Time to Get into Silver Wheaton (SLW)?

The manipulative actions of the Federal Reserve through the release of the minutes of the last meeting, where some strategically placed comments about the possibility of pulling back on the latest QE round whether or not they reach the asserted goal in relationship to unemployment, caused a ruckus in the markets yesterday, with almost all asset classes falling.

That has provided some terrific buying opportunities today, and as far as commodities go, Silver Wheaton (SLW) is one that should be taken a close look at. It jumped quick at the opening, but has pulled back pretty quickly.

With the economic outlook being fairly decent, and silver demand sure to continue on, these are pretty good levels to enter into Silver Wheaton, after it took a pounding yesterday, dropping $2.43, or 7.02 percent.

I've been in and out of Silver Wheaton for some time, and it's hard to pinpoint when the absolute best time to enter is, but that's true of all equities. I think the mid-$32 range is a pretty good bet for both short and long term investors, who should be rewarded at this price.

Commodities Plunge on Concerns of Demand, Fed Comments, and Hedge Fund Rumors

Several elements on Wednesday fueled a plunge in prices of many commodities, as the perfect storm of information resulted in big sell offs.

Among the major concerns was the release of the minutes from the latest meeting of the U.S. Federal Reserve, which hinted at the possibility of it slowing down its latest QE or stimulus program before the hiring numbers it was targeting are even close to being met.

It sounds like a deliberate attempt by the Fed to influence the market, as the chances of it stopping its stimulus any time soon is very unlikely at best. Hiring really hasn't moved at all since the introduction of the latest round of QE, so the idea the central bank is going to just slow down or close up shop is pretty ludicrous.

Nonetheless, a somewhat spooked market over responded by punishing commodities across the board. Gold and silver were hit particularly hard by the news, with gold settling down 2.6 percent and silver 2.7 percent. That brought gold to 7-month lows, while silver experienced its sharpest decline in 2 months.

The other ambiguous news was a rumor a commodity hedge fund had to liquidate positions in oil and metals, putting more downward pressure on commodities. As of this writing there is no proof this has even happened. Most of the sell-off in commodities happened between 10 am and 11 am, the time the rumor of the hedge fund sell off was at its peak.

Some analysts look at it all as speculative trading more than anything else. The fact that the majority of the commodities fell on average about 2 percent points to a blip more than a rush out of the sector.

Finally, what has some potential legs one way or the other for commodities is the demand factor, in that regard there continues to be mixed data and outlook concerning the growth rate of the U.S. and global economy, causing ongoing uncertainty in the commodity markets

There is no doubt though that this was a news-related downward push on commodity prices, and shouldn't continue on until there is more clarity over the issues, which outside of the rumored hedge fund, will take time to reveal itself.

Commodity demand and the presumptions the Fed may end easing sometime soon, are things that won't be known for some time, with the ending of stimulus assuredly not going to happen any time soon. Once that's realized, things will level off again until commodity demand is better understood.

Silver, Gold Await Printing Presses

While there is no doubt the Federal Reserve and other central banks around the world will continue to ramp up the money printing presses, we remain somewhat in a holding pattern, at least in the United States, after Ben Bernanke announced the Fed will buy $40 billion in mortgage-backed securities on a monthly basis indefinitely, with indefinitely measured by the health of the job market, with hints the Fed and Bernanke want to see it at about 5.5 percent.

Even though some business and economic writers and investors have attempted to paint gold and silver has having reached a plateau at this time, with the probability they will fall in price, there is not doubt nothing will stop central banks from feeding the out of control spending habits of governments around the world, and the price of gold and silver will continue to rise over the next 10 years, with gold and silver miners, which currently, for the most part, are enjoying low valuations, will bring investors solid returns, especially for silver investors, where the gold-silver ratio continues to be far higher than historical levels, standing far beyond the usual 16 times ounces of silver it takes to buy an ounce of gold, to weigh in at a hefty 54 times the usual amount it takes to buy an ounce of gold with silver.

That alone will dramatically push up the price of silver, as its historical ratio to gold should have it stand at over $100 an ounce as of this writing.

