Risk On Again

“Risk on,” big time! That’s what took place this week as you can quickly see from the rise in stocks and commodities, while safe haven assets, Treasuries, and gold declined significantly. And it’s all because of QE4.

For propaganda reasons, the Fed is insisting QE4 is “NOT A QE” because to call the purchase of bonds QE is an admission by the Fed that it cannot normalize its balance sheet—as Chairman Bernanke once promised we could—without killing the economic patient. The Fed must not admit that truth or it would run the risk of losing its Congressional mandate. It means that the Fed is not only clueless about monetary policy but also powerless to usher in the economic heaven on earth they have promised us, with the exception of course of the elite, who live off of the money created out of thin air by the Fed.  

On Friday, Oct. 11, the Bank of America wrote that the Fed needs a “bazooka of asset purchases,” estimating that the central bank needs to add about $300BN of reserves to return to an “abundant level.” And according to Zero Hedge, Goldman Sachs is predicting that the Fed will unleash no less than $60BN in POMO for the first four months of “NOT A QE . . .” as it seeks to rapidly blow out its balance sheet to avoid any more repo tremors of the kind observed in September that sent the overnight repo rate to 9.25%. But who knows how long this latest infusion of monetary poison will satisfy the markets? Just this morning (October 11, 2019) Zero Hedge reported that there was a modest hiccup in the markets when the New York Fed unexpectedly announced that use of its overnight repo facility surged by 35% in one day, with $61.55BN in securities submitted on Friday. That was up sharply from yesterday’s $45.5BN. Stocks and bonds love this latest monetary narcotic. But it is just further evidence of how sick the global markets are. One can’t help but wonder how much longer the current fraudulent fiat monetary system can survive.

I would strongly suggest you consider reading Alasdair’s latest essay titled, “Monetary Failure Is Becoming Inevitable.”  The article posits that “there is an unpleasant conjunction of events beginning to undermine government finances in advanced nations. They combine the arrival of a long-term trend of rising welfare commitments with an increasing certainty of a global-scale credit crisis, in turn the outcome of a combination of the peak of the credit cycle and increasing trade protectionism.” He suggests that we are already seeing the latter already undermining the global economy, catching both governments and investors unexpectedly. In his introduction, Alasdair goes on to say, “Few observers seem aware that an economic and systemic crisis will occur at a time when government finances are already precarious. However, the consequences are unthinkable for the authorities, and for this reason it is certain such a downturn will lead to a substantial increase in monetary inflation. The scale of the problem needs to be grasped in order to assess how destructive it will be for government finances and ultimately state-issued currencies.

With investors anesthetized for the moment against the fear of immediate losses and a sense by Wall Street that the Fed has its back by once again showing its willingness to provide constant monetary and market orgasms, gold and U.S. Treasuries took the hit this past week. Still, with massive monetary infusion on the way leading to negative nominal rates, gold figures to be in the catbird’s seat going forward. We can be sure longer term all this QE will be folly and will lead to a massive exodus from fiat money to real money and real stuff so as to enable people to retain wealth.

Indeed, there are already signs that the latest “remedy” may disappoint, notwithstanding the strong stock market on Oct. 11. As Zero Hedge put it, “With Wall Street now more than aware that the Fed will do everything it needs to address the ongoing funding squeeze in the repo market, which in itself should be sufficient to ease the stress in overnight funding, this has so far failed to materialize. Worse, investors are becoming increasingly concerned that even with ‘NOT A QE,’ the year end could see even more dramatic repo market fireworks than those observed on December 31, 2018. In such a case, with the Fed literally throwing the ‘NOT A QE’ kitchen sink at the problem, and the problem failing to go away, just how will Powell preserve the illusion that he knows what is causing the broken plumbing in the repo market if the Fed can’t unclog it even when using its ‘bazooka.’ We will find out soon enough.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.