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The Fed Has a Corpse in a Car, Minus a Head, in the Garage

Great analogy, only problem is it’s not fiction. – Ilene

The Fed Has a Corpse in a Car, Minus a Head, in the Garage

federal reserve, pulp fiction, Ben Bernanke, Bonnie situationCourtesy of Kevin Depew at Minyanville

1-3) The Fed Has a Corpse In a Car Minus a Head In the Garage…  I’m Winston Wolfe; I Solve Problems… The Fed’s Bonnie Situation…

The cartoonish game show nature of politics occasionally makes for fine entertainment. And the next two days have the potential to push the needle far to the right-hand side of the dial, well into the red zone where human eardrums are known to burst and bleed and animals begin to attack one another. In some circles, that’s entertainment.

The Federal Reserve Chairman is on Capitol Hill today for a two-day hoot & holler, mainly with Congressman Ron Paul, who wants to, one, abolish the Fed, and two, barring that, at least find out what in the hell they are doing over there all day.

This isn’t News, not in the traditional sense anyway, but it’s crucial in the gambling sense. There was a time when a smug Bernanke would have sneered derisively at Paul, who although well versed in the inevitable outcome of a central-bank engineered credit expansion is handicapped by the fact he bears a striking resemblance to a nutty uncle who sips Gin &  Mountain Dew all day while tinkering over a boiling pot of squirrel-brain stew. He could also be armed. We just can’t be sure. 

That kind of eccentricity might slide by unnoticed in Galveston, but not Washington D.C., which savagely punishes all things different according to Strict Party Lines, which is to say it swallows difference whole and vomits it back up in a putrid spray of homogenized pork drippings and boastful do-goodery.

Sorry. Again, that’s not News. But if you are prone to wager on the outcome of these game shows, either professionally or as a sideline hobby, it’s a useful nugget to keep in the back of your mind. Somehow Paul has managed to scare up 250 some-odd co-sponsors for his bill demanding Congress be allowed to Audit the Federal Reserve. This is what the political experts refer to as Momentum. And when the Chairman of the Fed goes so far as to directly address proposed  legislation you know the pig has been greased and the chute is about to open.

***

The television is on and I’m sitting here watching Bernanke read his opening remarks; typical decoction of credit market non-sequiturs and outlandish promises that no reasonable person would ever think to make unless he knew with absolute certainty there would be no recourse or accountability whatsoever. Which is why we’re seeing full-blown gangland warfare tactics from the Fed in an effort to crush the audit bill.

Yesterday former Enron lobbyist Linda Robertson officially took on her role as the Fed’s Winston Wolfe, presumably to step in and conduct a powerpoint demonstration on how to clean and dispose of brain matter from the interior of a car.

We’ll call it the Fed’s Bonnie Situation.

***

It only took about 10 minutes to get to the nut of Bernanke’s opposition to Paul’s audit bill today.

"Financial markets, in particular, likely would see a grant of review authority in these areas to the GAO (Government Accountability Office) as a serious weakening of monetary policy independence. Because GAO reviews may be initiated at the request of members of Congress, reviews or the threat of reviews in these areas could be seen as efforts to try to influence monetary policy decisions," Bernanke said.

In order to understand why the Federal Reserve is so viciously opposed to real  transparency, as opposed to its own twisted Nixonian version of it, you have to go back and consider what constitutes Fed Power in the first place. If a toothless meth head at the bus terminal offers to give you a piece of strange paper in exchange for your watch, it’s called Theft by Deception. But if someone in a fancy stone building gives 250 million people some strange paper and says it’s Okay to exchange it for watches and anything else people feel like parting with then it’s game on. Why would people do this? For the same reason otherwise smart and worldly people fall victim to confidence games thousands of times a day all over the world: we want to believe. And if a confluence of bizarre and unrelated factors unexpectedly come together and convince billions of people all over the world to accept this strange paper in exchange for goods and services, well, then you have the ingredients for what the experts call a Global Reserve Currency. The irony is that what gives this type of confidence game the force of presence necessary to maintain itself, and by extension the people at the center of it, central bankers, the slim appearance of control over an infinite number of economic variables that are, on a month-to-month basis, entirely random, is the fact that no one can duplicate it; the probabilities that billions of people could come together and agree to accept dollar bills backed by the promise of a handful of academics and pseudo bankers are so staggering that only a fool would attempt to perpetrate this grift on another human being.

