As I am watching the world’s central banks flood the economy with more stimulus I am noticing that the same playbook from 2008 is being deployed. This time, however, will have to be exponentially bigger because the same situation (insolvency) exists as it did then but it will take a lot more to pretend we are solvent now. This is evident in the fact that even though the actions taken now dwarf what was done in 2008 the “markets” are not reacting to the stimulus as expected.
I am taking the attitude that I will not think we are anywhere near a bottom until I see something that allows the markets to rally for more than a day at a time. Certainly, the problem with the C19 virus adds to the angst as the world economy is grinding to a halt even quicker than it was prior to this.
I am also getting tired of hearing about the Fed’s playbook and their “tools”. They have one tool. Create “money” out of thin air and buy real stuff with virtually nothing.
Don’t believe it? Tell me what else they do.
Many will say they reduce interest rates. That is correct. How do they do that? They conjure up whatever “money” they need, buy bonds and drive the yields down and the price up. Yes, they are buying bonds BUT they couldn’t do it without first “printing” up the cash for it. This distorts the price of whatever they buy creating a false demand.
They can buy stocks and stock futures- but not without conjuring up the cash first.
They can lend to banks by taking back their collateral which is in many cases junk- but not without conjuring up the cash from nowhere first.
No matter what you may bring up the Fed and other central banks have one trick- conjure up cash and buy stuff. In doing so it alleviates price discovery and they are able to manipulate most all prices until it gets so big that it doesn’t work anymore. I believe we are at least near that point right now.
It is pretty obvious that this “printing” is getting larger and larger. This is signaling to me that we are getting near this place since Steve Mnuchin (Treasury Secretary) said we will offer unlimited liquidity to businesses. This is in addition to over $8 trillion to banks since September 2019, a rumored $500 billion stimulus plan for individuals and bailouts for many industries being discussed. These numbers are absurd and the “money” will have to be conjured up out of nowhere to implement these plans.
This leads me to believe that real stuff like gold, silver, food, water and all necessities will be rising in price shortly after this crisis passes.
While most people are trying to figure out which stocks will rally so they can make a quick buck- as they have many times in the last 10 years because of the unprecedented interference in the “markets” by central banks and their buddies at the major banks and hedge funds I believe the astute person will be looking for what is next. It is fairly obvious that the paradigm has changed and that the manipulation is not getting the same results as in the past. The Fed’s answer: Same as the Bank of Japan and the ECB- more “printing”.
As the monetary methadone wears off real prices will start to emerge. Those assets propped up (stocks, bonds and real estate) will likely find a bottom far lower than where prices are right now. Those assets artificially suppressed like gold and silver will likely find far higher prices when the games finally end.
Since the central banks and many major banks have been buying gold in record amounts in the past few years I think I may just be right about this. The banks have talked gold down, artificially suppressed the price with paper contracts (also conjured up out of nowhere) sold at times when there are few buyers (and with a market order which means sell at any price virtually guaranteeing a lower price). At the same time they buy the real asset and put it in their vaults.
I wrote about this 5 years ago and was called nuts. Today, fines and indictments are proving that what we saw on the charts day after day was indeed what we thought it was.
Don’t think this isn’t still taking place. The reason it may not last much longer is NOT the authorities putting an end to it. It is that the price of getting physical gold or silver now is getting totally unhinged from the fake paper price. Up until now the paper market has called the shots- one day the real asset will determine the price- like most all other assets already do. At that time when the pressure is released I believe there will be major moves. The banks are pretty well ready for it- are you?
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