Humans, for whatever reason, tend to project the past into the future. It is an emotional flaw in our genetic makeup. It is also the reason why so many otherwise intelligent people miss the big turning points in the economy and stock market.

A classic example occurred in the summer of `07. The sub-prime market was just starting to implode. With the benefit of hindsight we now know that was the beginning of the end for not only the stock market but the global economy. 

Unfortunately because we couldn’t read the writing on the wall we trusted that the Fed would “fix” this minor blip but cutting rates aggressively and spewing out an avalanche of freshly counterfeited dollar bills. It did not fix the credit markets and instead spiked the price of oil to $147 a barrel. That turned out to be the final straw that broke the camels back and sent the global economy spiraling down into the worst recession since the Great Depression. The stock market rolled over into the second worst bear market in history.

Amazingly enough we are ready to repeat this process all over again. The writing is on the wall and virtually no one can see it.  

I’m now going to lay out the the series of events that will ultimately lead to the next leg down in the secular bear market and the reaction by the Federal reserve that will end up pushing the economy over the edge into the next depression.

It is going to start in the municipal and state bond markets. I should say it’s already started.

 So far the stock market is ignoring the cancer growing in the city and state bond markets… just like it ignored the initial stages of the sub-prime implosion in the autumn of `07. 

At some point it is going to dawn on the market that there may be a serious problem developing. I expect that recognition to come as the market starts to drop down into the next intermediate cycle correction (which I expect to begin next week). If so, then what should start out as just a profit taking correction will turn into a much more serious decline, possibly even erasing all of the fall rally.

We’ve already seen big warning signs that smart money has been exiting this market for a couple of months now, basically since the first signs of stress in the muni markets appeared in November. Big money has used the QE driven rally to unload stock on the clueless public over the last several months.

It will begin as the first cities and states start to default. That will correspond with massive layoffs as cities and states will no longer be able to borrow to meet payrolls. Their only option will be to make drastic cuts any and everywhere they can.

The Fed will panic and start running the printing presses in overdrive just like they did in `08 and just like in `08 that will spike the price of energy and food (it’s already starting. Gasoline is back above $3.00 a gallon and a loaf of bread is pushing $4.50-$5.00).

Spiking inflation in a very high unemployment environment will understandably destroy the fragile economy just like it did in `08. (I have no idea why Bernanke thinks rising prices along with 20% unemployment is a good thing.)

This will be the period when gold will enter the final leg up in its ongoing C-wave advance and the dollar will collapse down into the 3 year cycle low unleashing the currency crisis we’ve been expecting.

I fully expect by fall the economy will be heading back into recession/depression and the global stock markets will have rolled over into the next leg down in the secular bear market that began in 2000 with the bursting of the tech bubble.

144 thoughts on “HERE WE GO AGAIN

  1. Poly


    Big, brave report this weekend, with some major predictions. You get half of those calls right I would be impressed. Now just get the pending equities collapse right 🙂

    Have a good weekend.

  2. ted


    Don’t think this market is going to top so easily. I expect a grinding situation, and this next bear wont be like the one in 2008. I expect a more grinding, rolling correction. Also, I am not expecting new lows. Maybe a 25% correction in by 2012. Not good enough to play the bear side.

  3. SW

    Hi Gary,

    You have mentioned that you never short a bull market, but your recent posts/comments show that you are seeing the writing on the wall and a severe fall is imminent.

    What will make you go short this bullish SPX? Can you please comment in a bit detail on some signals that flash an “imminent” correction?

    Thanks always for your wisdom and willingness to share it.


  4. David


    Gary always says the same thing.

    He never shorts a bull market. “Never” means never.

    Presumably, he would short if this turned into a bear market (by his definition), but, as he has also said a thousand times, there’s no point playing the short side when there’s an ongoing bull market in gold.

    The only time to play the short side would be in those rare occurrences, such as 2008, when everything is in a bear market at once and there were no opportunities on the long side. But since we’re expecting a IT bottom in early February, the intelligent thing to do would be to wait two weeks to get long.

  5. chancee

    Couldn’t agree more about the market topping out here. The market (banks and hedge funds) showed their hand with this parabolic run-up. They knew this would be it for a long time and have been milking it for all it’s worth.

