilize above this level early next week and move back above 1400, the bulls will have managed to avoid a major rout. If however, this week;s low gives way, look for the index to drop all the way down towards 1350-1344 before finding any buyers of size.

Trader Dan interviewed on the King World News Markets and Metals Wrap

Please click on the following link to my regular weekly radio interview with Eric King on the KWN Markets and Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/11/10_KWN_Weekly_Metals_Wrap.html

A Fond Farewell to a Patriot

Congressman Ron Paul retires from Congress this year choosing not to run for re-election. He will be stepping down from Congress after serving faithfully for many long years. He was one of the few leaders who dared to speak the truth and while you may or may not have agreed with him, no one can deny that he loves the precious Constitution and has tried to be faithful to that founding document in spite of pressure from his own political party.

Read these words of his exercpted from his TV interview on Bloomberg today.

One final word - Governor Romney opposed the bailout of GM and wrote an op-ed piece in the Wall Street Journal defending his view that the company should be allowed to go into the bankruptcy process to restructure. For his honesty in this area, he was mericlessly demagogued by the Demagogue in Chief Obama and his fellow Comrade Vice President Biden. The result - he lost Michigan and Ohio and could not put a dent into the mid-Western vote. GM has been handed over to Obama's union buddies while the bondholders were stiffed.

This just goes to prove Ron Paul's point, as well as mine, this nation is too far gone to salvage any form of limited Constitutional government. The majority have now chosen to vote themselves the largess of the national treasury and to live off the labors of the now minority productive portion of the nation.

Santa Claus will now win re-election every time. It is just a matter of who gets to wear his suit every four years. It's over.

Ron Paul: Election shows U.S. 'far gone'

Rep. Ron Paul, whose maverick presidential bids shook the GOP, said in the wake of this week's elections that the country has already veered over the fiscal cliff and he sees no chance of righting ship in a country where too many people are dependent on government.


Read more: Ron Paul: Election shows U.S. 'far gone' - Washington Times http://www.washingtontimes.com/blog/inside-politics/2012/nov/8/ron-paul-election-shows-us-far-gone/#ixzz2BfYKyguR
Follow us: @washtimes on Twitter

Gold Chart and Comments

Gold continues to stage an impressive recovery off of the spike low which looks more and more like it was a bear trap. Trying to read these markets, both in front of and now coming off of a major election, has been difficult due to the severity of the price movements but it does appear that the buying down below $1700 was of sufficient size and scope that it has forced many a bearish trader to reconsider their bet. Reports continue to come in of strong physical market offtake which limits downside price action and results in enough valued-based buying to absorb speculative selling from either stale longs or fresh shorting.

The market has now pushed into a zone (near $1740) where it is garnering additional selling pressure. However, if the bulls can eat through those offers and push it out past $1750, they stand a very good and very real chance of taking it first to $1780 and then on to major overhead resistance at $1800 once again.

Tomorrow will be a big day as it is the end of a wild week of trading with several events now behind us. This has taken some of the uncertainty out of the market in the minds of some large traders and they are positioning themselves accordingly. A weekly close above $1750 will be very friendly to gold. As long as the market holds above $1700, the sharp spike lower will have proved to been that bear trap I mentioned.

Short term, the re-election of Obama guarantees more of the same monetary policy as there will now be no change at the helm of the Federal Reserve, with Ben Bernanke in position to continue his QE into the foreseeable future.

I should note here that for the second day in a row, even with the just mentioned backdrop, a backdrop which most equity traders dearly love, the US stock markets have not been able to cast off the pall which overhangs the market as a result of the election of perhaps, one of the most business-hostile administrations in modern history.

The S&P 500 has broken down technically having failed to hold important chart support between 1400-1390. It now looks as if it is going to test the 50% Fibonacci retracement level coming in near 1366-1367. A poor close to end the week tomorrow and the weekly chart will look rather ominous. The index will need to manage a close tomorrow back above 1400 to pull the bull's hides out of the fire.

