World's Central Bank
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8/27/12

Something stinks in markets world-wide.  Price action indicates traders and investors are buying stocks to capitalize on future monetary easing.  Are we seeing the results of the meetings and phone calls late last month between Obama, Bernanke & Geithner and their eurozone counterparts?

The president doesn’t want markets to fall apart before the November election.  Bernanke wants to delay any quantitative easing until after the election so he isn’t accused of political intentions.  Geithner is just taking orders from the President.

What did they tell European leaders and bureaucrats?  We can imagine:

Shut up.  Quit talking so much.  We don’t need public discussions of all the preparations that have to be made to let Greece out of the eurozone.  It serves no purpose to discuss how bad things are in Spain and Italy.  Of course Germany, Finland and the Netherlands will require punishing conditions on any bailout terms, but you don’t have to give press conferences!

Of course we were not on the phone to hear the actual conversations, but doesn’t it make sense?  Since the first part of August, there has been a virtual news blackout on the back and forth headlines about the worsening problems in Greece, Spain and Italy.

It helped that Europeans traditionally take ‘holiday’ in August, so Angela Merkel went hiking and others headed off to private islands and away from the press.

Last week they started coming back from ‘holiday’ and the market picked up the ‘headline risk flu’ until Friday when Bernanke sent a letter to congress.  Isn’t it amazing how the letter was made public after the market opened Friday morning?  By a republican!

The fix is in.  The Fed wants to counterfeit some more money.  They want to do something.  They are just afraid it may not work, so they need help from the Europeans.

The U.S. Federal Reserve is now the World's Central Bank

Bundesbank President Jens Weidmann expressed concern about the European Central Bank’s plan to buy bonds from troubled countries to Der Speigel.  Weidman warned that monetary easing can “become addictive like a drug.”  The General Secretary of the Bavarian Christian Social Union political party commented last week that Greece wouldn’t be part of the eurozone by 2013.

Angela Merkel was interviewed on ARD Television yesterday.  She wanted to tamp down the ‘unhappy talk.’  Chancellor Merkel told ARD Television that such comments were damaging as crisis fighting reaches a “decisive phase.” She praised the Greek government for making “serious efforts” to reduce its debt and said “Everybody should weigh their words very carefully.”

While she wants the members of government to watch their words, she praised Weidmann for continuing “to make demands on policy makers.”

Interesting.  Merkel assumes the Bernank will call Weidman and ask him to tone down the critical comments.

Rick Santelli mentioned this morning that Rick Rule equated Monetary Easing or QE (Quantitative Easing) with counterfeiting.  Rick Rule is manager of the Sprott Global Resource Investment Fund ($1 Billion). What is the difference between QE and counterfeiting?

Simply, who prints the money.

Paper money is only worth what someone else will honor it for in goods or services.  There is no intrinsic value behind the dollar since the gold standard was dropped in 1971.  What is it worth when no one wants them?  Try to sell China some U.S. Treasury Bonds.

We continue to be negative on the market.  The downside risk is much greater than any possible gain.  What is the market going to do if Bernanke doesn’t tip his hand to more QE on Friday in Jackson Hole?  What happens if the eurozone decides the Greeks are not serious about cutting their deficit?  What happens will not be pretty.

The mailbag:
Maybe the US needs join the eurozone! Perhaps then, someone would tell those who supposedly represent us that they need to cut a trillion or more from our deficit.---Long-Term subscriber R.A.

John’s reply:  That someone would be the Germans.  Our day is coming.

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