Stocks, Gold, Silver, and the printing press.

[smokingman]

I am sure most here are aware the Federal Reserve is getting ready to start quantitative easing part 2.I am going to share my opinion on the results of this.
All asset classes but treasure notes will increase in value.
Let me explain.Stocks will only increase in value because they are priced in dollars.You lower the value of your currency and the same stock is worth more.So fully expect all US based stock exchanges to go on a tear to the upside.There is a slight chance of some downward pressure as other countries(EU specifically)seem to think printing unlimited amounts of money is a good idea as well.So expect actual company performance and profit to be nearly meaningless as we end 2010.Stocks will go up.


Gold and silver.These are of course at record levels.Gold at all time highs and silver at over 30 year highs.The reason is inflation and a flight to the only asset class(precious metals)that will increase in value with little down side risk during inflation.You can hold Gold or silver long term at this point.I like silver more,but both have some advantages.
Last lets talk about QE2.It will make some quite wealthy,but it will not solve a single problem.There will still be high unemployment and a general loss of purchasing power across the US economy.So what then? My guess is after the elections they will create some type of super stimulus or national jobs program to try and reverse the decline of America.This later program will be self destructive.More printing of dollars,and yet a further decline in purchasing power for American consumers.I expect this to happen some time after the Christmas quarter comes in worse than expected.


So what then are we to do?Well we are not going to change Washington at this point.The Republicans will win the election,that is almost a given as Americans are sick of the way things are going.What most do not realize is they are running for more of the same,not real change.Why repeal and REPLACE the health care bill.Why not just repeal?That is another matter.I guess my point is this.If you have money in stocks let it ride until the elections(maybe a few days before)and then pull it out.Get physical silver and gold.Spend money on large purchases now,your buying power can only decrease from this point forward.Prepare for a huge increase in unemployment and inflation,possibly the collapse of the dollar.In short prep.If you have never done so now is the time.This is most likely your last chance to be able to afford it.Would you buy extra food and supplies(think soap,TP,ect...)if you knew in a very short time the cost was going to be 15-30% more?The Fed is telling you exactly that.They are not going to let stocks fall,and have stated publicly and often the last few weeks they will do anything in there power to assure they don't.IE print more money.


If you want to make a large purchase,now is defiantly the time to do so.Preserve your wealth.Cash is in a death spiral.TIPS are the only type of bond or note I would even think of purchasing as they are protected to a degree from inflation.Enjoy the run up in stocks,but have a set date to get out.Switch the way you think.You can not think about building wealth long term right now.You MUST think about preserving what you do have.

 

[lashicoN]

Interesting read.

You think firearms (physical, not stocks - and stocks as in stock market, not shoulder stock) are a safe investment? If it gets as bad as you believe, firearm prices are bound to go up again. And if it were me, and my family was starving and worried to death, I'd take a 10/22 over an ounce of gold.

 

[smokingman]

Interesting read.

You think firearms (physical, not stocks - and stocks as in stock market, not shoulder stock) are a safe investment? If it gets as bad as you believe, firearm prices are bound to go up again. And if it were me, and my family was starving and worried to death, I'd take a 10/22 over an ounce of gold.

The price of everything will go up.Yes this includes firearms for sure.My point was to start now and develop a plan to preserve your net wealth.When the Federal Reserve bank is flat telling you they will print more money to prop up the markets it means your dollars are going to be worth less.Is this going to be a teotwawki event,probably not.I am sure the dollar in some form will survive.I am just trying to warn/advise people that things like there 401k and other investments they have made are going to...1. Go on a tear to the upside until the elections(think 30%+) and then 2.Everything is going to fall apart when they have to do a "national" jobs program or super stimulus part two(ie print piles of money).
Any physical object will cost more.From your 10/22 to TP or bread.If you act now you can lessen the impact it has on you,your family,and your net wealth.

 

[dom1104]

I am sure some intelligent things were said in the original post, but its lack of formatting plays with my eyes and I cant muster the effort to read it.