    The better risk/reward is now to the downside and I expect them to all to re-position accordingly, if they already haven’t.

  6. DG

    I think Bernanke is getting a raw deal in the commentary on this blog. Lord knows I am no fan of present policy, but I think it is disingenuous to call him an idiot and claim he doesn’t know what’s going on. I suspect he is well aware that printing will likely create awful problems down the road, is responsible for the commodity rally, etc. But had he not done what he did we’d be in a Depression by now. It may well be that it will still come and be even worse later, but his choice was between a certain disaster now or a potentially worse one later. People have predicted lots of things that have not happened over the years. No one actually knows how long we can kick the can down the road. It’s easy to sit on the sidelines and say what stupid choices have been made, but if your wife were almost certainly dying and there was a tiny chance that something might save her you might well spend your entire life-savings for that 1 in 100 shot. My only point is not that he made the right choice but that the choice he made does not show he’s an “idiot,” “clueless,” or “ignoring history.” Thank God I don’t have to face such choices. My wrath is reserved for the prostitute-politicians that have been selling us down the river for decades due to their greed and lust for power, not the guy who is trying to clean up the mess in an impossible set of circumstances.

    And I wish he’d just let things happen so we could purge the bad debts and recover.

  7. Gary

    History is crystal clear. Every country/empire in the history of the world that has tried this approach has failed and ultimately created a much bigger mess.

    I have to think Ben has read history. If he has, then he should know what the ultimate outcome of his policies are going to be. Hell he has first hand knowledge because he was front row for the meltdown in 08. If he can’t see that it was his and Greenspan’s monetary policies that directly caused the problem in the first place then we need to get rid of him immediately and replace him with someone that has some commonsense.

    If he couldn’t learn his lesson from the first catastrophe that he created and he’s now on the path to repeating the same mistakes again then he will get no sympathy from me.

    Yes I know the right choice isn’t politically acceptable. But Ben has gone to great lengths to warn us that the Fed has to remain separate from politics so that it can make the right decisions when required. To buckle to political will just shows the hypocrisy running rampant in the Fed.

    Volcker had these same choices and he was able to make the right decision even though it was extremely painful.

  8. Gary

    I follow my own counts.

    If one wanted to buy a couple of puts just as little nothing trade while they wait for gold to finish the correction they certainly could.

    I would never risk real money on the short side until I was convinced a bear market had begun though.

  9. DG

    Volcker did not have the same choice because he was not facing a catastrophe at the time, It took guts to do what he did, yes, but the consequences were nothing compared to what it would be if Bernanke had allowed a Depression. With Volcker we merely had a nasty recession is all. Greenspan was truly out to lunch because the could have done what Volcker did and we’d have gotten off cheap. But Ben has a real Hobson’s choice now. It’s not just that the choice is politically unacceptable, but he probably finds 25% unemployment and riots in the cities unacceptable politics or no. You can say the result of his policies are inevitable, but that doesn’t make them so. It may have happened consistently throughout history, but that doesn’t PROVE it will happen again, or that when it happens it’ll be worse than having done nothing. He has my sympathy for being in a hellish position right now. He’d get pilloried no matter which “choice” he took.

    I know you won’t agree with this, Gary, and as I said, I’d rather he had done nothing. I am just rejecting the notion he is clearly “blowing it.” Volcker did the right thing but the stakes were miniscule compared to what we face now.

    Good weekend report, by the way. I hope we get the damned decline started because I want to have a cushion of profits to buy PM’s later and to start with ‘strong hands” right away (good theory, eh?)

  10. Onlooker

    DG said: “I hope we get the damned decline started because I want to have a cushion of profits to buy PM’s later and to start with ‘strong hands” right away (good theory, eh?)”

    Hear, hear! It’s painful to watch this market go up relentlessly. Even if you’re not short it’s painful because you just know how it’s going to end; in a nasty spill. And it’s got to be nerve wracking to be long here too – other than for the blissfully ignorant, I suppose.

  11. Tim and Jeanene

    Be careful on the short side. We have months of POMO still in our faces on an almost daily basis:

    Jason Goephart at did some stats as well that just can’t be ignored. Specifically he said:

    “One thing stands out pretty clear – the market was more likely to rally, and with a significantly higher return – after POMO days than after non-POMO days.

