Fed to Crash Markets Before Launching QE3

By Dominique de Kevelioc de Bailleul

Desperate to print Wiemar-style to fight off the most viscous Kondratiev Winter on record, Federal Reserve Chairman Ben Bernanke may not satisfy ‘inflation trade’ onlookers at the close of his Jackson Hole speech scheduled Friday.  He may, instead, merely allow months of anticipatory front-running of stocks do the work of propping up asset prices for him.

And if investors don’t get the ‘all-systems go’ at Jackson Hole, there’s always the FOMC meeting of Sept. 12 & 13 to get the good news.  That’s when market volatility could move off the charts, maybe extreme volatility to the downside, according some Wall Street analysts.

“With the equity market pricing in a significant chance of QE3, stock prices are no longer as useful a signal to Fed officials. Should the Fed disappoint at its September policy meeting, the risk of a stock sell-off is high,” Bank of America Merrill Lynch analysts wrote in a note to clients, Aug. 21.

“Some in the markets think that the Fed effectively targets equity prices, meaning that to predict Fed policy, one merely needs to track the U.S. stock market,” the analysts add.  “There is a curious circularity to this view, however: the Fed will not launch QE3 so long as stock prices are high, yet the stock market is high because it anticipates QE3.”

The old adage on the Street, ‘buy the rumor, sell the fact’, may be at play here. But if Bernanke plays too-hard-to-get with investors in the coming weeks, a nasty fall could be in store for the Fed chief—a fall that could outright overwhelm the NY Fed’s PPT and result in a stock market plunge akin to the Crash of 1987.  Maybe.

The chart of the S&P 500, Spanish IBEX 35 and Chinese SSEC shows the gaping chasm between U.S. stocks and two indexes represented by two economies with, again, divergent outlooks.  Spain’s fiscal outlook in coming years isn’t much different from the federal budget outlook for the U.S., while the Chinese $3 trillion war chest of reserves couldn’t be in a better relative position to survive the righting of the bogus ‘World is Flat’ global agenda.

Would Bernanke risk a market meltdown that snaps the notion of an eternal ‘Bernanke put’?  Is he that confident that the remaining holdouts of an obviously rigged market will plunge the world economy into the anticipated financial Armageddon—before a U.S. presidential election?

The answer may be a shocking, even cockamamy—YES and YES!  And it may not be that much of a risk.  A surprise ‘not yet’ to further money printing at Jackson Hole and the FOMC meeting could be forthcoming.

Consider the geopolitics in the Middle East, and contemplate the dire political tug-o-war between Israel’s Prime Minister Benjamin Netanyahu and U.S. President Barrack Obama regarding Iran.  Netanyahu insists military action against Iran be taken before the U.S. election in November, while Obama remains adamant that the issue surrounding Iran must wait until after the election—a stand which probably infuriates the warmongering neocons and bankers, who have since put their stock on Republican candidate for president Mitt Romney as their next bankster puppet.

And the white-hot ambitious, some say, narcissistic, Romney won’t be taking any chances leading up to what is expected to be a close election, if recent polls serve as a guide.  He may need a little help from a financial catastrophe to convince enough voters that they may have to believe in a different kind of change.

But first, Romney must take the pledge—for the record.

Jul. 29, he told a gathering of Israelis in Jerusalem:

“We serve the same cause and we provoke the same hatreds in the same enemies of civilization. It is my firm conviction that the security of Israel is in the vital national security interests of the United States . . .

“Israel and America are, in many respects, reflections of one another.  We both believe in democracy, in the right of every people to select their leaders, and choose their nation’s course. We both believe in the rule of law, knowing that in its absence, willful men will be inclined to oppress the weak. We both believe that our rights are universal, granted not by our government, but by our creator.”

Later in the speech, Romney spoke the magical words that signaled the Netanyahu regime that he, not Obama, is your man.

Stopping Iran from acquiring nuclear weapons “must be our highest national security priority” and “we must use any and all measures” to destroy that capability.

“Containment is not an option,” Romney added.

And because “both men [Obama and Netanyahu] share a deep dislike and distrust of each other,” writes Anshel Pfeffer of the leftist Israeli newspaper Haaretz, the Israeli and Anglo-American mutually aligned partnership in the petrodollar wars must not be jeopardized by a Commander and Chief not willing to do what’s necessary, in the eyes of the neocons, of course.

Therefore, Obama must go, leaving the banking cartel’s lead man at the Fed, Bernanke, to continue manipulating the markets, but this time, to the downside to throw the game for Romney and the neocons at this critical moment (for Israel) in the Middle East.  Bernanke can always come in with a bazooka money blast and ‘make things better’ for Wall Street while putting that one last lid on the gold price (maybe) before the out-of-control launch of the yellow metal truly begins during the first year of a Romney first term.

“If the S&P drops 150 or 200 points, you can be sure that there will be more QE, not only QE3 but QE4 and so forth,” Swiss money manager Marc Faber tells GoldSeek Radio this past weekend.

But, not to worry. QE is coming, but a little politics comes first to nail down decades-long geopolitical strategy in the oil patch concerning a much bigger war between the U.S., Russia and China regarding the U.S. dollar and the gold price.

Though Faber doesn’t speculate on the upcoming Fed actions, he does state “it’s premature to say that this a genuine breakout” in gold and silver, and I “say that with great confidence.”