 

[jeremy]

I am sure some intelligent things were said in the original post, but its lack of formatting plays with my eyes and I cant muster the effort to read it.

Better?!

I am sure most here are aware the Federal Reserve is getting ready to start quantitative easing part 2. I am going to share my opinion on the results of this.

All asset classes but treasure notes will increase in value.
Let me explain. Stocks will only increase in value because they are priced in dollars. You lower the value of your currency and the same stock is worth more. So fully expect all US based stock exchanges to go on a tear to the upside. There is a slight chance of some downward pressure as other countries (EU specifically) seem to think printing unlimited amounts of money is a good idea as well. So expect actual company performance and profit to be nearly meaningless as we end 2010. Stocks will go up.
Gold and silver. These are of course at record levels.Gold at all time highs and silver at over 30 year highs. The reason is inflation and a flight to the only asset class (precious metals) that will increase in value with little down side risk during inflation. You can hold Gold or silver long term at this point. I like silver more, but both have some advantages.

Last lets talk about QE2.
It will make some quite wealthy, but it will not solve a single problem. There will still be high unemployment and a general loss of purchasing power across the US economy. So what then? My guess is after the elections they will create some type of super stimulus or national jobs program to try and reverse the decline of America. This later program will be self destructive.More printing of dollars, and yet a further decline in purchasing power for American consumers. I expect this to happen some time after the Christmas quarter comes in worse than expected.

So what then are we to do? Well we are not going to change Washington at this point. The Republicans will win the election,that is almost a given as Americans are sick of the way things are going. What most do not realize is they are running for more of the same, not real change. Why repeal and REPLACE the health care bill. Why not just repeal? That is another matter. I guess my point is this. If you have money in stocks let it ride until the elections (maybe a few days before) and then pull it out. Get physical silver and gold. Spend money on large purchases now, your buying power can only decrease from this point forward. Prepare for a huge increase in unemployment and inflation, possibly the collapse of the dollar. In short prep. If you have never done so now is the time. This is most likely your last chance to be able to afford it. Would you buy extra food and supplies (think soap,TP,ect...) if you knew in a very short time the cost was going to be 15-30% more? The Fed is telling you exactly that. They are not going to let stocks fall, and have stated publicly and often the last few weeks they will do anything in there power to assure they don't. IE print more money.

If you want to make a large purchase, now is defiantly the time to do so. Preserve your wealth. Cash is in a death spiral. TIPS are the only type of bond or note I would even think of purchasing as they are protected to a degree from inflation. Enjoy the run up in stocks,but have a set date to get out. Switch the way you think. You can not think about building wealth long term right now. You MUST think about preserving what you do have.

 

[ATOMonkey]

I agree, the writing has been on the wall for quite some time now. For the people who saved and had a strong cash position, the current deflationary period has been a boon.

We have updated all of our appliances, and purchased newer (I will never buy new until prices come down) automobiles.

Now, it's time to start saving again.

I'm interested to see where interest rates will go. Even with the dollar in an inflationary state, I still see the Fed keeping rates low in order to push more currency into the market, desperately trying to "jump start" an economy that is floundering from poor/bad leadership in DC.

It would be nice to see rates go up to double digits, but I doubt that happens.

 

[smokingman]

Bump for the 58% price increase in wheat this month.

 

[SavageEagle]

Bump for the 58% price increase in wheat this month.

 

[smokingman]

How Hyperinflation Will Happen
Right now, we are in the middle of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggregate asset prices as never before. Since the credit crunch of September 2008, the U.S. and world economies have been slowly circling the deflationary drain.
To counter this, the U.S. government has been running massive deficits, as it seeks to prop up aggregate demand levels by way of fiscal “stimulus” spending—the classic Keynesian move, the same old prescription since donkey’s ears.

But the stimulus, apart from being slow and inefficient, has simply not been enough to offset the fall in consumer spending.

For its part, the Federal Reserve has been busy propping up all assets—including Treasuries—by way of “quantitative easing”.