    Looking at returns one month later, if there were no POMO operations, the S&P was positive 58% of the time with a median return of -0.3%. But if the Fed was active on a particular day, then a month later the S&P was up 78% of the time with a return of +2.6%. That’s a stark difference.

    And the larger the operation, the better the S&P did a month later.

    Looking at the various types of operations, the most impact seemed to be with Coupon Purchases (listed as Outright Treasury Coupon Purchase on the Fed’s website). And the most positive of all were large Coupon Purchases – if the operation was greater than $3.5 billion on those days, then a month later the S&P 500 was positive 89% of the time (33 out of 37 days) with a median return of +3.4%.

    Looking at the Fed’s website, it looks like that’s exactly what we’re in store for during the coming weeks.

    It’s exceptionally difficult for me to rely on data like this for trading decisions. Citing conspiracy theories for the basis of trades smacks of desperation. But it’s hard to argue with the data above, and the unusual way in which the market has been behaving.”

    That was written in Mid-October…….

    Look at that POMO chart in this article:

  12. Gary

    POMO will be meaningless. The reason is all the POMO in the world can’t prevent a profit taking correction. The Fed can hand out all the money they want but if the recipients decide to lock in gains we will still get a correction.

    We had numerous profit taking corrections including two of intermediate degree from March 09 till early 2010 despite the largest QE program the world has ever seen.

    We got a 5% correction in November despite ongoing POMO operations of roughly 7-8 billion a day.

    Just about the time one thinks it’s different this time the market proves to you that it’s never different.

  13. Tim and Jeanene

    QEII didn’t start until November 12 from what I can tell, and the market got ahead of itself probably in anticipation of the constant bid. Since then, we have had POMO daily, and haven’t had more than a 1% correction since before Thanksgiving. .37% loss on Monday of last week was the largest since the beginning of December.

    Maybe it is a coincidence, but sure doesn’t seem that way. In regards to the other corrections you mentioned, it seems they occurred during low or no POMO days:

    The POMO action stopped spring of last year and the correction started. Then they kicked it back in gear and up up and away we went.

  14. Driver

    To believe BenDover is there to serve the general public is most likely naive, in my opinion. I’ve read a lot about the Federal Reserve and I believe he’s there to serve the banks. Let me quote my comment at the end of one of Gary’s earlier posts – maybe you missed it:

  15. Slumdog

    In steady rises like in the DJIA, the correction is not a rounding, but a sudden break, a flash crash and recovery, almost instantly.

    All the stops below are run, and panic selling occurs, driving the price down quickly and steeply.

    When the panic selling stops, the market will shoot right back up.

    I doubt that more than 3% of the “traders” will understand this double slicing move.

    At the end of it, within a day or two at most, the market will continue on its way due to the POMO’s steady drip.

    It’s like the patient on a lifeline whose monitor goes nuts, and the doctors come in and stabilize the patient.

    DG, you are 100% right; but all you’re doing is repeating what BB wrote that he would do back in 1982. His choice was not a choice for him. Nor will it be a choice. He has no choice. If the economy stabilizes and comes out of a coma, in whatever condition, he will stop POMO. Otherwise, it’s POMO, POMO+, double POMO, and quintuple triple double POMO-++. His choice is to continue to act.

  16. Driver

    I hate when that happens.

    “Perhaps Ben knows exactly what he’s doing and when the drop comes, his buddies (the banks) will know when and profit from it while the sheeple suck it again. Transfer of wealth. As they say, think like a criminal.”

  17. Tim and Jeanene

    Driver –

    I am in no way saying he is there to serve the public. Of course he is serving the banks. POMO is all about giving them free money and over paying for debt and allowing the PD’s to earn ridiculous amounts of commissions at the cost of the taxpayer.

    A rising market will hopefully bring the dumb money back in so they can go through another round of confiscation.

    I hope Gary is right for sure. I could use lower prices and am missing out on these ripping gains. But the fact of the matter remains that we have seen the most consistent POMO activity on a daily basis EVER, and the SP 500 has responded with its most consistent up move in 82 years as per SentimenTrader. The fact that we haven’t seen a 1% down day since QEII went from just talk to actual implementation is worrisome at the least.

