Brass Tacks

Tue, Sep 18, 2012 - 10:13am

OK, so it has been a few days since QE to infinity became official Fed policy. There is certainly an abundance of swirling news and discussion out there that dances around the real significance. Today, we cut to the chase.

Let's go back and hit on the main FED points:

  • The Fed will keep rates "extraordinarily low" through 2015
  • The Fed will continue $45B/month in Operation Twist through year end
  • The Fed will begin buying $40B/month in mortgage-backed securities (MBS) with no end date or target purchase amount given
  • So many of us have been seemingly immunized against the jolting effect of these headlines. Not just here at TFMR but nearly everywhere that "awakened" citizens congregate on the internet. We take the headlines at face-value but rarely stop to consider things on the next level. But we need to go there today because without a full understanding of what the true meaning and implications are, you're likely to delay actions that you should be immediately taking.

    So, let's go back to the three bullet points above and take them, one-by-one. First,

    • The Fed will keep rates "extraordinarily low" through 2015

    What is The Fed telling you here? Well, a couple of things. First of all, 2015?? That's three freaking years from now! It's one thing to say that rates will stay low for the next 6-12 months. It's something entirely different to say three freaking years! The negative implications of this are dramatic as institutions such as pension funds and insurance companies will be ravaged by the continuance of ZIRP. Additionally, however, what is The Fed telling you about their expectations of economic "recovery"? Despite all of their official forecasts of growth and jobs, it sure doesn't seem that they believe it. Like the old adage says: Watch what they do, not what they say. We talk here incessantly about the miserable economy and the dim prospects for recovery. It is now clear that The Fed feels this way, too.

    • The Fed will continue $45B/month in Operation Twist through year end

    First of all, remember what Operation Twist is. The Fed is selling their short-term maturity holdings (where there is actual demand for "safe havens") and using the proceeds to purchase longer-term notes and bonds. This process is considered "sterilized" because, allegedly, The Fed isn't creating any new money. They are simply "re-positioning" some of their "assets". Whatever. I don't care to get sidetracked as to whether or not this is really a "sterile" process. All that matters is that The Fed is currently executing this strategy to the tune of about $45B/month. The problem for them is, they're almost out of short-term bills and notes to sell and, once this inventory of paper is depleted, the $45B/month is going to have to come from other, "non-sterile" sources.

    Fed vs. Private Sector Treasury Holdings

    The Primary Dealers! Goldman, The Morgue, MorganStanley, Citi, BoA...all of them. They own or purchase new the MBS which The Fed buys from them. And here's the very important next step: The Primary Dealers turn around and use the proceeds from these sales to buy U.S. treasuries! To the tune of $85B/month. Let me do the math for you...that's slightly more than one trillion dollars over the next year. And what does the Congressional Budget Office project the U.S. federal deficit to be in fiscal 2013? It will again be north of one trillion dollars, at a minimum.

    At the end of the day...and here's where we get down to brass tacks...last week The U.S. Federal Reserve announced a plan whereby they will be almost completely and directly monetizing the deficit spending of the U.S. government. Though the illusion of legitimate borrowing will be maintained and politicians will continue to claim that "we're borrowing all of this from China", you should not be fooled. We have entered a new paradigm of direct debt monetization. By doing so, The Federal Reserve has begun the process of overt currency debasement and devaluation.

    Your only financial protection from this game-ending disaster is the ownership of physical precious metal. Though, in the short-term, dollar-denominated paper assets may perform reasonably well, they offer no long-term protection against your inevitable loss of purchasing power and wealth. Only physical precious metal can protect you in the days ahead. Buy some and add to your stack before it's too late.


    p.s. I plan to discuss this post in greater detail later today at

    About the Author

    turd [at] tfmetalsreport [dot] com ()


    Sep 18, 2012 - 7:15pm

    @ srsrocco

    Have you ever considered the impact of increased environmentalist intervention on future mine production or its impact on exploration of potential mining sites? I know this is hard to quantify, but it is sure to have a profound impact.