So in the short term, in spite of the announcements by the Federal Reserve and the ECB to stimulate the respective economies of the United States and the euro zone, they still haven't launched their buying programs, which has temporarily kept the price of silver and gold in holding patterns.

It's apparent in the case of Bernanke that he's waiting to implement QE3 when it is seen as not an attempt to influence the upcoming presidential election. With that soon to end, it won't be much long afterwards when it'll begin, and then silver and gold will jump, and it could even before that as investors begin to price in the effect of the stimulus on precious metals, and the resultant fall in value of the U.S. dollar.

For the European Union, what is causing the holdup there is the temporary decision by Spain to attempt to make it appear they have a chance of not needing the money to bailout its economy. That's a fallacy, and largely based upon the need to make it look like they're fighting to keep their people from having to face forced austerity in order to secure the loans.

But like Germany, it will cave on the borrowing end, just like the German leaders do on the lending end. Spain will accept the loans, and when they do, that will also cause silver and gold to rise in price.

One uncertainty in regard to currencies is the major competitors are all debasing their currencies through stimulus programs of one type or another, so it's unclear whether there will be much in the way of the impact of the fall in the U.S. dollar on gold and silver. In that regard inflation and safety will be the impetus behind the rise in the two precious metals; much more so probably than the weakening of the U.S. dollar. Again, it depends on how the market reacts to and views the impact of QE3 in the U.S., and if it deems it as more dramatically weakening the U.S. dollar against major competing currencies, we could see it push up the price of silver and gold even quicker and further than most think.

Another short-term consideration is the selling off of assets by those making decisions based upon tax strategies. That could push down silver and gold some as investors sell off at foolishly low prices. But there is no doubt the duo will continue to rise, even in the short term, as you simply can't bet against the practices of the Federal Reserve and other central banks, which have placed a floor under the precious metals, and which will soar up from there for years to come.

It's a matter of how to invest in silver and gold, not whether you should.

Finally, it is believed that QE3 could even expand beyond the $40 billion spent monthly as Operation Twist comes to an end. The thought is Bernanke will probably start to buy treasuries again in an attempt to jump start the economy, even though that has repeatedly failed to achieve results.

Gold and silver miners, because of ridiculously low valuations will soar in price as an asset class, with some doing far better than others of course. But the rising price of silver and gold, and the relatively new focus on dividends will be a powerful attractant to investors, who will be able to cash in on both fronts if they invest in the right companies.

Another element to watch is mergers and acquisitions among miners, which will make a lot of money for those that can anticipate where those moves are likely to be.

Of course in the end, gold and silver are first a place of safety and hedge against inflation, so that is the number one priority for those putting money in the precious metals. But with little in the way of growth in equities, they will increasingly be looked at by general investors as places they can also make money over time. That will also push up the price of miners, which will benefit everyone holding positions in them.

The silly talk of a gold or silver bubble is off the table at this time, as the everyday investor has yet to really enter the market in a significant way, and until that happens en masse, there is little we need to be concerned about concerning a bubble.

We will need to watch it closely, but we have yet to see the outrageous bidding up of gold and silver prices, and even when that does happen, which shouldn't be for a while, it can sometimes take several years before the prices stop climbing.

For now, investors way for the printing presses to start up, and when they do, there is nothing in the way to keep the price of gold and silver from jumping in the short- and long-term.

Silver Wheaton (SLW) Still a Buy

Some financial writers are attempting to cast doubt on silver and gold specifically, and also precious metals streaming company Silver Wheaton in particular, on the dubious and weak unemployment numbers, which allegedly dropped below 8 percent, producing the best results for the Obama administration about a month before the presidential election.

Former General Electric (GE) CEO Jack Welch asserts the numbers have been manipulated in order to cast Obama in a much brighter light than he should be. But even if they're close to the actual unemployed, all that means is a bunch of retailers hired temporary, part-time help, which they'll shed soon after the inventory is counted at the end of the year. Consequently, as usual, the unemployment numbers will jump up after the holiday season.

