Fasten Your Seatbelt, It’s Going To Be A Bumpy Ride

We are rapidly approaching my long time projected rally target, which is not that far above at 17,550  and although we can try to ride the last segment of the implied thrust to that number, the smarter trade lies in starting to scale into your favorite shorts NOW . After all, you do realize that I do not have a Crystal Ball. To facilitate the trade and to make sure I don’t have to chase it, I’m going to do something a little different this time: I am legging into a butterfly spread by buying far-out-of-the-money puts first. Specifically, I’ll be focusing on put options that we can buy in quantity. This would give us initial exposure of perhaps $1000 to $2,500, but if we catch a top of at least short-term importance, we’ll stand a good chance of legging in to the spread so that we are left with little or no risk. Even more important is that doing the remainder of the spread will be relatively easy if the DOW tops at or anywhere near our number.  Buy a one year subscription and stay tuned to the coming letters for further guidance as to which Puts to leg into.

When Will the Fed Tighten? IF EVER

I worked some numbers in order to refine my forecast for Fed policy. One prediction that has stood the test of time is that any real tightening by the central bank is as likely as a Obama turning Jewish: Turns out that when you analyze the latest data available, a Jewish President winds up being 1,000% more likely than any Fed tightening any time soon. The formula I used to handicap this bet is proprietary and so I won’t go into it here. But the bottom line is this: Anyone who believes that deliberate tightening is even remotely possible, let alone likely, is delusional. Yet the fact that a small country like Belgium has been buying the same number of Treasuries as the FED has cut back buying and that number is as large as Belgium’s GDP should be telling you something - The FED is lying to us all about tapering.

Of course, many of the deluded are bound to argue that the Fed has already begun tightening via the “taper,” a gradual reduction in its sham purchases of Treasury paper and mortgage-backed securities. However, the tapeworm represents the sort of “tightening” that Fed-watchers, pundits, eggheads and the news media can wrap their brains around, since it dovetails conveniently with the absurd myth that the Fed knows what its doing.  In fact, most of those who interpret the economic news –leftist ideologues such as Nobelist Paul Krugman, chief among them, — couldn’t hold down an economics job at a candy store.  These are the same economic bozos, after all, who bought into Greenspan’s notion that inflated home prices constitute “wealth” and that capital investment supposedly was expanding at a time when household savings growth in the country was worse than being at a standstill, in point of fact, it was declining.

Managing Our Expectations

To put the latest BS into proper perspective, it has amounted to the withdrawal so far of perhaps forty billion dollars worth of Treasury funny money per month from the financial Rube Goldberg machine’s fuel tank.  If this is what tightening is all about, it is like putting a thousand-pound man on a diet by substituting aspartame for sugar in his coffee.  Meanwhile, as the Fed goes about its propagandizing business of managing our expectations, the banking system continues, with its quadrillion-dollar derivatives shell-game, to churn out uncollateralized digital money at a rate probably 50 times that of credit withdrawn from the system via the tapeworm.

The result is that for all the talk about the FED gradually ending “quantitative easing,” the world is awash in a sea of egregiously underpriced loans. This holds true for the entire spectrum of borrowers — from the lowly consumer to the home-equity lender and the now low credit score car buyers (sound familiar). Mortgage rates are hovering near historic lows and car loans remain so cheap and plentiful that even someone in prison can buy an Escalade with no money down.  Zero-percent teaser rates continue to glut the mailboxes of anyone with a credit card. And for top-rated corporate issuers of debt, the Government has made credit infinitely so abundant and so cheap that even companies with mountains of cash (i.e. Apple and Microsoft) surpluses, continue to borrow because it costs them practically nothing to do so.

Global Markets Ebullient

With corporate debt sales running at a record clip, Apple just raised $12 billion, Oracle $10 billion and Cisco $8 billion, contributing to a reported $612 billion of corporate borrowing in the first half of 2014. The news media have reported this mania matter-of-factly while failing to recognize it as a symptom of malinvestment at a millennial peak (by the FED and Banks not the borrowers).  The fact that the tsunami of money creation cannot possibly recede without sweeping the global economy out to sea has been overlooked for one reason and one reason only: The U.S. stocks are trading in record high territory. Although this has provided psychological support for an unprecedented wave of investor (optimism) madness around the world, and for the spinmeisters a story that the U.S. economic “recovery,” such as it is, is sustainable (sure, since none exists), it is entirely predictable that today’s giddy ebullience will turn into cold, hysterical fear overnight when the epic Bear Market that is by now long overdue takes its initial plunge.

Meanwhile, it is remarkable that the FED has succeeded for so long at “managing expectations” on-the-cheap, holding a quadrillion-dollar deflationary juggernaut temporarily at bay with, most recently, a mere $50 billion worth of monthly, monetary slight-of-hand and cryptic policy speeches.  Clearly, the dolts, eggheads and editorial hacks who interpret Fed policy and who hang onto Janet Yellen’s every word, still believe the FED to be all-knowing and all-powerful: Heaven help us when the central bank’s transparently idiotic ruse lies fully exposed to market forces, as occurred briefly during the Great Financial Crash of 2007-08. As to any deliberate tightening in the meantime, it is absolutely unthinkable, since subjecting the quadrillion dollar derivatives bubble to even 50 basis points of market-induced tightening would precipitate an unwind of wrong-way bets that in mere days will leave the global financial system in smoldering ruins.  By that time, the feather merchants who created it will have no place to hide and the Paul Krugman’s of the world will have no choice but to acknowledge the epic hoax that sustained it.


There is clearly manipulation going on. I focus more on Gold than Silver, but you need to manipulate both if you want and need to drive gold down.

It seems that 2008 was a turning point. It's all part of a much bigger play to freeze assets in place, deny access to physical metal, force savings into banks, money market funds and stock markets and then prevent people from getting their money out.

This will certainly get worse. If my analysis is correct, the problem is even larger than what I was initially seeing. The Government DEBT is expanding by leaps and bounds and their demand for money is ever increasing. The only place that they can hope to get enough to keep their Ponzi scheme going is from our IRAs, 401Ks, pensions and the public’s savings.  Is it just a coincidence that the sum total of all Pensions (401K’s and IRA’s total $17 trillion?) equal to the National Debt.



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Aubie Baltin CFA, CTA, CFP, PhD.

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This letter/article, like all my others, is for education purposes only and is designed to help you make up your own mind; not for me to make it up for you. Although I include recommendations from time to time, being a bi-monthly publication, it is not meant to be a trading letter. Only you know your own personal circumstances, so only you can decide the best places to invest your money and the degree of risk that you are prepared to take.

Fed has done all it can to fix US economy's non-structural issues, now it must hike rates