Quantitative easing

Quantitative easing: those are big words that mean, "Oh &*$#@!, we better start printing money like there's no tomorrow!"

Today the Fed cut interest rates by 75 basis points. The federal funds rate is now a Japanese-like 0.25%. It can't go much lower. So now one monetary weapon is out of ammo. Next, the Fed will begin purchasing Treasury bonds (if it hasn't already through covert means in the Caribbean.) Ever wonder why Caribbean countries own tens of billions of Treasury bonds? Are we buying lots of something from them that I don't know about? What do they export, anyway? I suppose it is possible that hedge funds domiciled in the Caribbean have been buying T-Bonds, but I am more inclined to think there is an arm of the US government doing at least some of the buying.

Whatever the case, the Fed is going to be buying A LOT of T-Bonds. More importantly, they will be monetizing the debt, which is a fancy way of saying they will simply print money to buy those bonds. Actually they don't print much money any more. Why kill all those trees, and waste all that paper? The money will be simply created out of thin air. I think the market has finally gotten wind of that in the past couple of weeks; that the deflationary scare was just that, a scare.

For the fist time in at least a couple of years, the mining shares are leading the bullion, providing the leverage they are supposed to. While silver has bounced off its lows of around $9/oz, Silver Standard has rallied some 160% off its lows in the past two months. Silver Wheaton has more than doubled. I think we will see more of this in the months ahead. The key will be the breakdown of the US dollar. I'm not a market technician, but the dollar chart looks terrible, with a head and shoulders top, followed by a move down through resistance around 84. More importantly, the fundamental reasons for dollar strength appear to have run their course, or nearly so. The hedge fund deleveraging is winding down, and there isn't going to be much rational selling of mining shares at these levels. More likely, given the huge moves they have made, momentum players could start jumping on board, followed by short covering, once the shorts realize this game is over.

The major sign of the coming apocalypse is that Bart Chilton, head of the CFTC has agreed to meet with Bill Murphy, chairman of GATA. Once Murphy presents ten years of evidence of market manipulation to Chilton, plausible deniability goes out the window. It will be impossible to look the other way once he's been presented with a mountain of documentation of fraud on the CRIMEX. I don't yet know whether the ongoing investigation will reveal anything, but the recent move in the metals may be an indication that all the smoke is finally going to yield some fire. I think the next few months are going to be the beginning of the next leg upward in the commodity bull market.