Monday, January 7, 2013 at 11:28 am
It's a new year and Santa (the actual one) had brought me a new ruler and a new Sharpie. Might as well break 'em in!
Just a couple of things for you on this fine Monday morning.
First of all, welcome back. I hope that everyone had a safe, relaxing and restful holiday season. If you're like me, you tried to get away for a while to recharge and refresh. I spent some time with family and friends in not-so-sunny Southern California. Ate well and drank a lot of wine. Played some golf and hung with the LTs. Very relaxing and now I'm ready to roll. Good thing, too, as 2013 promises to be historically crazy. Between the geo-politics and the ongoing Financial Crisis, anything is possible so get ready.
The metals wrapped up a rangebound and generally lousy 2012 by selling off and moving below the midline of the 1550-1800 price range. This obviously caught me by surprise as I had expected the metals to close the year above the midline and trending higher, not below and trending lower. So, what does this mean (besides the obvious that I am clearly clueless)?
Well, first of all, there's probably more weakness to come, at least in the short-term. Both metals are stuck in downtrends and indicators such as the RSI, while low, do not yet indicate the sort of deeply oversold level that usually accompanies a bottom. So, we have to expect a little more weakness early this month. In the end, though, I do not expect new lows. Maybe gold sees 1620 or even 1600 before turning. Silver could see 29 or even approach 28. Whatever, that's fine. Buy the dip. What is so often lost in all of this price manipulation is the beneficial aspect of it all. Namely, if gold and silver were currently priced at their true and natural fiat-conversion level, very few of us would be able to afford it! Therefore, relax and enjoy the theatrics. Let The Leghounds do their business and take advantage of the "sale" by adding to your stack of protection.
I received quite a few inquiries lately about this idea that The Fed is "all talk" and that their "balance sheet isn't expanding" and that "QE isn't real". Apparently several commentators have written articles which espouse these views. Uhhh....frankly, I don't think these guys understand how the process works.
The Fed's balance sheet has yet to expand for two reasons:
- Through the end of December, the only direct treasury buying that The Fed was doing was through Operation Twist. Recall that this was a "sterilized QE" where the Fed was selling short-term treasuries out of their stash and using the proceeds to buy longer-term treasuries. Net-net, no change in the overall balance sheet.
- The first stage of the new QE, which began in October, was The Fed buying nearly-worthless Mortgage-backed Securities (MBS) from select Primary Dealer banks. Valued at pennies on the dollar, The Fed pays 100¢ on the dollar for them in order to remove them from the PD balance sheets and place them on its own. Barely any Fed balance sheet expansion here, either, because the securities are essentially worthless.
But now Operation Twist is over. To replace the $45B/month in treasuries that The Fed was able to buy via Twist, The Fed is now going to openly monetize and buy $45B/month in treasuries. Here's the current POMO schedule. Many of you will recall this format from the days of QE2.
http://www.newyorkfed.org/markets/tot_operation_schedule.html
The purchases began just last Thursday and are scheduled for every day of this month, except the MLK holiday and the 30th. This will finally cause The Fed's balance sheet to expand by roughly $45,000,000,000. So, please relax and chill. All of this talk that QE is "fake" or "not happening" is just talk, written by those who either have an agenda or are simply uninformed.
Lastly, I spent some time again yesterday with the great Dr. Dave Janda. I like Dave because he reminds me a lot of myself...a regular guy who is simply sick of what he sees and is trying to warn as many as possible about what lies ahead. He has a weekly radio program which can be found here: http://www.davejanda.com/operation_freedom/. You should check it out as he always has interesting guests, many of whom you are already familiar with through the internet. Here's a link to our discussion yesterday:
http://www.davejanda.com/audio/TurdFerguson010613.mp3
That's all for now. Have a great day!
TF
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