"Don't fight the Fed" (or maybe DO?)

[bushi]

Hello,

In the current shit "recovery", the one and only thing (IMHO) that keeps investment demand for gold low, and thus - prices lower than we believe are warranted, is the fact that the momentum is in stocks (EDIT: DISCLAIMER by "investment demand", for the purpose of this post, I understand the broad crowd of people, who actually do that mainstream "investing" thing - and not the people, who like ourselves take physical delivery, or indeed, fight in front of gold shops in China to get ANY gold at discount price, like it was a Black Friday and they were selling the latest "Assassins Creed" at half price, or something (man, how fucked up our western priorities are, on average!)). So, these people invest in stock, rather than "barbaric relic". And everybody & their dogs knows, talks about, that this is not real, it cannot last, when the Fed stops stimulating there will be crash etc etc etc etc. I mean, even CNBC.

But, what if Fed doesn't stop stimulating? Shall we be afraid that they'll keep pumping stocks higher & higher, therefore, putting more lipstick on a pig, and making PMs look less & less attractive in comparison, therefore impacting demand, therefore impacting the price?

I do not think so, it just doesn't pass the smell test - if all that's needed for keeping stock market up, is Fed printing, and then - everybody, just put every penny of your salary into stocks - and hey presto, everybody's getting rich! Why wouldn't they do that all the time, if it was all?

Here's some great article, putting some numbers behind my "gut feelings":
http://www.hussmanfunds.com/wmc/wmc130603.htm

some quotes:

One of the most strongly held beliefs of investors here is the notion that it is inappropriate to “Fight the Fed” – reflecting the view that Federal Reserve easing is sufficient to keep stocks not only elevated, but rising. What’s baffling about this is that the last two 50% market declines – both the 2001-2002 plunge and the 2008-2009 plunge – occurred in environments of aggressive, persistent Federal Reserve easing.

Strikingly, the maximum drawdown of the S&P 500, confined to periods of favorable monetary conditions since 1940, would have been a 55% loss. This compares with a 33% loss during unfavorable monetary conditions. This is worth repeating – favorable monetary conditions were associated with far deeper drawdowns.

Part of the reason that monetary policy was so ineffective during 2001-2002 and 2008-2009 is that these market collapses were preceded by overvalued, overbought, overbullish euphoria, and then gave way to economic downturns. Though monetary policy certainly fed the preceding bubbles, monetary policy did not prevent or halt those recessions, and those recessions were not broadly recognized until stocks had already lost about 30% of their value.

so... repeat after me: This is not a bubble... This is not a bubble... This is not a bubble...

 

[rblong2us]

This is what worries me.

We gold bugs have effectively placed our bet on the Fed not being able to maintain market stability, as past history has shown that at some point they are obliged to allow corrections to manifest.

Yet somehow they have held off 'what must happen' since 2009.
And for 4 years they have demonstrated an effective level of control in all 'systemically important' markets and financial services.

Now if all it takes is careful money printing and issuance, so only 'trusted' orgs get access to the newly printed paper, what might need to occur, in order for markets to function as markets once again ?

The people running things are not entirely stupid deer in the headlights and if we bugs can discuss possible scenarios, its pretty certain they will have discussed them and put things into place / play to counter.

Just how many certain disasters have we read about, predicted by the alt media that have somehow been averted ?

Which leaves me wondering if our bet can only work if something unforseen occurrs

and how long do we wait for such an event .................

 

[bushi]

rblong, let me ease your worries: which part of "unsustainable", makes you think, that it can be sustained . As for the timing: might be still able to function for a couple of years, but decade(s)? Hell no. We have crises happening with increasing frequency, '70 (here at least there was some real world shortage - oil), '80, 2000, 2007 - so we are knocking at the doors of the next one, I believe.

This is something to be expected, I believe, when we hit the limits of growth, limits of indebtedness (which is one and the same thing in today's idiotic monetary/economic system, pushing us all into being debt slaves (on average)).

This behaves like a classic feedback system, with inherent instability built in (...thank you John Maynard!)

EDIT: But ranting aside, read the linked article, it clearly demonstrates, with hard, historical data, that money printing, while definitely helping to blow bubbles, does not prevent them from collapsing later on. More over, when they do collapse, than landing is much more harsh, if the monetary policy was "soft" in the lead up to the crisis, than when it wasn't (surprise, fecking surprise!). Following logically - if the monetary policy is ultra-soft, when it hits the fan again this time, the crash is going to be ultra-harsh.

 

[Aubuy]

The only reason that things have "value" is because people believe they have "value". Today I believe in domestic stocks, tomorrow I'll believe in bonds, or maybe some more gold, and a week from now I'll be back on emerging markets, and then Japan, or maybe China, then back to stocks depending on whether or not a Russia missile has shot down an Israeli jet trying to bomb an Iranian nuke in the Syrian desert on the way to a Turkish rally celebrating Egyptian independence. It's a shell game and if you can keep track of the pea you can win a stuffed animal from the FED.