    I Run Bartertown
    Sep 18, 2012 - 7:17pm

    Uh Oh

    Just kidding, 145Bluesman. I know Spetsnaz is badass and all, but I couldn't resist. And if they start at the top (where we'd all like to anyway - let them have at it) they'll be worn out before they get to lil 'ol me.

    Seems to me, the .gov is building the model with 250,000 or so private contractors in the middle east. I think they could raise numbers (from anywhere) that would dwarf anything a foreign government would commit to US shores, even with the complicity of factions within our own government. Doesn't matter...our own military, feds, private military, foreign military...nothing could successfully occupy the US in a full rebellion type situation.

    Sep 18, 2012 - 7:17pm


    DARK PH... I see you always come up with a way to look on the so-called BRIGHT SIDE of things. I do respect that. However, we must remember, there is this little thing called EROI. Mining undersea is like mining on the moon... both would be very expensive. There is only a few mines that will be mining the sea floor (one in copper), but its right offshore. Anything more than a mile or so is not commercially viable.


    Why are we screwing around on land, when there is all this gold in the sea and oceans?

    Sep 18, 2012 - 7:24pm

    @ Bartertown

    Damn.... Absolutely insane..

    Horrible stats.

    So much money put into DHS, to fight the boogeyman "terrorist", but we can't even keep our own backyards safe.

    Prepare accordingly, cause it's not gonna get any better.

    Your posts are always real and down to earth, and I appreciate that. Thanks

    and SHTF plan .com posted a good article today on the dollar index... nothing that most here don't already know, but good none the less. It's a great site too, with a good community of posters.

    keep stacking...

    Sep 18, 2012 - 7:26pm

    Tax Policy Center

    Tax Policy Center is run by a former economic advisor to Obama. I am skeptical of any statistics from them.

    Sep 18, 2012 - 7:26pm


    I completely agree. It's not viable at this time and maybe for quite some time.

    My main point being that there is a lot more gold then we might imagine and most of it might be right under our noses in some respects. Someday (next year/100 years?) someone will figure it out or accidentally find a significant 'lode I think. All it would take is one fairly shallow mega vein(s) along a old volcanic rift. Indonesia, maybe New Zealand/Australia?

    Also.....when in doubt, make lemonade. It always comes in handy for whiskey sours later wink

    Sep 18, 2012 - 7:38pm

    DHS Purchases 200 Million More Rounds of Ammunition

    A series of new solicitations posted on the FedBizOpps website show that the DHS is looking to purchase 200 million rounds of .223 rifle ammunition over the next four years, as well as 176,000 rounds of .308 caliber 168 grain hollow point boat tail (HPBT) rounds in addition to 25,000 rounds of blank .308 caliber bullets.

    As James Smith over at the Prepper Podcast website highlights, “It is the type of ammunition and not necessarily the quantity that is troubling.”

    Smith points out that the DHS’ acquisition of .308 rounds is of concern because they are set to be used by well-trained snipers.

    Rest of story:

    Sep 18, 2012 - 7:38pm

    @ IRB

    " And if they start at the top (where we'd all like to anyway - let them have at it) they'll be worn out before they get to lil 'ol me"

    True that, and funny as hell IRB

    hat tips for you

    gdog Puck Smith
    Sep 18, 2012 - 7:42pm

    @Puck: $50Bn...