    How high will they take this until POMO ends this summer, and how bad will the correction be when it does end?

  18. Gary

    I think the large SoS number is predictive. I think the market will move down into a yearly cycle low right on schedule no matter what the Fed does.

    Remember the Fed isn’t buying stocks, they are buying bonds. That strategy has already failed miserably for Ben as the bond market has now rolled over into a secular bear market despite his best efforts.

    So just because the Fed is buying bonds that in no way guarantees the stock market can do what it has never been able to do in history, namely rise uninterrupted forever.

  19. Slumdog

    IMO, speculating only, setting a sell stop entry point meaningfully below the market, daily, like 1 1/4% down, would sweep one into the flash crash without having to be concerned on what day it will occur.

    If the crash hasn’t occurred 2/3 of the day through, cancel the stop and wait for the next day. Or if it’s tiling over, the stop would have been hit.

    The odds of a 3% drop in 1 day are very low, but the stretch could occur and one might as well be there for the windfall, be it now or in the summer or fall.

    I’m mulling this as a smart way to avoid the stress of timing.

    DG got his hand spanked as did others who’ve shorted recently. Via this approach, the sacrifice is little against a higher probability for that day.

  20. DG

    I get my hand spanked constantly as it is an acceptable and expected art of my trading style. I really don’t care how many times my hand is spanked as minding is just ego-stuff. As long as my risk-adjusted return is high I am happy. I am now down .5% on my shorts this year. I will make many times that once this drop starts.

  21. James

    I agree with DG that Bernanke has gotten a bum rap on this blog. And I also worry that notwithstanding the considerable amount of money I have made following Gary’s roadmap on precious metals/miners, that Gary’s unbending, yes, maybe even emotional, views on where the economy is headed, may get in the way of making analytical adjustments should the economy begin moving toward a more benign outcome than the disastrous result Gary predicts. Just sayin’.

  22. Natanarchist

    DG…you were partly right in my opinion. Yes the American politician is/are parasites who actually don’t care about people and certainly not the poorest of society, regardless of what ideology or party they claim to represent. This would apply to 95% of all politicians.

    However, to suggest that the FED had no choice or little choice is just silly talk. If they cared about the people and or the currency, they would have allowed a complete crash in ’08. It would have been a tough two + years, like really tough, but we would be working our way out of it by now. Instead, we got extend and pretend. We bailed out the banks, who are still bankrupt. The financial weapons of mass destruction still exist…they are not going away until we face the full scale depression/collapse that needs to happen to cleanse the system of this virus. The FED is trying to apply past solutions to a problem never seen before. It will fail. Now I personally believe Ben knows exactly what he is doing. Just like Greenspan and all the others before them. They are making sure their masters are taken care of first, then the collapse. Mark my words, the Bankster/fraudsters and are their puppets at the FED and within the Den of Thieves, Congress, do not care about people.
    These people are psychopaths, which is why they succeed. People don’t want to believe that their fellow man, especially their so called leaders are filled with self righteousness and their minds crazed with homicidal righteousness…but its true. These psycopaths control the MONEY, the INFORMATION/MEDIA, the EDUCATION and SECURITY in America…and we think we are free?

    No, history has told us this will end badly and the depths to which we have sunk, pretending, is only going to make it much much worse. Well…we have a front row seat so its not like we won’t be around over the next 10 years as this plays out.

  23. Nick

    In case you guys missed, here is a 2 minute video of Ben on how QE has contributed to a rising stock market:

    Playing devil’s advocate here and agreeing with James:

    While I hate to say “this time is different”, here are some differences between collapse in 2008 vs. a Collapse (or Muddle Through Economy in 2011, 2012 and beyond):

    1. Business have tons of cash now vs. in 2008

    2. With unemployment @ 9%, businesses are operating in a Lean and Efficient fashion – while further cuts are possible, there is not as much “fat” as there was in 2008.

    3. Business owners have lived through 2008 – so they will be a lot more proactive should another shoe start to drop.

    We all know, the Economy and stock market are completely unrelated….so the stock market may just grind sideways for 4-5 years while the Economy grows 1-2%, with a few Negative quarters and unemployment @ 8-9%. Another huge drop 3 years after 2008 may not happen – sideways churn is more like it.

