Last week we explained why while endless promises may be enough to confuse the market and force endless rounds of short covering as weak hands are flushed out of positions under threat (but never action) of Fed intervention, banks are no longer in...
The Fed is in "Do as I say not as I do" mode, telling the markets they won't start a new round of QE but are expanding the money supply anyways. While everyone is focused on 'to QE or not to QE" the truth is as ZH implies, the banks have levered up as far as they can go having mobilized just over $200 billion of excess reserves.
This is just the beginning of the next wave of printing and the headlines will be silent now that both Bernanke an Draghi have talked the markets down from the ledge last week.
Expect a run to around 1450 on the S&P and gold to break through $1650.
I'm not sure Draghi has put anything concrete in place like Axel is suggesting but he's certainly making it very clear as to what he wants. An integrated Euro is what has been on the table for over 60 years and this is just one more move in the game.
There is still a significant amount of risk in the system that central planners like Draghi and Bernanke cannot account for. Axel Merk is smart enough to know that there are many forms of tail risk. Yes, Draghi's words have made it clear that he has lessened the most important source of it: uncertainty in the competence of the E.C.B.'s leadership. That creates a put underneath the fear trade.
I'm one to bet on stability in almost all things as the most likely outcome. In the end we play the probablities, and the probabilities state that there is enough will on the part of central bankers to preserve their system at our expense even if they get the timing wrong and it costs them more than they wanted it to.
But, chaos is also a possibility that has to be accounted for. In either case Gold wins as an investment.
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