Adam Hamilton: QE3 Silver Impact

Submitted by Adam Hamilton:

Silver has been selling off relentlessly since the Federal Reserve expanded its third quantitative-easing campaign last week.  As that decision was highly inflationary, silver’s subsequent weakness has really vexed traders.  But its counter-intuitive selloff had nothing to do with fundamentalsAs the Fed’s past QE campaigns demonstrated abundantly, QE3 will eventually prove to be very bullish for silver’s fortunes.

 

2013 Silver Eagles As Low as $2.59 Over Spot at SDBullion!

 
Quantitative easing is a pleasant-sounding euphemism for debt monetization.  Historically this dangerous practice has been scorned because it ultimately unleashes serious inflation.  Monetizing debt is exactly what it sounds like.  A central bank chooses to buy bonds, and then conjures up the money to do so out of thin air.  This new money is injected into the economy as the bond sellers spend it, igniting inflation.

 

The rapidly-expanding money supply grows much faster than the underlying economy.  So relatively more money chases after relatively less goods and services, which bids up their prices.  As more money is poured into the system, each unit has less purchasing power.  Inflation is ultimately an oversupply of money, which quantitative easing greatly accelerates.  Investors flock to precious metals in such times.

 

The supply-and-demand dynamics of gold and silver protect and multiply capital when central banks are inflating their money supplies.  Since fiat money can be wished into existence instantly in unlimited quantities, its growth vastly outpaces the naturally-constrained growth in global precious-metals supplies from mining.  A lot more currency competing for relatively less silver inevitably drives up its price.

 

So make no mistake, the Fed’s decision to more than double QE3 last week is wildly bullish for silver going forward.  The Fed just announced an unprecedented tidal wave of money-supply growth from debt monetization that is going to start hitting our economy’s shores in January.  The recent silver selling is the result of unrelated bearish psychology, and such extreme sentiment anomalies never last for long.

 

Why is QE3 so bullish for the white metal?  Because its probable scope dwarfs that of QE1 and QE2, and both of those earlier inflationary campaigns eventually worked wonders for the silver price.  This first chart shows silver over the Fed’s QE era of the past four years, along with QE’s growth.  The direct injection of new money into our economy from the Fed’s debt monetizations is a great boon for silver.

 

This chart is updated from a more comprehensive study of the Fed’s QE campaigns I wrote a couple months ago.  When the Fed creates new money to buy bonds, these purchases grow its balance sheet which is shown in orange.  The yellow and red lines, which are stacked like an area chart, show the types of bonds the Fed buys through QE, mortgage-backed securities and Treasuries respectively.

 

And it is the red Treasury buying we want to focus on today.  Of all the debt a central bank can choose to monetize, its government’s bonds lead to the most direct inflation.  Central banks only print money to buy their government’s debt when it is living far beyond its means.  Thus all the money created to buy these bonds is spent nearly as rapidly as the issuing government receives it.  It flows directly into the economy.

 

So it shouldn’t be surprising that the Fed’s unprecedented quantitative easing over the past four years corresponds exactly with Obama’s extreme record deficits.  As unchecked federal-government spending soared to a quarter of the total US economy, the Fed monetized increasing amounts of the resulting deluge of new Treasuries.  And as the government immediately spent all this newly-created money, silver surged.

 

All three of the Fed’s QE campaigns were introduced in two stages, to blunt their psychological impact on inflation expectations.  QE1 was born in November 2008 and expanded in March 2009.  Through it the Fed created an epic $1750b out of thin air to buy bonds, but only $300b was allocated for Treasuries.  They were gradually monetized over roughly 15 months, working out to buying of about $20b per month.

 

And how did silver do over this entire QE1 span?  Awesome, it rocketed about 80% higher!  Of course this gain wasn’t just from QE1 and its relatively-small Treasury monetizations.  As a hyper-speculative metal extremely sensitive to sentiment, silver was ripped to shreds in the epic fear of the stock panic.  So as QE1 was launched, silver started from a very depressed base.  Still, the QE1 inflation was very bullish.

 

Today traders are freaking out because silver hasn’t been skyrocketing since QE3 was born a few months ago.  But look at its behavior during QE1.  Though silver rose mightily on balance, it still experienced periodic sharp selloffs like in the second quarter of 2009 and first of 2010.  Other times it just ground sideways and consolidated.  Silver is and always has been volatile, traders have to accept that.