  24. Gary

    Listen to Bernanke’s response when Steve Leisman asks him why QE didn’t achieve it’s goal of lowering interest rates but instead had the unintended consequence of raising commodity prices.

    Not only does he avoid the question but he obviously has no intention of taking responsibility for the consequences of his actions. Just like he accepts no responsibility for his part in the collapse of `08.

    This is the man controlling our money.

    You and I have to work and produce something in order to get paid. Some one explain to me why it is OK for the Fed to create money out of thin air and then exchange that for real goods.

    If you or I were to do that it would be called counterfeiting and we would go to jail. When the Fed does it is it any less an act of counterfeiting? Is the Fed not stealing from each and every one of the citizens in this country when they print money?

    The answer is of course they are. Not only that but it’s immoral. What gives the Fed the right to print money when the rest of us have to work and produce?

    The creation of the Federal reserve was the greatest scam and the greatest theft ever pulled on the American public. And while some may think Ben averted a depression we will find out in the years to come that all he did was delay the inevitable and in the end create a much worse fate for all of us.

    And in the process he continued the grand tradition of the Federal reserve by stealing a little bit more of the public’s wealth.

    This guy is a thief and a fraud. He stole from me and he stole from every one of you. He’s certainly not going to get any sympathy from me.

  25. Gary

    Show me one time in history where the market just churned sideways.

    Let me narrow that a bit. Show me one time in history when the market was locked in a secular bear trend that it just churned sideways.

    I can save you the trouble, there are none. Why? Because the policies employed to achieve a sideways churn have unintended consequences.

    Ie the printing of money to prop up the stock market leads to a debased currency, a secular bear market in bonds and inflation. Inflation leads to compressed profit margins and ultimately a collapse in discretionary spending.

    When that happens another recession begins.

    As much as we would all like to believe in magic it simply doesn’t work in the world we live in.

    Folks there is no free lunch in this world. Never has been, never will be.

  26. David

    Bernanke didn’t create either of the two bubbles we’ve just lived through. Greenspan did.

    As recently released transcripts of meetings in 2005 show, many Fed governors, including Tim Geithner, insisted on the existence of a housing bubble and urged that something should be done about it. Greenspan would have none of it.

    There is no question that Bernanke abetted Greenspan. But he is not the architect of all this. If anything, he’s a petty bureaucrat who is trying desperately to keep the house of cards — a house of cards he didn’t build — from falling apart on his watch.

    What would you do if you were in Bernanke’s position in 2008? It’s easy to insist that Bernanke should have simply let the whole global economy fall apart, but I doubt that there are very many people who are willing to have the responsibility for the human consequences of a global depression fall on their shoulders.

    I seriously question whether Gary himself, if given the job of Fed chairman, wouldn’t ultimately wind up trying to kick the can down the road and hope that the system heals itself in the interim. Because the “solution” that he’s proposing — letting the global economy implode — would have grave and immediate consequences.

    If anything, this is the crux of the argument for abolishing the Fed. It’s not that the Fed is evil, but that human beings are inevitably going to avoid unpleasant short-term political outcomes even at the expense of a worse long-term outcome. If Bernanke were evil, the answer would be easy — just replace him. But it’s not that easy. This is why the Fed should be abolished, and the market should set interest rates.

  27. Gary

    Actually if Gary was the head of the Fed he would have done exactly that because Gary has read history and he knows that a depression is inevitable no matter what one does. But the countries that have allowed the cleansing to run it’s course only suffer for 2-3 years on average.

    Once the cleansing process has run its course every country in history that has chosen the correct path end coming out the other side with some of the highest growth rates in the world.

    So if you ask me; would I be willing to trade 3 years of misery to achieve the ultimate goal of a golden age as opposed to a short term fix and 20 years of even greater misery?

    It is a price I would pay gladly.

  28. David


    I didn’t mean to imply that you don’t know what the right course of action is, but that it’s very difficult for any of us to appreciate how hard these choices are when making them in real time.