A major impediment from those making it look like the so-called improving economic situation in America being believable is that most are looking at the weak supply and demand circumstances, along with the assumption QE3 will end sooner than later as a result of the "improving" unemployment numbers.

That's a fallacy, and the open-ended monthly acquisition of mortgage-backed securities by the Federal Reserve is far from ending, and hints have been made that it won't stop until unemployment drops below 6 percent, and possibly as low as 5.5 percent. That isn't going to happen any time soon.
With Europe and China slowing down considerably, what could possibly be the catalyst to really end the ongoing recession? There aren't any, and that means QE3 will go on for a long time into the future; probably for many years.

About the only real positive in the American economy is the probability the housing market has reached, or is close to reaching a bottom. But even there it'll take years before a rebound will happen which will bring prices back to pre-2008 levels.
Even so, new construction could begin on homes in America, which would be a positive for silver and other commodities on the demand side, but which won't do much to change the jobs picture in the next couple of years.
As it all relates to Silver Wheaton, the price is driven more by QE3 at this time than any other factor, and the ongoing stimulus has formed support for silver prices, which means it has also put support under Silver Wheaton as well.
That, and the recent deal between Hudbay and Silver Wheaton shows the management is still seeking to boost its silver resources, as well as gold, which locks in revenue streams for years.

Silver Wheaton will only pay $5.90 an ounce for silver from Hudbay, which brings to overall total the company pays for silver production from all its deals to about $4.04. The operating margin enjoyed by Silver Wheaton are now about 75 percent. What's not to like about that?

As for real unemployment, the U-6 rate remains the same, which stands at 14.6 percent of Americans. That includes the underemployed or those that quit looking for work. Those are the numbers that really count, and that means there is no chance the Federal Reserve and Ben Bernanke are even close to thinking about easing up on the easing. Those that think they are don't understand the motivations and reasoning behind QE3.
This doesn't even take into account inflation and the necessity for the Fed to unwind its position.

Taken together, Silver Wheaton remains a great buy, and those who don't own the company will regret they didn't get in before the price of silver and Silver Wheaton take off to even more dizzying heights.

Silver Wheaton closed Tuesday at $38.70, falling $0.99, or 2.49 percent.

Ron Paul on "Gold is Good Money"

Ron Paul continues his decades-long assault on the Federal Reserve creating money out of thin air, saying on his congressional website that gold is in fact, "good money," against the anemic quality of paper or digital money.

According to Paul, "Fiat money is not good money because it can be issued without limit and therefore cannot act as a stable store of value."

Also of significance is Paul's exposure of the central banks, government/media axis, which continues to speak badly of gold because the "defamation of gold wrought by central banks and governments is because gold exposes the devaluation of fiat currencies and the flawed policies of government. Governments hate gold because the people cannot be fooled by it."

Paul has had other allies for years, including those associated with the Austrian school of economics, but he cites others who are apparently starting to get the message, such as the Bundesbank president, who recently stated that gold is "a timeless classic."

Also noted are a couple of analysts at Deutsche Bank (DB), which also said gold is good money.

According to Paul, gold should be considered good money because it offers everything the market (people) demand, "it is divisible, portable, recognizable and, most importantly, scarce - making it a stable store of value. It is all things the market needs good money to be and has been recognized as such throughout history," says Paul.

Contrary to the assertions of central banks around the world concerning gold not being real money, they continue to acquire more gold holdings in response to the outrageous boost in fiat money into the global economy.

Ron Paul concludes this on the evil of fiat money: "A fiat monetary system gives complete discretion to those who run the printing press, allowing governments to spend money without having to suffer the political consequences of raising taxes. Fiat money benefits those who create it and receive it first, enriching government and its cronies. And the negative effects of fiat money are disguised so that people do not realize that money the Fed creates today is the reason for the busts, rising prices and unemployment, and diminished standard of living tomorrow."

He is right. Among other things, as mentioned above, inflation is always the hidden tax associated with the creation of money out of thin air.

