$4.136 trillion x 0 = 0.00
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6/12/12

Yesterday’s rally disappeared faster than ice cream at Disneyland in the summer.  This morning, we are treated to higher futures.  The reason given by the talking heads on TV is traders and investors have decided the FOMC will come out strongly for another round of QE next week when they meet.  Good luck.

You have got to be kidding me!  Investors and traders are willing to risk their money after a hard sell-off because they think Uncle Bernank is going to pump money into the system?  Wow.  Market action for the last thirty days has cut up even the most experienced traders.  You can’t anticipate stupidity such as this.  All you can do is keep your head when others are losing theirs.

We don’t think the FOMC will endorse another round of QE next week.  Operation Twist is still in effect (it ends this month).  The FOMC will wait until their next meeting at the soonest to initiate any market operation.  The question is, “What good will it do?”

The world is not short of liquidity, we are short of velocity.  The Fed has expanded their balance sheet by $2.3 trillion dollars in previous quantitative easing operations.  The European Central Bank (ECB) loaned $1.336 trillion in their Long Term Refinancing Operations (LTRO) last winter.  The Bank of England has printed over $500 billion dollars worth of pounds to prop up the British economy.

$4,136,000,000,000.00 printed by the three central banks (who knows about China) and what do we have to show for it. The money went into U.S. banks and back to the Fed in overnight deposits and treasury bonds. Money from the LTRO went into dodgy sovereign debt, then pledged back to the ECB for more credit whence it was loaned back to the ECB overnight in record amounts. Why would banks loan money on property they can’t foreclose on? Businesses are awash in cash, they don’t need loans.

$4,136,000,000,000.00 times 0 velocity = Zero

As politicians look for their latest scap-goat to blame for the voters problems, bankers are a good target.  Passing more laws and regulations must be the answer.  Make it hard to foreclose on Aunt Bessie because she didn’t do anything wrong (except borrow 120% of appraised valuation on a first and second mortgage with a three year adjustable low doc loan because she didn’t have any income).

The end result…the money sits.  It doesn’t go to loans to buy homes, it doesn’t go to work in business loans, it just sits in Treasuries and overnight deposits.

The Bernank can launch another round of QE, and the same will happen, based on Monday’s experience the half-life of another round of QE will be a much shorter stimulus to equity markets.  Employment will continue to be weak, the GDP will continue to grow at a slow rate, crude oil, Gold, silver and copper will rally.

Precious metals are rallying today on news out of the eurozone that a “new” plan is under consideration that eurozone countries would pledge their central bank gold to partially back sovereign debt.  We think there is a fly in this ointment.  Many central banks don’t actually have gold in their vaults, at least not as much as the world believes.

The reason for this is they “loan” it out.  A room full of gold does not pay dividends and costs money to secure, so banks “loan” it to miners and dealers that need to make delivery for a small fee.  The borrower then replaces the gold at an agreed upon later date.

How much gold has been sold into the market to suppress the price over the last three years?  We don’t know, but know that central banks are actively engaged in suppressing gold and silver prices.  They have to; the worst publicity they could get is skyrocketing precious metals.  Everyone would surmise currencies were becoming worthless compared to precious metals if gold went to $3,000 per ounce.  This would create velocity of money, but not where the bankers want it.  Money would flow to precious metals!

When central banks have to start calling their “loaned” gold back, it will have to be bought on the open market.  We see higher gold and silver prices as the banker schemes reach a climax.

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