Believing the Fed, doubting gold
If it all weren't so absurdly familiar, the money-printing-fueled rally in stocks underwritten by faith the Fed will fix the economy would be unbelievable. And yet many doubt more-tangible assets.
As precious metals were pummeled again this week, all sentiment measures that I look at hit their lowest levels this decade. One indicator, the Daily Sentiment Index, hit a level seen only twice before, and not at all since 1993.
I, for one, don't really see how the mood for the metals and miners could get much worse, but that does not mean it has to turn around immediately. The mood will change when it changes, but when it does, it will precipitate big moves.
Part of the reason folks don't think they need precious metals is the belief in the Goldilocks thesis, which has at its root the notion that the economy is getting stronger. An extension of that is the suggestion -- once again -- that the Federal Reserve is going to cease its money printing early and thus head off inflation.
On Wednesday, we saw more angst along those lines, as the tape was all a-jitter over fears that the Federal Open Market Committee minutes were going to show some sort of a tremendously hawkish bent on the part of the monetary doves that run the Fed. The news that some Fed heads might want to "vary" the pace of quantitative easing is reminiscent of last year (see below), when some were incorrectly musing about actual Fed exit strategies.
I cannot believe anyone could possibly give any credence to that thought process. But over the past four years, there have been several periods when people didn't understand what was occurring or how our warped financial system actually works. (I say that because if they did, they would not be looking for early exits based on misplaced visions of economic strength or a lack of understanding about the Fed itself and its money printing.)
How soon we forget
Remember, it was just last year -- thanks to warm winter weather and inaccurate seasonal adjustment factors -- that folks were breathing hot and heavy about the Fed not only turning off the spigot of easy money, but draining the reserves. Instead, by the summer and fall, we had a third and then a fourth round of quantitative easing.
Currently, we don't even have any of the particularly strong economic data that we had early last year. We do know that the average consumer is being hit with increased taxes, yet folks seem to think the economy will get better simply because the stock market is rallying. In fact, the rally is happening because the Fed is printing money, not strong economic fundamentals.
The fact that we continue to have this fear of a "responsible" Fed despite its actions over the past two decades is as mind-boggling to me as looking at the level of short-term interest rates. The Fed has done nothing but ruin the economy and financial system, and it has been wrong in its assessments at every juncture. Yet people still take the Fed as seriously as if it had been dead right and extremely responsible. And clearly, no one fears the Fed more than the metals markets.
Look what the CAT dragged in
Stock bulls did lose some of their bravado Wednesday, thanks to Fed jitters and Caterpillar's (CAT) announcement that the machine sales slowdown it had been seeing was accelerating, led by Asia. That is just another recent data point about the global economy not being all that great.
However, in general, people continue to be rewarded for being wrong over and over again, which is rightfully maddening to those who are prudent and understand that the policies of the Fed and other central banks are terrible for all of us. Regrettably, the masses are not thinking along those lines, are sadly delusional and are once again going to take enormous losses at some point.
Worth your while
I had wide-ranging conversation regarding gold and crowd psychology with Mariusz Skonieczny, who has a wonderful value-oriented website. Interested readers should definitely check it out. You can listen to the interview here.
At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column. He was long gold.
What you say makes complete sense. The Fed continues to monetize debt and nobody seems to notice or care. Debasing currency continues unabated. Just a thought, maybe the Fed and the G7 countries feel if they ALL debase their currency there won't be a problem. This of course is flawed logic, once people lose faith in a currency nothing is left.
The greatest fool of all the greater fools will be the person who takes over the Fed when Ben Bernanke leaves and inherits responsibility for all that ensues.
I have always been "on the fence" of the value of gold and silver. Of course it has always held value in times of collapse but that is when one currency has collapsed in relation to another. This time things seem to be different. The Central banks of the world have aligned all the currencies up to collapse together at the same time. Cashing in your gold for another FIAT currency would be foolish. Bartering the gold for goods/services may work but that is only if others hold "value" in gold. You can't eat it. You can't heat with it. You can't shelter yourself with it. So why will it have such great value? Besides, the banking cartel will certainly come out with "a world currency" soon after all other currencies collapse. That is part of their plan for world control. So will they allow gold to be traded for this world currency?
Might be wise to put some of your money in things of REAL value in a full collapse. Food, water, sustainable shelter, survival plans and of course that other heavy metal..lead!
I know many will think this is "crazy". But, for anyone that is willing to look at what is happening in this world at this time there is a real fine line between what can be viewed as foolish or wise.
To paraphrase Franklin Roosevelt; the only thing we have to believe in, is belief itself.
As for me, I believe I'll have another beer.
Getting some snow, here. And, the "wind" is blowing..like "crazy". I "rather" like it. Royal, there is no up or down...it will remain the same. It has for quite some time. We as nation are out of "gas". We will "rush" the "courts" and we have "supported" the "entitlements" to continue. I am not talking those that have paid into and have earned this. I will say it again...two lost generations and there only "recourse"
Is a machine. They no capabilites other than that and we are now going to slaughter more by this .....in Niger. This guy is not worthy of occupying any office. President.....
You can believe the FED all you want, it won't change economic reality. The reality is cheap money will not restore the economy....duh. Money is being hoarded by the Banks because are not going to lend unless the debtor has stellar credentials and worthwhile projects. So unemployment will drag on for the foreseeable future. The Banks do not want to incur additional wrath of the Administration and the Public by doing what they were prior to the "melt-down" of 2008, that is, lending without due diligence. They know the "too-big to fail" moniker wont work to save their "behinds" in the next disaster. The Administration knows this and that is why they are pushing for "infrastructure" programs., i.e., using taxpayer money for big programs and why the Administration is pushing for higher taxes. These higher taxes, if passed, will cause additional slowing of the economy. Talk about being "between a rock and a hard place." Sadly, only the growth of a huge asset "bubble" will significantly ramp up employment...we surely don't want that again..
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ABOUT BILL FLECKENSTEIN
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
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As the devil-may-care bravado of Wall Street marches on, history warns that -- in the end -- there will be the devil to pay.
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