When you throw on top of that, fresh fears about the financial health of some countries in the Euro Zone, it is easy to see why wild-eyed bullish enthusiasm, even with a guaranteed $40 billion a month of fresh funny money, is one the wane. Simply put, stock traders are very cautious as they look ahead to a fresh round of regulatory excess not to mention the fallout from rising tax rates, the institution of Obamacare and the looming fiscal cliff issue in the US.

that has led to a strong "safe haven" ( I cringe every time I write those words when it relates to US TReasury obligations ) into bonds dropping yields sharply lower over the last two days. Bond traders are under no illusions as to nature of any growth that is going to be occuring in the US economy for the foreseeable future. The economy will continue to limp along as it has done now for the last three years with only continued fresh injections of funny money propping up economic activity long enough to endure until the next dose is injected.

Highly Recommended Read

Hello to all the readers;

On the heels of my commentary on the state of the nation yesterday, I highly recommend the following article written by my erudite friend Nelson Hultberg. Nelson brings a rich historical background to his writings and as such, he provides a perspective that is often lacking in much of what we read today. Understanding the historical origins of political theory is a key ingredient in grasping the underlying aims of modern political movements.

Our nation is in serious danger of losing its fundamental moorings if it has not already done so. When you read Nelson's commentary, you will better understand the extent of this danger.

I am also hopeful that many of you will understand why I believe the ideological divide in our nation cannot be bridged. There was a motto of the Communists when asked about their strategy of advancing their poisonous ideology - "Three steps forward; two steps backward".

This is a simple but diabolically ingenius plan. It means that once an aim is achieved, the society may rebel against it and kick back throttling some of the gains  the communists have achieved but it will never be successful at completely rooting those gains out. Then the drive "forward" (the Obama campaign slogan) begins afresh with the starting point now being a bit further down the line towards their ultimate goal.

This is the strategy that the left employs in our nation.... push, push and push their big government agenda knowing full well that there will always be a push back or a counter attack against it. However, their accomplishments are never completely gotten rid of and thus the nation as a whole slides further and further and further to the left and further and further and further away from its system of Constitutionally limited government.

Case in point - does anyone believe that having now managed to get their beloved Obamacare passed through employing the most despicable, nefarious and contemptible means imaginable, the left is not rejoicing realizing full well that it will never be gotten completely rid of? Socialized medicine, with all its horrific impact, will now become hopelessly entangled in the warp and woof of our society. America had a chance to drive a stake through this vampire once and for all, but stupidly chose to return the very candidate to office who shoved it down their unwilling throats in the first place. I predict here and now that it will not be that much longer down the road when the left will begin making noises about how those who are in the business of treating the sick should not be making such "obscene profits" in so doing. Wait and see, it is coming as sure as the sun rises in the East.


Trader Dan

A New Kind of Freedom

Nelson Hultberg

Karl Marx was asked once how he could justify advocating a political system of slavery for the individual, which is what socialism is. He replied that, socialism is not slavery; it is a "new kind of freedom." As all perceptive students of history know, the intellectuals of Europe bought into such Alice in Wonderland sophistry and plunged into the twentieth century nightmare of collectivist tyranny. But unfortunately so did American intellectuals about 30 years later when the Progressives of Woodrow Wilson's era established the Creature from Jekyl Island to usher in centralized government banking and the progressive income tax to "spread the wealth around."

Socialism is not really so bad, reasoned the American intellectual community. If we think about it, it actually is a "new kind of freedom." We just have to do what the Red Queen and the Mad Hatter advocated. We have to change the meaning of the words that define the fundamental values of our lives. After all, there is no objective reality; words can mean whatever we want them to mean. All we have to do is teach Marx's new definition of freedom to the young at an early enough age, and when they grow into adulthood they will not think of a government-dominated society as slavery at all. It will be a "new kind of freedom" to them.