 

Though the inflation unleashed by quantitative easing is a strong tailwind, many other factors affect short-term silver psychology from time to time.  Greed can erupt to catapult silver higher far faster than QE alone warrants, and fear can crush silver much lower than fundamentals merit.  But normal sentiment-driven selloffs within a timeframe where the Fed is monetizing certainly don’t make inflation less bullish.

 

Since QE1 miraculously failed to significantly raise mainstream traders’ inflation expectations, the Fed was greatly emboldened for QE2.  It was exclusively Treasury purchases, the purest form of inflation from debt monetization.  And it weighed in at a whopping $900b over about 10 months, although the first third of this was from rolling over already-monetized mortgage-backed securities into Treasuries.

 

So we are talking about a $90b-per-month rate of Treasury monetizations.  And as you can see above, during this QE2 span silver skyrocketed.  It ultimately blasted a staggering 177% higher in 9 months, its biggest upleg of its secular bull by far!  QE, especially the direct inflation that comes from monetizing Treasuries, is very bullish for silver.  But like QE1, QE2 didn’t mean silver never experienced weakness.

 

In August 2010 when the Fed announced the rollover of maturing MBSs into Treasuries, it wasn’t called QE2 at the time.  And silver surged dramatically after this, largely for other reasons.  It wasn’t until QE2 was tripled in November 2010, to intense global political criticism, that it actually became known as QE2.  But right after that QE2 expansion that would ultimately prove wildly bullish, silver consolidated.

 

This metal had just rocketed 39% higher in less than 3 months, thus it was short-term overbought.  So silver climbed a bit higher into late 2010 before selling off sharply in early 2011.  Silver lost an eighth of its value in several weeks despite the Fed’s QE2 Treasury monetizations being very bullish.  Sound familiar?  Later in May 2011 silver plummeted after getting wildly overbought, QE isn’t its only driver.

 

Nevertheless, over the entire span of QE2 silver still powered 89% higher!  This is despite the near-crash after silver euphoria grew far too extreme in that mammoth QE2 upleg.  When the Fed is aggressively growing its balance sheet by buying bonds with freshly-conjured money, especially through Treasuries, silver investment demand surges.  Silver has always been one of the best assets in inflationary times.

 

Interestingly after QE2 ended in the middle of 2011, silver continued correcting sharply.  Though the Fed was shifting its Treasury allocation from shorter term to longer term through what became known as Operation Twist, it wasn’t growing its balance sheet.  The tailwind of new QE inflation was gone, so silver investment demand and prices naturally deflated.  But correction sentiment was the dominant factor.

 

Silver didn’t really start showing some sustained signs of life until QE3 expectations really began to flare late this past summer.  Between early July and the day in September the Fed birthed QE3, silver surged 29% in a couple months.  So as the next chart illustrates a little later, this metal was definitely short-term overbought.  And then the initial stage of QE3 avoided Treasury monetizations for political reasons.

 

After it expanded QE2 in November 2010, the Fed was shocked by the resulting firestorm of global criticism.  World leaders condemned this brazen monetization.  And more importantly, here in the States Republican lawmakers accused the Fed of being in cahoots with Obama to “finance” his record deficits.  And Congress can kill the Fed with a single vote.  So the Fed remained wary of monetizing Treasuries.

 

But QE3’s first stage was still unprecedented.  Instead of a static target like QE1’s $1250b of mortgage-backed-securities monetizations, the Fed announced its first-ever open-ended QE of $40b per month this past September.  But the banks and large investors selling MBSs to the Fed don’t spend this new money right away like the federal government does after Treasury sales, so the inflationary impact was muted.

 

Then after Obama won re-election a couple months later, the Republican political threat to the Fed greatly diminished.  It could continue brazenly monetizing Obama’s record deficits without an immediate risk to its survival.  So just last week, following the pattern established in QE1, QE2, and even Twist, the Fed expanded QE3.  For silver, this new QE3X is the most bullish inflationary campaign of the entire QE era!

