One Second to Midnight

Back in the days of the Cold War nuclear physicists used to use the term “One Minute to Midnight” as a colloquial term in speaking about how close the world was to nuclear war. Obviously, the closer the time was to “midnight”, the closer to annihilation.

In a somewhat similar vein, the world approaches a financial apocalypse. The toughest thing about actually learning something from history is that when you are “living it instead of reading about it”, you tend to downplay its significance; because you are convinced it is the normal course of human behavior.

It took hundreds of years to bring down the Roman and British Empires; no doubt the super-powers of there respective ages. The United States stands poised to “go down” with them for the exact same reason: unsustainable debt and the resultant debasement of their respective currencies. Oh, the country isn’t going away; just your money, wealth, and by default your freedom. It took the United States from 1776 to 1990 [214 years] to go to $3 Trillion in debt. It has taken Obama just under 2 years to match it.

On November 2^nd and 3^rd, two events will unfold that have the utmost importance for future generations of Americans, and by implication the rest of the free world: the first is the midterm elections, and the second is the meeting of the Federal Reserve.

I don’t know how I can be more blunt: the policies and agenda of B. Hussein Obama must be defeated AND repudiated, by the American people, in these midterm elections. With control of the House of Representatives, the Republicans will be given the opportunity to control every single purse string in Washington. The $64,000 question is whether, given this historic opportunity, they have the guts to do what is necessary and right. The mandate of the people is clear; politicos not so much. If they eventually cave, and go “Democrat Lite”, life as most Americans know it is OVER!!

Within hours of the results of the election, the Federal Reserve lets the world know what its intentions are for revitalizing the U.S. economy. This meeting is important because the Fed has openly telegraphed to the financial community its plans for “QE2” [2^nd round of Quantitative Easing]. In other words, the Fed is turning on the inflationary “money spigot” again; the only question is how much they are going to print. Weimar Republic here we come!!

It’s always been a mystery to me how these so called “financial sophisticates” at the Fed, from Harvard, Yale, and Princeton [and the other “elite” universities] can be so tone deaf to the realities of the real business world. Of course, some real business experience meeting a payroll and actually running something for profit might help; but hey, what do I know?

I’m happy to report that I have actually figured out the mystery of the Fed’s decision making. When you think of TARP, QE Lite, QE I, and now QE II, the destruction of the mortgage market, the bailout of the crooks executives at AIG, and a laundry list of other malfeasance that could fill the New York City telephone book, it has to be the only logical conclusion a serious trader could make.

I am of course thinking of this:

 The buzz on the street has the Fed printing to the tune of $100 Billion a month for at least a year. The problem is going to be finding enough Treasury paper at different maturities to satisfy the appetite of this black hole. So, look for the “smartest guys in the room” to be standing at the front of the line at future Treasury auctions gobbling up all the Obama debt. You see rubes, this is how you manipulate keep interest rates low forever! [Er, until rates start going up via hyper inflation, in which case the entire planet you are totally screwed. And you just know, it’s gotta be Bush’s fault!]

Now, the fun for us traders is trying to figure out what the street is expecting vs. what really happens. If the Fed does nothing?  Well, if this happens the Dow is down 500 points in 60 seconds, the Euro is down 200 pips in a heartbeat, and gold gets clobbered for at least $ 50 per Oz.. I see NO chance that this happens. But, if it does you will see first hand what a disaster looks like.

If the Fed announces $80 Billion OR LESS [per month Treasury purchases], there will be some dollar strength, equity weakness, and the precious metals should slide some. I put the odds here at about 20%.

If the Fed goes for instant “Weimar Republic” status, and opts for $200 Billion per month OR GREATER, watch gold and silver take off into orbit and the currencies jump. Odds here I put at 30%.

In any case, no matter what they do, it isn’t going to sit well with China, Japan, Euroland, and Brazil. It is an invitation to a trade war, and the U.S. will have started it. Don’t expect China to sit by and take this; they will respond at some point and it could get very ugly.

So, prosperity for the future depends almost solely on whether the Republicans step up to the plate and do the right thing. I’m not optimistic. The Fed? Academic twits who can be counted on almost 100% of the time to do the wrong thing. Exit question: what have they ever done right?

If you wander into this Fed clusterfark with a position, you might want to pay attention to this:

 -vegas