Americans never bought into Lenin's violent revolutionary socialism, but they did buy into the Fabians' democratic evolutionary socialism. Fabian ideas in Britain were readily picked up by the American progressives and liberals of the twentieth century. This redefinition of values has been consuming us now for 100 years ever since the Creature from Jekyl Island and the tax revenuers took over Washington. The progressives and liberals have even redefined their redefinitions. Fascism, being basically the same as socialism, is now acceptable in the mix.

What is horrifying is that Barack Obama's election victory is tied directly to this corruption of values. We have now elected, for a second time, a man who was raised by communists in Hawaii. Obama's mind was forged from the likes of Frank Marshall Davis, a powerful and radical communist apparatchick of the fifties, sixties, and seventies. Davis was Obama's constant companion from the age of 9 to 18 before he went off to Occidental College in Los Angeles. His worldview is thus the Marxian sophistry that socialism is a "new kind of freedom." In the mind of Obama, individuals like Hank Rearden and Dagny Taggart are not entrepreneurial benefactors to their fellow man; they are evil rich people who exploit their fellow man. These evil rich need to be leveled down. And the way to do it is insidiously, governmentally with ever-expanding redistribution of wealth programs and ever-expanding monetary inflation. 

One of Ayn Rand's powerful insights in Atlas Shrugged is that dictatorships take over because the people actually approve of them. She called it the "sanction of the victim." This attitude now permeates the American electorate. Nietzsche's "slave mentalities" dominate the throngs of voters that determine what our government is to do. The great majority of Americans are demonstrating that they actually want to be enslaved.

Rand also made the following observation: When asked once why she voted Republican if she thought both parties had sold out to collectivism, she replied that both parties are headed toward the abyss, but Democrats wish to charge toward it and Republicans wish to creep toward it. She, no doubt, felt that we have more time to educate the people as to what is happening with Republicans in power.

Well, America just ran out of time this past election night. A majority of American voters indicated that they believe government owes them a living along with health care, security, and self-esteem. They indicated that they are very comfortable with the Fabian march into socialist-fascism that has been taking place ever since the Creature was instituted in 1913. They indicated that they believe rich people don't earn their wealth; they steal it from the kindly masses by siphoning off the surplus productivity of their labor and reducing them to grinding poverty. (This is the fallacious "labor theory of value" that Marx perpetuated.)

Unfortunately this fallacious reasoning is why so many Americans have become so slothful and are choosing to vote for a living rather than work for a living. It is the reason why so many productive men and women in America are poisoned with guilt and now tolerate the egregious, confiscatory taxes that are destroying the dynamism of our economy and the sanity of our lives. Justice and prosperity cannot be built by catering to slothful masses with theoretical fallacies.

The slothful masses now control America through an Orwellian czar in Washington whose mentor was a rabid communist apparatchik in the 1970s, and whose close advisors (Bill Ayres, Jeremiah Wright, Valerie Jarrett, etc.) have always been radical leftist haters of America. This Orwellian czar is now a lame duck President and doesn't have to run again. All that blocks him from ravaging our rights and freedoms is a supine Senate and a timid array of House Republicans. Will these political sycophants be able to stand up to him and the new hordes of entitlement seekers that bolster him with their eager votes? Not likely. Congress will, instead, begin to reach out to the new entitlement seekers along with the pressing hordes of illegals and their comrades waiting in the wings for entrance to America.

Jean Raspail's Camp of the Saints looms over the horizon. Congressional sycophants will begin to emulate Fox News analyst, Kirsten Powers, who gleefully reported on election night: "We are now a brown nation." They will begin to reevaluate their position on the illegals. They will reason that another 15 million illiterate anti-Americans amidst us is no problem. To paraphrase Nixon, "We're all Multiculturalists now."

Thus Obama will push full-blown for amnesty for the illegals and Marx's redefinition of slavery into a "new kind of freedom." We will charge toward the abyss at a speed never before employed. Obama and the Creature will gobble up the last of our freedoms. America will become a giant replica of Greece. 