It has already been shown to be ineffective to boost the economy, as evidenced by the anemic results of QE1 and QE2, and will be the same results of QE3 and beyond.

People should have the option to choose what money they want to use for transactions, savings and investing, and the central banks and governments around the world fight this because it knows if that were to happen, it would expose the negative effects of fiat money, as those holding gold would wildly prosper in contrast to those using paper and digital funny money.

Is Goldcorp (GG) a Good Deal at This Time?

Goldcorp (NYSE:GG) is one of largest gold miners in the world, although it has had a tough year in 2012, having just recently surpassed its price on January 1 of the year.

Lower gold prices and higher costs throughout the year have weighed on the company, although a rebound since the latter part of July where it was trading for under $33 a share has helped the company, as expectations of further stimulus, which were of course accurate assessments, helped push the price of gold up, along with its share price.

As measured by global resources, Goldcorp has one of the least expensive valuations of the gold miners. Others having competitive valuations based upon the same criteria are Eldorado Gold (EGO) and IAMGOLD (NYSE: IAG)

Also hindering the company for 2012 have been the drought which slowed production at its Penasquito mine, and also its Red Lake mine, where seismic activity interfered as well.

One positive for the year, and also going forward, is the 41 percent stake Goldcorp holds in Primero Mining (NYSE: PPP), which is poised to benefit Goldcorp as production at its San Dimas mine closes in on meeting full expectations.

With gold assuredly about to jump in the next several years, and support in place because of the open-ended QE3 implemented by the Federal Reserve and Ben Bernanke, it may be a good time to get in Goldcorp at a decent price before the temporary impact on its two major mines are over, and the price of gold begins to shoot up.

Once that happens, it's unlikely we'll see Goldcorp and some of the other miners at these prices again for some time to come.


 

Bernanke Defends QE3 in Washington

Talking to reporters in Washington, Federal Reserve Chairman Ben Bernanke attempted to defend the latest round of stimulus, dubbed QE3, which will acquire $40 billion in mortgaged-backed securities on a monthly basis, until the Fed is satisfied the economy can sustain growth on its own.

Never mind that the economy got no help for QE1 and QE2, and it is highly unlikely QE3 will do anything but boost inflation over the long term.

Strangely, Bernanke asserted the Fed isn't an enabler of the government in allowing it to continue to operate gigantic budget deficits. It does all of that and more, and is part of the problem and not the solution.

Bernanke stated this as the goal of the latest stimulus: "... we would like to see as many Americans as possible who want jobs to have jobs, and that we aim to keep the rate of increase in consumer prices low and stable."

The Fed has also stated the other goal is to provide price stability in the markets, something that can't happen when pouring money created from nothing into it.

Concerning monetizing government debt, Bernanke said, "That's not what's happening, and that will not happen. We are acquiring Treasury securities on the open market and only on a temporary basis, with the goal of supporting the economic recovery through lower interest rates."

That's a bizarre statement targeting those who are clueless as to how the monetary system works. To buy Treasury securities is to monetize the government. That's why there are growing concerns over how much U.S. debt China owns, which have been propping up the U.S. government in order to sell inexpensive products to Americans.

To say that creating money out of thin air and acquiring Treasure securities isn't monetizing government debt, isn't even true. That's exactly Bernanke and the Federal Reserve are doing.

Where is the government getting its money from if that's not the case?

Also, incredibly, Bernanke claims the implementation of QE1, QE2 and QE3 hasn't hurt savers. You mean people not being able to buy into a money market fund or other safe investment because interest rates are almost zero hasn't hurt them? Does he actually think any of us believe that?

Even in an inflationary environment of about 2 percent people are losing money and buying power in low-risk accounts. How does that not hurt savers?

Part of the reason this is done is to pressure consumers to spend rather than save. At best, they may plow their money into much riskier assets; assets they don't understand and stand to lose a lot of money in as a result. That's not hurting savers?

Nothing to Hold Gold Prices Back Now

Based upon the assertion by Ben Bernanke that the Federal Reserve is tying its QE3 program into the performance of the job market stimulus could be ongoing for the next five to six years.

with that in mind, along with the decision to keep interest rates artificially low, gold prices should continue to push up for years into the future.

