Fed To Stun The World With QE5

Russell:  “Success in investing includes a number of nonspecific items.  Patience, avoidance of greed, desire for peace of mind, avoiding huge losses, experience and judgment.  From the low of 2009, the major Averages have more than doubled, and have moved into overvalued territory in terms of book value, price to earnings and dividend yield.

My own judgment of the situation is that stocks in January to March have been overpriced, overloved and overbought.  Furthermore, from a risk-reward basis, I have felt that if the market moved higher, which it could do, the risk would not be worth the reward, figured after taxes.

So much attention has been given to what the Fed will or won’t do.  Two weeks ago, the Transports rose to a record high, unconfirmed by the Dow.  This alone was not fatal, but I considered it an act that called for caution.  I felt the need for caution increased when both Averages slipped lower the next day.

Since my largest position is in gold, I’ve watched the yellow metal’s action with extreme interest.  As I’ve said before, negative action in the economy and the stock market is a plus for gold.  My belief all along has been that the recession, which began subtly in 2007, and broke into the open during 2008 and 2009, never really ended.  In other words, we are dealing with an extended cycle of deleveraging and deflation, a correction of the great bull market that started in 1980.

We know that the Fed is terrified by deflation and will fight it with all the weapons at its command.  Once the Janet Yellen Fed realizes that Bernanke’s fantasy “dream” of an improving economy was just that – a fantasy dream – she will have to drop all thoughts of tapering and turn to what I will now call QE5.

The Fed will have to open the floodgates of liquidity in a frantic last attempt to hold back the forces of deflation, and at the same time the Fed will try to somehow produce the hoped-for 2% level of inflation.  Once the Fed’s reversal or switch in strategy hits the front page of the newspapers, the public will realize that the Fed has been terribly and tragically wrong.  At that time, I expect gold to climb above its resistance at $1,430 and head into the final phase of its great bull market.

At that time, maybe even the Fed will realize that creating fiat paper is a prescription for disaster.  When will they (in their obsessive desire to control the economy) ever learn?  When will the US learn that free markets produce superior results over central banks?  When will the public learn that gold as a currency is superior to fiat paper created out of thin air?  As Pete Seeger’s song asks, “When will they ever learn?”

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The market has had every chance to fall apart.  Bad news, bad economic statistics.  And yet the market closed near its high for the day. Evidently as long as QE continues, the players will play.  The money managers cannot afford to be out of a rising market. The market is in the hands of the Fed and its stimulants.  Nothing will stop its upward progress until the last block is placed on the tower and the tower falls over of its own weight.

Money managers are desperate to show profits.  As long as the Fed follows its stimulation plans, the money managers will continue to pour into the stock market.  They are ignoring all economic and political information.  Janet Yellen has blamed the weather for the unsatisfactory economic data.  It’s now clear that Putin means to levitate Russia to its former state of power.  And he is playing the game of “who blinks first” with the US and European powers.  I am very much afraid that Putin’s game could end up with shooting.

I note that John Williams’ Shadow Statistics claims that the Great Recession has never ended. Along with Williams’ conclusions, A. Gary Shilling seems to share the same opinions.  The political and economic background is now so complex that I prefer to concentrate just on stock market action.  As of today, market action continues to suggest ongoing bullishness and a hope that 2014 will replicate 2013. Industrials are up 188, confirmed by a 66 point rise in the Transports.  My anxious stomach tells me that the rise is risky and that the risk of being in this market is not worth the anxiety that it stirs up.

In the meantime, although gold is being outrageously manipulated, as stated many times, my own preference is to be largely in actual gold while holding only a minimum of US dollars.  The Fed is playing the interest game.  Putin is playing a dangerous game.  And those in the stock and bond markets are playing a dangerous game.

I can’t get out of my mind Putin’s statement that the worst day of his life was when the Soviet Union fell.  I believe Putin’s purpose or obsession is to rebuild Russia to the power that was enjoyed by the old Soviet Union.  His move into the Crimea is a first step in rebuilding the Russian Empire.

In view of Putin’s aggression and the weakness of the Chinese economy I don’t see how anyone can sit with a full portfolio of stocks at this time.  What we’re seeing is the money managers hoping to scalp a few profits before trouble hits.  The market has held up by quantitative easing and bravado.

In the meantime, 24 nations are engaged in a game of finding the missing Malaysian jetliner.  It’s an amazing world we live in.”