The Fed is terrified of the U.S. economy falling into a deflationary death-spiral: Lack of liquidity, leading to lower prices, leading to unemployment, leading to lower consumption, leading to still lower prices, the entire economy grinding down to a halt. So the Fed has bought up assets of all kinds, in order to inject liquidity into the system, and bouy asset price levels so as to prevent this deflationary deep-freeze—and will continue to do so. After all, when your only tool is a hammer, every problem looks like a nail.

But this Fed policy—call it “money-printing”, call it “liquidity injections”, call it “asset price stabilization”—has been overwhelmed by the credit contraction. Just as the Federal government has been unable to fill in the fall in aggregate demand by way of stimulus, the Fed has expanded its balance sheet from some $900 billion in the Fall of ’08, to about $2.3 trillion today—but that additional $1.4 trillion has been no match for the loss of credit. At best, the Fed has been able to alleviate the worst effects of the deflation—it certainly has not turned the deflationary environment into anything resembling inflation.

Yields are low, unemployment up, CPI numbers are down (and under some metrics, negative)—in short, everything screams “deflation”.

Therefore, the notion of talking about hyperinflation now, in this current macro-economic environment, would seem . . . well . . . crazy. Right?

 

[smokingman]

Wrong: I would argue that the next step down in this world-historical Global Depression which we are experiencing will be hyperinflation.

Most people dismiss the very notion of hyperinflation occurring in the United States as something only tin-foil hatters, gold-bugs, and Right-wing survivalists drool about. In fact, most sensible people don’t even bother arguing the issue at all—everyone knows that only fools bother arguing with a bigger fool.

A minority, though—and God bless ’em—actually do go ahead and go through the motions of talking to the crazies ranting about hyperinflation. These amiable souls diligently point out that in a deflationary environment—where commodity prices are more or less stable, there are downward pressures on wages, asset prices are falling, and credit markets are shrinking—inflation is impossible. Therefore, hyperinflation is even more impossible.

This outlook seems sensible—if we fall for the trap of thinking that hyperinflation is an extention of inflation. If we think that hyperinflation is simply inflation on steroids—inflation-plus—inflation with balls—then it would seem to be the case that, in our current deflationary economic environment, hyperinflation is not simply a long way off, but flat-out ridiculous.

But hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same—because in both cases, the currency loses its purchasing power—but they are not the same.

Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.

Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency.

Right now, the U.S. government is indebted to about 100% of GDP, with a yearly fiscal deficit of about 10% of GDP, and no end in sight. For its part, the Federal Reserve is purchasing Treasuries, in order to finance the fiscal shortfall, both directly (the recently unveiled QE-lite) and indirectly (through the Too Big To Fail banks). The Fed is satisfying two objectives: One, supporting the government in its efforts to maintain aggregate demand levels, and two, supporting asset prices, and thereby prevent further deflationary erosion. The Fed is calculating that either path—increase in aggregate demand levels or increase in aggregate asset values—leads to the same thing: A recovery in the economy.

This recovery is not going to happen—that’s the news we’ve been getting as of late. Amid all this hopeful talk about “avoiding a double-dip”, it turns out that we didn’t avoid a double-dip—we never really managed to claw our way out of the first dip. No matter all the stimulus, no matter all the alphabet-soup liquidity windows over the past 2 years, the inescapable fact is that the economy has been—and is headed—down.

But both the Federal government and the Federal Reserve are hell-bent on using the same old tired tools to “fix the economy”—stimulus on the one hand, liquidity injections on the other. (See my discussion of The Deficit here.)

It’s those very fixes that are pulling us closer to the edge. Why? Because the economy is in no better shape than it was in September 2008—and both the Federal Reserve and the Federal government have shot their wad. They got nothin’ left, after trillions in stimulus and trillions more in balance sheet expansion—

—but they have accomplished one thing: They have undermined Treasuries. These policies have turned Treasuries into the spit-and-baling wire of the U.S. financial system—they are literally the only things holding the whole economy together.