The expectations are that the Fed will continue to ease until unemployment reaches about 5.5 percent. That would result in the Fed balance sheet doubling again, assuming that figure can be met over the next five years or so. If not, the sky is the limit as to how high the balance sheet would go, which will continue to devastate the U.S. dollar, and push up the price of many commodities, including gold.

As measured by the prior experience of the price of gold moving up in conjunction with the size of the monetary base in the U.S., gold prices could soar to the $3,500 to $4,000 range before it's all through. Again, that assumes the job market improves and the Federal Reserve stops printing or digitizing money out of thin air.

Why Silver Prices Will Continue Going Up

Gold has been among the top performing assets over the last decade, soaring from under $300 an ounce to over $1,900 an ounce during that period of time. Investors and traders believe over the next decade silver will be among the top asset performers, as it has lagged gold during the last 10 years.

One of the many reasons for that is the extraordinary move up in the price of gold, which has resulted in individuals and smaller investment firms looking to lower-priced silver as an alternative to gold.

And now with the American central bank, the Federal Reserve and the ECB releasing more rounds of quantitative easing, gold and silver will continue to rise, with silver believed to be positioned best to take advantage of that printing of money; although gold prices and gold miners will continue to soar in price as well.

If anything can be sure in investing, it's in regard to the price of silver and gold during this period of time.
The Federal Reserve has announced it will acquire $40 billion in mortgage-backed securities on a monthly basis, one that is open-ended and based upon performance of the economy and the employment rate.

With no end in site for job improvement, and with QE1 and QE2 doing nothing to improve the economy, it appears we're in for a long period of spending by the central bank, which will devalue the U.S. dollar as well as push up the price of silver and gold during the duration of the "stimulus."

Again, with silver lagging the performance of gold, that bodes especially well for the white metal.

Silver Supply

Now the next reason to really like silver is that supply has never been so tight as it currently is, as demand has risen while supply is struggling to catch up.

Part of this reason is the huge number of products needing silver as part of their design. For example silver is used in cell or mobile phones or handsets. Most of this is unrecoverable, as is some silver used in medical products.

That means while silver demand rises, a larger percentage of silver is unable to be melted down and reused. Over time this will significantly impact the price of silver.

In the near term this isn't as important as the spending of central banks, which will devalue currencies of perspective countries or regions, but also also boost inflation, which results in investors fleeing to silver or gold to keep pace with rising costs.

About the only sector where silver demand is falling is in photography, where digital cameras are replacing former camera technology. But that has had little effect on growing demand for silver in emerging technologies.

Silver Investment Vehicles

So what types of silver investment vehicles should traders or investors look for?

For those who understand and are comfortable with it, options are a great choice, especially with the very predictable movement of the precious metal at this time.

If you don't understand silver options, you may want to educate yourself concerning them, as it's a very lucrative way to invest in silver with a minimum amount of your own capital.

You can also hire an expert to do the investing for you, although one should still know the basics of the process so your money is working in the way you want it to. In other words, choose a reputable brokerage to invest your money for you.

Other ways to invest in silver is through silver streaming companies, silver coins, silver miners and silver ETFs.

Silver Coins

Depending on your strategy and goals, a number of silver experts believe the absolute best way to invest in silver is via silver coins.

This is a strategy which isn't just to simply build wealth, but to preserve wealth as well. And in the case of social unrest and uncertainty, they are very portable and can be used to acquire almost any type of necessity and need in order to survive.

Although that may seem far-fetched in some countries, the reality is there is already turmoil of this type, and with the devaluation of currencies around the world, silver coins are a major and effective way to retain the value of your wealth.

Silver Miners

Like any public company we're looking to invest in, we need to perform due diligence on any silver miner, and also take into account the reason we're investing in a miner in the first place.

If we're only using a small portion of our capital to invest in a junior miner which is largely unproven but has some major upward potential, it's all a matter of getting the best data available to make in informed decision. It's all about provable or likely reserves and getting in at a great price point.

