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

Hrunner
Dec 13, 2012 - 10:22am

@Boatman

I'm all for disease prevention. Agree with Dr. G our lifestyle has created / exacerbated/ significantly worsened chronic diseases that are our major issues- heart disease, diabetes, et al. Exercise and diet are cheap and effective treatments for what ails you.

However, I'm sorry, I've treated many, many patients who led extremely healthy lives and simply were afflicted with diseases that eventually afflict all of us.

Atherosclerosis, cancer, Alzheimer's, are part of the aging process. Everyone has some or several of these as they age. You and I and Dr. G all have some atherosclerosis in our coronary arteries as we speak. I know. I have seen the coronary arteries of hundreds of pathology and autopsy specimens.

Cancer is caused by a combination of environmental genetic 'insults' (something we can partly modify) and mutations that occur as part of cell division (something we cannot modify) which is required for us to survive (turnover of skin, bone marrow, GI tract, even brain).

Not trying to get too heavy on you, and I respect your own journey to achieve your best personal health. I just want to level-set the discussion around the idea that all human health problems will be solved with diet and vitamins.

H

Hrunner
Dec 13, 2012 - 10:36am

New thread

If I am not too presumptious to take on this job usually reserved for Xty or Dph , to announce

New thread

Mickey
Dec 13, 2012 - 3:05pm

The hits keep coming, but

if you have been here or in PM for a while you know it is going to happen-you just do not know when.

So what do you do?

Do you write near the money covered calls on your miners? Do you lighten up after a run up?

Anything to bank some money. Or you can -if your are having a feeling something is imminent, buy puts.

Are you on dollar averaging for physical. So the question is what are you doing?

So you sell at or near the bottom on a regular basis. And get back in near the top (whipsawing)

you need to have the intestinal fortitude to sell something during a rally and buy on a day like today.

In other words, do you have a core portfolio and a trading portfolio. And not talking about day trading--just selling when you have nice profits and buy back after a beat down.

easy to say, difficult to do.

one other question is whether you believe and understand if or why PM are in a long term bull market. And what are the signs the bull is over.

just pointing out lessons learned over 42 career years. And that to really learn you have to make mistakes, realize it and correct them.

old tradesman
Dec 13, 2012 - 6:13pm

ok whats peter say

Ben Bernanke throws the dollar over the Currency Cliff

Feel better now

DayStar
Dec 13, 2012 - 9:33pm

Harvey's Up!

The Fed did QE4 and nobody noticed--for now. Quaintance and Brodsky claim it's the Eastern bloc and not JPM that is price fixing. Jim Sinclair says these days the primary power of the governments to control metals is the compliance of the press. ZH notices the epic plunge in the BDI. Centamin in Egypt was shut down because they would not fund a shakedown from General Petroleum. Mark Grant says the Fed has reneged on its commitment, and its credibility is shot. All this and more on...the Harvey Report!

https://www.tfmetalsreport.com/comment/582205#comment-582205

DayStar

Silverman
Dec 14, 2012 - 9:40am

What happened with first

What happened with first thread?


Dec 14, 2012 - 9:45am

Silverman-

The last thing that loads for me is your post there, and nothing after... did you post a pic that contained a virus or something? All I know is that your avatar and an "X" ed- out space where a photo (I think) would go is all that shows up, and nothing else below that on the page... just FYI.

That thread won't load anymore for me, that's all I know.

While I wait, I will listen to this: ;-)

achmachat
Dec 14, 2012 - 9:45am

whoa!

Silverman crashed TFMR!

Silverman
Dec 14, 2012 - 9:51am

Sorry guys!

I embedded song from youtube. I can't delete it. I only see my icon.

Silverman
Dec 14, 2012 - 9:52am

Song is this.

MC Miker G & DJ Sven - Holiday Rap
Silverman
Dec 14, 2012 - 10:01am

There's no delete button. 

There's no delete button.


Dec 14, 2012 - 10:02am

Dude, it may not be you at all

You might try to go to your history (click comments header at the top of this page, then type in your name) and see if the post shows up there. If it does, try to delete it just to see if that's what is causing it.

It's probably not you at all, just coincidental timing.

That will not keep us all from scape-goating you for it, though ! "BOOOOOO Silverman. BOOOOOOOOOO!!!!"

Edit: I have it figured out- the site chose to crash on it's own because you played "MC Miker G and DJ Sven"... the server just shot itself in the head rather then listen to that one... sad, really.

Try "edit" then just delete the typing / video

obiwan
Dec 18, 2012 - 2:52pm

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