Wednesday, March 18, 2009

Fed to buy $300 billion in long-term Treasurys

WASHINGTON (MarketWatch) -- The Federal Reserve on Wednesday said it would buy $300 billion in longer-term Treasury bonds to help arrest a deepening slide in the U.S. economy, a surprise move that sent stocks soaring and triggered violent moves in other markets.
The Federal Reserve's move, one of several actions taken Wednesday aimed at making it less expensive to borrow money, signaled it will boost the size of its balance sheet to more than $4 trillion. Today's moves double the amount of money the central bank has poured into the economy to try to stimulate economic activity.
"The Fed has upped the ante on its policy actions, and in a big way," said Richard Moody, chief economist at Forward Capital LLC in Austin, Texas.
Following the Fed decision, gold futures and U.S. stocks rallied, while the dollar plunged against other majorcurrencies. (more)

Hourly Action In Gold From Trader Dan

The events that have transpired since the writing of my midday commentary are so stupendous that I felt a few comments were in order.

The news that the Fed would be buying $300 billion of long-dated Treasuries sent the bond market into what can only be called a frenzy. In all the years I have been trading, I have never seen anything quite like it. We are talking about a move that carried from 123^25 to 132^18. The drop in yield was nothing short of breathtaking. The effect on the yield curve was to flatten it considerably. If the idea was to give the banks some ability to borrow short and lend long and profit from the recently steepening curve, that just went up in smoke but apparently the thinking is that the Fed can artificially force down long term interest rates and this will have a beneficial effect on the comatose housing market. Hey you morons – why not just hand out money directly to every taxpaying citizen in the country? After all, you can just print more of it whenever we need it… God help us all…

The effect on both the Dollar and the gold price was instantaneous. The Dollar collapsed as well it should have while gold shot up nearly $60 of its worst levels of the session.

Folks – it is my sincere conviction that this current administration is absolutely CLUELESS in how to solve this problem and are flailing in the wind. They are throwing anything that they can think of at a wall and hoping that something will stick. These theoreticians and academics, none of whom can probably even balance their own damn checkbooks, are now attempting to run the monetary system. In the process they have just destroyed our Dollar and make no mistake about this – they are now monetizing debt – which is another way of saying they are printing money out of thin air. Is it any wonder that the Dollar cratered and gold shot up so sharply?

As a long term friend of gold I am of course pleased to see gold moving higher but as an American citizen who loves this nation, I am both sickened and angered at the amateur hour that has taken over in Washington D.C. While the Fed burns down the Dollar, the same dipsticks who helped create this mess are worried about $165 million in bonuses when they are spending over $3 trillion in debt that my children will be saddled with. And to see the chief ringleaders, Barney Frank and Chris Dodd, feigning outrage and attempting to hop on the populist bandwagon to distract attention away from the gargantuan sum of indebtedness that they have just chained to the next generation makes my blood boil.

Wake up America – these damn fools are destroying what is left of our Constitutional republic.

Obviously the technical action in gold completely erases that which transpired before the Fed announcement. Now we have to see if gold can sustain a footing above the $930 level. If it can, and it must if it is going to have a chance at trending higher, then it has a very good shot at $960. That level is what will need to be taken out in order to challenge $1000.

The mining shares as evidenced by the HUI and the XAU both launched technical breakouts smashing above the 40, 50 and 10 day moving averages and taking out horizontal resistance levels in the process. The HUI needs to take out 320-323 to set up a trending move.

Please see the gold chart below for the levels… (graph)

Full Throttle on the Printing Presses!

March 18 (Bloomberg) -- The Federal Reserve opened a new front in its battle to bring down borrowing costs across the economy, pledging to buy as much as $300 billion of Treasuries and stepping up purchases of mortgage bonds.

The announcement following the Federal Open Market Committee meeting today in Washington spurred the biggest rally in longer-dated Treasuries in decades. Officials unanimously voted to expand the Fed’s balance sheet up to $1.15 trillion, and said they may broaden a program aimed at boosting consumer loans to include other assets, today’s statement showed. (more)

If Rally Continues,Watch Out!

Wonderland: Touring the Upside-Down Room

Over the last few days, as stock prices have continued to rebound we have seen a significant number of longer-term ‘super bears’ reverse their gears and become bulls. The likes of Marc Faber, Robert Prechter, Doug Cass come to mind, as a few who have swung from the bearish to bullish camp. Looking back, we note that as recently as March 6th, at the S&P low of 667, at least a few sentiment data points moved to important extremes, the most prominent of which was the much discussed AAII Sentiment Survey, which recorded a record number of bears at 70.30% the week ended March 6th. (more)

Monetization of Swiss Debt: A Report from Switzerland

State considers return to gold, silver dollars

By Drew Zahn
© 2009 WorldNetDaily

A bill being considered in the Montana Legislature blasts the Federal Reserve's role in America's money policy and permits the state to conduct business in gold and silver instead of the Fed's legal tender notes.

Montana H.B. 639, sponsored by State Rep. Bob Wagner, R-Harrison, doesn't require the state or citizens to conduct business in gold or silver, but it does require the state to calculate certain transactions in both the current legal tender system and in an electronic gold currency. It further mandates that the state must accept payments in gold or silver for various fees and purchases. (more)

The Fed Did Indeed Cause the Housing Bubble

Ladies and Gentlemen:

In his article on your opinion page, “The Fed Didn’t Cause the Housing Bubble,” Alan Greenspan attributes the housing bubble to lower interest rates between 2002 and 2005. That’s amazing to me.

