The Bernank Giveth

463
Wed, Dec 12, 2012 - 1:44pm

Well, there you have it. The Fed gave us The Full Monty. Beginning in January, The Fed will provide $85B/month in "unsterilized liquidity". For prespective, QE2 was about $70B/month of unsterilzed money printing for a total of eight months and $600B. This latest incarnation of Quantitative Easing represents 20% more QE/month and it's open-ended! New and improved with even more, freshly-printed greenback! What a deal!!

Here are the headlines, from ZH:

*FED BOOSTS QE WITH $45 BILLION IN MONTHLY TREASURY PURCHASES
*FED TO KEEP BUYING MORTGAGE BONDS AT PACE OF $40 BLN PER MONTH
*FED SAYS MONTHLY PURCHASES TO TOTAL $85 BLN
*FED ADOPTS ECONOMIC THRESHOLDS FOR POLICY TIGHTENING
*FED: RATES TO STAY EXCEPTIONALLY LOW WITH JOBLESS ABOVE 6.5%
*FED: RATES TO STAY LOW WITH INFLATION SEEN AT 2.5% OR LESS


As I type, the metals are rallying but not to the degree that many of us would have expected. Gold is $1722 and silver is $33.70. What gives? The answer is in the details and I suspect it will all be cleared up in The Bernank press conference at the top of the hour.

The one, major, heretofore unseen detail is this: The "exceptionally low" Fed Funds rate is now stated to stay low until two economic conditions are met:

  1. Unemployment must tick down under 6.5%. (Not happening anytime soon.)
  2. The CPI exceeds 2.5%. (Also not happening anytime soon as the CPI is about to reconfigured, again, in order to slow the COLAs for Social Security.)

These new conditions have confused the metals markets and slowed the buying. Some are seemingly reluctant to charge into the metals if QE is going to end in April. AHHHH, BUT THAT'S THE RUB!!! If I'm reading this right (and LIESman has said the same), the economic conditions only apply to the Fed Funds rate. They do not apply to QE∞! QE is truly open-ended, potentially to infinity. Expect this to be cleared up during The Bernank's press conference and look for the metals to rally this afternoon.

And again, why is QE∞ open-ended and without conditions?? Because QE∞ is not about economic growth! Oh sure, if it promotes a little growth, The Bernank will take it but QE is about funding the deficit spending of the U.S. and keeping rates low. Period. End of story. And until/unless enough buyers materialize to fully fund the Treasury at auction, The Fed is going to have to continue picking up the slack. Got it? Read this again if you still need help: https://www.tfmetalsreport.com/blog/4202/brass-tacks

Therefore, expect the rallies in the metals to begin in earnest this afternoon or tonight/tomorrow. For perspective, in early November of 2010 the Fed announced the fixed program of QE2, mentioned above at $70B/month for the eight months of November 2010 through June 2011. On 11/5/2010, gold closed at $1397. It then traded as high as $1577 in late April and went on to $1920 in August of 2011.

Silver, as we all recall, was even more dynamic. On 11/5/2010, it closed at $26.75. It ultimately traded to $49 by late April before all that followed. Regardless, it was still trading at $36 when QE2 ended in late June 2011.

For 2013, we must expect more of the same. Not only is QE rolling again but it's for 20% more cash! I am 100% confident that the metals will rally hard in 2013. Why wouldn't they?? The same monetary conditions as 2011 will exist and, this time, the physical metal supply constraints are even tighter as central banks, sovereign and hedge funds, wealthy individuals and even regular blokes like you and I are more keenly aware of the situation and rushing to exchange rapidly-degrading fiat for hard assets.

Please buy more metal today. Now is the time. You can be supremely confident that the fiat-conversion price is only going to be rising in the weeks and months ahead. The madness of the central bankers got more desperate today and physical metal is your only financial protection against them. Buy some more today.

TF

3:05 pm EST UPDATE:

OK, so now we know why the metals aren't rallying sharply. There are conditions for continued QE and they are similar to the Fed Funds conditions.

However, I watched the press conference and personally listened to what The Bernank said. He clearly stated this:

The conditions for curtailing QE and raising the Fed Funds rate are only being offered for the purpose of transparency. There is no change to the actual forecast of "extraordinarily low rates through mid-2015". No change at all. The Fed does not expect a sub 6.5% unemployment rate OR a greater than 2.5% inflation rate through mid-2015 and, therefore, low rates and $85B/month in QE can be expected to continue until then.

YOU MUST UNDERSTAND THIS. The metals are trading this afternoon as if QE will only last through April. This is nonsense and that is NOT what The Fed is saying. The Bernank even went so far as to say that even if the unemployment rate fell to 6.5%, that would not mean a curtailment of QE. They'd still be looking at the labor force participation rate and other factors. He called this ongoing assessment "subjective".

And, again, this is all BS anyway! Economic conditions are only a secondary reason for QE. The primary reason the Fed is compelled to print over $1T in 2013 is deficit funding!! Without The Fed and the PDs buying $1T in treasuries next year, rates would skyrocket to the place where natural, organic buyers would materialize. Given the current state of affairs, at what rate would that be? 8%? 10%? 15%? NO WAY that can be allowed so The Fed is forced to fund almost all of the U.S. federal deficit next year and beyond.

