How nice it is to have a week start with an UP move, for once.
Of course, it's early and anything can happen. By the time you read this, maybe all hell has broken loose and the metals are cascading lower. Let's hope not. In fact, I'd be very surprised if that was the case. The charts actually look pretty good and we have the final 2012 FOMC beginning tomorrow and concluding Wednesday. The shorts should be pretty defensive here and I expect dips to be bought early this week.
The key, obviously, will be the Fedlines on Wednesday. I'm actually a wee bit nervous about the "news". We've discussed here, at length, the need for more, unsterilized QE once Operation Twist ends at the end of this month. Through Twist, The Fed has been selling about $45B/month of short-term treasuries and using the proceeds to purchase long-term treasuries. Because this is utilizing funds that are not new and already in existence, the process is deemed to be "sterile". The only, overriding question for Wednesday is this: Will The Fed fully replace Twist with $45B unsterilized or will they announce something less, at least initially?
Everyone, including yours truly, thinks that The Fed will goose the new unsterilized QE program (announced back in September) to $85B/month. This would represent:
- The $40B/month announced in September
- An extra $45B/month to compensate for the ending of Twist
- $85B/month is roughly what QE2 was in late 2010 and early-mid 2011.
But will they?? And that is my short-term concern.
What if The Bernank throws the market a curveball? Maybe he wants to send a signal to Washington regarding potential Fed "hawkishness" in the face of the Fiscal Cliff negotiations? What if, at least initially, he replaces Twist with just $25B/month? Would The Cartels use this news as an excuse to mercilessly raid the metals? Bet your ass they would! Who cares if an extra $25B/month unsterilized brings the total to $65B/month of brand spanking new greenback? It would be "less than expectations" and the metals would likely be hit...and hard.
So what's the point of all this?
- You've got to be prepared for this on Wednesday. Don't just happily whistle past the graveyard, expecting a big rally once the Fedlines are released.
- Get ready to buy the dip or buy the rally.
- "HUH?? No you've lost me, Turd."
- If Benny announces a total of $85B+/month in total, unsterilized QE, just back up the truck and buy. Of course there will be peaks and troughs along the way but every dollar-denominated asset will be about to begin another big surge higher.
- If Benny announces only $60-70B/month of total QE, just relax and stay calm. Let The Leghounds have their way with the metals and then get ready to BTFD! We'd still be talking about $800B/year of total, unsterilized quantitative easing. As Ruprecht would say: That's a lot!! And remember, there is no time limit and no program expiration. This is true QE∞! Do not be fooled by MSM goons who would try to convince you that this is somehow "disappointing". Again, just keep your wits about you and prepare to BTFD.
Here are your charts on this fine Monday. Again, notice that both metals have set reverse, head-and-shoulder bottoms AND they have both broken their short-term trendlines. As a result, both look very good and are primed for a very nice rally this week. Let's just see if The Bernank plays along.
That's all for now but please check back later as I will have another podcast that I will be releasing this afternoon. Have a great day!
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