Imminent Silver Price Explosion!

By Dominique de Kevelioc de Bailleul

Silver has perked its head up and sniffed the next round to hyperinflation is on the way.  Load up the truck; it’s expected to be the best ride, yet.  Here’s why:

No less than three articles penned by well-placed journalists at the ‘establishment’ rags of the Wall Street Journal, Financial Times and the Economist were launched within days of each other, with all three ‘suggesting’ that Bernanke better start stirring-up the animal spirits—on the pronto!

Jon Hilsenrath of the Wall Street Journal, the man who the straight-shooting Stephen Roach of Morgan Stanley calls the real chairman of the Fed, wrote Wednesday, following the dismal U.S. GDP report:

A few quick thoughts on GDP report out this morning:

Key price indexes are uniformly running below the Federal Reserve’s 2% objective. The personal consumption expenditures price index was up 1.6% from a year ago, thanks in part to falling gasoline prices. This is the price index that the Fed watches most closely, more so than the consumer price index produced by the Labor Department, which is running a touch higher. Excluding food and energy, the PCE price index was up 1.8% from a year ago. The Fed watches this ex-food-and-energy index to get a read on underlying inflation trends. For the quarter at an annual rate, the PCE price index ran at 0.7% and excluding food and energy it ran at 1.8%. An alternate measure, the “market-based” price index, is also running below 2%. This is ammunition for Fed officials who want to act right away to spur growth. Not only is growth subpar, and the job market stuck in the mud, inflation is also running below the Fed’s long-run goals.

Final sales of domestic product — a measure of how the economy is doing when you take out inventory swings – up at a 1.2% rate in Q2 and averaging a 1.7% rate since 2011. That’s really substandard for a recovery.

That’s the first polite salvo at Bernanke.

Now from Greg Ip of the Economist.  Ip is Europe’s version of Wall Street Journal’s Hilsenrath, but it’s all the same as far as the American-European central bank alliance is concerned, with the Depression of 1873-79, the banking crisis of 1907, the brief but deep Depression of 1921, and the Depression of 1930-1945 to serve as stark reminders that the two economies are inexorably tied at the hip.

Ip piece for the Economist was written with the point of view of an article he would write in 2021, looking back at monetary policy of 2012.  A blog entry about Ip’s piece can be found at Zerohedge.com.

In the fall of 2012, Greece abrogated its bail-out agreement with the IMF, European Union and ECB, declared a moratorium on all external debt payments, and began paying domestic bills with IOUs that it then declared legal tender. The ECB cut off Greece’s banks, Greece responded with capital controls, and relabeled its IOUs “new drachmas” which quickly plunged to 35 euro cents. Bank runs immediately commenced throughout the periphery; bond yields in Spain shot over 7%; global stock markets cratered.

The ECB was finally forced to act to save the euro: it announced it would buy as many bonds as necessary to cap all sovereign yields at 6%, with the exception of Greece. The ECB never had to buy any bonds: investors no longer had any reason to sell since the ECB had taken insolvency off the table.

Days later, the ECB president destroyed the euro shorts during a press conference.

“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” ECB President Mario Draghi told reports last week.  “And believe me, it will be enough.”

UBS’s Art Cashin commented on Draghi’s surprise market-moving jawbone antic:

“Mario Draghi’s comments stunned the markets,” stated Cashin.  “What prompted the timing of his move?”

Referring back to Ip’s article, Cashin continued, “Wait a minute! That [article] sounds rather close to what Mr. Draghi was discussing. Coincidence? Probably, but the timing is stunning. Somewhat like the simultaneous but separate development of calculus by Isaac Newton and Gottfried Leibniz in the early 1600′s.”

Unlike Morgan Stanley Roach’s direct style, Cashin’s more-diplomatic observation nonetheless delivers the point.

And to complete the shock-and-awe three-man series of salvos from the mouthpieces of the ‘establishment’, Council on Foreign Relations commissar Sebastian Mallaby of Financial Times wrote Tuesday:

 . . . the Fed could couple more quantitative easing with a formal announcement of a higher inflation target.  Some Fed leaders are open to this. Charles Evans, the Chicago Fed president, has floated the idea of a 3 per cent target, effective until unemployment falls below 7 per cent. A higher inflation target would lead markets to understand the Fed is committed to quantitative easing of game-changing magnitude, inducing the behavioural shifts needed to make the policy succeed.

The Bernanke Fed has been pilloried for pursuing wild quantitative easing at the risk of inflation. The truth is that it has pursued cautious quantitative easing without risking inflation. The time has come for some fresh thinking. A Fed that can escape the myth of its audacity might be able to do more.

Inflation isn’t a problem, according to Mallaby, though ShadowStat’s John Williams’ reconstruction of M2 reveals a 15 percent growth rate doesn’t quite jibe with Mallaby’s neoclassical assertion.

And according to Williams, further money printing is, not only expected by the Fed, it will lead to hyperinflation by the end of 2014.

Not too surprisingly, no one really expected central banks to repeat a Wiemar scenario so quickly, including Williams, who, after witnessing central bankers unleash the printing presses following the aftermath of the collapse of Lehman, pushed up his forecast for toilet paper money to 2014, from 2019-20.