------------------------
Nelson Hultberg is a freelance writer in Dallas, Texas and the Director of Americans for a Free Republic (AFR.org). His articles have appeared in such publications as the Dallas Morning News, The American Conservative, Insight, The Freeman, and Liberty, as well as on numerous Internet sites such as The Daily Bell, Financial Sense, and Safe Haven. He is also the author of a soon to be released book on political philosophy, The Golden Mean: Libertarian Politics, Conservative Values. Email him at: nelshultberg@aol.com

America Votes for National Suicide

Those on the left who read my columns will of course take exception with the title I have deliberately chosen, but that is and was a given. So let me start this by saying that I believe their euphoria at having seen their man win, will be short-lived, faced with the extreme problems facing this nation and their utter lack of anything that remotely resembles a plan to deal with them other than the usual class warfare tact of "soaking the rich" further and further enlarging the size and scope of an increasingly intrusive Federal Government.

I have written on this site repeatedly that the problems afflicting the US economy cannot and will not ever be solved by Uncle Ben Bernanke's alchemy of turning paper into "money" and multiplying it in ever larger doses. What ails the US is structural or deep seated. To tackle that involves a serious plan, a plan which by its very nature will involve making choices that will surely bring about some short-term pain but which would put the nation on a sound footing for long term growth and lasting prosperity. Foremost among this is reducing the spending binge in Washington DC and getting America's fiscal house in order. That WILL NOT HAPPEN now that the profligate spender Obama has been re-elected. He has no serious plan to reduce the deficit and never has. One can tax the "rich" into oblivion but even confiscating the entirety of their wealth would not so much as to put a dent into the burgeoning national debt.

Business owners, particularly small business owners, the backbone of this nation's economic health and the primary source of all job creation, had been holding their breath, hoping against hope, that the nation would be delivered from its national nightmare. They either went to bed last evening or arose early this morning to learn, much to their consternation and dismay, that the nightmare will continue for four more long years. A system of nationalized healthcare, with the IRS being the chief enforcers of the penalty for non-compliance now awaits them along with a set of growing, job-killing regulations guaranteed to put further burdens upon them. Not only that, the beginning of the year 2013, will see a massive set of tax hikes hit the nation, further depressing economic activity.

An energy rich nation, blessed by Providence with an abundance of oil, will see its federal lands shut off to any drilling. Any hope for a pipeline delivering Canadian crude to the lower 48 has now withered and died on the vine. China - enjoy that Canadian oil because we are not going to see any of it.

The Dollar, while getting a respite today due to the fact that a near panic has seized upon the investor class, is destined to further weaken, resulting in higher prices for the basics of life such as food and energy. The fiscal cliff is drawing ever nearer with the very real possibility, nay strike that, probability, that the rating agencies will further downgrade the US credit standing.

In short, get ready for the continuance of the same set of woes that have become all too familiar to us for far too long now. In the markets, expect the wicked volatility to become even worse as they swing wildly between euphoria and despair, based on whether or not the latest dose of funny money injections has temporarily boosted economic activity for a few weeks before its impact then fades once again.

If you have any doubt as to what the markets believe the result of this election is, take a look at the following chart of the S&P 500, the broader measurement of the US stock market. The collapse in the equity markets tells us everything that we need to know about the election results as far as the impact on the economy goes.

This brings me to my last point and to my most controversial one. In observing those election results I have become convinced that this nation, as we once knew it, is a house divided, to the extent that it cannot survive in its present form. There is absolutely nothing "UNITED" about these United States of America.

Among my close friends, I have been speaking to this topic for more than a decade now, having become convinced as far back as the 2000 election, that the nation was headed down the road to dissolution. Let me explain...

As a commodity futures trader, my task is to study TRENDS, particularly longer term trends and by so doing to hopefully profit thereby. There are trends in markets but there are also trends in a society. The trend in this society is an increasing divide between two diametrically opposed political ideologies.

The first of these is conservatism. Those who adhere to this view, and I include myself in this camp, believe in a system of limited government as envisioned by our Founding Fathers. The powers of the federal government are few and well defined with those not specifically delegated to it by the Constitution remaining within the providence of the individual states. "Unalienable" rights procede from God, and as such, are not subject to intrusion upon by the state. The state exists to protect and preserve these "rights".