    For instance, when Bear Stearns went down, it was clear that the Fed at least intended to allow banks to fail in a controlled fashion. But when Lehman failed, it caused an electronic bank run that jeopardized the commercial paper market. By some accounts, the domino effect could have led to massive shortages in food and energy, rioting, etc. To simply stand back and allow all of these banks to fail would have been taking quite a gamble with other peoples’ lives.

    The analogy to smaller economies that have let their banking systems fail is not quite apt, because we would have been letting the global banking system fail.

    In my opinion, the US government should have nationalized the big banks, much as Sweden did. Presumably the Obama administration was afraid of being branded “socialist”, but the net result is that our banking system is as impaired as ever.

    The point here is that it’s easy for us to say what should be done. It’s harder to be in Bernanke’s position and actually do it.

  29. DG

    Yes, David. Ad to just say “the man’s an idiot” is in itself a ridiculous statement. All I am saying is that there were tough choices and he made ones that many people disagree with. “Disaster now or POTENTIAL bigger disaster later” is not an easy choice, and Monday Morning Quarterbacking is easy and cheap. I do not believe for a second that he sits home at night twirling his mustache and thinking, “Bwa-ha-ha. I get to swindle the public and pad the accounts of my rich banker friends” any more than most doctors think, “Oh goodie. I can order a bunch of useless tests and get richer.” People have biases and influences because they are, well, people. To believe otherwise is just to believe in a black and white world and it is rarely that simple. Believing so shows the need of the believer to have good guys and bad guys, right and wrong, simplistic fixes, and easy enemies. There are certainly clear choices and outright villains sometimes, but thinking managing a multi-trillion dollar economy with people’s lives at stake in the face of imminent collapse is easy (factually or emotionally) is not one of them, IMO.

  30. Mr.Mom

    What the hell, just print more trillions because we are never going to pay our debt back anyway! If I were China I would be selling into the Feds POMO and buy PM’s.

  31. Mr.Mom

    palladium is the winner for highest % gain since the 08′ lows

    Palladium up 4x
    Silver 3.5x
    Platinum 2.25x
    Gold 1.86x

    Hmmm gold is a major laggard.

  32. David

    If you’re going to indict Bernanke, do it based on his actions leading up to 2008 — his part in inflating the bubble and his neglect in failing to institute any meaningful regulations that would have stopped the excesses in the banking system.

    What he did prior to the meltdown is far less excusable than what he’s done since.

  33. Gary

    I’m not saying the choice wouldn’t have been hard in real time. But it was a choice that needed to be made to prevent a much bigger catastrophe down the road.

    This is exactly why the Fed is supposed to be independent, so it can make the right choices.

    Spare me the end of the world nonsense. Banks have been going bust since the beginning of time. It has never caused the end of the world and it wouldn’t this time either.

    The banks that didn’t make mistakes would have just come in and bought up the assets from the failed companies and the entire system would have begun again from a sound base.

    The same thing would have happened with GM. Instead we’ve kept a dinosaur alive that can’t build an electric car for less than $40,000.

    The bailout cured nothing, it just took money from taxpayers over here and handed it to insolvent companies over there.

    All we have done is weaken the entire system, so that when the next crisis hits it will attack us in a much weaker state.

  34. Power Corrupts

    As recently as last June, there was $3.57 of total debt outstanding for every $1.00 of goods and services produced by the US economy. Throughout most of the ’50’s, 60’s and early 70’s, there was about $1.50 of debt for every $1.00 of GDP. A combination of demographics and government policy led to an enormous accumulation of debt and a profound debt bubble over the last 30 years. A combination of demographic and market forces are now working to reduce the debt burden. Reducing debt is deflationary; deflation is a bad word according to Bernanke. So in response, the FRB has embarked on it’s third attempt since the late ’90’s to eat a free lunch by using negative real interest rates to create an asset bubble. The (limited) upside to this approach is at the front end, the major consequences come later. A study of historic periods in the FRB era of negative short term real interest rates reveals that precious metals provide strong real returns. This is why the precious metals are in a secular bull market.

  35. Basil

    Hi Gary,

    wow, you are holding out your neck with this prediction. This market has indeed lost most of its bears. They’ve been wrong for so long now that they practically all went quiet or talk aspects rather than the general course of the markets.
    I can imagine that things will pan out your way; just wondering whether you might be up to half a year too early as some stocks and commodities seem to have broken out just now, following a seasonal sector shift.

