Jim’s Mailbox

Posted at 1:57 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

I’ll just bullet point an article from the Wall Street Journal.

-Pump billions into the banking system until the unemployment rate drops to 6.5%. It’s not working.
-Continuing QE may cause excessive risk-taking, financial-market instability and/or inflation.
-Instead of spurring job creation, the Fed’s money has rebuilt banks that should have failed, re-inflated the stock market to post-crash highs and helped companiesand investment firms hoard cash.
-Companies don’t know what to do with this loot, the rising value of their stock or the funds they can borrow from the banks for next to nothing.
-They can’t find customers so they can’t create jobs.
-They can’t continue to keep their cash hoards in low interest bearing accounts.
-What’s next:  Mergers and Acquisitions.
-But M & A doesn’t create jobs, it cuts them.
-After the purchase of Burger King and job reduction, profits increased and sales decreased. A fine example of addition by subtraction.
-The purchase of Heinz is like a warning shot across the bow of other companies in the food industry to tighten up, cut costs and stay off the M & A target list.

So the Fed prints money to create jobs and, ironically, some of it only encourages people to destroy jobs. Welcome to the Law of Unintended Consequences.

Keep digging Jim,
CIGA Tom

Dear Jim,

The Fed has already been sacred out of their less dovish rhetoric as markets started to react in ways that should frighten them and show there is no feasible way to slow it’s liquidity injections. Bernanke acted today to quell those fears on the back of Europe starting to turn down aggressively again and with the Sequester on the horizon. So what has gold really been telling us over the past few days? Well, one thing – the move to downside is exhausted and running out of scared sellers but, more importantly and significantly, confidence in the real economic recovery has evaporated, enticing buyers to step up and give the market a bid.

Gold as our gauge of confidence is giving a strong indication that confidence has once again been lost and investors have finally given their heads a shake and realized what is in front of them. The Fed and Hedgies had fun while the hack job lasted but we are now in the process of building a new base from which to continue an upward projectory after what was, and remains, a significant breakout at the end of August. A holding of the recent low upon a minor setback that will likely come off of first resistance at 1625-1650 should provide further confirmation of this. Shorts are being covered and disguised accumulation by the "Big Boys" is likely underway. All the pieces you talk about are falling into place and those who kept their emotions in check shall profit from your wisdom. If there is one thing gold is not, it’s not for the faint of heart.

Kind Regards,
CIGA Dustin