The other view is that of the European statist model. The central government, that which is furthest removed from the people, has the lion's share of power. It view "rights" as those which those in power at any particular time, decide to grant (case in point - the "RIGHT" to medical care). The notion of "unalienable" rights, those which the government may not intrude upon, is an outdated, ancient concept which has no place in a modern society. The Constitution, while given lip service, is more often than not, a "flexible" document which may be ignored should it interfere with the desired outcome of those in power at the time.

Additionally, under this view, government exists to be the Great Leveler. Income inequality is something that cannot be allowed but must be rectified in the name of some nebulous form of cosmic "justice". That means wealth redistribution from producers to takers, overseen of course by a group of all-wise, good-intentioned central planners.

One model is that of liberty and has given rise to the greatest, most free, most prosperous nation in the history of the world.

The other model, see the case evidence in modern Europe - Greece, Spain, Portugal, Italy, etc. - produces soft tyranny and economic stagnation and inevitable decay.

Think about what we are already seeing - we have a central government dictating what kind of washing machines we may have and what kind of light bulbs we can burn in our own homes. We now are faced with the incomprehensible notion that the federal government can compel individuals to purchase health care insurance or pay a fine, a fine which I might add is now going to be under the purview of the Internal Revenue Service.  What's next - what temperature we may be allowed to set our home thermostats at? Wait until Obama finally gets his chance at a CARBON TAX.

This being said, where is the commonality in these two ideologies? Quite frankly, there is none. Just how are those who adhere to the conservative vision supposed to react when they find their sacred liberties being curtailed, their children's opportunities being shrunk, the fruit of their labors being increasingly demanded from them and the incentive for hard work disappearing? What portion of their deeply held and cherished convictions and traditions are they supposed to surrender in the name of getting along or the famously empty buzzword -  "bipartisanship"?

I submit that the common bond which once held Americans together, across a variety of states, has been torn asunder by decades of class warfare, the politics of resentment and an education system which has failed to teach the unique genius of the original American system of government combined with the virtue of self-reliance.

We are divided along ideological lines in a chasm that is as wide as any time in our nation's history going back to the War Between the States in 1861- 1865. Let's face it, the people in the red states have very little in common with the people in the blue states other than the fact that they happen to reside within the geographical boundaries of a set of lines drawn on a map. What pray tell does a conservative state such as Texas have in common with what is often referred to as "The People's Republic of California"? The Old South might as well be a completely foreign nation to the majority of people who reside along the Northeast corridor when it comes to values and traditions.

That fault line that existed in our nation's Civil War past was settled not by a bridging of the differences, a finding of common ground, but by a horrific war in which the victor imposed its will upon the defeated.

I submit that these "DisUnited States of America" should procede with an amicable divorce while there is still time. Let those states in which the majority choose to live under and be ruled by a European statist model form their own union. Let those states in which a majority desire to remain under the system devised by the Founding Fathers form their own union. Incidentally, let this union opt for sound money.

Let the two nations trade freely with one another and enjoy a friendly relation with each other. Let the citizens of each respective nation be free to immigrate or emigrate to one or the other depending on their convictions and belief set. But let them do this before the internal tensions in this nation rip it apart at the seams.

I do not say this lightly as it pains me exceedingly to even contemplate such an occurence but try as I can, I do not see any earthly way possible for this ever-widening ideological gulf to be bridged. The left in this nation will not rest until they have imposed their statist model upon the rest of us who reject it. The right merely wants the government to leave us alone and let us get about our "life, liberty and the pursuit of happiness".

I leave you with the words of Jesus Christ: " A house divided against itself cannot stand and a kingdom divided against it itself will fall".

Quo Vadis America???

Trader Dan on King World News Metals Wrap

Please click on the following link to the listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/11/3_KWN_Weekly_Metals_Wrap.html