And so the singular authority of the Federal Reserve becomes the chief reason for maintaining the singular authority of the Federal Reserve; it exists because it exists. Any threat to that singular authority undermines the weird circular logic keeping the whole game afloat. It would be like that time when you were a kid and you first figured out how to load a Pez dispenser… it ruined everything.

The Bonnie Situation. Indeed. As a gambling man, I put the odds of the Paul audit bill passing at 2-1, down from 9-1 two months ago. But then, it’s easy to be optimistic on a day like this. Low humidity, a light steady rainfall washing down the sidewalks in New York. Someone once said it takes a steady rain to clear the eyes so we can see life with a clearer vision… or was it tears? At the moment I forget which one. And the difference is crucial.

4.  Dollar Update/Gold Update

Speaking of the dollar and paper money, I’m still looking for gold to exceed $1,000 before the end of the summer, more on that below. But in the meantime, the US Dollar Spot Index has recorded a 9-13-9 DeMark TD Sequential buy sequence on the daily chart that should result in a meaningful bounce.

The dollar is now toying with a TD Propulsion Down Momentum level, 78.64, that has not been broken in a qualified manner, and which therefore should act as some support here for the 9-13-9 to work.

This is a trading bounce only. The weekly chart is neutral and the monthly chart shows we are currently only on bar 11 of a potential 13 TD Sequential Buy Signal.

Meanwhile, for gold, the weekly chart shows a deferred TD Sequential 13 Sell Signal that will need to exceed the high of bar 5 (1006.29) to record. The daily chart is on bar 6 of a potential 9 TD Sell Setup that, unless interrupted, could record on Friday.

For the trade I would be looking to find entry points for gold next week upon perfection of the TD Sell Setup, if it occurs. This does not change my view based on DeMark indicators that gold will see lower prices longer-term, a harsh pullback in this bull market. It’s just that the DeMark indicators tell me we need to see a higher move first.

5. News & Weirdness

Bernanke Says Federal Reserve Is ‘Confident’ of Ability to Stem Inflation  - Bloomberg
"The U.S. Federal Reserve is “confident” of its ability to stem inflation after what’s likely to be an “extended period” for policies aimed at restarting lending, Chairman Ben S. Bernanke said."

Does the Fed Fight Inflation?Mises.Org
"[R]ather than being seen as an inflation fighter, the Fed should be regarded as the sole source of inflation."
- Frank Shostak

Swine Flu Threatens Deflation Slump
Telegraph (UK)
Headline writing is an art, not a science. And this article clearly proves it. I was expecting to read how swine flu was going to end the deflationary debt unwind (you know, swine flu is threatening the deflation slump), but instead was hit over the head with the shocking news that the analysts in question believe swine flu will cause a deflationary slump.

No Inflation HereZero Hedge
Zero Hedge offers up the latest Hoisington Investment Management Company piece articulating why deflation remains the overwhelming economic risk.

Speaking of deflation… Southland Ports’ June Decline In Traffic ‘a Concern’ - LA Times
"At the Port of Long Beach, 206,358 containers of imported goods arrived in June, a decrease from the 208,591 in May and a 28.4% drop from a year earlier. Los Angeles recorded 281,175 import containers in June, a decrease from the 304,110 in May and down more than 17% from June 2008." What does this have to do with deflation? The ports of Long Beach and Los Angeles receive more than 40% of U.S. container cargo.

Tough to conjure up inflation when wages are declining… Boston Globe Union Approves Wage CutsWall Street Journal
"This time more members determined they weren’t going to get a better deal and were unwilling to endure an extension of the 23% pay cut imposed since the earlier deal was rejected."

Pay Raises Are the Smallest In Decades, Surveys Show - Wall Street Journal
For next year, firms are projecting slightly bigger raises of 3%. But that’s the smallest forecast increase in the 29 years Hay Group has done its survey.

 


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