Seeking Alpha

Doug Eberhardt's  Instablog

Doug Eberhardt
Send Message
Doug Eberhardt is the author of "Buy Gold and Silver Safely" and a broker/dealer selling gold and silver coins and bars at 1% over wholesale cost.
My company:
Buy Gold and Silver Safely
My blog:
Buy Gold and Silver Safely
My book:
Buy Gold and Silver Safely
  • The Fed Takes Bronze In The Gold And Silver QE3 Race 2 comments
    Jul 31, 2012 3:22 PM | about stocks: GLD, SLV, USLV

    I will go out on a limb, as I always do, and predict something most won't expect to come tomorrow's Federal Reserve decision on whether to implement QE3 or not. I don't think they will.

    My reasoning is based more on credibility than it is on anything else. The Fed has to maintain the perception that they are in control. If they don't have that, what do they have? This is a tortoise race for the Fed right now. They are still relevant, as I first pointed out back in September of 2008 in The Fed Is Relevant…. For Now…. However…. where I pointed out

    Unfortunately the Fed is expanding their duties to produce "market" stability. They've been doing it all year by interfering in the markets via the lowering of the Fed Funds rate. This, IMO, and the opinion of many others, will eventually come back to haunt them.

    That "eventually" comment is still in our future. Treasuries are at historic lows and the Fed still has "perceived" relevance. The smart money however has been systematically putting money into gold and silver, which are still in their second stage where the market makers will try and buck you out of the trade (along with the financial media).

    Obama and QE3

    In the past, I have said that I think Obama will force the Fed to play the QE3 card in order to get elected a second term. If there is any implementation of QE3, it will come straight from the top. But if you are Bernanke, you have to look at what's happening right now and since the Fed has got interest rates have come down to historic lows, and we have had a recent bounce in the stock market on speculation of QE3, and the unemployment picture is somewhat stagnant at the 8%+ range (at least based on government figures), I think he will just use "strong language" saying, "we're ready and willing to use QE3 when we need to. Bernanke doesn't want to come across as political and any move for QE3 will make it look that way when the Fed tries as hard as possible not to be in favor of one party or the other.

    QE3 would help Obama and guarantee him the election. What will Bernanke do?

    Auditing The Fed

    Another reason Bernake doesn't want to interfere in the market right now is because the House just passed another Audit the Fed bill and it is heading to the Senate for a possible vote where Harry Reid makes the decision whether or not to allow it to even come to the floor. While Harry Reid in the past has constantly asked for an audit of the Fed, today's version of Harry Reid won't pay it any attention. Congressional hypocrite's at their finest. Bernanke can breath a sigh of relief.

    Euro Woes Continue - Nothing New Here, But Perception Of Solutions Still Exist - There Are None

    Moving to Europe, we see what the empty words of ECB President Mario Draghi did when he said they would support the Euro. The markets rose, dollar crashed and gold and silver bounced. But reality is already slipping back in today with the disappointing jobs report out of Europe where joblessness hit the highest level since the Euro was born. Did you expect differently? The Euro is still heading down to it's 118/119 danger zone I spoke of in January in 2012 Predictions For Gold, Silver, Stock Market, Economy and Elections. The dollar will be the primary benefactor of that, still pressuring gold and silver prices.

    Today, gold is hovering around $1,615 and silver just under $28 after the ECB President's comments set off a bounce. But I believe it to be another dead cat bounce and I still see that one last push down to get people to scream. The bottom of most all declines end with that kind of price movement I spoke of in The Gold Price Is Doing Better Than You Think. Watch for that candlestick tail.

    My Intuition On Gold and Silver

    I feel I have developed an intuition as to what's occurring in the economy and with the Fed based on the enormous amount of reading I am doing. I am one of the few who speak of the banks in detail and I don't need to write an article every day and talk about gold and silver and the markets (I would write more, but am knee deep in writing my next book, and what I do write is still words one can act upon - without all the day to day manipulation/dollar crashing hoopla from the gold community).

    I get a kick out of reading the headlines over at Kitco.com and seeing how in one minute gold and silver are up "because of dollar weakness" in one headline, and then a few hours later read, "gold and silver down on selling pressure, Euro problems." They can pick a reason out of a hat and make a title out of it based on whether gold is up or down!

