Fed Balance Sheet & Lack of Oversight
The Fed’s quantitative easing (QE) or asset purchase program, has managed to cause the Fed’s balance sheet to explode from under $1 trillion pre-crisis to an all-time high of $3.48 trillion. While this $2.48 trillion increase has sent people ranting about hyperinflation that has been just absurd. They fail to grasp the fact that there has been about a $7 trillion contraction in combination with the fact that the demand for dollars is no longer just domestic – the dollar is now the practical world currency no matter how much people refuse to admit that.
The Fed has pursued this strategy in order to bailout the banks in addition to the $700 billion check Congress wrote. The Fed has allowed the banks to maintain a huge spread between bid and ask unprecedented in history.The Fed has historically been powerless to determine long-term rates and the quantitative easing was the Fed’s answer to stimulus Keynesian style. But the problem is now how to back off without creating a monumental rally in long-term interest rates? This may prove to be even more impossible than before.
The Congressional hearing of the Inspector General back in May reveals that they have not done their job in auditing the Fed or the banks and claim to lack jurisdiction to really investigate where the money went, to whom, and at what price. This only raises more questions about the future because when the cracks begin to show after 2015.75, we may then suddenly discover that the Fed and its related central banks around the world are incapable to managing the economy exposing this Marxist-Keynesian era to an end.
Gold – Market Update
QUESTION:
Lately, the goldbugs have been complaining about large sales driving the price of gold down. Can you comment about the validity of their arguments?
Thank you.
Sincerely, -RM
ANSWER: Gold was on schedule to decline. Even the oscillators are still negative. The fundamentals are gathered from time to time and selected to fit the price action. In a bear market as we have right now, the truth is simply the trend. In a bull market, bearish news is ignored as not enough and bullish news if embraced. The Gold Promoters simply dismiss anything negative as not real so you can have massive declines that in their mind are never real. Of course, the losses are real for those that blindly followed.
The U.S. shutdown has failed to help gold. People are hoarding cash for that is accepted everywhere where gold is not. This is the typical reaction to hoard cash. The average person today does not see safe haven assets like gold. Try to buy coffee with even a $20 gold coin at Starbucks. Gold hasn’t seen a lot of safe-haven bids over the last two weeks. The glitter is simply gone. The younger generations in the USA are not there yet. Just because you may believe in gold, does not equate to everyone else. That is why there are different religions.
Gold has instead seen prices hurt by large sell orders – most likely from funds. As capital withdraws from investment, major liquidations are taking place of some of the largest hedge funds. Investors are simply on the sidelines. There seems to be a little bit of speculative appetite as taxes are rising everywhere and you cannot have an account anywhere without it being reported.
Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund and the best measure of investor sentiment, fell 5.40 tonnes to 890.98 tonnes on Friday in line with the drop in gold prices. The Gold Promoters have no end to hindsight attributions if you can even call them analysts. There has been major fund rebalancing,as it has become obvious that the price of gold is dropping.
Granted, we may see a temp low form during this week. But this will not negate lower lows into next year. Once the tree is shaken, then it will be time for a swing back up. However, everything has to be lines up for that to unfold.
FUNDAMENTALS
* The selling kicks off stops and forced liquidation by a distressed commodities investors as selling is related to a fund rebalancing on the first day of the third
quarter.
* Then there is the anticipated unwinding of U.S. stimulus and expectations of improving economic growth leave little room for a rebound in gold prices over the next few years, Fitch Ratings said, adding that a further decline remains a real possibility.
* India’s only gold imports in August and September were for exporters’ use, reducing volumes to a fraction of what the world’s biggest bullion buyer used to bring in before the government took steps to rein in purchases.
* Swiss gold refiner Metalor Technologies has postponed the full-scale launch of its refinery in Singapore to next year due to a delay in construction, a company executive said.
* The dollar and U.S. stock futures really are the only liquid game as Europe talks about seizing 10% of everything.
quarter.
* Then there is the anticipated unwinding of U.S. stimulus and expectations of improving economic growth leave little room for a rebound in gold prices over the next few years, Fitch Ratings said, adding that a further decline remains a real possibility.
* India’s only gold imports in August and September were for exporters’ use, reducing volumes to a fraction of what the world’s biggest bullion buyer used to bring in before the government took steps to rein in purchases.
* Swiss gold refiner Metalor Technologies has postponed the full-scale launch of its refinery in Singapore to next year due to a delay in construction, a company executive said.
* The dollar and U.S. stock futures really are the only liquid game as Europe talks about seizing 10% of everything.
Gold is in a bear market. Get over it! It must decline 2 to 3 years minimum. That is simply the way all markets perform. That brings us to 2014 at the minimum. It is a matter of price and time. We will be issuing the 2014 Precious Metals Report shortly before year-end.
Ghost Companies on the Radar
Many people will jump and say the multinationals should be paying more taxes so go get them. The problem that arises is a legal one. Since a corporation is not a living person, then where was it born for tax purposes? If we suddenly change the rules and say corporations owe worldwide taxes in every country, the world economy will suddenly collapse and unemployment would soar. Ireland is going after the “Ghost Companies” as they are known, but then how can companies function? Let’s say all of Apple’s products are produced and assembled in one place – China. Then, should taxation be based upon where a product is manufactured or where the company is domiciled? Can Ireland then arbitrarily say 100% of all profit after manufacture should be taxed then in Ireland? Who gets what portion?
Taxation is altering everything and setting one country against another as they are all in need of money to pay the bankers. We MUST eliminate taxation (except local municipal) and run federal governments as a percentage of GDP by creating new money for that purpose. We are hunting everything down, and yet we still borrow because governments always spend more than they collect. Limit spending to a fixed percentage say 5% of GDP and move on. This is getting insane.