And the conclusion that can be drawn from all of that jibber-jabber from the ‘establishment’s’ prestitutes?

FX Concepts’ currency expert extraordinaire John Taylor told Bloomberg News Monday, “I think something’s going to happen on Tuesday, Wednesday, obviously reported Wednesday,” referring to the FOMC meeting this week.  “And mostly likely it’s going to be Bernanke teasing us a little bit, you know, that QE is coming.”

“September it’s [a formal announcement of more QE] coming,” Taylor said.

Jim Rogers: I’m being forced to buy more real assets

Always looking for bargain prices in commodities markets, famed investor Jim Rogers has been patiently awaiting a significant pullback in precious metals prices before adding to his stockpile.

But that plan may change for Rogers.

The Fed’s statement released on Wednesday, in which it announced a coordinated 50-basis point cut in dollar swap rates with five other central banks, jolted Rogers into rethinking his buying strategy for precious metals and commodities, according to a GoldSeek interview with the 69-year-old commodities trader.  Sign-up for my 100% FREE Alerts

When GoldSeek Radio host Chris Waltzek asked Rogers whether he’s buying commodities right now, the 69-year-old commodities trader said,  “Well, not at the moment, but I’m seriously considering it given what’s happening in the world . . . They [central banks] are going to loosen up even more on money.  That’s not good for the world, not good at all, but that’s all they know how to do.  So, I’m contemplating, being forced to buy more real assets.”

For weeks, Rogers has been peppered with the same question regarding his plans to buy more gold, and, by proxy, more silver.   He’s repeatedly said that he’s been waiting for an additional pullback in the precious metals before adding to his positions and that he remains a staunch long-term bull in gold, silver and commodities for, what he expects, the remainder of the decade—at least.

In a CNBC interview, two weeks ago, Rogers said, “I’m long commodities and currencies, because if the world gets better, the shortages in commodities will make sure I make money.  If the world economy doesn’t get better, I’d rather own commodities because they’re [central banks] going to print money,” adding that he’d become excited if gold reached the $1,200 level.  See BER article.

However, Wednesday’s rate cut within the dollar swaps market showed that the Fed is committed to temporarily backstop Europe’s liquidity freeze in the Eurozone while a more permanent solution to the liquidity (solvency?) crisis there is drafted by the leaders of the EC on Dec. 9.  It appears that the Fed and ECB are poised to print more money.

In addition to Wednesday’s pre-market shocker by the Fed, a more recent overture from Chicago Fed governor Charles Evans, who said on Dec. 5, “further monetary stimulus is needed” to steer clear of another U.S. debt trap, has upped the rhetoric for more money printing by the Fed, possibly slated for the Jan. 23-24 FOMC meeting.

In the meantime, the ECB decides whether to lower rates on Thursday, Dec. 8.  Another rate cut in addition to ECB’s new chief Mario Draghi may send precious metals soaring once again.

All of these events trouble Rogers, who sounded disappointed that he may not get his wish for lower gold and silver prices.  It appears that recent events may have altered his expectations.

So, is Rogers buying gold now?

“I would have said ‘no’ before yesterday; now, as I say, I’m reconsidering,” he stated.  “I was hoping we’d have a large correction, a continuing correction.  It [gold] has been correcting for three months now, but that’s not much in the context of the 11 years [bull market], so I’m trying to figure out what to do.  I might buy more, given what happened yesterday.  I’m trying to figure out exactly how extensive this is going to be.”

And for Rogers’ take on the silver price, he repeated his preference for buying silver because of the large discounted price to its all-time high and inflation-adjusted high of approximately $150 per ounce.

“Certainly silver could go to three digits if you adjust it for inflation, you get to U.S. dollars, a $100 per ounce some time during the course of the bull market,” Rogers said of the bull market potential for the price of silver.  “Yes, I’m sure that will happen.”

Given a choice between buying only one of the two monetary metals, gold and silver, Rogers said, “If I buy either today, I’d probably buy silver, just because it’s cheaper on an historic basis.  They more or less move together, certainly not always.  I would probably buy silver, if I decide to buy precious metals.”

Then, the conversation turned to the U.S. economy.

Rogers expects utter calamity during the next economic downturn in America, suggesting that each downturn in the U.S. economy creates an increasingly more difficult job for the Fed to raise growth again due to the swelling drag of accumulated debt created by the central bank in the series of ‘prime the pump’ responses to all previous downturns.  See Kondratiev-wave cycles.

“At some time by the end of 2011, 2012 or 2013, we’re overdue for another economic slowdown and that it will be worse than last time because there has been so much staggering amounts of debt created,” Rogers explained.

“You know we had a slowdown in 2002; it was bad; 2008 was worse because the debt was so much higher.  You know 2012, 2013, whenever it comes it’s going to be worse still because the debt now is up so much,” he added.  “The U.S., when taking into account all the off-balance sheet guarantees such as Fannie Mae’s derivatives positions the debt has more than quadrupled from last time.   They cannot do that again.  The market’s not going to let them print staggering amounts of money anymore.

“My only point [was] the next time around, when it comes, and it is going to come, anybody that tells you that it’s not going to come, you should not bother with them, but when it comes the next one’s going to be worse than the last one.”