Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20
China Recovered in Q2. Will the Red Dragon Sink Gold? - 23rd Jul 20
UK Covid19 MOT 6 Month Extensions Still Working Late July 2020? - 23rd Jul 20
How Did the Takeaway Apps Stocks Perform During the Lockdown? - 23rd Jul 20
US Stock Market Stalls Near A Double Peak - 23rd Jul 20
Parking at Lands End Car Park Cornwall - UK Holidays 2020 - 23rd Jul 20
Translating the Gold Index Signal into Gold Target - 23rd Jul 20
Weakness in commodity prices suggests a slowing economy - 23rd Jul 20
This Stock Market Stinks - But Not Why You May Think - 22nd Jul 20
Protracted G7 Economic Contraction – or Multiyear Global Depression - 22nd Jul 20
Gold and Oil: Be Aware of the "Spike" - 22nd Jul 20
US Online Casino Demographics: Who Plays Online For Money? - 22nd Jul 20
Machine Intelligence Quantum AI Stocks Mega-Trend Forecast 2020 to 2035! - 21st Jul 20
How to benefit from the big US Infrastructure push - 21st Jul 20
Gold and gold mining stocks are entering a strong seasonal phase - 21st Jul 20
Silver Eyes Key Breakout Levels as Inflation Heats Up - 21st Jul 20
Gold During Coronavirus Recession and Beyond - 21st Jul 20
US Election 2020: ‘A Major Bear Market of Political Decency’ - 21st Jul 20
Summertime Sizzle for Gold and Silver - 21st Jul 20
Overclockers UK Custom Built PC Review - Delivery and Unboxing (3) - 21st Jul 20
Will Coronavirus Vaccines Become a Bridge to Nowhere? - 20th Jul 20
Stock Market Time for Caution?  - 20th Jul 20
ClickTrades Review - The Importance of Dynamic Analysis and Educational Tools in Online Trading - 20th Jul 20
US Housing Market Collapse Second Phase Pending - 20th Jul 20
Capitalising on the AI Mega-trend - 20th Jul 20
Getting Started with Machine Learning - 20th Jul 20
Why Moores Law is NOT Dead! - 20th Jul 20
Help the Economy by Going Outside - 19th Jul 20
Stock Market Fantasy Finance: Follow the Money - 19th Jul 20
Did the Stock Market Bubble Just Pop? - 19th Jul 20
Quick Souring of the S&P 500 Stock Market Mood - 19th Jul 20
The Six-Year Jobs Recession - 19th Jul 20
Silver Demand Exploding! - 18th Jul 20
Tesco Scraps Covid Safe One Way Arrow Supermarket Shopping System - 18th Jul 20
The Rise of Online Pawnbroking - 17th Jul 20
Gold Rallies Together With U.S. Covid-19 Cases - 17th Jul 20
Gold & Silver Measured Moves - 17th Jul 20
The Bizarre Mathematics Of How Negative Interest Rates Create Stratospheric Profits - 17th Jul 20
From a Stocks Bull Market Far, Far Away, Virus Doomsday Scenerio! - 16th Jul 20
Fiscal Cliffs and the Self-destructing Treasury - 16th Jul 20
Dow Stock Market Crash Watch - Update - 16th Jul 20
Gold & Silver Gaining on US Dollar Weakness - 16th Jul 20
How to Find the Best Stocks to Invest In - 16th Jul 20
Overclockers UK Custom Build PC Review - 2. System Build Changes Communications - 16th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

QE Taper Talk Fakeout

Interest-Rates / Quantitative Easing Oct 03, 2013 - 03:28 PM GMT

By: Peter_Schiff

Interest-Rates

Anyone who bought the media buzz about a September reduction of QE - called the "taper" - was very surprised when the Federal Reserve announced that stimulus would continue unabated. According the the official narrative, inflation is under control and the labor market is steadily improving. Why wouldn't a modest taper be announced?

The reality is that the economic indicators the Fed claims to rely on to decide when to taper are all dependent on stimulus money. This is not a mystery to Ben Bernanke. Instead, this entire saga amounted to little more than a "taper fakeout" which sent hard asset investors for a loop.


