The dollar goes "tick tick tick" as the Fed helplessly sits

Quantitative Easing has already created a paradoxical world where bad news for the economy is good news for the markets. But with an even larger potential implication being the destruction of the dollar, how does the Fed wean the markets off of the stimulus program? A better question may be, CAN THEY wean the markets off? Read this week’s Market Update to find out.

The beat goes on with the Federal Reserve's program of Quantitative Easing. It's the same refrain every week, and it will continue to be for as long as QE continues unabated, flooding the economy with $85 billion each month. Stocks have become so dependent on this influx of liquidity, they have become so addicted to this so-called "stimulus", that we now live in a strange paradoxical world where they react positively to negative news about the economy's health... because that's supportive of QE's continuation!

But what of the larger implications of QEternity? If you listen hard enough, maybe you can hear the clock on the dollar ticking away (tick, tick, tick...) and that alone should create the urgency necessary to put an end to this absurdity. Surely it can't persist in perpetuity, right? The Fed has to stop soon (at least begin to "taper"), right???

It won't be Ben Bernanke, chief architect of QE, to see the markets back to a return to normalcy; with his current term as Fed president ending next January, it appears as though he won't seek another one. So who shall take on the task?

The list of potential successors to Bernanke begins with Larry Summers and Janet Yellen. Summers, President Obama's former economic adviser and a polarizing figure among Washington's elite, has been a vocal critic of Quantitative Easing. Then again, if named as Fed chairman, apparently "he would be all for continuing QE." Yellen is the current vice chair of the Fed and one of the authors of QE, so there doesn't need to be much reading of the tea leaves to know what she thinks of the stimulus program.

Some politicians have made some more outlandish suggestions for the Fed's next president. Ron Paul is making a push for... no one. His son, Rand Paul, has suggested that either Friedrich Hayek or Milton Friedman would make good selections. That is, if you discount the fact that both men are deceased.

In all seriousness, the next Fed president must have a plan for weaning the markets off of QE. Unfortunately, even if that person has the right intentions and the right plan, it may not matter. Jeffrey Saut, chief investment strategist at Raymond James, says the Fed's hands are tied behind its back: "I think the economy is going to be fast, fast, slow, slow. And right now, it's slow, slow – so I don't think they are going to taper." And economist James Galbraith says that the Fed has backed itself into a corner: "The Fed is stuck... There is now a general expectation of low long-term interest rates going into the future. The process of trying to reverse that is going to cause a lot of turmoil and the Federal Reserve doesn't like turmoil, so it is probably not going to do it."

The takeaway: Even if Bernanke's successor has the will to finally put an end to this madness – and that alone is no foregone conclusion – indications are there is no way off this runaway train, at least for the foreseeable future. So the clock on the dollar continues to tick, tick, tick...

Precious metals on the move

London Fix PM price at week's end, and change over previous Friday:

  • Gold: $1,309.00, even
  • Silver: $20.31, up 4.4%
  • Platinum: $1,492.00, up 3.9%
  • Palladium: $739.00, up 1.2%

In the news

Gold becoming more attractive as dollar weakens
"Gold appears to be continuing its sensitivity to the link between Fed intentions and the vulnerability of the dollar. As the global reserve currency declines due to curbed expectations of Fed tightening, the metal is becoming more attractive." – Jonathan Citrin, founder and executive chairman of Citrin Group (link)

Proof banks are buying all the physical gold they can
"As everyone knows, Asia, not just China, has grown tremendously wealthy since WWII, and Asians have an affinity for gold not felt anywhere else in the world, except maybe the Middle-East. The gold being shipped to Asia is now in very strong hands and will not come back any time soon. Actually, acknowledgement of a shortage of physical gold is the reality of what the world is now witnessing." – Dr. Stephen Leeb (link)

Gold is a great long-term buying opportunity
"If you like gold, long-term it’s a great buying opportunity. Given the massive entitlement promises we've made, and the gridlock we have in Congress, inflation is a path of least resistance. We have a culture in the U.S. – we prefer inflation over European austerity, and with that gold is a long-term buy, but of course it doesn't mean short-term it's going to do well." – Axel Merk (video link)

Strong market demand for gold
"Speculative money has largely come out of the gold market. Gold is nearer the bottom than the top right now. You'll see a stronger market toward the end of the year and into next year. A huge amount of demand coming from India and China has underpinned the market at this level." – Marcus Grubb, World Gold Council managing director (link)

Investors' worst instincts, revealed (again)
"That doesn't sound like a sustainable situation." – Gregg Fisher, chief executive of Gerstein Fisher, when noting that although the U.S. economy comprised 23% of global GDP last year, domestic stock markets accounted for half of global market capitalization (link)

Spotlight on Silver

2013 American Eagle Silver Bullion sales continue to shatter records
"For the first seven months of the year, American Eagle Silver bullion coins sales grew at the fastest pace ever as 2013 appears to be well on its way to setting a new annual record for the coins even though a system of coin rationing is still in place." – Dorothy Kosich, Mineweb (link)

Video of the week

Paper money, or gold? Even Salma Hayek knows: "Without the gold, the paper has no value."

The week ahead

  • Washington generally quiet with many on holiday
  • Key economic reports: retail sales, wholesale and retail inflation figures and manufacturing data
  • More speeches from Fed presidents: Dennis Lockhart (Atlanta Fed) to speak on Tuesday, James Bullard (St. Louis Fed) to talk about challenges with monetary policy on Wednesday
  • Earnings reports expected from a number of large retailers
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