A New Monetary System & End Of The Fed

One the heels of last week’s propaganda by the Fed, the Godfather of newsletter writers, Richard Russell, writes about the end of the current monetary system, the bond market collapse, volatility in stocks and the end of the Federal Reserve.  This is a fantastic piece where Russell includes two key charts.

Richard Russell:  “The great bull market that started in 1982 with the Dow at 776 possessed one great advantage — It had a bull market in Treasury bonds behind it.  At the time (in 1982) the yield on long T bonds was around 15%.  The bond market and the stock market rose together until the 2000s.  The stock market hit its bull market high on October 7, 2007 at 14,164.53 on the Dow.  The bond market hit its bull market peak in May of 2013.

Now the great bond bull market has topped out, and a new bear market in bonds is underway.  This will mean rising interest rates for as far as the eye can see, with accompanying interest rate pressure on stocks.

Question — Russell, you stuck your neck out last week and stated that the stock market may be in major trouble.  How come?

Answer — First, I believe the bull market in bonds is over.  That means that we may face many years of irregularly rising interest rates.  Remember, the Bernanke Fed artificially depressed interest rates with its huge QE program, during which it bought massive quantities of bonds.  The Fed’s program cannot continue forever — in fact, Bernanke has recently conceded that the Fed is making plans to “taper” (down) its bond buying program.  When the Fed tapers, bond prices will decline towards their normal, free-market levels, and interest rates will rise (bonds and their yields move in opposite directions).

Next, one crucial characteristic of a bear market bottom is the appearance of great values in blue-chip stocks.  At the lows of 2009 we never saw blue chip stocks selling at classic great values.  At the bear market lows of 1932, 1942, 1949, 1974 and 1982, the Dow sold at less than 10 times earnings with dividend yields in the 5-7% range.

For instance, in 1974 dividend yields on the Dow were as high as 7%.  In 1932 dividend yields on the Dow were 10%.  The absence of great values at the 2009 low made me suspicious and led me to believe that the low of 2009 was not a true bear market bottom.  The fabulous values that accompany true bear market lows were just not there.

Last night I read through the latest issue of Barron’s from cover to cover, and nowhere did I see a single mention of a primary bear market.  This made me suspicious.  Obviously, I can’t guarantee that we’re in a primary bear market, but I certainly can suspect as much.  The worst part is that if indeed we are in a bear market, then the vast majority of investors are not positioned or prepared for such an event.  I believe that most investors think that last week’s sell-off was simply a gut-check reaction to Bernanke’s remarks about a potential cessation of QE.

If indeed a bear market has started, one hint will be provided by volume.  On declines in a bear market, volume will tend to expand, while during rallies volume tends to subside.  Also, in a primary bear market the down-legs tend to be extended and “dragging,” while the counter-trend rallies will usually be sudden and violent.  Therefore, volatility will be on the high side during a primary bear market.

Of course, price limits have to do with classifying a bear market.  By common acceptance, a decline of 20% from the preceding peak identifies a bear market.  I pick Dow 10,000 as a key level.  Below 10,000 is the point of no return.

… Now we come to the question of consequences.  What are the consequences if you sit stubbornly with your portfolio of stocks, insisting that we are simply experiencing a correction, and it turns out that you are wrong?  The consequences could be catastrophic.

For that reason, I suggest that my subscribers act “as though” we are possibly in the second part of the primary bear market that started in 2007 — we will know more as we go along.

… To repeat, I maintain that the bear market that began in 2007 was never completed.  In my worst scenario, the remainder of the bear market that started in 2007 is now on its way to completion.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/6/25_Richard_Russell_-_A_New_Monetary_System_%26_End_Of_The_Fed.html

Gold sheds nearly $100 for the week

Gold prices ended slightly higher on Friday but swung to a weekly loss of nearly $100, fueled by a potential slowing of the Federal Reserve’s bond purchases later this year.

Gold for August delivery GCQ3 -0.16% gained $5.80, or 0.5%, to $1,292.10 an ounce, but posted a weekly loss of $95.60.

Yields on the 10-year U.S. Treasury note 10_YEAR +1.45% pushed above 2.5% briefly on Friday and U.S. stocks fluctuated in choppy trading.

The slight rise on Friday was a consequence of buying from bargain hunters, said Vedant Mimani, lead portfolio manager of Atyant Capital’s Global Opportunities Fund.