    I feel we will be somewhat status quo with gold and silver for the time being, and I think we need to look for that one burst down for the final opportunity to catch the bottom. My advice is still to dollar cost average into a position and this will give you a better overall price.

    After the elections we will see some real movement in the price of gold and silver as it's simple math. We should also see the beginning of the end of the Fed, with or without an audit in the next few years when our next President tries to get We the People to bailout the banks again. It's the banks I watch most.

    Someone asked on another site who was the face of the melt-down (of 2008/2009). I replied the following;

    Those who said the repeal of the Glass-Steagal Act in 1999 with the passing of the Financial Services Modernization Act deserve kudos, but I come to a different conclusion as to the real face of the meltdown.

    In 1999, it was a Congressional bi-partisan effort led by Charles Schumer (D-NY), Christopher Dodd (D-CT)and Phil Gramm (R-TX), who received millions from the Banking, Insurance and Securities industry that led to the deregulation bill. Citigroup's Sandy Weill, also influential in the passing has now come out against it (nice of him to do, living off the millions he made off it, sipping on his Mai Tai's enjoying his retirement). Of course Dodd says he's wrong, lol.

    But what no one in the media is discussing (except me) are the sub-investment grade derivatives (as opposed to the 600+ trillion of normal interest rate swaps some in the media do discuss) held by the nations top 5 banks that today total more than at the height of the 2008/2009 financial crisis. Dodd Frank did nothing to curtail this activity? Why? When you put the Fox in charge of the Hen House, what do you expect?

    Dodd was part of the repeal of Glass-Steagal and Frank who said in 2003 that Fannie and Freddie are fine and wont need to be bailed out.

    Who leads this sorry bunch of top banks that will take the banking system down? Jamie Dimon's J.P. Morgan Chase who just lost $1 billion, no $2 billion, no, now $5 billion on an alleged London "whale" trader's activity. This is what happens when you have no counterparty to the over $2 trillion of sub-investment grade derivatives that Chase has coming due in the next 5 years.

    In reality, the only counterparty will be the Federal Reserve, the "lender of last resort" and you know they won't get caught taking a hit, so this leaves only one face for the meltdown; We the People! via some Chicken Little crying by Timmy Geithner (see Secretary Paulson circa 2008) -

    It is We who keep electing these same clowns (like Dodd and Frank) into office. It is We who don't put enough pressure on Congress to Audit the Fed. It is We who bailed out the banks under Bush. It is We who pay for Obama's trillion dollar budget. It will be We who they try and stick with the bill for the nations top 5 banks gambling habit in sub-investment grade derivatives.

    We the People! are becoming We the Serfs! (title of my next book) right before our very eyes.

    We need to stop bailing out failed institutions, take the hit on practicing austerity and living within our means, stop policing the world with money only the Fed can print and get back to producing what the world wants!

    On a side note, those Olympic medals that U.S. athletes and others are winning have a metal value of $4.71. All the money they make off of advertisers, sponsors, etc., you would at least think the athlete's would get the real thing!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Long Physical Gold and Silver

Back To Doug Eberhardt's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (2)
Track new comments
  • winningtrader
    , contributor
    Comments (2476) | Send Message
     
    I don't know if the next leg of the crisis will start from the banks but it is certainly possible. Have you seen that recently BAC and MS (and probably others) have been moving their derivatives books to their FDIC insured entities, effectively trying to make sure that the taxpayers backstop their derivatives portfolios. Previously they were kept at various other entities, often in London, for tax purposes. The regulators have allowed this outrage as usual.
    31 Jul 2012, 07:37 PM Reply Like
  • Doug Eberhardt
    , contributor
    Comments (2922) | Send Message
     
    Author’s reply » winning trader, thanks for the comment. FDIC is in the red, so that's kind of a joke too. Either way, the government pays for it, erm, we pay for it. If a large bank was taken over by the FDIC, it would be an improbable outcome to expect them to fix the situation. Hence, the Timothy Geithner reference to Paulson. It is almost impossible for Congress to say no to these punk banks, but the People will have to step up this time. Enough is enough.
    1 Aug 2012, 11:38 AM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.