Putting the pieces together...

QUICK NOTE

Very little has changed in three weeks of "risk off" anti-inflation meandering except to relieve over bullishness in risk markets. Seasonally we always expect rallies from now to near the New Year.

I'm on extended vacation but reading and thinking a lot. Vitaliy Katzenelson's "The Little Book of Sideways Markets" ($9.99 instantly on Amazon Kindle---I don't want or make a penny from them) is very different from my way of working but very persuasive. It's all about shutting out the noise of news and evaluating individual stocks. I started as a purely technical futures trader, so this reads strangely to me. But I can see the usefulness of this new to me approach.

Katzenelson's view is that we probably have a decade more of sideways or range-bound markets so that buy and hold makes no sense even for value investors. It's interesting to see fundamental value investors coming around to the same place as macro and technical traders. It makes me wonder if there is a herd forming which contrarians might exploit? What do you think?

Start Careful Watching

The Bernanke pro-inflation story has had a very good run, and it's true. But it may be getting close to a rest as Volcker's criticism comes under view. That's just news, but market-based sentiment is quickly getting overdone as of today

Scott Minerd at Barrons

I subscribe to Barrons, and I can't give you a direct line to this article, but perhaps you can use a search engine to get the whole article: http://tinyurl.com/35xvmny

Minerd is at Guggenheim Partners and knows investing. He outlines an investment timeline I agree with for the next decade. Suggestions about what to be in now and later. This is not just theoretical, academic BS but real time money placement where we live. This is the real thing, and not far off the screen I have been viewing.

VOLCKER ON QE2.x

http://tinyurl.com/2f5wjdv

The Done Deal: QE2.x, China To Cash in Treasury's, Dollar to Devalue, Yuan Rise

Today's announcement of Quantitative Easement 2.x was not a surprise. QE2.x refers to the fact that the FED had previously revealed it would be purchasing Treasury's with incoming moneys from mortgage payments of principal and interest and mortgage payoffs. This had been estimated as between $200 and $300 billion over the next year. Today added $600 billion to that in instant money creation, also known as "printing" over the next six months.

Hints have been dropping everywhere lately that the goal actually IS to create inflation and to devalue the US dollar in an orderly manner. Most aware investors have known intuitively for some time that inflation and devaluation is the inevitable outcome, but it has been confirmed by people in the know a number of times recently. The puzzling part has been why QE2.x is necessary at this time. It came down to "what do THEY know that we don't know?" We've all seen the lists of possible causes existing behind the screen. This in itself has resulted in political and market anxiety. Volatility. Where is the shoe that hasn't dropped yet? Bank failures we don't know about but they do know about? The lists go on.

Why couldn't Bernanke produce a clear explanation? He's the self-admitted expert on curing depressions, but he's been amazingly silent or vague. Why did some peripheral FED officers--Kansas
City's Hoenig comes to mind--keep insisting QE wasn't necessary and could be dangerous? It could be part of an overall plan or perhaps he's simply out of the  loop. What were the G7, IMF/World Bank, G20, and US/Chinese meetings really all about? Did the looming elections keep a lid on it all?

How does it all fit together? Well, it comes together just the way it looks, as a friend always refers to clues being hidden "right out in the open".  One key to "getting it" is the size of QE2.x, of about $900 billion which is close to the size of Chinese Central Bank holdings of US Treasury's. The real deal in QE2.x is that China and the US have negotiated to redeem China's T Notes and Bonds over the next six to twelve months during which time there will be a staged, progressive float of the yuan. This deal is the inflation and devaluation the FED thinks we need, the currency float the Treasury and Congress think we need, and the cashing in of their huge hoard of Treasury's the Chinese think they need. This is the equivalent of Roosevelt's resetting the gold price in 1934: greatly devaluing the dollar, and supposedly jump-starting the economy. This is China's long hoped-for gain on their US bonds. This is the capstone of Bernanke's career of studying the 1930's. This will be done, they all hope, in an orderly manner. Only the citizens of the US will suffer an enormous loss of purchasing power! The clear judgement is that these citizens are too dumb to know what's happening to them. Central banks never want us to know.

 

 

Canadian Closed-end Gold Funds

Morningstar has also become dubious about Sprott's PHYS as I did here at the blog. This is a more forthright criticism than I could mount in my earlier writing on the Sprott defects. There is some excellent tax information on the advantages of closed-end gold funds as opposed to ETF gold funds: http://news.morningstar.com/articlenet/article.aspx?id=355386