"When you think about how deep into this imaginary recovery the Fed is, you have to ask yourself 'how can they afford to stop QE?'" -Biz Bluetree
The answer is they can't. It's no secret to any logical thinking person that the more of anything you force into the market the less value it will have. Such is the case with the constant money creation of the central bank - here in the U.S., the Federal Reserve. The reported $85 billion per month their pumping is rumored to be closer to $100 billion per month as the $85 billion supposedly generates interest, which is pumped back into the banks. This type of monetary policy has no future. It creates unintended consequences that will undoubtedly end very badly.
Are we on a crash course with economic failure?
This article provides information that I hope with good intention will help you. The focus is on a failing economy and how silver and gold play a leading role in economic survival. Yes, many look at the metals' performance over the past year-plus and think that perhaps the metals are not the safe haven they were once believed to be. But, rest assured that appearance will prove false.
They are. Don't be fooled.
This is part of the myth being perpetrated by the strong hand manipulators of silver and gold. I urge you to keep an open mind, rely on economic logic, and be ready to act with left-brain creativity as you will be challenged to make important decisions regarding your economic future in the near term.
If you believe that history at least rhymes, be aware that preceding every past market crash was the underperformance of gold and silver. Where does that leave us? With the ultimate buy opportunity for failing economy insurance that could pay off like "whole life", but…
Let's first continue establishing our cause for action.
Clearly the "fundamental indicators" for silver and gold, as we've relied on them, are now unreliable. It is this writer's opinion, along with others, that something underhanded is amiss. The strong hands are up to something.
We should interpret buy/sell recommendations from here forward with trepidation as there appears to be an attempt being made to grab as much hard-asset gold and silver, on the cheap, as possible. The strongest hands surely see what's coming more clearly than we do. Some helped write the rulebook we are compelled to follow. In this opinion someone appears to be poised to act like modern day Hunt Brothers - only greedier and more sure-footed.
I would bet, with reverse-engineered-blueprint understanding of what exactly foiled the Hunts, and with a bevy of high level friends in low places, someone in a strong position could pull off the ultimate shell game, and we couldn't stop them, only try to cover our own assets.
And please try to take the Fed sound loop with a grain of salt. The writing is on the wall. Manage your money with your brain not a talking beard. If it is still not apparent to you, know that Mr. Bernanke feeds us rhetoric that is designed to generate reactions and reveal patterns in the markets and among investors, so as to measure for his own guidance in keeping consumer sentiment level and to avoid panic. And it is my belief that he'll continue this practice until he's out of Dodge and has his book-deal monies inked.
It's also obvious to this writer that Mr. Bernanke doesn't know what he's doing. Quantitative easing was designed in part to keep real interest rates low, yet they've doubled since. QE was intended to stimulate the economy and lower unemployment - it has not. But, Mr. Bernanke is smart enough to know we're facing a very real economic calamity. One of a high degree where just one wrong move and he will be hung out to dry. He doesn't want someone else to write his book and retitle it, "Blame The Beard".
It's also apparent the Fed doesn't want to lose control over real interest rates for sake of the bond market and the housing market - where buyers of both display wavering confidence. Mr. Bernanke also knows the Fed must continue to control the stock market or hell will break loose.
The pressure is on.
If I may use a baseball metaphor, the Fed is pitching with the bases loaded and the game on the line where one errant pitch could send them home as choking losers creating mayhem that spreads exponentially to the entire global fan base.
"No taper" is exactly what I expected and what I've written about in recent articles. The numbers, fudged as they are, still don't support cutting back. I also said if the Fed did try to cut back QE they'd "soon feel the wheels wobbling off the wagon and have to whip the horse with additional stimulus to keep the wagon rolling, rolling, rolling". I don't think I'm climbing too far out on a limb by reaffirming here that additional stimulus is coming - unless recent FOMC banter to the contrary proves accurate. These are extremely precarious times.
Regardless, economic logic tells us with added currency in circulation each existing unit becomes worth less, which likely will lead to real inflation, and in our current condition perhaps hyperinflation. And if taper is implemented watch the equities market take a nosedive.
I hear detractors saying, "what inflation? We've had QE for years with only moderate inflation if that." I say this is almost true except the lack of visible inflation is simply due to the lack of velocity of money. All the new cash hasn't reached our wallets yet, it's still tied up in the financial system. The banks still have it. And what they lose gambling on derivatives is replaced by the Fed. Enough already.
Now, just a Monday away…
The highly anticipated spending-budget and debt ceiling debates begin. Like a silly movie in rerun shown on every network, the DC gang will once again convene to govern by crisis. We can expect, more of the usual back and forth in dramatic fashion, gamesmanship, finger pointing, and a darkest hour deadline looming while panicky investors and the rest of the world watch.
While Russia and China stare, poker-faced at this spectacle, what is unfortunate is that for elected U.S. officials, widely divided, it seems the fight is more important than the issue. There is no winner in this fight.
We all lose.
Not exactly a brain trust going head to head, rather more like spiteful children, but, be assured that not one of those you've elected is aloof enough to allow the government to shutdown. It should not happen this time, but, it is getting ugly so we'll have to wait until Tuesday.
The charade makes no sense.
And have no delusions, this group is not capable of initiating the change needed to unite both sides to solve the unsolvable with some form of intelligent, albeit painful solution. None of them is sensible enough or strong enough to face uncomfortable detoxification. They'll continue to use drug addict mentality. So, essentially, how far down the road will they kick the can this time after they've scared the cream out of us? Three months?
Another consideration is: is the month of October a factor?
As elected officials scratch, claw and posture to hammer out a debt ceiling deal and avoid a shutdown - which could cause another credit down-grade and other negatives of immeasurable magnitude. Let us remember that the stock market crashes of 1929, 1987 and 2008 all happened in the month of October. And the panic of 1907? October.