Jim Sinclair: $2,000+ Gold “Coming Soon”

In Thursday’s post on JSMineset.com, Jim Sinclair reminded investors of his long-standing slogan for the global financial crisis: QE to Infinity Sign-up for my 100% FREE Alerts!

“QE to infinity – there is no other choice,” the life-long gold market consultant stated.  “There is no other functional tool in anyone’s toolbox to stop camouflaged runs on the bank.”

Therefore, he wrote, “QE to infinity in the Western financial world is assured. As a result, gold in the $2,000s is coming soon.”

How can Sinclair assure this outcome?  Well, no one sees into the future with anything resembling crystal clarity, but Sinclair is studied on matters of central banking, money printing and the psychology of politicians and the most likely social consequences of their actions during financial crises.

For the most part, Americans believe that as the sole superpower of the world, the U.S. is not subject to the same rules as foreigners must abide by.  During the first half of the 20th century, the German people, too, believed that they were special.

In his book, When Money Dies: The Nightmare of the Weimar Collapse (1975), its author Adam Fergusson describes the events, attitudes of politicians and public as well as the consequences of Weimar Germany’s monetary policies following WWI which led to the collapse of the Reichsmark.

There are some parallels to today’s crisis with the financial catastrophe of 1919-23 in Germany (and Austria) to support Sinclair’s thinking up to this point.

“The Chancellor [Karl Wirth, 1921-22] would accept no connection between printing money and its depreciation. Indeed, it remained largely unrecognised in Cabinet, bank, parliament or press. The Vossische Zeitung [German newspaper] of August 16 declared that the opinion that the flood of paper is the real origin of the depreciation is not only wrong but dangerously wrong.”

—When Money Dies

“S&P has shown really terrible judgment and they’ve handled themselves very poorly. And they’ve shown a stunning lack of knowledge about basic U.S. fiscal budget math. And I think they drew exactly the wrong conclusion from this budget agreement.”

—Treasury Sec. Timothy Geithner on S&P downgrade of U.S. debt

 “In Berlin the Majority Socialists and the Independent Socialists joined forces in a demonstration to protest ‘against the enemies of the Republic’”

“July 24 produced demonstrations against profiteering, capitalism and Fascism in Frankfort, where inoffensive citizens were molested, windows were broken, and one man kicked to death.”

—When Money Dies

“The ‘Occupy Wall Street’ movement has resonated around the world . . . Unlike some of the ‘anti-capitalist’ and ‘anti-globalisation’ movements that have sprung up and died down over the past couple of decades, this is directly linked to a sense of failure of capitalism itself. It is also intimately linked to working class discontent and rage at the conspicuous enrichment of the super-rich continuing through an enormous decline in working class living standards, unprecedented since the 1920s.”

—Red Scribblings – A blog for socialists politics, critical analysis and debate

 “In spite of his robust common sense, the man in the [German] street is beginning to believe what some interested industrialists are telling him, so that he seems almost readily to subscribe to the false doctrine that it is good for trade that a government, by inflationary finance, should habitually spend more than its income.”

—When Money Dies

 “O’Neill [Treasury Sec. Under President Bush] said he tried to warn Vice President Dick Cheney that growing budget deficits-expected to top $500 billion this fiscal year alone-posed a threat to the economy. Cheney cut him off. ‘You know, Paul, Reagan proved deficits don’t matter,’ he said, according to excerpts. Cheney continued: ‘We won the midterms (congressional elections). This is our due.’ A month later, Cheney told the Treasury secretary he was fired.”

—Issues2000.org

“I will not support any plan that puts all the burden of closing our deficit on ordinary Americans.  We are not going to have a one-sided deal that hurts the folks who are most vulnerable.”

—President Barrack Obama

Clearly, the US is not at the stage of 1922 Germany, but the stage for a replay to some extent has been set in that U.S. budget deficits of 10% of GDP (not including unfunded liabilities, which exceed a projected $1.6 trillion cash-basis shortfall) is the first step toward a Weimar scenario.  A first step!

No one knows how the endgame will play out in resolving unsupportable debt levels, but it’s sure not going to include the Chinese continuing the game of mopping up debt issuance from Treasury.

Morgan Stanley’s Global Head of Economics Stephen Roach dismisses the notion that China’s $1 trillion-plus holding of Treasuries provides the needed disincentive to the Chinese to sell the bonds.

“After all, where else would they place their asset bets? Why would they risk losses in their massive portfolio of dollar-based assets?” Roach asked rhetorically. “China’s answers to those questions are clear: it is no longer willing to risk financial and economic stability on the basis of Washington’s hollow promises and tarnished economic stewardship. The Chinese are finally saying no. Read their lips.”

Recent data from the Fed’s H.4.1 shows a meaningful decline in Treasuries held by foreigners at the Fed.  The trend line of increased holding throughout the crises has finally been broken; holding are now beginning to decline at a time when holdings must increase at the same rate as the Treasuries are issued and rolled over.

For those interested in following Treasury holding by foreigners (not broken down by country), zerohedge.com provides a link and commentary on the Fed’s H.4.1 reported, issued weekly.

Jim Sinclair says gold’s going to $2,000 and beyond, with a final target price well above $10,000 as the crisis in Europe eventually makes its way to the U.S., ground zero.