But since most investors aren't willing to take those types of risks, the majority will look at proven silver miners; those that have a track record that can be understood, as well as great management in place.

Also important is where the mines of particular companies are located. If they're in unstable geo-political regions, it adds a lot of risk to the investor, even under great macro-economic conditions.

Finally, researching and knowing the proven silver reserves, as well as secondary metals in a project, is vital to deciding on which silver miner to invest in.

Overall, it's not a lot different than any company, other than silver and other metals are usually easy enough to measure within the parameters of the operations being run by a miner.

Playing a major factor with miners is also the cash-on-hand and the amount of debt held by the company.

Silver ETFs

Silver ETFs are another fantastic way to invest in silver, with several of them existing for those wanting to play the market in a certain way.

For example, for a pure silver play backed by physical silver, you have the ETFS Physical Silver Shares ETF (SIVR) and iShares Silver Trust (SLV).

Other ways to utilize silver ETFs is through the PowerShares DB Silver. This particular ETF has within it silver futures contracts, which are different than the spot price of silver.

Global X Silver Miners exists for the purpose of those not interesting in investing in silver futures options or physically-backed ETFS. This ETF is filled with a grouping of silver miners for those believing they're going higher in the future.

The ProShares Ultra Silver ETF focuses on the assumption the price of silver will continue to rise. If correct, investors could make a huge amount of money, but along with that possibility comes more risk.

While it's a good economic climate for this ETF, investors need to research the risks inherent in leverage and inverse ETFS.

On the other side of that is ProShares UltraShort Silver ETF (ZSL), which bets the price of silver is going to fall. This can be effectively used during short-term drops in silver prices, which can produce a nice, quick amount of money.

As with ProShares Ultra Silver, the prices can fluctuate quickly, so the buyer needs to beware on short-term trades.

Silver ETFs offer investors about every conceivable way to invest in silver without needing to watch individual companies or contracts.

Here's a list of some silver ETFs and their tickers:

iShares Silver Trust Fund (SLV)
ETFS Physical Silver Shares ETF (SIVR)
PowerShares DB Silver Fund (DBS)
ProShares Ultra Silver ETF (AGQ)
Global X Silver Miners (SIL)
ProShares UltraShort Silver ETF (ZSL)

Silver Streaming Companies

In what I consider the best way to invest in silver to build your wealth, are silver streaming companies. Silver streaming companies offer financing to silver mining companies in exchange for the right to acquire a portion or all of the silver production at a mining company. That's also done with gold by some of the silver streaming companies as a secondary resource.

This is particularly important and effective at this specific  time because European bankers, which were the predominant financers of mining companies, have pulled back in investing in the sector because of sovereign debt issues in the eurozone, causing a potential shortage in financing of miners at a time when gold and silver prices are set to soar again.

What's really powerful about this business model is these companies can lock in low prices which create huge margins as the price of silver climbs. And even if the price of silver pulls back, the price agreed upon is so much below the market price that margins are still significant even if silver prices pull back.

Silver Wheaton the King of Silver Streaming Companies

Among the silver streaming companies there have been none as lucrative and as large as Silver Wheaton (NYSE: SLW), which has brought tremendous returns to investors over time, and continues to do so.

The strength of the silver streaming business model for Silver Wheaton and other companies is they don't face the risk of labor challenges and an increase in production costs. They lock in the price of silver no matter what happens in the overall global and regional silver market.

They also lock in prices no matter what happens internally at the company they're financing. This is why silver streaming companies such as Silver Wheaton are able to produce such awesome margins and low costs. Both are also very predictable and easy to access.

Risks for Silver Wheaton are in regard to disruptions at mines which could slow down production and result in less sales, revenue and earnings for any particular quarter. In most cases that's only a temporary blip, as the conditions of the agreements made with mining companies remain in place. Over the long term they'll extract the revenue from their partners no matter what may happen in the short term.