    I have some questions for you beyond what you lay out in your post. I’d appreciate if you’d give us your view…
    Do you think there will be a place to hide during the intermediate correction and particularly the next leg down? Some foreign markets, any commodity sectors? Or do you think everything everywhere will go down across the board?
    Will the bottom of this next leg down be the final bottom in the US and/or Internationally?
    What will be the next sector to run up out of the next major bottom? PMs again?

    Thank you!


  36. Gary

    Well I’m just expecting an intermediate degree correction sometime in the near future to move stocks down into a yearly cycle low.

    There will be a rally out of that low. How big the rally is will depend on how severe the correction is. If the market tests the July lows then the odds are very high the cyclical bull is over. If we just retrace 50% or so then the odds are high the cyclical bull is still alive.

    The only place to hide in an intermediate correction is in cash.

  37. Driver

    After just finishing reading all the posts since yesterday PM, all I can say is WOW. So many are delusional re. the Fed. Gary has it almost totally right. The thing I would add is that BenDover is not just buying bonds. He’s handing a huge amount of money to the primary dealers (big banks) who then pump it into the market. That’s why it has been rising. Retail traders have been leaving the market in droves based on known statistics.

    He said he would not monetize but that’s exactly what he’s doing. He’s a liar and a crook. He and his predecessors have reduced the value of the dollar over 95% since 1913, adding the cruelest of taxes to the American people.

  38. Redwine


    Very bold predictions.

    “Each morning the day lies like a fresh shirt on our bed; this incomparably fine, incomparably tightly woven tissue of pure prediction fits us perfectly. The happiness of the next twenty-four hours depends on our ability, on waking, to pick it up.” Walter Benjamin.

    I do agree with you on Bernanke. The man is either a fool or a knave and possibly both. Either he has a complete ignorance concerning the benefits of creative destruction, for the overall economy and us humans, or he prefers to engineer the destruction to redirect the benefits and punishments to those least deserving of both.

    Rather than the TBTF institutions failing, going through transparent bankruptcy proceedings, and being broken up and sold to institutions that somehow (competent management) are in a position of strength, the TBTF have been “saved” and are growing even larger. Meanwhile the successful smaller companies who would have benefited by acquiring inexpensive assets, to properly manage, are being hurt by having to compete with government subsidized and regulatorily favored TBTFs’.

    The root cause of these problems is a culture which places total confidence in people who are “certified” with phd’s, nobel prizes, and other establishment forms of measuring intelligence/competence/common sense. They are trusted to be “doing their best” in systems that become more and more centralized.

    Faith should be placed in the trillions of free market self interested transactions that take place each day by billions of independent and intelligent people. Rather than fear the free market these academics and experts should embrace it and allow it to work its magic.

    The educational, media, and government institutions have failed us by manufacturing cookie cutter sheeple with assembly line indoctrination.

    The most insulting misinformation of all is blaming our economic ills on the free market, as if we have anything even close to capitalism in the financial/banking sector. How can capitalism exist where capital itself is created out of thin air by a monopolistic private central banking industry and corrupt regulations are vomited out of DC at the rate of hundreds of thousands of pages per year?

    It’s hard to believe that this little twerp is basically responsible for the entire global economy. It’s frightening really.

    As you say, this scenario has played out many times through history. Humans always seem to end up with one or two psychopaths running the show just before the curtain falls and another act ends.

  39. discreet shopping

    Hi Gary;

    Just signed-up to premium site.What would you recommend for someone who needs to sell some miners to get down to the % you’re holding now?Sell ASAP,wait for bounce,etc?Thanks.

  40. Slumdog

    BB is now in charge of the FedRes.
    The FedRes has two missions: full employment and avoidance of bank failures via interest rate management.

    This is what BB is doing. Is he not?

    Is he charged with causing weak banks to fail or the financial system to bankrupt? I don’t think that’s what is in his job description.

    What we as citizens and economically astute believe he should do is a lot different than his fulfillment of his job description.

    The focus needs be on the federal government managers, congress and the president. BB is merely a steward pursuing what he understands are the limits of his job description.

