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Fiscal Manipulation, the Intermarriage of News and Economic Policy

Interest-Rates / Quantitative Easing Jun 20, 2011 - 05:07 PM GMT

By: The_Gold_Report


Best Financial Markets Analysis ArticleTo Gold Stock Trades Editor Jeb Handwerger, there is an intriguing purpose in the relationship between the national mindset and the intended purposes of economic establishment. "Are we being programmed for QE3?," he ponders in this Gold Report exclusive, ultimately proclaiming, "It's sowing time—not selling time."

While the media is customarily thought to disseminate news, there is a far more intriguing purpose in the role of the relationship between the national mindset and the intended purposes of economic establishment.

It has ever been thus, going back to Shakespeare's Salanio character in "Merchant of Venice." Upon meeting colleagues, the characters would greet each other with the question: "Now, what news on the Rialto?"

The Rialto was a place where the powers that be would meet in the morning and exchange ways to use the day's news to establish desired policy. The Roman baths were also venues in which senators and policymakers would formulate strategies. Of course, Joseph Goebbels and the Stalinists also realized the pivotal role played in the intermarriage of news and economic policy.

Similarly, today we observe the fine "Roman hand" in planting stories to influence a kind of Orwellian mindset in the furtherance of establishing desired fiscal objectives—the doublethink, paranoia, deception and delusion.

It is more than coincidental that, when the elites wish to formulate their desired goals in such matters as quantitative easing (QE), bailouts and Keynesian pump priming, negative economic data will be released. It's the same old story.

The Obama team is dedicated to Federal Reserve Chairman Ben Bernanke's philosophy of avoiding depression through the printing press to proliferate cheap money. We are being set up for the acceptance of quantitative stimulus by whatever means and guises necessary.

Until now, everything was coming up roses. National recovery was in the air. Then, all of sudden this week, data turned on a dime. Economists were compelled to rethink hitherto positive figures. Are we being programmed for more QE?

It would not be surprising if we were finessed into acceptance of inflationary policies. Bills could be paid with cheap dollars. Moribund local and state governments could pay off their strangling debts. Think of our swollen budget being paid with cheap dollars. A seemingly simple solution to a complex problem. However, there may be another side to the seesaw.

Our erstwhile allies, such as China and Russia, have been making noise about setting up an alternative currency. Witness Greece and the PIIGS nations (Portugal, Italy, Ireland, Greece and Spain). They are desperate for money to extricate themselves from their financial quicksands. More bailouts anyone?

Foreign governments are buying gold at levels not seen in 30 years due to risk of further declines in the U.S. dollar.

Goldman Sachs is under subpoena in Manhattan as possibly playing a major role in the housing market fiasco. The Manhattan District Attorney is investigating "activities in creating and selling mortgage-based securities designed to allow the bank to profit from the collapse of the housing market."

One cannot but hope to consider that many of these dramatis personae are some of the very same folks that are steering our national financial ship of state. Prayer anyone?

All these roads lead clearly to the validity of Gold Stock Trades' essential message. Precious metals, either mining stocks or physical bullion, may be the requisite ports in the upcoming storm.

One need not be a weather forecaster to see the gathering dark clouds and approaching black swans. Hard money is real money. Look only to the best-managed and -financed miners as safe harbors in the gathering tempest. The storm takes time to form. To paraphrase Louis XV, "Après moi, le deluge," (after me, the deluge).

Sophisticated readers don't have to be regaled by today's headlines. They are well aware of the economic syndrome that afflicts our economy by such current headlines as Market Stumbles as Factories, Hiring Slows Down; Biggest Drop in Stocks in a Year; State and Local Governments Going Broke; Unemployment Rises, etc.

The voice of Cassandra is heard across the land. Where does all of this negation leave the intelligent investor who is seeking a life preserver with which to ride out the storm?

The U.S. economic system, which had been the jewel of the world, is in crisis. How long can even the healthiest of systems continue being raped by CEOs that walk away with millions from institutions that are crowned "too big to fail?" They have been bailed out by monies contributed by the great American middle class, which is rapidly being disenfranchised by having to pay for a violated economy.

There is talk of QE3 coming to rescue this sick patient—this may be a placebo that does not cure the ailment. After all, Bernanke instituted QE2 only after deciding that the system was too weak to stand on its own. The treatment has always been in front of our very eyes—sound money in a healthy economy. Instead, we relied on the economists for fiat cures.