In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.

So this is how hyperinflation will happen:

One day—when nothing much is going on in the markets, but general nervousness is running like a low-grade fever (as has been the case for a while now)—there will be a commodities burp: A slight but sudden rise in the price of a necessary commodity, such as oil.

This will jiggle Treasury yields, as asset managers will reduce their Treasury allocations, and go into the pressured commodity, in order to catch a profit. (Actually it won’t even be the asset managers—it will be their programmed trades.) These asset managers will sell Treasuries because, effectively, it’s become the principal asset they have to sell.

It won’t be the volume of the sell-off that will pique Bernanke and the drones at the Fed—it will be the timing. It’ll happen right before a largish Treasury auction. So Bernanke and the Fed will buy Treasuries, in an effort to counteract the sell-off and maintain low yields—they want to maintain low yields in order to discourage deflation. But they’ll also want to keep the Treasury cheaply funded. QE-lite has already set the stage for direct Fed buys of Treasuries. The world didn’t end. So the Fed will feel confident as it moves forward and nips this Treasury yield jiggle in the bud.

The Fed’s buying of Treasuries will occur in such a way that it will encourage asset managers to dump even more Treasuries into the Fed’s waiting arms. This dumping of Treasuries won’t be out of fear, at least not initially. Most likely, in the first 15 minutes or so of this event, the sell-off in Treasuries will be orderly, and carried out with the idea (at the time) of picking up those selfsame Treasuries a bit cheaper down the line.

However, the Fed will interpret this sell-off as a run on Treasuries. The Fed is already attuned to the bond markets’ fear that there’s a “Treasury bubble”. So the Fed will open its liquidity windows, and buy up every Treasury in sight, precisely so as to maintain “asset price stability” and “calm the markets”.

The Too Big To Fail banks will play a crucial part in this game. See, the problem with the American Zombies is, they weren’t nationalized. They got the best bits of nationalization—total liquidity, suspension of accounting and regulatory rules—but they still get to act under their own volition, and in their own best interest. Hence their obscene bonuses, paid out in the teeth of their practical bankruptcy. Hence their lack of lending into the weakened economy. Hence their hoarding of bailout monies, and predatory business practices. They’ve understood that, to get that sweet bail-out money (and those yummy bonuses), they have had to play the Fed’s game and buy up Treasuries, and thereby help disguise the monetization of the fiscal debt that has been going on since the Fed began purchasing the toxic assets from their balance sheets in 2008.

But they don’t have to do what the Fed tells them, much less what the Treasury tells them. Since they weren’t really nationalized, they’re not under anyone’s thumb. They can do as they please—and they have boatloads of Treasuries on their balance sheets.

So the TBTF banks, on seeing this run on Treasuries, will add to the panic by acting in their own best interests: They will be among the first to step off Treasuries. They will be the bleeding edge of the wave.


the rest here---> Guest Post: How Hyperinflation Will Happen | zero hedge

 

[smokingman]

ps....This came VERY close to happening Friday.JPMorgan Chase stopped the total run on treasuries with a huge loan from the fed window.Which they used to HELP the fed by buying Treasuries.It almost imploded and we stepped right up to the edge.I hate to say this because JP Morgan is my least favorite bank in the world,but they stopped the total collapse at least for now.
Also of note.As of Friday October 1,2010 the Federal Reserve bank is now the second largest holder of US treasuries,China is number 1,and Japan #3.

 

[ATOMonkey]

Excellent thread!!! Very well written explanation of our current financial situation.

+1

 

[CarmelHP]

There's nothing here I really disagree with. The upside of hyperinflation is that it's the least painful of all the likely alternatives, if it's quick enough and severe to wipe out the personal and public debts that have accumulated, but short-lived enough to end before people start starving or freezing to death. We are in for a painful period of adjustment that is at least 50 years in the making. We're not getting out of it without pain.

 

[ATOMonkey]

That and the remaking of the government seeing how an institution of martial law is just about guaranteed.

