Bernanke's Victory

Tue, Mar 5, 2013 - 11:40am

He's done it! I would imagine he feels pretty good about himself today, too. He's likely receiving congratulatory calls from his banker friends around the globe. Gift baskets from Dimon and Blankfein arrived earlier this morning, too. The stock market is back to alltime highs! I can hear the popping of champagne corks all the way out here in flyover country.

So what does all this mean? I mean really, what does it mean? U.S. stocks are back to 2007 levels yet millions are unemployed, food stamp usage is double what it was then and the cumulative U.S. debt has been doubled, too. What are we to make of this?

Well, let's try to keep things in perspective. First of all, even if you use the crappy, government-issued CPI, stocks are still 20% below their alltime highs when adjusted for inflation. Sure, your 401(k) balance may be back to where it was six years ago but the value of your dollars and your purchasing power certainly aren't. And again, what about all of those folks who own very few, if any, stocks? ( How's the "wealth effect" working out for them?

Regardless, let's focus on this wonderful market of stocks and relate it back to the precious metals, which is what primarily concerns us today. First of all, though CNBS is all aflutter with the new stock market highs, maybe someone should show them this chart. Hmmmm. Looks like gold is still a better investment over the past five years, even with the ongoing manipulation.

And what about that manipulation/suppression? Well, here are two fun charts for you. (Perhaps you should print them off and hold them up the light?) Note how both gold and stocks were trending steadily higher for the first two years of QE. From March of 2009 until summer of 2011, the S&P rallied from 700 to 1300 and gold rose from $900 to $1600...almost the same percentage. But then what happened? Well, the proverbial sht hit the fan. The U.S. hit the "debt ceiling". Washington politicians showed themselves to be completely worthless in slowing the expanding debt. The Standard&Poor's credit rating of the U.S was lowered. At the same time, the only remaining fiat currency that showed any life at all was the Swiss Franc. Because this currency strength was deemed to be detrimental to the Swiss economy, the SNB decided to peg the Swissie to the euro. This sudden move left gold as the only remaining safe haven currency.

Look what has happened since. U.S. stocks are UP almost 40% while gold is DOWN nearly 20%.

This, folks, is central planning and market manipulation at its finest worst. Global central banks print a nearly-unlimited amount of fiat money and this money flows into stocks and other paper assets while at the same time, the Bullion Banks (of which several are Primary Dealers for The Fed) actively depress the prices of gold and silver in order to spur confidence in the current system. The HOPE is that this MOPE will generate a belief that all is well and that recovery is nigh...that all is well and everything is back to normal. The problem we all know...all is not well and there is no returning to "normal".

But The Fed and their minions can certainly try. Take a look at this chart of the S&P:

OOPS! That's a chart from last year...last February to be precise. Upon further review, you can sure see why I was so confused. Take a look at the current chart:

Nah!! I'm sure that having these two charts be nearly identical is just happenstance and coincidence. Of course it is! The odds of nearly identical performance at nearly the exact same time of the year, two years in a row, are only...astronomical. And then consider this further coincidence...Shirley, there's nothing to see here: QE∞ gets announced in September and confirmed in December. All the while, stocks rally and gold dives.

So, anyway, what's the point of all this? I guess it's just to remind you that it's all an illusion. Back in October, I wrote this post and perhaps it's time to read it again. ( To save time, here's a c&p of the final paragraph:

"So remain patient and buy the dip. Keep stacking and continue preparing. Though any quality magician can temporarily suspend your belief in reality, in the end it's all just an illusion. The laws of physics eventually trump the magicians skills just as the laws of economics will, one day soon, blunt the accumulated efforts of The Fed, the banks and their willing accomplices in government and the media."

The magicians have now suspended reality with this current trick for nearly six months. I suppose that they can continue this illusion even longer...but not indefinitely. This will end eventually and reality will, finally, return. Of that you can be certain. In the meantime, try not to be discouraged. You have done well to prepare yourself for the inevitable. Believe in what you know and act accordingly.


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Key Economic Events Week of 6/27

6/27 8:30 ET Durable Goods
6/27 1:25 ET Jul22 Silver option expiry
6/27 10:00 ET Pending home sales
6/28 10:00 ET Consumer Confidence
6/28 10:00 ET Richmond Fed
6/28 12:30 ET Goon Daly
6/29 8:30 ET Q1 GDP final guess
6/29 9:00 ET Chief Goon Powell
6/29 11:30 ET Goon Mester
6/29 1:00 ET Goon Bullard
6/29 1:25 ET Jul22 Silver off board
6/30 8:30 ET PCE and Core PCE
6/30 8:30 ET Pers Inc and Cons Spend
6/30 9:45 ET Chicago PMI
7/1 9:45 ET S&P Manu PMI
7/1 10:00 ET ISM Manu PMI

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