    Heh...pretty much. The piece that registers with me is how congress may view this tax exemption. If congress views it poorly the 72 US based mutual funds operated from the Cayman Islands, whose holdings are 100% commodities, (all other MF can only hold 10%) granted special tax exemption (free) from the IRS would be forced to liquidate 90% of their commodities contracts since US regulations specify a limit of 10% investment in commodities. Additionally they would have to pay the standard taxes and restructure their operation. If these assets were to be liquidated, the total value would worth roughly 45 billion. It would not be in the funds interest to dump all of their contracts all at once, however it may be in the cartels interest to liquidate that way and is an easy excuse for a big smack down. Or even several small ones. If this scenario were to occur it would have some obvious consequences to the market and obvously benifit those interested in maintain low prices. (at least until the election if over) Conversely, if congress say's it's ok to operate 100% commodity mutual funds based in the Cayman Islands tax free then we might see more demand on the market due to the loosening of regulation and tax incentive. I don't see that happening though unless their the type of politician who likes to piss off Joe Main St. But WTF do I know... ;) -G

    Sep 18, 2012 - 7:45pm

    Vannilla pudding

    I have always said, What makes this such a great site is the diversity of the group. I suppose for the record I'll be one of the nutcase/whackos here. Don't get me wrong, I'm a trader! Just this spring I helped a friend plant a windbreak and in return he gave me an 8ft. disc. I buy the occasional silver eagle or the sterling egg cups, always been fond of the winged liberty dime and the walking liberty half but for those who think silver and gold are going to save your ass. I think you're delusional! They may benefit your grandkids. A fool and his gold will soon part ways in a societal breakdown. Here in the US there are about 160 million firearms in the hands of about 320 million people. I'd be surprised if 10% of adults have a firearm and I'd be surprised if 10% of those have more than a couple boxes of ammo. then divide that number by how many have a reloader, with enough bullets, powder and primers and it doesn't take long to see that a functional firearm with a few extra parts could easily be worth a monster box of gold eagles in a hurry. Luckily for many here I'm probably just nuts. But lets get back to the vannilla pudding. If this gets to be a mioptic circle jerk of traders your only competion will be cnbc. To survive one needs desperatly to understand and participate in community. Whiners are about as valuble as zombies! Have a nice day folks!

    Sep 18, 2012 - 7:59pm

    Currency War Shot Across The Bow

    Beijing hints at bond attack on Japan

    A senior advisor to the Chinese government has called for an attack on the Japanese bond market to precipitate a funding crisis and bring the country to its knees, unless Tokyo reverses its decision to nationalise the disputed Senkaku/Diaoyu islands in the East China Sea.

    Jin Baisong called on China to invoke the 'security exception' rule under the World Trade Organisation to punish Japan Photo: Reuters By Ambrose Evans-Pritchard

    8:31PM BST 18 Sep 2012

    Jin Baisong from the Chinese Academy of International Trade – a branch of the commerce ministry – said China should use its power as Japan’s biggest creditor with $230bn (£141bn) of bonds to “impose sanctions on Japan in the most effective manner” and bring Tokyo’s festering fiscal crisis to a head.

    Writing in the Communist Party newspaper China Daily, Mr Jin called on China to invoke the “security exception” rule under the World Trade Organisation to punish Japan, rejecting arguments that a trade war between the two Pacific giants would be mutually destructive.

    Separately, the Hong Kong Economic Journal

    reported that China is drawing up plans to cut off Japan’s supplies of rare earth metals needed for hi-tech industry.

    The warnings came as anti-Japanese protests spread to 85 cities across China, forcing Japanese companies to shutter factories and suspend operations.

    Fitch Ratings threatened to downgrade a clutch of Japanese exporters if the clash drags on. It warned that Nissan is heavily at risk with 26p of its global car sales in China, followed by Honda with 20pc. Sharp and Panasonic both have major exposure. Japan’s exports to China were $74bn in the first half of this year. Bilateral trade reached $345bn last year......

    Obama raises threat of China trade war 17 Sep 2012

    Sep 18, 2012 - 8:07pm

    To;145B from; JSinclair

    My good buddy Jim S just sent this note over to me

    Dear 145Bluesman,

    This is a major game changer. It has taken place in a West African gold miner. It speaks to certain African countries as excellent investments. It underscores that prediction of 12 years ago.

    It screams at undervaluation. It is the recognition that gold mines mine money. This is a recognition of the dwindling supply side of gold. This is a recognition that gold is the only Honest Money. This is a recognition of gold's role in high tech.

    The end of the bear market inflicted by the hedges on gold shares is absolutely over. The shorts in good gold shares after today are self destructively insane.

    This is it for good gold shares. The long bull phase in gold shares starts now.

    PS, thanks for the new CD, B-man (it's very good) and good luck on yet another tour. We will see you in Cincinnati.

    Kindest Regards, Jim Sinclair

    Sep 18, 2012 - 8:09pm

    miners bullish percent chart

    Approaching rare air. I'd like to see it level off at 80 for a week.

    Sep 18, 2012 - 8:11pm


    It occurs to me that the China/Japan kerfuffle and the antics in reaction to the video in MENA have consumed a fair amount of the news cycle recently, removing focus from the presidential candidates with only seven weeks left until the US election. I wonder if the timing of these events is purely coincidental, or not?

    Sep 18, 2012 - 8:14pm

    Re: Currency War Shot Across The Bow

    Could be worse than missles. It would have a bad domino effect on the entire economy. And don't forget that if something like a Honda sales takes a hit in China, it could effect plants in the United States. The good people of Lincoln, Alabama, Marysville, Ohio, Greensburgh, Indiana won't think it's a non-event when their local Honda factories start laying off their good citizen's and there are no more jobs at Walmart.

    Sep 18, 2012 - 8:14pm


    I never really noticed as a lurker, but TF metals is a bit of a clique- A-teamers only respond to other A-teamers (unless you are rude or crass then a beatdown is delivered)

    Mediocrity is a bitter pill indeed-

    Dr G Mr.Grey
    Sep 18, 2012 - 8:16pm

    Here in the US there are

    Here in the US there are about 160 million firearms in the hands of about 320 million people. I'd be surprised if 10% of adults have a firearm and I'd be surprised if 10% of those have more than a couple boxes of ammo. then divide that number by how many have a reloader, with enough bullets, powder and primers and it doesn't take long to see that a functional firearm with a few extra parts could easily be worth a monster box of gold eagles in a hurry.

    So you think that children should own firearms as well? A good portion of that 320 million are infants and children. I think your 10% number is far too low.

    Also, a firearm being worth a monster box of Gold eagles (500 oz of gold!) does not bode well for us stackers. If this is true then we are crazy to stack gold or silver.

    Recent Gallup polls show that 47% of Americans have a firearm in their households. It breaks down into 52% of men and 43% of women report having a firearm in their household.

    Recent Gallup polls show that over 46% of adult men personally own a firearm.

    The same polls show that 23% of women own a firearm.

    I will say, that in my state, I don't know many people that 1) don't have a firearm and 2) aren't carrying it with them all the time. This group does not include stackers. It includes lawyers, doctors, mechanics, homemakers, accountants, etc. This happens because my state is not a communist one and we believe in the right to conceal carry for everybody without permit. Just the way it is intended to be.


    Admiral Ag Bar
    Sep 18, 2012 - 8:29pm


    Put a sock it in it! crying

    Beastly Stack
    Sep 18, 2012 - 8:30pm

    1st Congrats

    Congrats Turd for the Santa recognition.That is awesome,I always knew you had it in you.

    Thanks for all your work and that great post this morning!Brilliant indeed Sir!

    Beastly Stack
    Sep 18, 2012 - 8:36pm

    And Now

    Like Bonds I also believe the mother of all shorts is the Japanese Yen.I hit it nice after QE3 and got out yesterday morning below 127.Reshorted last night 12731 with 20 pt stop but liquidated this morning 12722.

    With China threats and all this going on,looks like a great play!

    I have yet to short again because the Bank Of Japan meets tonight,FYI.

    I am hoping I get a little pop up to 12730-40 in the next couple of hours.If I short B4 then I will post.

    Sep 18, 2012 - 8:41pm

    Beastly Stack re: TF / Santa

    Thanks for bringing that up about TF at

    I haven't been over there yet and I must've missed earlier comments on it.

