Thursday, January 12, 2012

How Long

I keep asking myself this week, "How long can this go on?"  There are so many problems in finance and economics, yet everything is tip top!  This is why I believe we are at another turning point.  How can the numbers look so good when reality is so bad?  The thing is is there needs to be a trigger on this inflection.  What will it be?

The Iran situation is dire.  The millitaries of the world, from the UK to Russia, to the US, to France, from Israel to Venezuela, and all over, have painted themselves into a corner.  The flexing has them so that no one can back down.  Interestingly though Europe did give way a little today.  I don't know why, but it was a weak move.  I don't think the US will like it much. 

The banking system has not improved, in fact, it has gotten much worse.  The Fiat Ponzi is in full monetization mode now.  All are compared to Japan, but please note, Japan had the public buying the debt.  Now, with the Fed and the ECB, the debt is monetized as soon as it is issued.  This is alchemy at its best!

There could be a variety of problems happening.  Who knows what could trigger the next event.  We could be at a point where the Fed decides to issue QE X, but at this time there is little need to publicly announce it.  They have OT2, POMO, and FX Swaps holding the line.  Yet if there is to be an event like Iran then the Fed will want to frontrun it.

My gold call yesterday caught a whiff of what is to come.  I called for $50 today in gold but only got half of it, but now that we see volatility coming into the market from both sides, and this is very bullish.  It is bullish because the downdraft is more a dip to allow big money to come in.  The reason behind this thought is that both Europe and the US are issuing massive dent and monetizing it, and they are doing this on the back of leasing gold, as it is their only performing collateral. 

When gold is loaned, it suppresses demand, but it reduces supply.  The demand makes the first move and equilibrium finds itself with price lower.  But supply is the main driver, and it forces equilibrium higher.  When this is done day after day, it creates volatility.  This is why the swings are getting bigger, and will get bigger.  The price action of the New Year will continue until a huge move to resistance.  That move will happen soon.

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