Rage Against The Machines

In a world dominated by momo-chasing HFT computers, sometimes you've got to step back and use actual intelligence and not artificial.

As we've been discussing here for months, America is racing toward the dreaded "Fiscal Cliff". Earlier this year, the common term for this event was Taxmageddon but, apparently, Fiscal Cliff sounds more dramatic when accompanying the MSM "BREAKING NEWS" alert at the top of every hour. So, what the heck is this Fiscal Cliff stuff and why do the metals seem to trade up and down based upon whichever way the wind is currently blowing?

In its simplest terms, the Fiscal Cliff is this: If no legislative action is taken before January 1, 2013, a whole host of current tax breaks will expire. The resulting tax increase will dramatically slow the U.S. economy as tax-planning uncertainty will combine with this massive transference of wealth from the private to the public sector, making even 1% GDP growth unlikely in 2013. Additionally, Congress must once again to raise the debt ceiling from its current $16T+ level to something like $18T. Yikes!

So why is it that rumors of a "deal" tend to make gold go UP and rumors of "no deal" make gold go down? It's the WOPRs, silly. Many are programmed to buy and sell off of headlines, and for some reason, these computers are selling on every headline that suggests "no deal". But this is completely, 100% wrong and I need you to use actual, human intelligence for a moment. There are four, possible scenarios here. Let's take them one by one.

  1. No deal at all. America heads over the Fiscal Cliff. Massive tax hikes hit on 1/1/13 and, more importantly, the U.S. reaches the debt ceiling and is unable to borrow any additional funds at auction. This is wildly bullish for gold (and silver). The collapse of the U.S. economy guarantees huge, additional QE and the dollar will decline steeply in value. Lack of funding for government spending ramps up the requirement for even more dollar printing by The Fed. Gold demand also surges as countries, central banks and individuals around the world seek "safe haven" from the storm.
  2. A deal on the debt ceiling but no deal on Taxmageddon. This is also bullish for gold as The Fed will, undoubtedly, be standing by with massive QE liquidity injections in an attempt to blunt the economic slowdown brought forth by the tax hikes. Additionally, no deal on Taxmageddon means that no spending cuts were initiated. This lack of "austerity" combined with the $2T+ debt ceiling hike will almost certainly lead to another round of downgrades to the U.S. credit rating and, as we saw in August of 2011, downgrades of the U.S. are quite bullish for gold.
  3. A deal postponing Taxmageddon and no deal on the debt ceiling. This scenario plays out simply because The Congress decides to "punt" the issue and head home for the holidays, instead. They figure that Tiny Tim will figure out a way to cook the books until March or so, thereby leaving the problem for the new Congress to tackle in January. This complete disregard for the seriousness of the issue leaves S&P et al with no choice but to downgrade the credit rating of the U.S. which, as noted above, is a situation that has proven in the past to be extremely bullish for the metals.
  4. A complete deal where taxes are raised, real spending cuts initiated and the debt ceiling increased. Even this is bullish for the metals. Why, you ask? Once again, raising the debt ceiling by $2T+ is bullish. The link between U.S. debt and the price of gold is indisputable. And, again, from where will this money come? QE∞, of course. The tax increases with spending cuts is also a plan for higher gold prices as this will almost certainly slow the U.S. economy into recession and, as we know, the only monetary policy left to combat economic slowdown is the overt printing of new dollars.

So, do you see where I'm headed here? It doesn't matter! Next month, ignore the headlines and the endless MOPE and SPIN emanating from Washington and New York. Just buy gold (and silver, too). Physical precious metal continues to be your only financial protection from the true Economic Armageddon we are facing.

TF

292 Comments

Grublux's picture

Furst!

Finally

OrangeAlert's picture

Second

And for those that have seen about the penny and nickel leaving in 2013 and believe it.

http://www.bluetreesilvergold.com/www-bluetreesilvergold-com/penny-hoax-cents-me/

silver bullett's picture

Turd

Turd at last

ag1969's picture

Congress looks at doing away with the $1 bill

WASHINGTON (AP) - American consumers have shown about as much appetite for the $1 coin as kids do their spinach. They may not know what's best for them either. Congressional auditors say doing away with dollar bills entirely and replacing them with dollar coins could save taxpayers some $4.4 billion over the next 30 years.

Vending machine operators have long championed the use of $1 coins because they don't jam the machines, cutting down on repair costs and lost sales. But most people don't seem to like carrying them. In the past five years, the U.S. Mint has produced 2.4 billion Presidential $1 coins. Most are stored by the Federal Reserve, and production was suspended about a year ago.

The latest projection from the Government Accountability Office on the potential savings from switching to dollar coins entirely comes as lawmakers begin exploring new ways for the government to save money by changing the money itself.

The Mint is preparing a report for Congress showing how changes in the metal content of coins could save money.

The last time the government made major metallurgical changes in U.S. coins was nearly 50 years ago when Congress directed the Mint to remove silver from dimes and quarters and to reduce its content in half dollar coins. Now, Congress is looking at new changes in response to rising prices for copper and nickel.

http://money.msn.com/business-news/article.aspx?feed=AP&date=20121130&id=15849848

Why waste time printing $1 bills. lets take the Zimbabwe option!

silverwood's picture

Gold, silver and mining

Gold, silver and mining shares are going sideways(contained) until the paper game is overwhelmed, IMO.

ReachWest's picture

Genius

One has to wonder who the genius' are that program the WOPRs. As TF so accurately points out, they have no understanding of basic economics, risk, etc.

Turd Ferguson's picture

And, again...FREE WEBINAR!!

MODERATOR

Next Wednesday, Paul Coghlan is hosting a free webinar at Noon EST. Not only will Paul be discussing technical analysis but we have also invited Andrew Maguire to begin the program by spending a few minutes discussing the metals markets and current trends. 

