Ten years ago, in 2008, an old train, with many problems that have to do with (1) its crew's motivation levels, (2) its engine's condition, (3) its structural strength, and (4) its ability to absorb braking shocks, left the station. Since then, using artificial methods and short-term fixes, some very conniving people have convinced the unsuspecting passengers that the train is as good as new.
In fact, save for a minority, which are looking under the hood to uncover the mess, or hearing the sound of screeching brakes every time it comes to a stop and the chatting of its crew about how dire the train's predicament is, whenever they don't notice passengers are listening, the majority are comfortably seated on the ride to oblivion, not doubing a thing.
Since the rail system, leading up to this cataclysmic dead-end goes through majestic scenery, all of the passengers are distracted with taking pictures, not minding that the rail system is ending, soon.
This is an accurate picture of the global economy.
In this analogy, the old train is the U.S. economy. The crew is comprised of its government in Washington, its central bank, and its elite shadow government, which have sold their souls many years ago and have no desire to put in the real work that is needed to replace this train with a new one.
The short-term fixes, which make the train run seamlessly for brief moments are maintenance repairs only, but they're done so frequently that it looks like the strategy could last forever.
These are the bailouts adn TARP money, QE programs, interest-rate lowering, tax cuts, and corporate lending, for the purpose of massive buybacks.
The minority, which has been shouting from the rooftops that this train is headed for utter destruction, a complete ruin and a crisis ending to the journey, have been laughed at by the thrilled passengers, who have enjoyed the ride, without any obstructions.
The enlightened prophets of doom are those, who have studied and understand the problem the train faces. They are called sound money advocates in the real world. They know that a debt crisis can't be fixed with more debt.
This enlightened camp is separated into two factions. One group won't get on the train, no matter what. These people have lost all faith in the train system. In the real world, these are the people that only own tangible assets, shun away from all fiat currencies, and are weary of all paper assets. Then, there's the second group of enlightened and fully-aware investors.
These investors have also recognized the shenanigans of creating money out of thin air, paying for the federal budget by issuing more bonds, and when there aren't enough buyers, asking the unconstitutional Federal Reserve to buy the bonds.
They also know that the train will one day derail and that all its components need to be examined, looked at, and replaced, for the most part. But they don't want to miss the beautiful scenery in the meantime, either.
In the real world, these are people like billionaire Ray Dalio, who is an expert on debt cycles. He compares the world today to 1938 and has a huge gold position, but instead of prophesizing doom from the side of the road, he has found a seat on the train that allows him to pull out when he sees major challenges coming or the end of the rails, entirely.
Knowing the train is unreliable, but still functional for extended periods, as opposed to deeming it useless, prematurely, is the difference between well-informed rich investors and frustrated gold bugs.
In other words, it's the difference between owning cash-flowing dividend growers and other enriching stocks, alongside precious metals, instead of hoarding only gold and silver, disregarding the power of compounding dividends.
Right now, we're entering one of these challenging periods for the train. It has been running at full steam ahead for three years. The crew has tried to slow it down, but the passengers complained about the abrupt stops. In the real world, this is akin to the rise in interest rates that was too fast and aggressive, which led to the December 2018 sell-off.
 Courtesy: Zerohedge.com
The train is going fast right now. The economy is super-strong. People are working, and wages are on the rise, but the MATERIAL change in lifestyle is minimal for the working class.
Remember this.
When employees get an additional $2-$3 an hour, they don't move to Malibu.
People are still struggling, but, at least, they have more food in the fridge and are less concerned about filling the gas tank.
When the economy is this strong, there is only one thing for the train conductor to do next – hit the brakes.
In the real world, it means that we'll see the Federal Reserve considering easing again.
Not in a million years is this easing and renewed cutting of interest rates, priced into the stock market at this moment, otherwise shares would be 10%-20% lower, at a bare minimum.
On Friday, gold cut through $1,300 like it was butter.
For those hardcore gold bugs, this is the most important celebration. For the sound money advocates, who also use the train (the second group), it is another confirmation that their cameras must be tucked-away and that they should be identifying the emergency exits, instead of enjoying the view from the train.