 

The Fed just announced adding $45b per month of Treasury monetizations to QE3’s existing $40b per month of MBS buying, more than doubling the campaign.  Now $45b per month might not sound like a lot compared to QE1’s $300b of Treasury buying and QE2’s $900b.  But QE3 is open-ended.  There is no end date.  And based on the Fed’s own targets, QE3 is likely to run for a long time.  We are talking years!

 

Last week the Fed said it plans to continue manipulating interest rates to levels near zero “at least as long as the unemployment rate remains above 6-1/2 percent”.  The last time we saw a 6.5% unemployment rate was over four years ago in late 2008 as the stock panic started to unfold.  Even the economic optimists figure it will take several more years before unemployment heads decisively below 6.5% again!

 

$45b per month of Treasury monetizations for one year works out to $540b, already dwarfing QE1’s and nearly as large as the new component of QE2.  After two years it grows to $1080b, and three years would take QE3 to a staggering $1620b of new Treasury monetizations!  Not including the rollovers of MBSs and other already-monetized Treasuries, QE1 and QE2 only saw $900b in total Treasury monetizations.

 

So QE3 is going to utterly dwarf QE1 and QE2 combined in its inflationary impact!  The Fed has effectively committed to monetize half of Obama’s record deficits, which are expected to average $1100b annually in his second term.  And if silver surged 80% during QE1 and 89% in QE2, which were much less inflationary than QE3 is looking to be, why would silver not fare at least as well in this latest QE?

 

The Fed monetizing Treasuries, with the government then immediately spending this new money and injecting it into the economy, is highly inflationary.  Despite silver’s day-to-day volatility, investors eventually realized this and drove massive silver uplegs during QE1 and QE2.  Mark my words, the same phenomenon is going to happen again as the crazy inflationary implications of QE3 start to sink in.

 

So with QE3’s coming Treasury monetizations so massive, why hasn’t silver responded favorably yet?  The answer is temporarily bearish sentiment totally unrelated to QE3.  Remember that silver fell sharply at times during both QE1’s and QE2’s durations, yet on balance it still soared dramatically.  Though QE is a strong tailwind, it is a background driver.  Meanwhile greed and fear batter silver around as always.

 

Last week in an essay on silver’s young upleg, I discussed the lingering correction psychology that is a major reason for silver’s recent weakness.  Early in new uplegs few traders believe one is indeed underway, so they figure any new selling means the correction is back.  Bullish contrarian sentiment remains rare.  But a second reason silver has been weak is because it got too overbought before QE3.

 

This last chart looks at the 10-trading day, 20d, and 30d returns in silver over its entire secular bull.  These metrics measure how fast silver has moved.  Naturally when it has surged too far too fast, it is overbought and greed is excessive.  So depending on where silver is in its upleg cycles, either a pullback, correction, or consolidation is necessary to rebalance sentiment.  And that is what silver has been suffering lately.

 

Partly due to the anticipation of QE3, partly due to being very oversold, and partly due to strong autumn seasonals, silver surged dramatically in late August and early September.  After its massive 14-month correction, this was a lot of fun.  But silver got ahead of itself.  At best it was up 13.9% in just 10 trading days, 24.6% in 20, and 27.5% in 30.  As you can see above, such extreme rallies are rare and short-lived.

 

If silver happens to be in a mature upleg after such incredible short-term runs, it soon rolls over into a new correction.  But following its massive correction that bottomed this past summer, that sure doesn’t describe silver’s state in September 2012.  It was early in a new upleg, so the necessary reckoning to rebalance away the excess greed generated by such a fast surge was merely a pullback or consolidation.

 

Interestingly, short-lived early-upleg surges are not uncommon.  Each of silver’s five major uplegs of its secular bull has seen rapid advances early on that were followed by sharp pullbacks.  Yet this selling certainly didn’t short-circuit these uplegs.  In fact just the opposite was true.  These pullbacks and consolidations after silver had advanced too far too fast bled away greed, keeping the uplegs healthy.

 

Silver’s apparent lack of response to the Fed’s highly-inflationary QE3 expansion has nothing to do with QE3.  The QE3 Treasury buying hasn’t even started yet, the Fed isn’t spinning it up until January.  Silver simply got overbought early in a new upleg, and selling emerged as always to rebalance sentiment.  And it has worked.  All the greed that was mushrooming in mid-September has totally yielded to serious fear.

 

Gold has been a major factor in silver’s recent weakness as well.  Silver traders have always looked to gold as their major cue for buying and selling the white metal.  Gold is silver’s primary driver.  And due to a combination of poor sentiment and fund selling, gold has been much weaker than normal this time of year.  This has heavily weighed on silver, and is probably responsible for the great majority of its selloff.

 

But don’t get too caught up in this temporary weakness.  Silver rises and silver falls, but there is no doubt monetizing Treasuries is wildly bullish for this metal.  Sooner or later all the distractions keeping investors from buying silver since the QE3 expansion will evaporate, and the urge to get deployed will hit hard.  Silver nearly doubled during both QE1 and QE2, and QE3 will almost certainly prove much larger!

 

At Zeal we’ve always been contrarians.  While fighting the crowd is hard psychologically, the best time to buy low is when no one else wants to touch a sector.  That certainly describes silver today.  Since silver’s massive correction following the biggest upleg of its bull during QE2, we’ve spent 6 months digging into silver stocks.  We wanted to find the silver companies with the best fundamentals to ride this new upleg.

 

During the past 3 months we investigated nearly 100 silver juniors trading in the US and Canada.  We gradually whittled them down to our dozen fundamental favorites, which we profiled in depth in a fascinating new 23-page report.  Last weekend, several days after we published it, one of these elite juniors was bought out at an epic 72% premium!  The silver miners certainly know silver juniors are dirt-cheap, so why not join them in buying low?  Buy your silver-juniors report today and get deployed!

 

We also publish acclaimed weekly and monthly subscription newsletters long loved worldwide.  In the former we had just recommended that silver junior that got bought out a few days earlier, so our subscribers enjoyed that gigantic merger gain.  Our newsletters help you keep your greed and fear in check by keeping markets in proper perspective.  Since 2001, all 634 stock trades recommended in them have averaged annualized realized gains of +34.8%.  Subscribe today!

 

The bottom line is the Fed’s new QE3 campaign is wildly bullish for silver.  Monetizing Treasuries leads to direct inflation, which drives investors into the precious metals.  And QE3’s Treasury buying is going to utterly dwarf that seen in QE1 and QE2.  Yet silver still nearly doubled during each of those earlier monetizations.  The longer QE3’s monthly Treasury buying lasts, the more capital will flood into silver.

 

It’s true, silver has plunged since this unprecedented QE3 expansion was announced.  But that selling had nothing to do with QE3’s Treasury buying, which hasn’t even started yet.  While QE provides a strong tailwind for silver prices over time, this metal’s trademark volatility remains intact.  The fearful sentiment that drove this recent selloff will soon dissipate, and silver’s young QE3 upleg will resume.

 

Adam Hamilton, CPA

 

December 21, 2012

 

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Questions for Adam?   I would be more than happy to address them through my private consulting business.  Please visit www.zealllc.com/adam.htm for more information.

 

Thoughts, comments, or flames?  Fire away at zelotes@zealllc.com.  Due to my staggering and perpetually increasing e-mail load, I regret that I am not able to respond to comments personally.  I will read all messages though and really appreciate your feedback!

 

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Comments

  1. While we understand why QE3 & QE4 are so bullish for PMs it hasn’t as yet helped the price. I wonder if all the Fed has really done is announce it intentions but not really sent any money out at all. Or if they have, they only sent it to the bullion banks to smash metals so far. As far as charts go. I hate to sound like a broken record or kick a dead horse but with the criminals running everything they are meaningless. Yes after QE1 & 2 we saw prices go up. The metal we had went up but after we bought when prices were in the 35$-45$ range we have suffered greatly since then because of the manipulation.! I’m not knocking metals it’s just a fact. They let the price go up then they smashed them! So even if QE3 & 4 is bullish for us it doesn’t mean they can’t do it all over again. In fact they most likely will do it all over again and again and again UNTIL THEY CAN’T! Nobody knows when that will be. The good or bad depending on how one looks at it is that there is Nothing Else! Nothing at all. So stack when the prices are low and hang on. This is the reality of life today. Criminals are in charge of all levers of power and finance and until people everywhere finally stand up and take action on their own behalf it will remain so.

    • Well said Rockets.
      There is nothing else I would feel safe investing in, in this day an age.
      Keep on keeping on.
      Keep stackin. 
      Peace. 

    • That time is coming, especially if they try a gun grab. I see revolt in the future. The brain washed city sheep will give up without a fight.

    • “The brain washed city sheep will give up without a fight.”

      Indeed.  They will sing on their way to the leg of lamb and lamb chop factory, blissfully unaware of their true fate.  Will they be missed?  Does the term “Hell, NO!” mean anything?

  2. I honestly think the fed is simply throwing money hopelessly into a bottomless pit of deflation. I don’t think we are even close to seeing the inflation the fed thinks it needs to save the system, which is inflation in housing. All of this money printing is simply to save the banks still. The fresh money is just to provide cover for the mortgages and student loans that are going sour. To get real inflation, people must start taking out new loans again. Until then, this fresh money will just sit in the banks’ accounts and not provide the multiplier effect needed to stoke inflation.
     

    • Apparently, the Fed and the Gov do not care whether or not the banks loan out this Fed money to Americans to build or expand a business, hire people, or buy new equipment.  All that matters to them is the closed loop wherein the Fed prints up a LOT of new fiat, gives it to the banks in exchange for all of their worthless toxic assets, and the banks then turn around and buy US Treasury paper with the money, which the Gov then spends to pacify the sheeple and keep the Gov running for a little while longer.
       

  3. Ok, I’ll say this nicely as this guy is a friend of silver, but 50% of this analysis pretty useless.

    Silver just got ahead of itself?  Nothing of the tens of millions of short JPMorgan oz being added to the market each week?  Nothing of the 300 MILLION oz concentration among 4 banks? Nothing of the HFT massacres in thinly traded Asian hours?

    In short, NOTHING about the crime in progress that is silver.

    Sorry, but these days, with the LIBRARIES of evidence we have…and the COUNTLESS smoking guns(including IMF and BIS reports of gold swaps)…..I have no time for anyone who tries to make sense of this via tea leaves(mere charting), without the facts of life(the criminal banking suppression). Zero time. 

  4. The stock market is an even bigger scam these days than the commodities market. No help there. Companies  stock price goes to the moon for no other reason than hype. Then crashes. Only insiders made out, everyone else robbed! CME, Wall st. no difference. If one wants to get into mining shares good luck. But I would bet they will be nationalized everywhere. Most likely investors would get the kind of deal the GM & Chrysler bond holders got. No thx.

  5. One indicator that isn’t mentioned enough or really talked about much here is the 10-year treasury.  Look at that chart and look at the Dow.  Since April 12 we haven’t seen 2% on the 10-year.  You will never see 2% on the 10-year again until the central banks and the powers that control the markets can’t manipulate the markets anymore.  Every single time the 10-year get’s around 1.75% you will have a market swing.  The Fed simply can’t have the 10-year hit 2% or all those put options and insurance will be revalued at a lower valuation.  The Fed could have a crisis when that happens.  The Fed must keep the yield curve and the Fed fund rate basically at zero.  If the biggest and most traded bond in the world goes up in yield and value is lost, all hell is going to break open.  This would single that the dollar is weakened and could cause a sell of by foreign holders. 
     
     

    • US Treasury paper is a Ponzi scheme of Earth shattering proportions.  It is the greatest bubble of ALL time and it WILL go POP! one of these fine days.  Do not own any of this crap.  It is fully equivalent to small company junk bonds.  There was a time when it was not and one could invest in it with a high probability of earning a little more than taxes + inflation took away AND you also got your principle back when the bonds matured.  Not these days, Bucko!  If you value your money, do NOT buy into this paper Ponzi scheme by putting your wealth into a place populated primarily with sticky fingers.  The day of reckoning is approaching and while none of us knows the day / week / month / year of its collapse it is as sure as night follows day that it IS coming.

  6. All this QE3 and 4 stuff aside, I saw something very bullish that gave me a little kick this morning.  Our friend Harvey Organ reports that the December deliveries keep increasing.  We’ve gone from about 12 mil oz standing at the beginning of the month to 19.6 million now.  Here’s an excerpt:
    “As far as silver is concerned the big raid orchestrated on Thursday did not see the OI (open interest) complex contract.  It rose again as many investors are resolute in their conviction of the value of silver and they seem immune to the crooked antics of the bankers.  What is more fascinating is the fact that the number of ounces of silver standing for December has increased every day from the 6th of December onward including Friday.  Actually on Friday we saw the biggest jump this month in ounces standing…. a whopping 1.7 million oz.”
    These 1.7 mil aren’t off in the future somewhere, they have to be delivered this month, which means next week, boys and girls.
    Let’s see if they short it hard enough to get these peeps to roll over, or if they have the phyzz to cover this.  They claim 42 mil oz at their disposal, so this shouldn’t be any problem at all.  Payola instead of silver would be my guess, but the pressure is still on.
    Respects to Mr. Organ for all his efforts at number crunching and daily reports.
    Ya’ll stay frosty.
     
     

     

    • @conax do you have a link to the article? I’ve been wondering about the longs and shorts and what’s heppening with them. I read somewhere they where selling their shorts, so I’m curious.

    • Here’s the link Marchas45 http://harveyorgan.blogspot.ca/  … Harvey (although a somewhat messy blog) is a daily must read for any in the metals.

      “Obama’s extreme record deficits

      Under quoted through the orgy of Obama hate and disinformation… deficit increases since 2008 are some of the lowest in history… fact can be a real bitch.

    • @SRV 
       

    • So they move the post it note from one stack of silver to another….

    • “Let’s see if they short it hard enough to get these peeps to roll over, or if they have the phyzz to cover this.  They claim 42 mil oz at their disposal, so this shouldn’t be any problem at all.”

      Yeah?  Well, the NY Fed claims to have 1500 tons of German gold in their vaults too but good luck with repatriating that or even getting a good close look at it!  So much for “claims”!   lol
       

    • @Charlie… heh heh… when the tide goes out, we will see if they are even wearing any shorts!  LOL!

  7. The entropy of manipulation will run its course just like the heat death of the universe  predicted by physicists.
     All fires burn themselves out when deprived of fuel.  The manipulation of precious metals will see its own end when the fuel for this flame  is not longer available.
    When money hits these metals, then we’ll see a flame of much different color and heat. The reason for this is outlined below

    More along the line of reality, the FIAT flowing through their various channels will find ZERO OR NEGATIVE YIELDS.   An article in the WSJ Dec 20 spoke again about the reduction in FDIC insurance. Real numbers are starting tosurface since I wrote the post about FDIC insurance a few months ago.
     The small and big banks are preparing for a $250 billion shift to MMA accounts. The funds like Blackrock are fearful of the fund influx.  The MMAs used to pay nearly 5%  Now they pay 5 BPS.  That $500 on a $1,000,000 MMA. Can you spell Happy Meal?
     These fund managers and politicians are starting to rewrite the rules of Breaking the Buck, aka, allowing the funds to have a negative yield (NIRP).  MMAs are increasingly  unable to find anyshort term investment that pays a yield above zero.  The MMA managers want to get paid too and I will assure you 100%, they get the first rake off the MMA income.  

    Fidelity takes as much as 90% of the income from their $150 billion funds, leaving as little at 2 BPS for their clients.  If the MMAs can’t get any yield, period, they will take from the client’s funds to pay themselves, thus effectively leaving the client with a negative return. Think of the MMA manager as a tapeworm infesting your hard earned capital.
    In 2011,  Mellon Bank started charging clients significant fees to park their funds.  French, Swiss and German banks are charging their clients up to .50% for the priviledge of retaining funds, creating a culture of NIRP. This capital is flowing from Euro peripheral banks so these funds are fleeing failing economies and banks  
     Once the American public with any sort of  liquidity find out their banks and MMA managers are charging them for the equivalent services of parking lot manager and the clients end up with less at the end of the year than the start, they will flee the scene and move to something that is tanglible and hard.  That’s when people, businesses, equity firms and pension plans will most certainly shift to commodities. The perception of inflation may not have yet hit but these paper MMA loses will start to sting.
    The Japanese pension plans are buying gold to try to supplement the pathetic yields now driving the funds to negative cash flow and potential and eventual insolvency resulting from their QE 22 and age demographic bubble.
    These funds are going to seek yield and yield can only be found in commodities and hard assets.
    The entire year’s production of silver is worth less than $30 billion.  We spend more on pet food and manicures. It will take only the tiniest fraction of funds sloshing around the globe to ignite the price of silver.  Gold and silver are linked and while I don’t know which will see the first solid price increase since gold stocks are worth about $4 trillion, once one metal takes off, the rush to buy all precious metals will be cataclymic.   Fortunately we are first adopters to this rush and when it takes place as some unknown future time period, we will be vindicated.
    Since QE 3′s effects are not yet being felt, we just need a bit of patience.  We are not talking about just one small country like Argentina or central European location finding itself in explosive inflationary effects with a rush to precious metals.  We are referring to the entire world and its various unbacked paper currencies exploding. Every one of them is printing to infinity with no hard backing to their FIAT.  Hang on me mateys, the going will get rough soon enough. Dramamine is suggested.