But even here there are only occasional problems, and as long as investors watch the companies and properties invested in by Silver Wheaton, there will be no surprises to catch them off guard, and slow downs should be looked upon as opportunities to plow more money into the company.

With a decent dividend, investors will also get a nice benefit in addition to the rising share price.

Investing in Silver

So with the surety that silver prices will rise for some time to come, with many experts seeing another approximate 50 percent jump in prices before a major correction, it's very much worth the while of investors to take a very close look at silver and get in as soon a possible.

The only thing to consider for those that haven't invested in silver before is because supply is much lower than gold, prices can swing in larger and quicker movements than its precious metal counterpart.

In other words, don't panic when investing in silver, especially in the midst of this major silver bull market, as it is far from reaching its high, and those that hang in their will reap some major rewards.

Will Oil Trigger Next Recession?

I was confident that the Fed had already begun printing. That seemed quite evident by the overall action in the commodity markets, the dollar, and the fact that stocks were unable to correct in the normal timing band for a daily cycle low. However, I didn’t really expect Ben would come out and publicly admit it. That one took me by surprise Thursday. I guess Bernanke wants to get full value for his attack on the dollar and make sure that markets are rising into the election.

At this point all the pieces are in place for the inflationary spike and currency crisis I’ve been predicting for 2014. We now have open ended QE that is tied to economic output and unemployment. But since debasing currencies has historically never been the cure for the bursting of a credit bubble, all the Fed is going to produce is spiraling inflation. So as this progresses we are going to see the Fed printing faster and faster as the result they are looking for never materializes. This is what will ultimately drive the currency crisis at the dollar’s next three year cycle low in 2014.

At this point, watch the price of oil if you want to know when the next recession is going to begin. As I’ve pointed out many times in the past, recessions (well, at least since World War II) have all been preceded by a sharp spike in the price of energy. Any move of 100% or more in a year or less, has historically been the straw that breaks the camel's back. Modern economies cannot survive that kind of shock. It invariably triggers the collapse of consumer discretionary spending and economic activity comes to a grinding halt.

In 2007 oil surged out of the 3 year cycle low into a parabolic advance as Bernanke trashed the dollar in the vain attempt to halt the sub-prime collapse. That 200% spike in oil is what tipped the economy over into recession, which was then magnified in the fall of `08 as the financial bubble and debt markets imploded.

I think it’s safe to say that Bernanke doesn’t understand his role in causing the recession of 08/09 as he is now making the same mistake again. I think he believes the recession was solely triggered by the financial meltdown. That was the icing on the cake, but not the initial trigger that caused the recession.

Despite the complete inability of QE to heal the economy or job market, and since he really has no other tool, Bernanke just keeps doing the same thing over and over expecting a different result, but never getting it.

Commodities are the check that prevents Keynesian economic policies from healing the global economy. Keynesian academics either don’t understand this, or refuse to acknowledge it. Until they do, or we install Austrian economic advisers in the government, we are destined to continue making the same mistakes over and over.

So we will watch the price of oil as it rises out of its three year cycle low. If it hits $160 by next summer that will probably be enough to start the economy on the next downward spiral. If politicians get involved (and I’m sure they will) and try to impose price controls, they will multiply the damage and probably guarantee that the next economic downturn escalates into a truly catastrophic depression.

Until we see the spike in oil and the corresponding damage to the economy, no one has any business try to short anything, well maybe bonds, but even that will be risky because the Fed is going to be actively trying to prop the bond market up and keep interest rates artificially low.

All in all there is going to be so much money to be made on the long side, especially in precious metals, that no one needs to fool around with puny little gains on the short side, especially in a market that is going to be hell to trade from the short side. The time to sell short will be in 2014 after the dollar’s next three year cycle low. The dollar’s rally out of that bottom will correspond with the next global economic collapse, ultimately caused by the decisions made by the ECB and the Fed this past week. I dare say if they could see the damage their decisions are going to inflict upon the world and the dire unintended consequences, maybe they would finally stop kicking the can down the road and let the economy heal naturally. Of course that would entail several years of severe pain and politicians, as we all know, are extremely allergic to that.