In other words, they should be selective about making new investments, especially with growth stocks and should be watching their cash position to have options, when the market corrects again.
For the majority, who are oblivious to what's going on, gold's move to $1,303 this past Friday means nothing, since they haven't even heard about it. My mother, for example, called me yesterday to tell me she wrote a financial article, "the first in a number of years," as she said, and that "Washington is running a printing press."
It is so strikingly surreal to realize that even after I've been telling her about this since 2008, she is now only giving the subject any attention, but this is a case study that represents the majority.
Most people are going to bleed out, following the train's derailment. Don't be one of them. Instead, find your place in one of the two groups. In the real world, the enlightened, which also use the train, opportunistically and cautiously, are those, who have enjoyed the rally in the stock market for the past 10 years.
Gold bugs have seen the price of gold go from $250 to $1,300. Both groups have been on the winning end, but the train hasn't suffered from its Armageddon yet.
2008 was a close call, but the crisis didn't play-out to the latter. Next time, bailouts would be a political suicide and I expect a witch hunt, instead. People will want scapegoats.
When the crisis occurs, the blinded passengers, who have already noticed some changes, such as the fact that the air-conditioning isn't working, that the view is becoming less scenic, and that the food on board lacks taste, will pay the price for their complacency and mental laziness.
In the real world, this is akin to middle-class America, which knows the train isn't what it used to be, but they aren't, as a class, taking drastic action to combat these negative changes.
Those, sucked into the matrix, part of the herd of sheep, who believe the mainstream media propaganda, the ones, who see life through a straw, will have their Aha moment.
In life, as with investing, cause and effect aren't instantaneous, but inevitable. The currency crisis doesn't have to happen today, but it is, nonetheless, imminent.
Did The Fed Just Signal THE LOW In Gold And
Silver? – David Brady
“…the Fed is planning to reverse policy when
stocks fall. It’s inevitable now. The only question that remains is whether it
is…” The big news today is the following headline from the Wall
Street Journal:
Fed Officials Weigh Earlier-Than-Expected End to Bond Portfolio
Runoff
The implication is that the Fed is considering ending the
balance sheet reduction program much earlier than anticipated, a program that
was supposed to run on auto-pilot. The Fed has always maintained that this
would have little effect on markets, but that assumption was proven to be wrong
in October, when the program hit its maximum run-off amount of $50bln a month
and stocks dumped. If the Fed does plan to taper or end its balance sheet
reduction program, this would be the first sign of a reversal in policy by the
central bank. This would be an extremely significant development for markets in
general, but especially precious metals.
Other central banks have already signaled that they are turning
on the monetary spigots again, most notably the Public Bank of China (“PBoC”)
and the European Central Bank (“ECB”), while the Bank of Japan continues its QE
program also.
So why would the Fed reverse course at the same time global
central banks are starting to print again? Because the debt-burdened global
economy is clearly slowing, and the only way to keep markets afloat is to continue
printing money. Global central bank liquidity turned negative in the last
quarter, and stocks were hammered as a result. Without such liquidity, the U.S.
and global stock markets would collapse. Given that stocks represent ~150% of
GDP in the U.S., capital gains and taxes on IRA distributions are critical to
Federal Tax Receipts at a time when the U.S. budget deficit is exploding.
Couple that with soaring treasury bond issuance to fund the rising deficits and
less demand from the Fed and foreign central banks (China has been selling
treasury bonds for the past five months and now have their lowest position
since May 2017), yields were set to rise, putting even further pressure on U.S.
finances due to the higher cost of interest on increasing levels of debt.
Simply put, without a rising stock market and lower yields, the U.S. government
is at risk of insolvency. Hence, a policy reversal by the Fed is inevitable, as
I’ve been saying since November 2017.
