Morons, Idiots and Vagabonds.....

I am not going to comment too much on the activity in the gold market today except to say that last night in Asia, gold opened down some $25 but two hours later it was only down $7. I wrote on the blog that there was absolutely no doubt in mind that gold would be hammered once it hit Europe and hammered again when the CRIMEX opened. That's exactly what happened. I will go on to say that gold did not rally with oil on Tuesday after the Fed announcement, but happily sold off yesterday and today when oil was down some $3. However, gold failed to rally when oil climbed $2+ to close the day down less than a buck.

Finally, I will add, right after the Fed announcement, gold sold off some $7 then immediately rallied back to the flat line and in fact was up a buck or two before it began its disastrous three day run. Now what is the summation of all this? If you think gold is not being manipulated or forced down, than I have a very nice bridge for sale in NYC. Hell, buy the bridge and you can even travel toll free.

As of 9pm, gold is up some $10 in Asia. Think that it will last? It might, I don't know if Europe is open tomorrow for the Good Friday holiday. If Europe is open, then no, it won't last. I will say it again, this is May 2006 all over again.

What I would really like to talk about tonight are the morons, idiots and other dolts who freely comment on gold when they haven't a clue in the world. All day on idiot vision (CNBC), everyone and their mother, once again, tap danced on gold's grave. Bob Pisani went as far as to say the fact the dollar has bottomed meant that gold could only go down from here. The guys on Fast Money whacked gold like a pinata. My boy Guy "I am not bullish on gold" Adami, once again said the trade is over and to get out. "Gold is not a commodity, but something you speculate with!" was the exact quote that stuck with me. He too mumbled something about the dollar putting in a bottom and that would spell gold's doom.

I think it was one of the Najarian brothers who said that the Fed is being smart this time, and not just cutting interest rates but rather they are being creative about how they are lending money out at the discount window and allowing all sorts of bonds to be used as collateral, and that's why gold will die a quick death as the mortgage situation gets sorted out.

Mahendra from mahendraprophecies.com was on and said that because Jupiter was in the 7th quadrant and Mars was getting quirky, that was the reason gold was going lower. (Mahendra is a glorified 7-11 clerk who has his own website and has been calling for gold's demise for two years now.)

And finally, Ixekbhek, a tribal medicine man from the Isle of Veeneshu was on Fast Money and said "Boogah Boogah Boogah ooooh-oooh-oooh" and that was his reason why gold was going to turn to rust.

Now can we dispel all these bullshit reasons why the rumors of gold's demise are premature?


First, everything, and I mean EVERYTHING the Fed is doing is extremely inflationary. They are trying to fight off Ben Bernanke's worst nightmare, deflation. When banks won't lend money or a major money center investment bank is insolvent that is deflationary. The Fed has to keep the money pumping or the economy will die. Look at Japan in the 90's, it was/is an extreme case of deflation that has caused and kept the Japanese economy in a decade long recession. The Fed does not want that here.

Accepting any time of mortgage product as collateral for loans is inflationary. They are pumping more and more money into the system. Don't believe the hype that these are only 28 day loans; these loans will be as long as they have to be.

M3 money supply, which the Fed does not report anymore because they think it's a useless tool, is a measure of how much currency floats around the system. There are models that recreate M3 and they show the money supply is off the charts. This is obviously extremely inflationary.

The dollar is having a bounce. On the prior knock down of the dollar when it fell to 84 it had a small dead cat rally to about 87 and every claimed it was the birth of a new dollar bull, as, so the thinking went, the Fed cuts would spur the economy and that's what everyone was betting on. Complete horeshit that went for gospel on CNBC. So, the dollar bottomed at 70.50, and is now sitting around 72.82, IMO, another dead cat, and everyone claims, like Jesus, the dollar has risen from the ashes. (How's that for a holiday tie-in?)

Now, let me be a party pooper and dispel this crap. At the crux of the problem is housing and the fact that too many people are in houses they can't afford and never could in the first place. Wall Street took all these mortgages and packaged them together and created bonds, and from these bonds trillions of dollars in derivatives were created. When folks who bought a million dollar homes with nothing down on them, and interest only mortgages, stopped paying those mortgages, it caused massive defaults and greatly affected the value of those bonds and thus those derivatives.

And there is the problem, nothing has changed to help the homeowner pay his mortgage. Rates have come down this week, but banks are lending and in this day and age you need to have a spotless credit record to get a mortgage and you also need to have 20% equity to refinance. Is the Fed going to guarantee all FRE and FNM debt? If they do is that not inflationary?

What about the average consumer, who, to coin a phrase from Doug Kass, is not pent up but spent up? The average household is loaded with credit card debt, prolly over extended on his HELOC, so how is he going to spend to keep the economy going? Is his tax rebate, with the exception of a one time bump in the early part of the third quarter, going to keep the economy afloat? Speaking of which, huge tax rebates, are they not inflationary?

I would like to think you get the drift that EVERYTHING the Fed has done to this point, and will do, is extremely inflationary. On CNBC today, some schmuch floated the idea that this time gold won't respond to inflationary pressures. GOLD ALWAYS RESPONDS TO INFLATION, THAT'S WHAT IT'S THERE FOR!!!!!!!!!!!!!! It is an instrument against the debasement of currency. But you knew that already.

At some point, the ECB will have no choice but to cut rates as it is becoming increasingly evident that the Euorpean economies are slowing. I think when this happens you will see the dollar and gold going higher at the same time. Now, I know this will be hard for my boy Guy Adamai to understand, but if the ECB cuts rates, it will mean more monetary stimulus for the world's economies and we know what currency debasement means. However, the interest rate differential between the ECB and the US will narrow providing a lift for the dolllar. Speaking of interest rate cuts, the FED did say they will cut if needed. So, does the fact that they only cut 75 vs 100 bps, really mean much? More cuts are coming, IMO, rates are coming down at least another 100bps.

Tonight on Real Money, Cramer said the Bear Market is dead. Bear Market? Can a bear market last only three months, wouldn't that be a correction? IMO, the sharpest and strongest rallies happen in the context of a bear market just as the sharpest corrections happen in a bull market.

I have said it a million times and will say it a million more, all roads lead to gold.