 

[DSAbug]

Remember when the fed kept the nasdaq from crashing in 2000-2001?

Remember when the fed stopped the housing bubble from bursting in 07-08?

Neither do i...

 

[Aubuy]

Remember when the fed kept the nasdaq from crashing in 2000-2001?

Remember when the fed stopped the housing bubble from bursting in 07-08?

Neither do i...

There is a big difference between then and now. The Fed is no longer constrained and is willing and able to commit TRILLIONS OF $$$$$ to buy any kind of asset they want (mortgages, stocks, foreign currency, gold, you name it) They didn't have that kind of mandate before.

The Fed can prop up the housing market and the stock market. They can even offer negative interest rates. Imagine being paid to take out a mortgage? It's only money.

 

[ancona]

The minute Bernanke says "taper" out loud, the algorithms are going to punch a hole through the floor in the market, just to teach him a lesson. Heroin withdraw can take years and years.

 

[Aubuy]

The minute Bernanke says "taper" out loud, the algorithms are going to punch a hole through the floor in the market, just to teach him a lesson. Heroin withdraw can take years and years.

The NSA will probably keep the algorithms from doing much damage and the Fed computers will make sure the banks are safe. We're watching a video game now.

 

[DSAbug]

The Fed can prop up the housing market and the stock market. They can even offer negative interest rates. Imagine being paid to take out a mortgage? It's only money.

Ah so we are printing prosperity and there wont be any consequences? This party will go on forever?

What we are going through right now is very similar to the 1974-1976 period. Dow hit a new high and gold went from 200 to 100 dollar an ounce over that period. Everyone was shitting on gold and was convinced the fed had it all under control.

Then gold goes to 800 inside of 4 years and suddenly, inflation is a problem again. They have to raise rates into the double digits to get it under control. Inflation is coming and it will be a complete :doodoo: storm.

 

[Aubuy]

Ah so we are printing prosperity and there wont be any consequences? This party will go on forever?

Then gold goes to 800 inside of 4 years and suddenly, inflation is a problem again. They have to raise rates into the double digits to get it under control. Inflation is coming and it will be a complete :doodoo: storm.

I'm pretty sure inflation is already here (at least based on what I am seeing in my medical bills). However, for some reason nobody is really hitting the panic button yet. I don't really understand why. Perhaps now that everything is done by computer that we really are living in a different world and things can be manipulated under the radar that keeps the party going. Things are happening in the markets right now that I did not expect. What Japan is doing for example does not make rational sense to me, based on the amount of debt they already have (the world record) except they are doing it anyway. Not sure what to make of that.

 

[Jay]

The NSA will probably keep the algorithms from doing much damage and the Fed computers will make sure the banks are safe. We're watching a video game now.

I've felt like I am schizophrenic for a little while now...

 

[rblong2us]

so is it different this time ?

with so much more fine control available and the population suitably passive .........

or will the lessons of history have to be relearned ?

I may not be able to wait long enough to find out )-:

 

[Aubuy]

so is it different this time ?

with so much more fine control available and the population suitably passive .........

or will the lessons of history have to be relearned ?

I may not be able to wait long enough to find out )-:

Never before in human history have so many people spent so much time talking and looking at a "screen". When I stand back and watch people ignoring each other in a crowd but completely captivated by what is happening on their cell phone I start to worry. People are losing the interest and ability to communicate face to face with each other. The next generation of kids is not comfortable writing a simple letter or making a phone call. All they know is what Facebook (and other sites) are telling them. I think the population can be manipulated in ways that are not clear yet, but you can see it coming. NSA is working on ways to know us better than we know ourselves. Facial recognition software is going to be embedded into Google Glasses. Information can be customized to the individual to try to manipulate a response. Just do a google search about "gold" and every website after that has advertising for gold popping up. The last election was the first to use that kind of customized advertising to get to voters. Depending on your interests, age, demographics, etc. you got a different message sent to you. There is no "history" to learn from. We are moving into truly uncharted territory.

 

[pmbug]

... Just do a google search about "gold" and every website after that has advertising for gold popping up. ...

Not if you are blocking Google's cookies.

 

[Aubuy]

Not if you are blocking Google's cookies.

I don't think the average person can really block them. I have removed cookies and seen them "magically" reappear even though I didn't move to another website. I would guess that expert users know how to keep them out, but the rest of us are being tracked. There are layers upon layers of software and the public never sees the man behind the curtain.

 

[ancona]

Aubuy,
Just use Startpage and go where you want to from there. No cookies to begin with.

 

[Aubuy]

Aubuy,
Just use Startpage and go where you want to from there. No cookies to begin with.

I had no idea. Now I can ask all kinds of search questions that my common sense says my curiosity shouldn't be thinking. Thanks for the tip!