Months of Anticipation

We can forgive the financial media for being blindsided by the Fed's non-taper. Even after decades of deception, journalists by-and-large still believe that it is their job to report official pronouncements as fact. Every month of 2013, one Fed official or another has openly discussed the need for or possibility of tapering. In January, it was Lockhart; in February, Bullard; Plosser brought it up in March; and Williams talked taper in April.

Bernanke finally took up the taper torch in May, but it wasn't until June that he hinted the Fed might start tapering QE "later this year" and end it entirely by the middle of 2014.

The markets went wild on these progressively foreboding statements, sending Treasury and mortgage rates upward and driving gold and silver into their biggest correction since the secular bull market started a decade ago. In spite of Bernanke's caveats that the bulk of the stimulus would continue for the foreseeable future and that the federal funds rate would remain at record lows, the markets braced for the easy-money spigot to begin closing.

I was on the major news networks calling the Fed on its bluff, but once again, my forecasts were dismissed by anchors and co-panelists. [See the new video: Peter Schiff Was Right - Taper Edition] Then, on September 18th, the Fed did exactly what I expected.

A Möbius Strip

When the Fed announced that it was backtracking on its previous indications, Bernanke cited the "tightening of financial conditions observed in recent months" as a major reason for delaying the taper.

As an academic economist focused on the history of monetary policy, Bernanke had to know that warning of tapering would cause the market to prepare by raising rates. This is part of a clever strategy to appear serious about withdrawing stimulus but have a convenient excuse to (forever) delay the exit.

After all, if interest rates surged on the mere talk of tapering, imagine what would happen if tapering actually began!

Taper Talk Is Cheap

Bernanke may not understand how to grow a healthy economy, but he's not foolish enough to dream that he can end QE without affecting interest rates. The real message behind Bernanke's excuse for putting off tapering is that there is never going to be a taper. If the economy shows sign of improving, the Fed will start talking about tapering again. This will send interest rates higher, which the Fed can point to as "tight financial conditions" in need of further stimulus.

Sure enough, the day after the fakeout was announced, St. Louis Fed Chief James Bullard jumped onto the airwaves claiming that a tightening decision might come as early as October.

While some analysts think the Fed is in disarray, I think they're trying to have their cake and eat it too. By hinting but not delivering on tightening, they can keep investors second-guessing themselves and ignoring the fact that the promised recovery never materialized.

Regime Uncertainty

On September 18th, the S&P and Dow closed at new record highs on news of the Fed's taper fakeout. Precious metals surged as well. Whether this precipitated Bullard's renewed advisory on tapering the following day I do not know, but his comments had the effect of smacking down the previous day's gains.

Uncertainty over the Fed's intentions leaves US investors in a bind. Even prominent Wall Street money managers are truly frightened by this market.

My advice remains the same: focus on long-term fundamentals, take advantage of discounts, and avoid the US Treasury bubble. While unfortunate timing may have cost some gold buyers short-term losses, the difference between $1300 and $1800 for gold will look less important when it is trading at $3000 or $5000.

This much is certain, when QE does unravel, the fallout will be devastating. In the meantime, opportunities abound for the precious metals investors.

Just this week, when gold failed to rally on the government shut down, as many assumed that it would, it promptly sold off $40 per ounce, as disappointed speculators bailed out. However, gold investors know that a government shut down in-and-of-itself is not bullish for gold. What is bullish for gold is that the shut down will soon end, and any government functions that were temporarily shut down will start right back up again.

In the end, it's the government that will shut the economy down. But the one thing they will never shut down is the printing press. Now that is really bullish for gold.

Peter Schiff is CEO of Euro Pacific Precious Metals, a gold and silver dealer selling reputable, well-known bullion coins and bars at competitive prices.

Click here for a free subscription to Peter Schiff's Gold Letter, a monthly newsletter featuring the latest gold and silver market analysis from Peter Schiff, Casey Research, and other leading experts.

And now, investors can stay up-to-the-minute on precious metals news and Peter's latest thoughts by visiting Peter Schiff's Official Gold Blog.

Peter Schiff Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules