SD Weekly Metals & Markets: Why The Fed Won’t Taper…Yet

Greatest Juggling Act On Earth - WilliamBanzai7 In this week’s SD Weekly Metals & Markets The Doc & Eric Dubin discuss:

No taper next week, but expect jawboning and an attempt to smash gold & silver– will June’s lows hold?
– The Doc, Eric, & AGXIIK to host a live chat event @ The News Doctors Wednesday for the FOMC statement
– Precious metals trading this week- raid fails to break gold & silver below $1200 and $19
– The Doc’s report on retail physical trends as US Mint shuts down for 6 weeks
– The stock market and 2014- Why the Fed’s actions to attempt to taper QE in 2014 will precipitate a stock crash & the brown stuff exploding off the fan between late 2014 and 2016

The SD Weekly Metals & Markets Wrap is below:

 

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# # # # I came across a couple of charts worth discussing. Hat tip to Zero Hedge for publishing the first:

 

DJIA-FED-BALANCE-SHEET

When you look at the chart above, the tight correlation between the Dow Jones Industrial Average of 30 stocks and the Fed Balance Sheet bloated from multiple rounds of quantitative easing is uncanny. The chart was created in may, but the exact same relationship extends through today. This graphical representation also happens to shred the arguments of those that say warehousing of both standard Treasury debt and crap MBS assets on the Fed’s balance sheet does little to create real world inflation. That’s just total nonsense, and the relationship with the equities market as seen above ends the debate.

There has been containment of end market inflation in real goods, with real rates of inflation above government numbers but nonetheless somewhat contained. But there can be no doubt we’d be in a deep deflationary depression were it not for this massive flood of new debt creation to shore-up liquidity and enable the banking and shadow banking system to lever-up with new investment activity enabled by their “cleaner” balance sheets. “Wealth” based on rising financial assets is to a certain extent, an illusion — and certainly to all but the upper class. Thanks, Uncle Ben.  Trouble is, this can’t go on forever and many pundits are starting to see early to mid 2014 as the end game.

We published a story about this earlier this week on Silver Doctors. Click here. So, when does the brown stuff hit the spinning rotary blades? If Janet Yellen tries to either jawbone with loud noises about tapering or actually does taper during the first quarter of 2014, the S&P 500 index will likely see a 20% or greater correction and almost everyone will be running around with their hair on fire.

Take a look at this juicy chart:
DJIA-VS-TOTAL_CREDIT_MARKET_DEBT

The stock market has been racing higher — with a bit of a breather this week. Meanwhile, total credit could easily come under pressure when and if the Fed actually tapers. Looking to history, there are numerous examples of the markets throwing hissy fits when the Fed initiates a policy change. The first quarter of 2014 is set-up for just such an episode should the Fed actually taper.

My operating forecast is that they will try to taper, the stock market will see a major correction, and they’ll reverse course. QE will go on, making the situation worse still. Then, sometime between late 2014 and late 2016, the fan will be blown off the table and out the kitchen window as the velocity of brown stuff becomes untenable. Getting the specific time-frame for each of these stages correct is certainly more art than science — and I could be dead wrong. But I have high confidence in the sequence of these stages in the least. We’ll have a taper-induced (or jawboning about taper induced) stock market correction. Everyone will freak out, including the Fed. Discussion about more credit QE will follow, either in the form of more QE, or talk about the duration of the program openly called indefinite and mainstream Wall Street actors shifting expectations for the end of QE to perhaps as far out as 2020, or beyond. That’s when the roll of the dollar as the trade settlement and reserve currency will suddenly be questioned by most of the currently oblivious Wall Street intelligentsia, setting-up for the end game, with a window of late 2014 through Q4-2016.

Greatest Juggling Act On Earth - WilliamBanzai7

 

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