What Not Online Auctions

HomeBullion & Precious MetalsCurrency Debasement, as Expected, Good for Gold

Currency Debasement, as Expected, Good for Gold

Jim Kingsland Market CommentCertified Assets Management International

Happy December!

In the not too distant past, I discussed the special money creating app that came with Fed chairman Bernanke’s latest iPhone. It turns out, that he exported the app to various central banker chums around the world. The result, another “promise” of coordinated Central Bank intervention to prop up credit markets with extra liquidity. It apparently did the trick and saved the day. The Central Banks have stolen a line from singer Carole King: “Winter, Spring, Summer, or Fall, all ya have to do is call, and I’ll be there, Yes I will. You’ve got a friend.” They will be there for all of their large banking friends and family. In all seriousness, it’s the efficacy of these injections going forward that has me wondering.

That reminds me, what would you get as a holiday gift for the Bernank? Bingo, a karaoke set with that Carole King hit loaded in. I’ll betcha Ben’s creaky and nervous and evasive sounding voice would simply be perfect for the home Karaoke machine. But I digress.

Oh, and not to be out done, China which wasn’t invited to participate in the Central Banking teleconference none the less threw its contribution into the collection plate by taking the first step in an easing process by lowering bank reserve requirements for the first time in three years.

The way trading was meant to be? Dow up nearly 800 in less than a week? I drew a black trend line in, it's down sloping. The Dow needs advance above this trend line.


The long expected rally that I have been blabbing about since Summer has materialized for the time being. My gut tells me it’s more flash in the pan. As part of a bigger, long term picture, Wall Street has been looking for the steps to get us to full fledged eventual QE3 and I am in agreement with Goldman’s Jan Hatzius, that it will come in the 1st half of 2012. It will be needed as political guarding of the present king in the White House and out of economic necessity to preserve the fiat currency cluster ____ (you fill in the blank). In other words, the mirth and merriment experienced on Wall Street with a near 500 point Dow rally comes thanks to financial irritants that are only going to come back before long to cause more problems and volatility for the markets, but that will only mean more Central Bank porrididge for the markets.

The key message: Central Banks are not about to surrender and fall on their swords. Euro collapse has been avoided for now, but the prospect of an eventual euro collapse remains because the compounding debt problem remains.

However, with the requisite ups and downs in mind, a bias the leans to the upside would not come as a complete surprise barring a systemic meltdown for some totally unexpected reason. And let’s not be sanguine, the pressure cooker has been on for a long time. Each passing week ups the odds for a blowup from out of the blue. Maybe the intervention announcement came because something big was about to break? Timing is everything. There are no accidents in this game of Central Banking.

Speaking of timiing. It gets no better for Bernanke who loves to chop off the heads of shorts. Think about it, S&P downgrades all the big banks, then Bernanke comes a long the next morning and effectively cuts S&P off at the pass. The shorts who shorted those banks Tuesday evening, were trapped and dead after the Fed announced. It’s a brutal business even if they do wear pinstripes and have nicely trimmed beards.

From the horse’s mouth: “U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses.”

They should have added, “ha ha” at the end.

This sorta, kinda makes me wonder what was going on at some stricken banking entity in Europe late Tuesday since the statement immediately says the problem right now is NOT at US financial institutions. This is good and bad. Assuming the Fed is telling the truth and no buck breaking is about to occur (good news) here in the US due to illiquidity (lol), the bad news is the Fed is telling us that financial seizure in Europe must not be allowed to take place and that (reaching a little further on my part) Europe does matter and that ills there would hurt US banking interests.

Technically, the S&P 500 closed above important technical resistance at 1240 (at 1246 as of the Wednesday close). This now demands further upside testing to 1250, and then 1266 to a possible major test of 1300. We’ll see. There are
no guarantees in this market.

1250 is a critical point for the S&P 500, Just 4 points away.

Gold had a great day, flying back to $1748. The bigger target to watch is the $1800 zone which proved to be a strong resistance point in early November. Gold has had a rough time with the lack of big news from the Fed. This has changed with the Wednesday announcement. When watching the reaction to gold minute by minute during FOMC meeting announcements since summer, gold investors have been clearly disappointed with the modest QE2.5 that we’re in the midst of. Once a real QE3 strategy is outlined (and you should be expecting big things in an election year), gold will move past $2000. In other words, $2000 this year is a likely stretch (though if I am wrong I will be happy), but I see it has a near certainty in next year’s 1st half.

$1800 jumps out as the key level for the market to overcome. Currency debsement a la the Fed will help get the job done.

Retailers are out with November numbers. A standout to the downside is Lululemon, down 13% pre market on weaker than expected guidance. Costco and Pier One both up around 2%. Macy’s with solid numbers is up 4%. Target numbers were weak and its stock is down about 2%.

RT @LaMonicaBuzz Nooks and crannies. Barnes
and Noble reports loss. Sales miss despite good demand for e-reader
& boost from Borders closing. $BKS down 15%.

S&P futures are flat to a little lower. What else to expect after a 480 Dow gang bang? As I’ve pointed out, there needs to be some more crucial upside follow through.

Related Articles


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.