    • Nice summary AGXIIK.  The FDIC insurance scam is very interesting.  It’s a perception play by the government and the Fed to provide a false sense of security.  I think Ann Barnhardt in one of her presentations said that the FDIC insurance only has 11 billion dollars in the fund.  I think there is 8 trillion in deposits that the FDIC is covering.  You think you are covered?  Not a chance if there are bank runs or a major financial breakdown.  These insurance scams like put options, CDS, and other derivatives were created to drive down interest rates synthetically.  They will never be paid out just like all the deposits that the FDIC is promising.  People talk about the derivative exposure and leverage used by the central banks and major commercial banks.  Estimates are over 1.5 quadrillion dollars in OTC derivatives outstanding.  The main purpose is to drive down the yield curve and the Fed fund rate using these derivatives.  Put options, CDS, swaps are the main instruments being used.
      This is a great article by zerohedge back in 2011 to explain what the Fed did to drive down the yield curve on the 10-year bond.
      http://www.zerohedge.com/article/did-fed-its-stealthy-synthetic-bet-keep-yields-low-become-next-aig
      Stunningly, today we learn that to keep long rates low, the Fed may have resorted to nothing short of the same suicidal trade that destroyed AIG FP and brought the entire system to its knees. Namely, Ben Bernanke is now quite possibly the second coming of Joe Cassano, since in order to keep rates low, Bernanke is forced to a last resort action of selling billions upon billions of Treasury puts to “pin” rates low contrary to natural supply-demand mechanics.

      the Fed may well have be constantly doubling down on its risk exposure in the form of off-book derivative contracts in order to “pin” Long-Term rates (read the 10 Year) by constantly selling Puts on Long Dated Treasurys at opportune times when there is no incremental buying of the underlying security, yet when, as the CDO and upcoming ETF debacles have so well demonstrated, the price of the derivative actually impacts the price of the underlying!
      I posted this before but here is is a link to the FOMC meeting in June 24-25 2003.
      http://www.federalreserve.gov/monetarypolicy/fomchistorical2003.htm
      Just click on the minutes section and the transcript.  It’s a long read so I don’t expect many to clink and read this.  There are only a few people who a nuts, crazy, or bored like myself to spend this much time reading this stuff.  If you are interested, you will find a huge amount of information that was done intentionally to drive down the Fed fund rate and yield curves of the long term bonds.  It was all premeditated and determined that the Fed was going to do this in 2003.  They speak of operation twist(swapping short term bonds with long term bonds)and they even mention QE in the transcripts.  Put options were the main instruments to drive down rates.  The Fed created these put options to be so inexpensive and cheap that it forced the banks and hedge funds that hold treasuries to buy the insurance(put options) to off set the low yields.  If the yields on the bonds are low, the valuation is high.  If the bonds have a low yield, the put options become very cheap.  A put option becomes a hedge against the bonds that they hold.  Since the Fed sold billions and billions of dollars of put options, the Fed can not or will not allow interest rates to rise past certain levels.  The Fed is the market now of buying the treasuries but they are also the market in the insurance to pay if the bonds yields rise.  The bond market is over.  It’s totally corrupt and manipulated.  This FOMC meeting in 2003 is not only evidence but it’s a slam dunk case to prove how the Fed rigged every market in the world.  This is a transcript or the words of Greenspan and the other sellouts of this country to provide a market of manipulation.  Going back to the FDIC, these put options made all insurance to become cheap.  It lowered the risk premiums and created a perception of safety and security.  Since the price of insurance is low, then people believe that there is low risk in the markets.  Well, we all understand that there is more risk now then ever before in the markets now.  The Fed completely distorted all credit, bond, and stock markets with this ZIRP or soon to be NIRP environment.  It all started with driving down the yield curve and the Fed fund rate.  All the other manipulations soon followed to keep the perception going.