2014-2015 is when we are going to see the stock market drop 60-75% and the next great leg down in this secular bear market. But until then there’s probably a pretty good chance we are going to see the S&P at new all time-highs in the next 6 months – 12 months.

Source

Ron Paul Blasts QE3, Fed, Bernanke

Ron Paul took out his own economic tools and did surgery on the latest round of quantitative easing from the Federal Reserve - QE3.

“No one is surprised by the Fed’s action today to inject even more money into the economy through additional asset purchases. The Fed’s only solution for every problem is to print more money and provide more liquidity,” Paul said.

“Mr. Bernanke and Fed governors appear not to understand that our current economic malaise resulted directly because of the excessive credit the Fed already pumped into the system.”

Paul also said that the central bank is simply repeating its former actions, which did absolutely nothing to help the American economy.

“For all of its vaunted policy tools, the Fed now finds itself repeating the same basic action over and over in an attempt to prime the economy with more debt and credit,” Paul said. “But this latest decision to provide more quantitative easing will only prolong our economic stagnation, corrupt market signals, and encourage even more misallocation and malinvestment of resources.

“Rather than stimulating a real recovery by focusing on a strong dollar and market interest rates, the Fed’s announcement today shows a disastrous detachment from reality on the part of our central bank. Any further quantitative easing from the Fed, in whatever form, will only make our next economic crash that much more serious,” Paul noted.

The latest stimulus will entail the acquisition of $40 billion in mortgage-backed securities on a monthly basis with no time frame or limitations set upon it.

Evidently the Fed and Bernanke will continue to inject money into the economy until they start to see an improvement in the jobs market.

Since 1913 when the Federal Reserve was created, it has overseen and been the source of the fall in the value of the U.S. dollar by over 95 percent.

Marc Faber Says Bernanke Should Resign

Apparently believing Ben Bernanke has no shame, Marc Faber said in a CNBC interview that if he were Bernanke he would resign for screwing up the U.S. economy so badly.

"If I had messed up as badly as Bernanke I would for sure resign. The mandate of the Fed to boost asset prices and thereby create wealth is ludicrous - it doesn't work that way. It's a temporary boost followed by a crash," Faber said.

In the latest round of quantitative easing, identified as QE3, Bernanke said the Federal Reserve will acquire $40 billion in mortgage-backed securities indefinitely ... until the employment situation improves, which could be years into the future, based upon the response of the economy to the failure of prior quantitative easing initiatives.

Faber asserted and concluded this: "The money printers are responsible for this crisis. If we continue with this expansionist monetary policy we won't be facing a fiscal cliff it will be a fiscal grand canyon."

Also rightly taking a needed shot at the outrageous size of government, Faber said, "If we have an economic crisis in the Western world it's because the government makes up 50 percent or more of the economy. This is a cancer that is taking away people's freedom." He is right.

Bernanke Initiates Endless QE

Ben Bernanke and the Federal Reserve put into place a policy whereby there will be the acquisition of $40 billion in mortgage-backed securities on a monthly basis until there is a sustainable improvement in the labor market. At least that's the theory behind the action.

The FOMC said in a statement:

"If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability."

Also announced was the Fed would continue to have Operation Twist in effect until the end of 2012, as well as keep interest rates low through the middle of 2015.

After all of this is said and done, the most likely and predictable outcome will be an astounding and growing national debt which is already beyond the ability of Americans to pay.

And with no real positive impact on the economy coming from QE1 and QE2, there is no reason to believe anything different will come about from this latest round, which is likely to go on for years, as there's little hope of the economy rebounding in any significant manner, which means little in the way of new and sustainable job creation.

What will benefit is a number of commodities and some of the miners accompanying the sector. The U.S. dollar will now start to plunge in value against some of the major currencies.

As for the effect on the euro zone, it could get even worse there with the U.S. dollar falling, as they couldn't even do well on exports when the euro was weak against the dollar.

In reality, this is a disastrous decision, although investors rightly positioning themselves will do very well in the months ahead.head.