Monday, March 7, 2011

UNINTENDED CONSEQUENCES

The recent rally in gold, oil, and commodities in general has been extremely powerful. Despite protestations to the contrary by our clueless Fed president, it's very clear what is driving this massive commodity inflation when you look at this next chart. That's right we are now seeing the unintended consequences of printing money.

Just as soon as the dollar started to collapse commodities began to surge. And if you think it's bad now wait till the dollar breaks below the November pivot. When that happens, and it will happen, it will signal that we now have a yearly cycle that has topped in only 4 weeks and has already moved below the last yearly cycle bottom. That my friends is an incredibly bearish sign. 

At that point the market will no longer be able to delude itself that everything is OK. At that point inflationary pressures will surge out of control. At that point Bernanke will understand the magnitude of his catastrophic blunder when he ran QE2. And at that point it will be too late to stop.

Actually this path was already determined when Ben opted for QE1 to abort the debt cleansing process that was underway in 08 and 09. Yes he bought us a little time but the ultimate cost is going to be much greater than anyone could have foreseen. It would have been much better if the depression was allowed to run it's course. We would be most of the way through the pain by now and ready to come out the other side into a golden age. Instead we have another decade or more of misery ahead of us. All because our leaders don't have the foresight to see the consequences of their actions.


Now on a more immediate note the dollar is due for a dead cat bounce anytime now. When it does it should force a brief correction in gold, oil and commodities in general.



This will be your last buying opportunity before the final parabolic move begins in earnest. Once the dollar breaks below that November low all hell should break lose in the currency markets forcing all commodities, especially gold and silver into what will likely be one of the most powerful rallies in history.

7 comments:

  1. Toby, Love your work but occasionally question your logic. In previous posts you said you expect silver to get to $43, it has already rallied from under $20. So if the dollar does go below its November pivot, a $6 or $7 rally from here is hardly one of the biggest rallies in history, weve already had a bigger one, considering you expect it to terminate in May that is. Or are you expecting much bigger near term targets for silver than the $43 I had read previously?

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  2. I think you're on the mark Toby. What do you expect will happen with rare element and uranium stocks when the dollar really falls and gold & silver rise?
    Thanks!
    Jordan

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  3. I believe QE2 expires in June; that is when the uncertainty will explode in the bond market and things will really take off.

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  4. "Oh what a tangled web we weave when first we practice to deceive"
    Should be the motto of the FED.

    Nice work again...but Toby...ur interpretations are becoming somewhat confusing and also convenient.
    We have Au moving up (with Ag and Oil) as USD alternative "safe havens". Would you not agree ?
    Yet you say we are due for a "dead cat bounce" in the USD...which should see some adjustment to commodities ??
    Why the dead cat bounce at this point ? What is the driver...surely its not oversold.
    You also talk about a last buying opportunity...in WHAT ? Gold / PM's.
    Agree with John...if we are to witness one of the biggest rallies in history (read still to come)...why does your upside stop short of $50 on Ag ? equiv of another 30% from todays price. Hardly the stuff of BIG rallies. Certainly pales in comparison to what was seen in late 70's-early 80's.
    Could it be that we are already witnessing the historic rally as we speak. Is Bernanke finally seeing the light ...with all bets on QE III off the table.
    BIGGER question is the one on OIL.
    Last time we had OIL climbing at such a phenomenal rate..it was very destructive to economic stability....in fact the recession in USA was the direct result.
    Do you then think the OIL/USD markets move in tandem (albeit temporarily) and that PM's will recover and shoot much higher with the final leg down in the USD to its 3 yr cycle low. Or is it possible that OIL is having a much bigger impact on global stability and potentially undermining USD weakness and PM strength ?
    Volatile times indeed !!

    BTW...I stand by my earlier post...Bernanke knew exactly what he was doing ...with the intended consequences of creating inflation through printing money. I believe he is the ultimate anti-deflationist. Besides doesnt he have a few friends that need to keep their assets propped up for a little while longer !!
    The OIL situation (read uprisings in Nth Africa / Middle East)is the one that couldn't be predicted as a direct consequence of his actions, although blind Freddy could see that riots and civil unrest would become an issue (especially in third world/emerging markets and Dictatorships)with inflation spreading like the Black Plague.
    My hat is firmly locked in place (held down by the weight of PM's)...in anticipation of strong head winds.....!

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  5. The real problem with trying to forecast the markets is accounting for how much manipulation the Fed will hit the economy with, combined with the existing precious metals market manipulators, etc.

    The Fed WILL print QE3. But when? Will the Bernank hold off and see what the economy does? Will he plunge right ahead and print back to back with QE2? It seems, from many past indicators, that the fed would print QE3 right on the back of QE2. But with new indicators, (like Bill Gross getting COMPLETELY out of Treasuries) . . . what now, Kimosabe?.

    The timing needs a crystal ball, which even Toby doesn't have. However, he's dead on with the dollar. And between now and June I think he's right.

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  6. Toby, your recent predictions and projections have been pretty poor so i'm not really sure why we should take your latest offering that seriously. Time will tell but my guess is we are in for either a fall or a few months of narrow range trading, with no big rise in gold until august/ sept

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  7. Toby, your recent projections and predictions have been fairly poor so i'm not too sure why we should take your latest offering that seriously.Time will tell but my guess is that we are in for either a small fall or a bit of range trading prior to the next significant gold increases in the autumn.

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