My company served as lead financial advisor to the Federal Housing Administration between 1994 and 1997. I watched both the Administration and the Federal Reserve aggressively implement the policies that engineered the housing bubble. These are described at my website and in my on-line book,Dillon Read & the Aristocracy of Stock Profits (

One story, for example, is the following:
“In 1995, a senior Clinton Administration official shared with me the Administration’s targets for Fannie Mae and Freddie Mac mortgage volumes in low- and moderate-income communities. We had recently reviewed the Administration’s plans to increase government mortgage guarantees — most of these mortgages would also be pooled and sold as securities to investors. Even in 1995, I could see that these plans would create unserviceable debt loads in communities struggling with the falling incomes expected from globalization. Homeowners would default on mortgages while losses on mortgage-backed securities would drain retirement savings from 401(k)s and pension plans. Taxpayers would ultimately be hit with a large bill . . . but insiders would make a bundle. I looked at the official and said that the Administration was planning on issuing more mortgages than there were houses or residents. “Shut up, this is none of your business,” the official snapped back.” (more)

Comex gold trading is a paper game: Jim Rogers

Commodity Online
Even as gold spot and futures prices surge globally and bullion analysts continue to predict that the yellow metal prices will zoom to astronomical levels ranging from $1,000 to $5,000, there is more opposition coming to the paper gold at Comex.

Renowned global commodities investor and analyst Jim Rogers says gold trading at Comex, a division of Nymex, is a paper game and not a physical game.

”If you can take 50% of the gold away from the Comex then the price will be closer to what you are paying for physical today. If you take 50% of anything away, you know take 50% of IBM away the prices are going to go up,” said Rogers, a vocal critic of America and Britain, who left the United States to settle down Singapore. (more)

US$6,948 gold would support greenback

Peter Koven, Financial Post

Just how high could the price of gold go? Really high, according to analyst Daniel Brebner and others at UBS Securities. They plotted out a number of scenarios using various levels of strength for inflation and the U. S. dollar, and predicted that gold will not fall below US$500 an ounce between now and 2015, and could rise to US$2,500.

To get there would require inflation at 1970s levels and a weak U.S. dollar, UBS said. The bottom end of the range would require static inflation and a strong U. S. dollar.

There is one other possibility UBS raises: what if a new gold standard was adopted to support currencies, particularly the U. S. dollar? Using the current value of the U. S. monetary base and the country's reported gold holdings, UBS calculated gold would need to be at US$6,948 to support the value of the U. S. dollar.

If China and Japan are included, UBS predicted that the price would be close to US$10,000 an ounce.

The UBS team noted that a gold standard would theoretically bring some confidence back to currencies and stabilize them. But it would create all kinds of problems by removing flexible exchange rates, and they noted that not much headway has been made in this area.

Why California will be in a recession until 2011

California Financial Dreaming: 5 Exhibits Showing Why California will be in a recession until 2011: Revenue Projections, Housing Inventory, Unemployment, Toxic Mortgages, and Consumer Psychology.

It took California only three weeks after passing a $41.6 billion budget deal to fall back into the financial rabbit hole. How much did analyst miss? Try $8 billion. You need to remember that the budget battle started back in fall of 2008 and lingered for months so when the budget passed, it had rosy assumptions from a few months ago. Of course, things since then have deteriorated even further. More and more toxic mortgages in California are imploding and people are walking away from their homes (more).

What Ends Recessions/Depressions?

Seems like everyone’s involved in the great American pastime of calling a bottom to the recession.

If the Dow blips up, as it has this past week, a crowd of TV analysts is right there, squirming in their seats, telling everyone that this is the buying opportunity of the Century.

But is it? This short a distance into the recession?

Chances are, it’s not. How do I know? Because with all of our excesses, with all of our debt, with our sheer number of real estate shenanigans, the casino-mentality of our banks, the government turning our dollars into so much Monopoly money, it seems far too soon for us to have “learned our lesson.”

What do I mean by that? I mean that underlying the market specifics that got us into this mess, there’s what really drives bubbles and ultimately our eventual recovery from them.

I’m talking about the way we think.

Our attitudes.

Over a period of time, our attitudes evolve like just about everything else. Just preceding the Great Depression, for example, Americans had collectively become a rather proud, “we can’t possibly fail” people, groomed by increasing prosperity and technological progress. But when the Crash happened anyway, it took several years of humbling scarcity before people corrected their thinking and started living more prudent lives.

Again, that transformation in attitude took some time to occur…a lot more time than what we’ve gone through with the current recession.

So, bottom-line, if I were asked when this recession/ depression was going to end, I would have to answer, “However long it takes for our attitudes to change.”

Unfortunately, that may take a few years of living on “beans and rice” before that takes place.



FIRST, be leery of any apparent turnaround. Sure, it would be wonderful to get in at the bottom of any recession/depression and ride the profit elevator all the way up to the top floor. But remember how much optimism there was after the Great Crash in 1929. Even President Hoover spoke, in 1930, of how the downturn was a temporary bump in the road to permanent prosperity and his Assistant Secretary of Commerce, Dr. Julius Klein, declared the depression “officially over” in 1931. So be skeptical in a healthy sort of way. People’s attitudes take some time to change…and that’s what will ultimately turn this recession/depression around.

SECOND, I talked about the recession, at length, in the last The Ruff Times. And there’s so much more to talk about in future editions. Consider subscribing today.


Bear market rally or is it a true upside reversal?

Check out this new video where you will find precise turning points on the major indices. You will also see and hear where we expect the major indices to head in the next six to twelve months.

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