But there is one major caveat: the timing. The S&P is up
over 300 points off its lows and rising thanks to dovish speak from the Fed. So
why the need to talk about tapering or ending the balance sheet reduction
program? I believe there are two possible reasons. The first is that they want
to raise interest rates another couple of times and knew that they couldn’t do
that and reduce the balance sheet at the same time without risking another
sell-off in stocks or rising bond yields. The second is that this is just more
dovish “talk” to push stocks higher. When it comes to the Fed, the saying
“Actions speak louder than words” are especially true.
Assuming the Fed is going to announce the premature end of its
balance sheet reduction program at its FOMC meeting next Wednesday, this is
extremely positive for stocks, bonds, and precious metals, and a disaster for
the dollar, at least in the short-term.
But at the risk of raining on the parade, a lot of optimism is
now priced in. The risk is that the markets are disappointed by what the Fed
does. For example, what if the Fed does announce that the balance sheet program
will continue but it will no longer be on autopilot, meaning they could end it
at any time? Or that it will end, but not until the end of the year —even if
markets are satisfied with the news on the balance sheet program but the Fed
restates its intention to increase interest rates at least another couple of
times? My point is that we need to wait and see what they actually
announce. In particular, I am extremely doubtful that the Fed is done raising
interest rates.
We need to consider this, because so far everything is going to
plan based on what the charts were saying for Gold and Silver recently. In my
previous two articles, I said that I was looking for an ST pullback in both
before moving up to negatively divergent higher highs. Gold to 1300-1318 and
Silver above 16. Well we got the pullback in both to 1275 and 15.20 as
forecast, and we’re heading higher. The risk now is that we do get negatively
higher highs and down we go again on disappointment with the FOMC announcement
next week.
I’ve been saying since July that when the Fed reverses policy,
that would signal THE LOW in Gold and Silver and that they would both soar from
that point forward. However, we need to wait and see if the Fed is truly
planning to reverse policy or this is just another attempt to push stocks
higher to enable them to raise interest rates at least two more times. If the
latter, then we will likely get a deeper pullback following higher highs in
Gold and Silver, but in my opinion, I would use that pullback to buy both of
them. The one key takeaway from today’s headline is that the Fed is planning to
reverse policy when stocks fall. It’s inevitable now. The only question that
remains is whether it is next week or further down the road. My guess is the
latter, but as I said last week, if so, use this final opportunity to BTFD!
Fund Manager: The Fed Panics And Gold Soars
Dave Kranzler suspects the Fed’s monetary
policy will be reversed in 2019. Here’s how Dave sees it unfolding, as well as
the implications for gold… First it was the loudly
broadcast convening of the Working Group on Financial Markets – aka “the
Plunge Protection Team” – by the PPT’s el Jefe, Steven Mnuchin. This was
followed the “mouse that roared” speech from Fed head, Jerome Powell, hinting
that the Fed would moon-walk away from rate hikes.
Today was trial Hindenburg launched by the Wall St Journal
suggesting that the Fed was considering curtailing the the FOMC’s balance sheet
Weight Watchers program. The terminology used to describe the Fed’s actions
is Orwellian vernacular. “Reserve levels” – as in, “leaving more reserves on
the Fed’s balance sheet” – sounds mundane. In plain-speak, this is simply the
amount of money the Fed printed and will leave in the financial system or risk
crashing the stock market.
I suggested in the January 13th issue of my Short Seller’s
Journal that the Fed would likely halt QT: “The economy is
headed toward a severe recession. I’m certain the key officials at the
Fed and White House are aware of this (perhaps not Trump but some of his
advisors). I suspect that the Fed’s monetary policy will be reversed in 2019.
They’ll first announce halting QT. That should be bad news because of the
implications but the hedge fund algos and retail day-trader zombies will buy
that announcement. We will sell into that spike.”
Little did I realize when I
wrote that two weeks ago that the assertion would be validated just two weeks
later. When this fails to re-stimulate economic activity, the Fed
will eventually resume printing money. Ultimately the market will
figure out that it’s a very bad thing that the only thing holding up the stock
market is the Fed.
The policy reversal by the Fed reflects panic at the Fed.
Nothing reflects “Fed Panic” better than the price of gold:
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