    • “Fortunately we are first adopters to this rush and when it takes place as some unknown future time period, we will be vindicated.”

      Indeed so, AG… not to mention, lavishly rewarded!  :-D

       ”Hang on me mateys, the going will get rough soon enough. Dramamine is suggested.”

      Yes, it is.  Can I get that in a 55-gallon drum prepper pack to go, please?  ;-)

       

  8. Great read AGXIIK hell the banksters need to make money somewhere so hence all the charging of fees. BY The Way, I Have Lots Of Patience. Lol Keep Stacking

  9. ADAM HAMILTON SAYS SILVER HASN’T RESPONDED TO QE3 DUE TO “TEMPORARILY BEARISH SENTIMENT”. HE MAKES NO MENTION OF THE NAKED SHORT SELLING BEING CRIMINALLY USED TO MANIPULATE THE SILVER MARKET.

  10. Unrelated to this post, I just wanted to comment on the laugh out loud irony of the GLD etf ad that was running on the right side of my screen.  It said something to the efffect of “. . athletes don’t train in order to have just any metal hung around their necks!”  To which one can only respond, that that’s right.  Nor do they train to come in first hoping to receive a paper certificate in lieu of an actual gold medal. 

  11. To Mexrph — If you’ve read Hamilton in the past you’d know that he is a manipulation denier despite being metals friendly. He bases his opinions on statistical analysis of the Standard deviation of an asset below and above the mean for that asset.

    • And since so many paper traders regard the data as valid, it becomes valid.  They react as though it matters, so it does.
      Took me a while to grok this.
      Regards

    • From what I gather from the rants above is that you clowns think that statistical analysis is BS and that manipulation is the explanation for every sell off. Your constant crying about manipulation is getting old. The White House can’t even cover up a blow job so how is it possible to have a multi-decade price suppression scheme? 

      You fools scream, “manipulation!” when the silver price falls and howl, “short covering” when it rises. Statistical analysis (which is NOT TA) is great for creating a trading system that generates profits. You ass clowns are obviously not making money if all you do is bitch about manipulation.  

  12. @Capitalist_Jew Sorry brother their not rants but facts, hope your not one of the Small Investor Longs that lost money this week. As for me I’m a Stacker and I still have all of my Physical Silver and adding to it when we have a smack down.
    By The Way, Welcome to The Forum. Hope You Come Back and learn Something about Manipulation. May Open Your Mind Up.
     

    • Don’t get me wrong, I’m all about physical bullion. I was implying that small markets swing both ways for all kinds of reasons, manipulation be damned.

      Most people’s mental abilities are about a hair above retarded so we should use this to our advantage. I would love a 2008 style meltdown so I could load up on *gasp* silver call options. That strategy may have a good risk/reward ratio right now. Silver under $30 is starting to look “retarded cheap.” – Capitalist Jew

  13. CJ  this is a polite site. If you won’t contribute informative material then at least be respectful of the others who read and opine on this site.  Opinions are like belly buttons; everyone has one.  There is another part of the anatomy that comes in single units.  Don’t be one of those.  Thank you

  14. Hey CJ. The DOC does good stuff here and people are critical as well as constructive. Be one of those people. Don’t come out when the price (paper) drops but say very little on the rise. Ease up with the downers. I’m not politically correct and will probably get moderated on this one but, I’ll say it like it is. “You are an ass”! No one here that stacks the phyzz has lost anything. If you lost fiat, too bad so sad.

  15. P.S. You’re correct AGXIIK. This is  a polite site. My apologies for a little cursing. :)

  16. Right on M45. I just want to keep the good stuff at the sites that inform me and want to vaporize the wet wipes out there. LOL!

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