Today
James Turk spoke with King World News about the Fed purposely allowing a
Lehman-type blowup to occur, the stunning news about what is taking
place with the Fed’s balance sheet, Friday’s gold and silver smash, as
well as what to expect going forward.
Here is what Turk had to say: “When
we get days like Friday with big price drops in the precious metals,
Eric, two things come to mind. First, there have been a lot of similar
smashes in precious metal prices over the past decade, particularly on a
Friday. Why on Fridays?”
“These takedowns are intended to have the
maximum psychological effect. The best way for the commercial shorts
and the central planners to do that is to keep people pondering over the
weekend about the big price drop. Big price drops often get some weak
hands shaken out of the market, particularly when the weak hands have a
whole weekend to worry about it.
It also gets people who intend to buy gold
and silver to put off their purchase, either because they are too
worried to buy or because they think they might get a lower price if
they wait to buy at a later date....
“However, the reality is that the
day-to-day movements should not distract you from the main goal, which
is to continue accumulating gold and silver because they remain good
value and are in important long-term uptrends.
Friday is also another good
example of how the shorts and central planners have been killing the
black-box short-term trend followers who mindlessly do whatever their
mathematical models tell them. These models have the pretense of
sophistication, but one really doesn't need complex math to see whether a
price is in an uptrend or downtrend. Over the past week or two the
trend-followers have been selling their long positions and going short.
As of Friday's big price
drop, the last of these short-term trend followers threw in the towel.
All of the black-box trend followers are now on the short side. The
sales by these trend followers give the commercial shorts and central
planners the opportunity
to buy back their existing in-the-money short positions from when they
sold everything they could - even throwing the kitchen sink at gold at
$1780 and silver ay $35 to keep them below these key resistance levels.
These black-box trend
followers have been buying high and selling low time and again, getting
their pockets picked in the process. But Friday also highlights
something else that is ominous. When markets sell-off across the board,
with the exception of the dollar, which receives the proceeds from
various asset sales, it raises the possibility that a Lehman-type
blow-up is in the cards. The weird thing is that the Fed may be
allowing it to happen. Here's a curious observation, and I'm not quite
sure what to make of it.
It's been nearly two months
since the Fed announced QE3, but the Fed hasn't been buying any
securities. Its balance sheet is the same size today as it was in
mid-September when it announced QE3. Why is that? Is Mr. Bernanke
purposely not increasing the Fed's balance sheet so that he can't be
accused of juicing the markets before the election? Or is there some
other factor at work here?
It is a real puzzle, but we know why the stock market
is in a funk. The Fed has not been adding any juice to the system. In
fact, the amount of total assets in its balance sheet is basically
unchanged since last summer. The stock market rose in anticipation of
QE3, but is now starting to falter because Mr Bernanke has not opened up
the tap, despite his September announcement to do so. As a
consequence, the stock market is turning lower, and we have some
knock-on pressure being applied to gold and silver.
This observation goes back
to an expression coined by Richard Russell which I believe he started in
the 1980s - “inflate or die.” If the Fed doesn't start pumping juice
soon, the stock market could tank. It's not the economy that has kept stock prices up at these levels; it is Fed money printing.
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