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.

By Bill_Fleckenstein Feb 22, 2013 3:00PM

Dollar bills surrounded by gold © Anthony Bradshaw, PhotographerAs 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.

Feb 22, 2013 8:22PM
Bill, not much more to add to your article.  Most of your readers including myself are scratching our head saying what the heck is going on here.  Totally reminds me of the housing bubble. 

What gets me upset is how all the savers are getting the shaft.  
Feb 22, 2013 11:05PM
People have been brain washed about this entire fiasco.. Its only a matter of time before the economic failure occurs.  People just won't accept the facts. Its really a shame our country has become a  waste land of over spending and poor management.  
Feb 22, 2013 4:59PM
You buy when nobody wants and sell when everybody wants. The Fed does not realize the phony money is already in the pipeline so is the inflation.  It just hasn't worked its  way down yet.  
Feb 23, 2013 12:53PM
Head off inflation? some news....gasoline is 4 dollars per gallon,  milk is over 4 dollars per gallon, food, taxes, etc. all high.  49 million americans on food stamps, Obamacare will cause employers to kick employees under 29 hours per week to avoid paying government penalty for not providing employees health insurance, however, americans will have to buy health insurance or pay a government penalty.  Then HMO's will double monthly premiums next year because Obamacare says americans with pre-existing conditions can't be denied and children up to 25 years old can be on their parents medical coverage.  
Feb 23, 2013 1:10AM



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. 

Feb 23, 2013 8:26AM

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.


Feb 23, 2013 5:16AM
This article makes a lot of sense, excepting only the use of the phrase "easy money".  The money is easy for the banks to get from the Fed, but the banks are not making it easy for the average American to get home loans.
Feb 25, 2013 7:49AM
Romney was going to get rid of Bernacke.  Obama wanted to keep him.  I wonder who is really in charge of the fed.

Not sure what you independents and Hispanics were thinking when you gave this idiot obama another 4 years.
Feb 23, 2013 5:54PM
When you have more than half the work force/population getting or earning $ from the gov't they pay no attention to what the fed is doing. But the savers and the private business owners can see the writing on the wall. Our sales have gone down and our costs have gone up. Purchasing power is falling at breakneck speed and soon it will be gone. These clowns that say the fed is ahead of inflation must be insane. Costs and taxes have gone annually and there is no way they can say otherwise. BS from the MSM. The old saying is "If you tell a lie often enough soon it will become the truth."
Feb 23, 2013 10:02PM
Take a look at the countries buying gold like crazy- India and China for two.  Plus Chancellor Merkel is bringing all Germany's gold home.  Why do you think the Queenie went to the Bank of England to see how much the UK's gold was - sadly said:  Oh, it isn't all ours.  Gold has been a commodity all over the world for centuries, and it beats that ugly paper stuff every time.  Everyone understands gold, and it can't be generated from a printer.  As far the stock market - can't we recognize another bubble when we see it?  The men behind the curtain are playing us like suckers while they create buying and selling opportunities for making themselves richer than kings.  Our attorney general wants to go after Lance Armstrong but not the big bankers and wall street racketeers.  The supreme court said corporations are people.  Well, why aren't the CEO's and Boards of Directors who are sucking the life out of the companies we fools buy, in jail?  They were bailed our with OUR money, are bigger than they ever were, and won't lend our money back to us.  There is something really, really wrong with this picture. 
Feb 23, 2013 2:15PM

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.

Feb 25, 2013 8:17AM
Will be celebrating SEQUESTER! Section 8, and the  hundred million in cuts, is MUSIC To my ears ! 
Feb 23, 2013 8:30PM
like ted turner told japanese delegates at cnn when he was turning the company around, welcome to america home of the dumbest people in the world, made me mad at the time, but seeing what he meant at the time, still today.
Feb 23, 2013 12:20PM
The Fed is legally allowed to debase the dollar as much as it wants, it can grow its balance sheet to the infinite. There is only one possible reaction to this absurd situation, IMPEACH BERNANKE !!!
Feb 23, 2013 2:40PM

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.

Feb 25, 2013 7:18AM
Feb 23, 2013 9:13AM
I agree with . right now better have cash out side the bank to buy gold when market crashes so you can buy it on the cheep. there also a rule that have ten percent of your savings in gold or sliver.
Feb 23, 2013 5:02AM

Getting some snow, here.  And, the "wind" is "crazy".  I "rather" like it.  Royal, there is no up or 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 Niger.  This guy is not worthy of occupying any office.  President.....

Feb 23, 2013 5:49PM

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..

Feb 24, 2013 8:01AM
STILL not getting it, Bill. During the French Revolution Era, people stockpiled gold as a hedge against the Inflationist-caused fiat money inflation. In fact, farmers traded crop yield for across-the-borderss gold because the Franc wasn't any good. That said, the concept was that after the collapse, gold was bound to be the substitute currency. Go check your facts-- it didn't happen. Skill sets and participation happened. Much like France, America has suffered a complete degradation of infrastructure while Wall Street and grubbers robbed our currency and hoarded it. They will die for doing it-- 100% have since the Dawn of Man. That aside, we still have a nation to rebuild. Value of administrators, paper pushers and button pressers? ZERO. Value of craft, skill, labor and accomplishment? Food, water, shelter and the clothing to do what they do. As prehistoric as that may seem, if we have rubble for roads and leaking sewers, road and sewer fixers will take precedent. Not the contract negotiator or bureaucrat- they will be bottom-dwellers, the labor and accomplishment of task will be the premium. Gold will crash as markets do because gold is in the markets and possessing it as supposed to a hunk of quartz won't matter if neither can be incorporated into infrastructure recovery. We've been screwed by a few bad Inflationists but it was magnified by those who jumped on their bandwagon.
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Image: Bill Fleckenstein, MSN money

This column is a synopsis of Bill Fleckenstein's daily column on his website,, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.



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[BRIEFING.COM] Equity indices extended this week's losses with a broad-based retreat. The S&P 500 fell 0.6% to end the week lower by 1.1%, while the Russell 2000 (-1.1%) finished with a 0.9% decline since last Friday.

Staying true to the theme observed throughout the week, the energy sector (-1.5%) tumbled out of the gate, thus dragging the broader market down with it. Once again, dollar strength and crude oil weakness contributed to sector's underperformance, but the ... More


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