Still, gains were subdued because of continued selling, he said. “It’s been sold pretty hard during the last two days,” said Mimani. “Now everyone is just waiting.”

Gold futures halt their fall Friday as the U.S. dollar edges lower.

The contract had plunged more than 6% during Thursday’s floor trade on the New York Mercantile Exchange, as investors continued to price in the Fed’s possible trimming of its monetary stimulus later this year. The Fed currently buys $85 billion in mortgage and Treasury debt each month as part of its efforts to spur the economy.

After settling Nymex trade at $1,286.20 an ounce, which was the lowest close since September 2010, August gold took further damage on news that exchange operator CME Group Inc. CME -0.39% was hiking margin requirements.

The CME, which owns the Nymex’s metals-trading Comex division, said following Thursday’s close that it would hike initial and maintenance margins for gold by 25%, according to reports.

The increase means speculative traders must have $8,800 to open a 100-troy-ounce position, up from $7,040, and keep $8,000 to hold the contract overnight, up from $6,400, Dow Jones Newswires said.

The new margins would come into effect after Friday’s close, CME said.

The ICE dollar index DXY +0.29% rose to 82.317 in late Friday trade. A stronger U.S. currency tends to weigh on gold and other dollar-denominated commodities, as it makes them more expensive for holders of euros, yen and other units. The relationship between the dollar and gold futures isn’t set in stone and tends to be stronger on days with big moves, said Mimani.

The dollar had rallied since the Federal Reserve’s statement late Wednesday, signaling it could slow its asset purchases this year if the economy improves further.

Gold plunges below $1,300

Traders scramble to sell gold as prices fall to lowest level in nearly three years. Photo: AP

The price action is a recouping of prior-day losses rather than a result of news, said Carlos Sanchez, director of asset management at CPM Group.

He noted that options will expire next week, which should increase volatility as the July contract will become deliverable at the end of June. As a consequence, “you may see some more activity in the silver market as opposed to the gold market toward the end of next week,” said Sanchez.

The July contract for silver SIN3 -0.72% ended up by 14 cents, or 0.7%, to $19.96 an ounce, after dropping $1.80 on Thursday.

Elsewhere in the metals complex, copper for July delivery HGN3 -1.36% settled at $3.10 a pound, up 4 cents or 1.3%, while September palladium PAU3 -0.47% rose $9.65, or 1.5%, to end at $674.75 an ounce.

July platinum PLN3 -0.10% gained $5.70, or 0.4%, to end at $1,369.50 an ounce, after losing more than $60 in Thursday’s Nymex action.

Source: http://www.marketwatch.com/story/gold-halts-its-tumble-as-us-dollar-ticks-lower-2013-06-20

The Government Is Going To Steal Your Money

On the heels of yesterday’s drubbing in the gold and silver markets, MEP Nigel Farage spoke with King World News about recent turbulence in key markets, and also warned KWN readers to expect more government theft as Cyprus is used as a template to steal money from citizens in the future. Below is what Farage had to say in part II of his powerful interview series.

Eric King: “I wanted to ask you about your thoughts on the propaganda coming out of the Federal Reserve (as we go through this orchestrated smash in gold and silver).”

Farage: “The fact is that America is living massively beyond its means. Pursuing policies that really are not in the interests of America. They are just a means of keeping the whole thing (financial system) propped up.

I thought we had learned the lessons in the past. Money printing leads to disaster….

“And Bernanke saying, ‘We might ease back towards the end of the year,’ doesn’t get away from the fact that we’re still borrowing and we’re still printing. It’s just astonishing to me that the great public doesn’t seem to be engaged in this debate.

The Chancellor in Britain goes on commercial and national BBC television and radio, and tells us that, ‘he’s cutting.’ He talks about the cuts to the budget deficit. Well, we’re still adding to our national debt at nearly 10% per annum. So I think there is really an entirely false debate going on on both sides of the Atlantic.

But what we do know is that the next time a country gets into trouble, what we saw in Cyprus a few months ago is going to be used as a template. And the German, Finnish and the Dutch taxpayers are not going to be happy with lots more of their money being transferred to the Mediterranean countries, and so they will use the template for Cyprus and just steal the money from investors.”

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/6/21_Nigel_Farage_-_The_Government_Is_Going_To_Steal_Your_Money.html