    Nice job TF, cool stuff for sure yes

    Sep 18, 2012 - 8:42pm

    Sorry bar

    Actually wasn't referring to you PFC Bar. Sorry for the misunderstanding.

    Sep 18, 2012 - 8:50pm

    @opticsguy,That sentiment chart is very scary!


    That sentiment chart is very scary! Could we be headed for a sharp "October surprise" in the metals - to the downside?!

    October is traditionally a weak month, and since September got started in August, perhaps October starts next week.

    Sep 18, 2012 - 8:51pm

    The Dangers of a China-Japan Trade War

    The Dangers of a China-Japan Trade War

    By James Parker

    September 18, 2012

    Japan-China-400x270 EBG6NYSM4VCJ

    Protests against the Japanese purchase of the Senkaku / Diaoyu Islands took place in various Chinese cities recently, including Beijing, Shenzhen, Luoyang and Xi’an amongst others. Japanese branded products, including numerous cars (and even a camera belonging to a protestor) were attacked and destroyed by the angry crowds. Panasonic and Toyota as well as Nissan reported damage to commercial properties (a factory and car dealerships respectively). Canon has also closed some facilities whilst Japanese clothing chain Uniqlo chose to shut several locations, and covered signs at others. Protestors have also targeted Chinese owned Japanese branded products - images of which cannot be encouraging for prospective customers. Meanwhile, some Chinese protestors are calling for consumer boycotts of Japanese branded products.

    Consumer boycotts can be damaging and reflect a level of political risk inherent in doing business in foreign markets – they are by no means limited to China. This aspect of political risk is troublesome, but with the growing importance of China’s market, “political risk with Chinese characteristics” must be accepted as part of the business environment. Readers may remember previous rounds of anti-Japanese protests in the mid-2010s, as well as the targeting of Carrefour and MacDonald’s branches in 2008 in response to instability in Tibet and the Olympic torch protests. In a globalized world strong brands and their logos are often taken to represent a country as much as its embassies or flag. If a large brand is operating successfully in a foreign market, they may effectively be on the front-lines of disagreements over which they have no control.

    Consumer boycotts can take various forms and be over various issues....

    Sep 18, 2012 - 8:52pm

    @ dr.G

    I think I was 12 when I first had firearms safety classes but I'd been shooting for a couple of years before that. So whats a fair number of adults out of that 320 mill, 150 mill?

    Now these polls I assume also include such manstoppers as the .25auto and the .380 this would probably account for most of the purse guns. And for those who utilize concealed carry again I'll surmise that the .380 has a sizable following as they are concealable and just damned cute. I'm a collector and so the guys I hang out with mostly would be embarrased if they didn't have at least 50. and many of them have hundreds of firearms. This really cuts into the average of who has how many. Then again alot of those polled have a handgun which is a last resort but better than nothing. Even as we speak a good rifle with good optics has an equivelant worth to an ounce of gold but when the stuff hits the fan what do you want to have in your hand? That gold won't save your life and may endanger it. Balance seems to be the right answer, water, food, shelter, the ability to respond with force and friends.

    opticsguy reefman
    Sep 18, 2012 - 8:53pm


    I agree. Every time the BPGDM has hit 80 there has been a 10-15% beatdown. It might be time to use some DUST for insurance.

    Sep 18, 2012 - 8:55pm

    Harvey's Up!

    In tonight's Harvey read about Chinese banks "horrifying" discovery, some South African miners back to work, GoldCore opines on gold supply, Europe back in risk off mode after two weeks of Draghi jawboning, PPT has to prop US stocks on the same day QEIII is announced. All this an more at


    Sep 18, 2012 - 8:58pm

    Tungsten Anyone?

    Tungsten-Filled 10 Oz Gold Bar Found In The Middle Of Manhattan's Jewelry District

    Sep 18, 2012 - 8:59pm

    Sep 18, 2012 - 9:00pm

    Oh my goodness gracious

    I was just about to post the ZH link, too. WOW!!!

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