 

[smokingman]

Fed buys $5.19 billion in Treasurys - MarketWatch

DOW 10,944 +193(1.8%)
NAS 2399 +55 (2.3%)
S&P 1160 +23 (2.9%)

Gold $1340 +23.5(1.8%)
Silver $22.74 +.70 (3.8%)

Oil up as well.This is just the start.
Why QE2 + QE Lite Mean The Fed Will Purchase Almost $3 Trillion In Treasurys And Set The Stage For The Monetary Endgame | Ron Paul 2012 | Campaign for Liberty at the Daily Paul

October,5 2010.

 

[smokingman]

October 11,2010
Gold at new all time highs,silver over 30 year highs.All US markets closed up(only slightly,there where no treasury auctions today for the FED to buy).

PRECIOUS METALS: NY Gold Bounces, Viewed As A Bargain On Dips - WSJ.com


And check out this move in cotton!
Cotton price chart, 2000-2010

All time highs and then some!

 

[SavageEagle]

Thanks for the update. The only news I've seen today was about the reporters invited to N. Korea.

So what do you think about all this. I had predicted that SOMETHING would happen after 11,500, but that's just a gut feeling. I have no foundation for the feeling.

 

[smokingman]

Thanks for the update. The only news I've seen today was about the reporters invited to N. Korea.

So what do you think about all this. I had predicted that SOMETHING would happen after 11,500, but that's just a gut feeling. I have no foundation for the feeling.

Everyone is waiting on the FED.We may even have a few down days this week.Earnings of JPMorgan come out on the 13th,and they will be a disaster unless they manage to hide there losses off the balance sheet.They lost short silver,in housing,nearly 1/3 of there commercial lending is 30+ days late,no trading volume ect...they are hurting.This will cause them to need to build up there reserves.My guess is they will sell treasuries to the FED by the billions.IE a very discrete bail out of JPMorgan Chase.If this happens then all US markets and commodities will rally on the decline in the dollar,because the FED just printed the billions to buy the Treasuries from JPM.

If by some miracle they do not report a loss(it would have to be one hell of a good lie lol)then the FED just keeps there window open lending at 0,and buys treasuries.

The end result for the week is mixed.The dollar actually gained some at the end of last week,and today as there where no Treasury auctions for the FED to step in and buy.This meant the markets moved very little as we had a few days of stable currency(more stable than on days the FED prints billions to buy notes).On the 14th there are three short term treasury auctions(all 1 year or less).Those may not be purchased by the fed,if they are then the dollar will go down,everything else goes up.If the FED does not touch them then the market will just kind of lay in wait for something to happen(JPMorgan earnings,jobs report ect...)and do little to nothing for the entire week ending roughly where we started.
I am guessing the FED will purchase enough of the auction to lower the dollar a little,and boost everything.So in short I see the market and all commodities closing up this week slightly with the dollar showing a modest loss.
At this point everything is laid out for a rally.The only question to ask daily is how much did the FED lower the value of the dollar.

 

[SavageEagle]

Good insight. Thanks for the info.

 

[smokingman]

October 12,2012
As expected the FED is going to buy more treasuries.
Fed minutes: Split FOMC members signal possible action soon - Oct. 12, 2010

Markets closed up slightly.DOW 11020
Gold $1350.50
Silver$23.31
Both Gold and silver where down very slightly.They will most likely recover the losses and break to new highs after the treasury auctions this week.

No one knows how many or for how long the FED is going to buy treasuries,when they make that clear at the Nov 2 meeting things will become more certain.Until then you can expect commodities and markets to go up at a slow but steady pace.

The only wild card right now are the banks and their earnings.If they fake it and show profits then the sky is the limit.If they come in with a loss there will be a pull back until the FED meeting at least in the banking sector,but probably a wider pull back.

I need to edit this because after hours gold has the largest move UP in any 15 minute period in history. It went all the way up to $1358.83.It was a huge move.This after Japan declared they would do more of there own QE to lower the value of the yen.