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Richard Russell continues:
“Thus, the Fed will accomplish a few things -- the banks will be rendered more liquid, and the Dow and mortgage-backed securities will probably be lifted. But what happens when the banks are cleared of all their mortgage-backed securities? Maybe the Fed will buy straight mortgages, I don't know, and I'm not sure that the Fed knows. Maybe the Fed just wants to sneak by the election, and later they'll address the problems.
Meanwhile, the Fed will continue to talk up the economy. But I believe it's the Transports that are telling us the real story regarding the US economy -- and to put it politely, the Transport have been crashing. Question -- could the real story about the US economy be that the US economy has been crashing too?
We depend to a large extent on the government and the Fed to tell us what is happening, and government statistics can lie (as, for instance, the government's phony statistics on inflation). With the banks ‘relieved’ of their mortgage-backed securities and loaded with fiat currency, the banks will be in a stronger position, and the Fed will own tons of mortgage-backed securities.
What will the Fed do with billions of dollars worth of mortgage-backed securities? Maybe hold them until maturity and then hide the losses in their books. So the net result will be that the banks will be in better shape, and the Fed's balance sheet will be in worse shape.
What happens in 2013 when we face the next trillion dollar deficit? Damned if I know -- maybe they'll come up with a new monetary system. Or maybe they'll boost the price of gold and pay off the deficit with devalued dollars. Or maybe, we've come to the end of the line with Fed-created, fiat junk currency.
Fiscal cliff averted? If Congress can't reach a compromise by midnight, December 31, we'll drop off the fiscal cliff -- in which tax rates will rise (hugely) to where they were under Bill Clinton's presidency, and there will be deep cuts in the defense budget, and cuts in more than 1,000 other government programs including Medicare.
This would be enough, says David Kelly, Chief Strategist for JP Morgan Funds, to send the nation into a deep recession. But wait, Congress isn't insane, says Kelly. He predicts that Congress might finally get a deal done -- on the thesis that both sides have more to lose through inaction than they have to gain by refusing to work together.
Attention subscribers -- This brings up the thesis that the stock market may have already priced in the thesis that the nation will fall off the fiscal cliff (this may explain the Transport collapse). But if Congress finally gets its act together and the fiscal cliff is averted, we could see an upside blow-off in the stock market and an unexpected surge in bonds that would murder the bond shorts.
Russell conclusion -- There are too many IFs in this scenario, so that I, personally, have opted to remain on the sidelines (I need my sleep). The market may already have discounted the nation's falling off the fiscal cliff. But wait -- if Congress finally gets its act together, the fiscal cliff may be averted, in which case the stock market could soar. The implications, either way, are momentous. In fact, the implications are so momentous that they scare me. As a result I'm definitely not going to bet my money on the outcome -- and you shouldn't either.
Gold timing -- and I might as well say this -- I believe there is only one safe, eternal repository of wealth -- and that is gold. Therefore, I believe that there is only one item worth buying at this time, and that is physical gold in the form of bullion coins. If you buy gold bullion coins, you can forget about timing. I don't care what the price of gold is now, in a month, six months, or five years from now.
Gold is eternal wealth that you can physically own. So forget what you paid for the gold coins, and forget their price a year from now. Accumulate them and put them away in a safe place. They represent the safest form of pure intrinsic wealth, and they are the only items whose price you do not have to worry about. The reason is that gold has no true competition. Nothing on earth compares in eternal safety with physical gold.”
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© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
The interviews with Rick Rule, Nigel Farage, Ben Davies, Dr. Keith Barron, Jean-Marie Eveillard, Bill Fleckenstein, and Egon von Greyerz are available now. Also, be sure to listen to last week’s line-up of other KWN interviews which included and Felix Zulauf, Rob Arnott, Michael Pento, and Gerald Celente, by CLICKING HERE.
Eric King
Richard Russell - A Crashing Sector, Gold & The Fiscal Cliff
The Godfather of newsletter writers, Richard Russell, had a great deal to say about gold, the fiscal cliff, stocks, and a collapsing sector. Here is what Russell had in his latest report: “The US faces a one trillion dollar debt. How will the US get the money to pay off this frightening deficit? The Fed will buy mortgage-backed securities from the banks at the rate of $40 billion a month, thus re-liquifying the banks. The banks will then spend the money on Treasury bonds.”
© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast,
rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
September 25, 2012