So here we go again, another October wrestling match over debt ceilings and avoiding shutdowns, when in fact the United States has already reached its debt ceiling in May of this year.
What is wrong with this picture?
Treasury Secretary Jack Lew admits, that since the month of May his department has been using "extraordinary measures to avoid defaulting on our obligations", i.e., essential services, military pay, social security, Medicare, et al. The country is broke!
Secretary Lew had this to say about extraordinary measures on September 18th to the Economic Club of Washington:
"Once you hit the end of extraordinary measures your borrowing authority is gone. You have no more ability to borrow and you're then left with cash. As any small business person knows, if you're operating your business relying on cash in the cash box to pay your daily bills, [and] …your revenue is not adequate on a given day and you empty the cash box, you can't pay all your bills when the cash box is empty. I can't say with precision when that is but I can tell you I can't refill the cash box once we've lost our ability to use extraordinary measures. That is going to happen in mid-October."
Eerily, he sounds certain of it.
In his remarks, Secretary Lew, who also chairs the newly organized Financial Stability Oversight Council whose job it is to recognize companies that could pose possible systemic risks in the financial marketplace, also cautioned against relying on unworkable approaches like "prioritization," which would force the already challenged brain trust to make impossible choices in paying the government's bills like whether to pay seniors or veterans the benefits they are owed.
"As administrations of both political parties have previously determined: these 'prioritization' proposals are unworkable. They represent an irresponsible retreat from a core American value: Since 1789, regardless of party, Presidents and Congress have always honored all of our commitments."
... he may need a history lesson.
We've now built a case for serious concern over a vulnerable economy. This week may prove historical. Time is now at a premium. Let us address the action of building your nest egg where a failing economy can't fry it.
Using right brain logic and left brain creativity I say, the soundest way to survive the failing economy that may be just over the next hump day is to establish positions in physical metals and stock shares of able bodied silver and gold explorers.
The physicals acquisition is easiest: buy silver and gold now. Buy with both fists and don't look back. It may be a very bumpy ride ahead - and a scary one at that, but don't let the strong hands shake loose what you hold firmly in your hands.
My vendors of choice are Provident Metals and Apmex. You may have your own, but the point is to buy and store as much silver and gold as you can afford, and keep buying until you are no longer able - either because your budget prohibits further spending except for home essentials or the vendors are "out of stock".
These are the only two reasons to stop stacking.
What's not so easy is to choose the correct mining explorers in which to invest so I'll example one I have chosen here. And I use "explorer" here on a most basic premise based on no frills logic and my own personal budget.
A strong explorer like Paramount Gold and Silver (NYSEMKT:PZG) is robustly funded and owns the rights to two high resource gold and silver properties in Nevada and Mexico. PZG is not in the business of mining which includes the costly process of bringing those metals out of the ground and selling them into a compromised marketplace where prices are currently and heavily suppressed. PZG is in the business of exploration, that's locating and identifying the metals in the ground by the far less expensive process of drilling, testing, and legally certifying their existence.
Dressing to sell if you will.
PZG's rich properties either surround or are adjacent to the operations of some very successful top-tier, producing mining companies that are potential suitors. I'll mention the strongest and most obvious below.
Here's the rub, it is not possible for Paramount Gold and Silver's profit flow to be interrupted or otherwise negatively impacted by an economic bust because they are not in the business of producing silver and gold and bringing that product to market. They have no profit flow to interrupt. Only value to build.
Exploration is ongoing.
In this opinion based on sound economic logic, this small-cap explorer increases in value with each new mineral discovery made on their vast property holdings and with every increase in the value and scarcity of silver and gold. With total resources measured and indicated at 4,118,000 ounces of gold and 94,165,000 ounces of silver, PZG is my clear choice along with possession of physical metal for protecting your nest egg where a failing economy can't fry it.
PZG's shares are inexpensive, their books are sound, they show insider ownership, and their resources are attractive and plenty. This all spells lower downside risk for the investor or saver who wants to park his money somewhere until after a storm. This company has the ability to weather such a storm and still be attractive and strong when the winds die down, order is restored and metals' prices again reflect true value.
The risk apparent here could be an overly long and drawn-out economic crisis where extended time becomes a critical factor or some form of government intervention is implemented. Paramount Gold and Silver is a U.S. based company.
Visit the company's website here and have a look under the hood for yourself.
Now, if you already own positions in strong and trusted, deep-pocketed, top-tier mining producers who happen to be Paramount's neighbors like Newmont Mining (NYSE:NEM) boasting a total of 99.2 million attributable ounces of proven and probable gold reserves, Barrick Gold (NYSE:ABX), the world's largest with gold production guidance this year alone weighing in between 7.0M and 7.4M ounces, or Goldcorp (NYSE:GG) with 67.08M ounces of gold and 1.160M ounces of silver - HOLD. If you can afford to strengthen your positions in these miners, do so now.
If you are not sure about other miners you may already own, no matter the company's size, good advice is to learn quickly what you need to know to make yourself comfortable and certain. If you find you are still not comfortable and certain, close your positions and use the cash to buy physical silver and/or gold, now. (I prefer silver.)
Also, if you have no physical metals or strong mining investments, but do have a considerable amount of cash savings - in a bank or in a mattress - you would be wise to trade the paper for hard assets now. If you only have a small nest egg of cash in the bank, at least bring it home where you can get your hands on it. Bank holidays are not to be celebrated.
If you are of strong opinion that an economic collapse of great magnitude will be very long and drawn out, enough to put your explorer or mining investments out of business, cash out all positions now, buy physical silver and/or gold, water, canned foods, and other essentials. -Godspeed.
Disclosure: I am long PZG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.