So, the real metric as to when QE might end is this: When can The Fed exit the treasury market without causing rates to violently rise? The answer is, of course, NEVER. Can't do it. Not gonna happen.

Unsterilized QE, at a minimum of $85,000,000,000 per month is here to stay. Permanent and to infinity. BTFD.

TF

About the Author

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  463 Comments

Dec 12, 2012 - 2:49pm

Un-freaking-believable

Go ahead. Tell me I'm wrong... that chart and those volume flows don't lie. You know who is taking the other side of those trades. She stopped this dead in its tracks.

Stick save cartel. I need some hard liquor.

Dr G
Dec 12, 2012 - 2:51pm

This press conference feels

This press conference feels very different to me than prior conferences. Does anybody else agree? It's like Bernank is very scared of what he knows is coming.

meegoreng1
Dec 12, 2012 - 2:54pm

The gold and silver prices

The gold and silver prices traded as futures at Comex or LBMA which decides the spot prices are NOT based on FOMC meeting today.

It is also:

NOT based on technical analysis, charts. (sorry Turd)

NOT based on whether we have WAR, instabilities in the ME.

NOT based on equities, bond markets, currencies, interest rates.

NOT based on economic reports like UE, GDP, CPI, PMI, Housing sales, etc,

NOT based on corporate news, corporate earnings, business inventories report, etc.

NOT based on foreign economic reports, MSM reported gold holdings.

NOT based on what Bermonkey utters out of his deceitful mouth.

NOT based on foreign PM trading platforms.

Yes, we all know that the EE have an agenda to suppress the PMs. But these factors above are ONLY used as excuses by them when they manipulate the prices. No, none of them makes much of a difference to the short term direction of PMs.

The fluctuations of the prices are though based on this primary factor:

HOW MUCH THE CARTELS CAN FLEECE THE SPECULATORS WHO ARE ON THE OTHER SIDE OF THE TRADE!

If the speculators are mostly long, then they go short, and vice versa. Why would they not continue this devious and cunning scheme when they have the CFTC and the MSM in their pockets? And this shenanigan will go on like it has been for decades for as long as physical demand is under control by them.

We need a seismic increase in physical PMs demand. I can see that happening with silver sooner than for gold as the supply is dwindling. That is why of all the commodities, silver is most suppressed by them so they can keep the plot going. This coiled spring is one day going to breakout. When silver prices shoot up by $5-10 a day, we will know then that our day has come. At the meantime, these 1-3% fluctuations in prices are nothing more than noise!

But are we there yet? I don’t think so. I believe this will take years to unfold. I hope that I’m wrong. At the meantime, don’t be fooled into losing your hard earned fiat to this evil, nefarious entity by trading in their casino.

Don’t also be fooled by prognosticators who make predictions out of their asses of explosive months and the year ahead. Unless they have definite inside knowledge of when the physical/demand ratio is at a boiling point, their predictions are based out of emotions and hot air.

All they do is set our expectations high and when they don’t come into fruition, we are then severely discouraged to continue acquiring physical metals. I feel a lot of Turdites know this but the newbies are generally devastated if they keep listening to these ‘false prophets’.

Know this that while this manipulation battle has been fought for decades, the EE have been deceiving us about mostly everything else for centuries! So we need to encourage each other to buy physical only and to think long term!

We are not here yet, but it's coming!

ReachWest
Dec 12, 2012 - 2:56pm

@Dr G: Re Bernanke

@Dr G: Re Bernanke Conference

It's hard to tell if he's more nervous than previously or not. He always sounds like he's on the verge of a mental breakdown to me.

rpboxster
Dec 12, 2012 - 2:56pm

So now the BLS-BS

is going to play an even bigger role in market gyrations? Great. I'm sick of "the market" crashing/flying on a manipulated data point far removed from any fundamentals. Every algo is now going to be set up to predict when QE4EVR may end based upon fudged employment data points.

tobydaniel
Dec 12, 2012 - 2:57pm

Right Groaner

Thats why I could care less about QE any longer. Silver did better without open QE! From 4 to 20 dollars without open QE. Sounds good to me. When is the last time silver even doubled since then and held? QE is just nonsense and noise. Silver will do fine regardless of QE because of the supply issues. Yes, I sound like a broken record but the supply issues is the only issue that concerns our bankers. Otherwise, they can do whatever they want. Just look at silver right now. Not even at 34 yet even after this 45 billion MBS buyback that was just announced. They are in full control and they know it. That will end when supply ends. Not a moment sooner. In the meantime, the paint will dry just fine:)

Mudsharkbytes
Dec 12, 2012 - 2:58pm

The Bernanke giveth…

…and the Masters taketh away.

treefrog
Dec 12, 2012 - 2:58pm

dgstage,

paas*, slw, ssri, and ag!!

*i think you have a typo.

Nana
Dec 12, 2012 - 2:58pm

The Bank Of Bernank

Did BennyBooBoo finely realize that gold and silver is money?

Dr G
Dec 12, 2012 - 3:00pm

Unemployment will stay above

Unemployment will stay above 6.5 until the next election cycle. Let's say, Sept of 2016. That's my guess.

Bernanke just admitted as much when he said UE above the target for the next 3 years.

Geez, that's a lot of money being printed.

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