If you're currently attempting to trade these markets, you'd be crazy not to join in. Register by clicking the link below:

https://www1.gotomeeting.com/register/240678176

Urban Roman's picture

The $1 Coin

... is about the size of a quarter. That is always what was wrong with it. If they would resize all the coinage, and make the quarter about nickel-size, and so forth, then maybe. The new brass dollars are easier to tell apart if you're looking at them, but in your pocket they feel like quarters.

Of course those old wagon-wheel dollars are sort of awkward in your pocket if you have more than a few of them. And silver is far too valuable to have it get ground up in people's pocket change. (besides, a silver dollar would now be about the size of the old half-dime)

StevenBHorse's picture

Will there be a replay of the webinar?

I imagine there will be many that are unavailable Wednesday.

thurd aye's picture

Serious attempt to sneak

Serious attempt to sneak under the tape  in nurnth. Getting sillier by the day.

Stevo's picture

need your comments

Good post Turd, I am betting your right. What is your and members opinion of owning shares of CEF or PSLV, in lieu of physical stored somewhere. I like the liquidity of the etfs, but am wondering if you feel it is the real deal, thanks        Steven

CaptainOverkill's picture

Perth Mint

Looks like the Perth Mint in Australia has noticed this blog!

http://www.perthmintbullion.com/us/Blog/Blog/12-11-30/ETF_Price_Suppression_Mechanics.aspx

In this article, Bron Suchecki addresses an article by Andrew Maguire on the TF Metals Report blog that explained how bullion banks use Exchange Traded Funds (ETFs) to suppress the prices of gold and silver.

Sisyphus's picture

Discussion point?

Just wondering, from some comments on here in the past, and the debt ceiling going to infinity, and a WSJ article today about secession, how many stars people think will be in the Stars and Stripes in ten years time?

Genuine question, not /sarc.

Nana's picture

"Fiscal Cliff"

I believe the "Fiscal Cliff" was breached the day the privately owned federal reserve hijacked the entire monetary system and then the final free fall cliff was breached when Nixon stopped the gold standard........

ACM's picture

AMT Surprise

   The Alternative Minimum Tax which was designed to snag millionaires avoiding taxes 40 odd years ago is going to kill a bunch of the Obama cheerleaders.  Nobody said they were smart.

   If Ma and Pa each make $13 an hour and work 40 hours per week each, they will be paying this ancient non-indexed for inflation AMT in 2013 if nothing is done.  A married couple making mid $50's total is going to be clobbered.

jamato31's picture

the presidential dollars

the presidential dollars already only have $.06 of metal in them to begin with. ill stick with nickels and copper pennies.  trade those fake dollars for a couple rolls of pennies and you already have more copper. i average 12-15 real ones per roll.

stealthbear's picture

Webinar replay

My understanding is that there will be the option of replaying the webinar for those who are not available during the day on Wednesday.

ag1969's picture

jamato

I stick with nickels because I don't need to separate them.  Buy a box of nickels and all 2000 of them have the same metal content.

Mickey's picture

WH proposal

increase taxes and increase spending

very bullish got metals--as deficits grow and printing is only means of funding.

SIlverbee's picture

Surely if you own billions

paying tax that leaves you with only hundreds of millions is not that bad?

By the way the fiscal cliff is a perverse US form of austerity

Senseosensei's picture

Bron Suchecki's rebuttal

He obviously put a lot of time in it and "normally" he would have had a point.

But we do not live in normal times. You know, where law actually is law, where banks can be trusted to do things by the book, and most of all where figures and facts published by central bankers are actually to be trusted.

It's really pointless in my book to try to proof anything these days, based on the above. Not after Enron, AIG, Lehman, LIBOR etc etc etc.

My gut feeling tells me that GLD and SLV are to be avoided at all cost. Even more than other paper plays.

Pining 4 the Fjords's picture

Remember how Morgan Stanley was the next Bear Stearns?

Anyone remember all those stories and blog posts three or four months ago about how the collapse of Morgan Stanley was imminent?  That it was the next Lehman or Bear Stearns or MF Global?   We heard all sorts of juicy internet rumors:

- That huge derivatives positions had blown up and the other big institutions basically cut MS out of the herd, the next designated fall-guy for the banksters

- MS was financially a dead zombie walking, and the big boys were fighting it out for the carcass/ who got stuck with the debt / how to get the taxpayer to pay off MS's untenable debts to the other big boys behind closed doors

- That an army of 600 accountants had been flown in from all over the US and were trying to go through Morgan Stanley's books

- That the company itself didn't know what it was truly 'worth', either dead or alive,  because its derivatives debt was so byzantine, and was built upon so many different instruments and assets not "marked to market" that they really didn't know all of it would be worth if the company went belly-up

Remember all that stuff?  Because it sounded fairly credible at the time, was reported all over the place (including ZH, if I remember correctly), yet I haven't heard a peep about this in months and obviously, no blow-up has occurred... was this all just internet hyperbole and rabble-rousing?  Big credibility hit to the alternative media, in my opinion, if this was all just BS.

¤'s picture

The Bank For International Settlements

The history of the BIS.

201012272205.jpg

bis.jpg

The Green Manalishi's picture

A whole new meaning to pork chops! Bacon-scented shaving cream

achmachat's picture

is there some kind of news that I missed?

who let the monkeys out again?

Groaner's picture

6000 contracts in a few minutes..

Monkeys at work

Grublux's picture

Takedown

In progress

SIlverbee's picture

Monkeys

It was tooooo quiet

SubjectivObject's picture

Turd Ferguson

AKA: Nick Dangerous.

Banksters and assorted Cartel perps beware.

ZILVERMAN's picture

there are

back,the monkeys playing on there computers,have fun wile it last.

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