Indeed, among the few areas that have held up during this recent liquidity selloff have been gold and silver bullion. Both gold and silver bullion continue to move higher as equity markets decline, showing its relative strength. In fact, as of this writing, gold bullion is challenging record levels, while gold miners are hitting new 2011 lows.

The current market acts as if it was a skillful boxer—bobbing, weaving and full of head fakes designed to confuse us. We have entered into the summer doldrums (or should I say, "goldrums") in mining stocks.

Do not be fooled. Precisely at such time is a beehive of footwork occurring beneath the surface. The miners are planting the seeds in what has always been a seminal season before the harvest. They are entering into the drilling and exploring period, which will hopefully lead to pay dirt in the autumn.

What does this imply for astute investors who are aware of the territory? It's sowing time—not selling time. There is fear in the land that may be the antecedent to panic. Nightmarish scenarios of a repeat of the 2008 financial crisis lurks in our subconscious. Good paper may have to be sold to cover bad mistakes.

Gold is continuing toward our $1,600 June target, while the miners continue their nine-month consolidation. These extended formations potentially lead to explosive breakouts. Don't forget August 2010, when silver broke out from major resistance at $20 and we saw its historic move. Could August 2011 be similar for the undervalued miners?

Miners tend to lag the price of bullion, as many of the industry analysts use a trailing three-year bullion (average) price to value projects. The velocity of gold's price ascent this past year is not reflected in current valuations.

Once these higher metrics are updated in the fall, many of the miners may see gains to reflect the more-accurate values of their assets. I will publish new gold and silver mining stock recommendations when I see a clear recovery and reversal in the miners.

Patience and fortitude are our constant marching orders. We are in the midst of a correction in mining stocks that may be short-lived, albeit breathtaking. Heretofore, gold bullion has pretty much kept in lockstep with the miners. In this summer season, we have seen a divergence between the two. Such an anomaly is seasonal and transient.

I believe we may see miners catch up in the second half of the year, which, historically, has been an annual occurrence. We have entered the summer "goldrums," which has become an annual event. Many mining stocks are extremely undervalued and oversold.

Actually, we are at the most divergent level from the mean between miners and the metal in many years. There may be a reversion to the mean between miners and the gold price during the second half of 2011. This period could be setting up an updated base for miners.

The low-volume selloff in miners to long-term support levels indicates shrewd precious metal investors may not have sold their mining equities. Many have reported that they've reallocated their holdings in bullion and repositioned into out-of-favor mining stocks while they are on a "fire sale."

This year, I expect very exciting third and fourth quarters for mining equities as investors realize the potential of gold and silver discoveries during this secular dollar bear market and global currency crisis.

Remember that the arc of precious metals moves to confuse us, but it continues to ascend upward. Presently, our service is in a holding period, waiting for a potential signal for a reversal to add or initiate a position in the best-managed and well-financed mining stocks.

Only the most adroit of traders can manage to exit, and then enter again. The U.S. dollar, while seemingly a safe haven, is acting questionably at this time. Understandably, investors are nervous and deciding, to use the old boxing analogy, to 'throw in the towel' prematurely. Careful monitoring of the markets is required. Volatility has significantly increased as we come closer to the expiration of QE2 at the end of June.

Many imponderables await us that could constructively affect our precious metals portfolio, such as elections in North Africa, turbulence in Syria and Iran, instability in the PIIGS nations, U.S. credit downgrades, QE3 uncertainty, etc. The list is endless and abounds with reasons that validate adherence to our policy of precious metals, which includes well-managed and positively financed mining stocks in friendly jurisdictions. To actively monitor these developing stories on a daily basis, click here.

Gold Stock Trades Editor Jeb Handwerger is a highly sought-after stock analyst who is syndicated internationally and known throughout the financial industry for his accurate and timely analysis of the equities markets—particularly the precious metals sector.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Timmins.
3) Ian Gordon: I personally and/or my family own shares of the following companies mentioned in this interview:Timmins Gold, Golden Goliath, Millrock and Lincoln. My company, Long Wave Analytics is receiving payment from the following companies mentioned in this interview, for receiving mention on my website, Golden Goliath, Millrock and Lincoln Gold.

The GOLD Report is Copyright © 2011 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

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