This just in!
Instead of printing over a trillion dollars in stimulus per year, the Fed announced yesterday that it will print only $900 billion.
We dodged a bullet there. For a while I thought the stimulus printing was getting out of hand, but now with this “huge” cutback, looks like our future is inflation free!
[Squinting and turning my head back and forth] Errrr, maybe we ought to take a look at what yesterday’s Fed announcement REALLY means…
First up let’s take a step back.
Had you asked if the Fed would announce its official tapering plan in 2013, your editor’s answer would have been “no.”
It didn’t seem like the time nor place to make an official announcement.
Stimulus is going to be with us for a while – and that means inflation can’t be far behind.
Ah, but that crazy-bastard Bernanke always tosses a good screwball. Happy holidays, market watchers!
With a quick announcement, the head of the Fed — in what could be one of his last actions as chairman — gave a concrete cutback on stimulus spending. Going forward (starting in January), the Fed will purchase $75 billion in bonds per month, instead of the previous $85 billion. (Specifically, the Fed will purchase $5 billion less per month of both mortgage backed securities and treasuries.)
I guess old Ben was sick of hearing the catchy phrase from the talking heads “over a trillion dollars of stimulus per year.”
At any rate, after yesterday’s announcement we’ve backed off of that 13-digit, per year, print fest. Come January we’re back down to a comfortable 12-digit, per year, print fest (that’s a “9” followed by 11 “0”s.)
The markets rejoiced. After the 2pm announcement stocks represented by the Dow Jones were up a combined 292 points (1.84%.) Oil and many commodities followed suit. The way the number-crunchers saw it, less stimulus meant the market was indeed strengthening. A stronger market means higher stocks, more burnt crude, more iPads, more grilled tacos, and so forth.
But there was a dunce in the corner…
After the Fed announcement, gold traders headed for the exits. Not in a big way, but in orderly fashion – this is a civilized crew, mind you. However, it’s all hands on deck – we’ll want to keep tallying up daily moves in gold. We’re continuing to see where the market likes to buy and sell – and over time, as it always happens, we’ll get a read on the metal’s next mid-term direction.
That said, my outlook remains unchanged at the moment. Gold remains under pressure and needs to find a level of support before re-establishing an uptrend. So far we can’t seem to hold support at $1,250. However, looking at a 30-day chart, as well as the 6-month chart, there seems modest support at $1,200. Will it hold? We’ll see! One thing that’s certain, though, is that this marks the next important line in the sand for gold. Stay tuned to price action.
But let’s connect some more dots.
The Fed announces the infamous taper and gold stays somewhat range-bound. As of typing this note the metal hasn’t plummeted through $1,200, that’s a telling sign in itself. Especially if you’re a long-term holder of the Midas metal.
I still like long-term gold. If anything the Fed’s taper announcement gave us a look behind the curtain. We moved from a little over a trillion per year in stimulus to a little under a trillion per year in stimulus. Indeed, you don’t quit this kind of monetary meth cold-turkey.
That said, we’ve entered the next stage of the monetary shell game. How much will the next taper amount be? When will the next taper announcement be? What about interest rates?
There’s a lot of guesswork ahead in 2014.
But one thing is for sure. Stimulus is going to be with us for a while – and that means inflation can’t be far behind. Truly, the U.S. government – particularly the Fed – can only print so much money and sell so many low-interest homes before we’ve all got to pay the monetary piper.
Will that inflation hit in 2014 or in 2024? Your guess is as good as mine.
But rest assured that the Midas metal – for “buy and hold” investors — will remain a store for wealth for years to come. When we see an opportunity to “buy the dips” or play the downside from a trading standpoint we’ll keep you posted.
In the meantime let’s give a hearty hurrah for Ben Bernanke. He finally pulled back the curtain – and the casino looks about the same on the inside.
Keep your boots muddy,
for The Daily Reckoning
P.S. Calendar pages come and go. Paper currencies follow suit… With deficits running wild, money printing off the charts, and the prices of food, energy and precious metals just starting to rise, there’s NEVER been a more important time to read Dr. Ron Paul’s “Lost” Gold Bible. I gave readers of yesterday’s Daily Resource Hunter an opportunity to grab a free copy of it for themselves. If you didn’t get it, you might of missed out. Sign up for the FREE Daily Resource Hunter to make sure that never happens again.
Original article posted on Daily Resource Hunter
The purchasing power of the U.S. dollar has been steadily declining for the last 100 years. (Thanks a lot, Federal Reserve.) But it kicked into high gear about 50 years ago. Byron King explains, and takes a look back at the last "hard money" president the U.S. ever had. Read on...
Matt Insley is the managing editor of The Daily Resource Hunter and now the co-editor of Real Wealth Trader and Outstanding Investments. Matt is the Agora Financial in-house specialist on commodities and natural resources. He holds a degree from the University of Maryland with a double major in Business and Environmental Economics. Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department. Over the past years he's stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.
Dr. Marc Faber discusses the Chinese stock market, as well as the contagion risk posed by the Greek debt crisis and the prospects for a resolution...
Puru Saxena explores Greece’s referendum, which will determine whether or not the nation accepts its creditors’ austerity measures...
Jim Rickards sat down one-on-one with Ben Bernanke on May 27th. Read on to listen in on their conversation and learn why “the international monetary system is not coherent”...
Charles Hugh Smith reports on why papering over the structural imbalances in the Eurozone with bailouts or bail-ins will not resolve the fundamental asymmetries in trade...
Chuck Butler discusses the stimulus in China and what he sees are the differences, plus details as Greece arrives in Brussels with their latest proposal for an agreement. All that and more in today's Daily Pfennig...
With the oil sector cruising in low gear since last year’s price collapse, should you be investing in oil companies? Yes, according to our friends at Sprott, Henry and Rick — especially if you look at mid-stream companies, which move oil from point A to point B. Since oil moves no matter the price, they make money no matter the price!