    The fact that politics is so messy and is such an impossible to string lump of boiled spaghetti does not mean one has any justification for attacking the messenger, BB.

    Mish tried to advocate his position and IMO lost much of his readership. The task is daunting and will consume many who step forward to joust with the plutocrats who have effectuated a bloodless Coup D’Etat.

    Note who has been appointed as Obamarama’s chief of staff, the current president of JPM.

    BB is merely the obvious lightening rod for anger that needs be addressed elsewhere.

  41. Wes

    A lot of heat but very little illumination has been directed toward QE, and much of it is hearsay and much of it is just plain untrue.

    Under QE, the Fed does in fact create money out of thin air. Beyond that, I’ve seen little mention of anything that resembles what actually happens next.

    The Fed then uses this newly created money to purchase the most liquid and credit worthy assets from banks and other entities. Usually the instruments purchased are T-bill and short term T-notes.

    These are bought dollar for dollar from the bank and the bank always ends up with the same amount of assets it had before. An analogy would be if someone bought your savings account, replacing it with a checking account containing exactly the same amount of money.

    Now, the Fed does this knowing full well that the bank can use this newly created money to buy another bill/bond and get back to their original position. But, the Fed hopes that the bank will use at least a portion of the money to buy other assets (stocks, commodities, etc.) or at least use the money to buy longer dated bonds.

    None of this has any effect on the total amount of money in circulation is the US, since the T-bills/bonds were already included in the broad measure of money in circulation. So, there is no additional money in circulation as a result of QE, a point apparently widely misunderstood.

    Anyone holding PM’s that is faint of heart need read no further.

    Because the US treasury pays their obligation on the T-bills/bonds that the Fed holds at the bond/bill’s due date. And the Fed destroys the money. Dollar for dollar that it had earlier created from thin air.

    In the meantime, some assets have appreciated more than others because the demand has out striped the supply. But no inflation has been created, no increase in the money supply. Interpret increased price from increased demand as inflation at your own peril. No inflation happened as a result of QE.

    Oh, the price of a loaf of supermarket brand white bread was $1.19 this morning in Atlanta.

  42. Redwine


    “Is he charged with causing weak banks to fail or the financial system to bankrupt? I don’t think that’s what is in his job description.”

    He is causing weak banks to succeed and strong banks to fail. By interference he will ultimately help the total financial system to implode rather than only the weak parts. He seems to think more meddling will stop the laws of nature but market forces will have their way in the end. It’s inevitable and the only question is the quantity of devastation.

    Why destroy the entire body to save a gangrenous appendix? Better to clip it off and toss it in the fire.

  43. fat boy

    Thought Wes made some good points there re QE DG on Ben b too.
    I think mix some sanity with gary’s cycles and sentiment calls and it looks a lot more appealing to me than just
    ‘we’re all doomed’ and it’s all the government and Feds fault
    I also feel the twiddle thumbs till int low is painful and we all have to much time on our hands
    Lost an arm and a leg jumping back in the other week then out again on agq etc still buying in low and riding to -1600 sounds great and will wash away the taste of that one.

  44. Redwine


    Just because the newly created money buys bonds from the banks rather than directly from the treasury doesn’t mean the newly created money stays out of circulation.

    The only difference between this and dropping it out of helicopters is who gets something for nothing and who gets nothing for something.

  45. Redwine


    BB is either dumb or dishonest when he states on 60 minutes that he will create inflation with QE?

    That’s what you’re saying.

  46. Steven

    Had dinner last night with a couple of old friends here in NYC.

    One of them is at the center of the muni business with one of the major banks and has been in this position for many years. She believes that the city/state crisis may be avoided by raising taxes and selling of municipal assets. She thinks California and Illinois are probably toast but that the majority of states will make it through this situation. She also said much of the problem in the muni market is perception caused by people like Meredith Whitney calling for the implosion of the muni market. She said a municipality will do everything it can (such as the above) or even a bailout from the federal govt before defaulting b/c a default would make it very difficult for them to ever come to the market again for funding.

    The other friend heads a trading group at another of the largest investment banks in the world. He is personally bearish and has actually been net short throughout 2010 and made very good returns! Of course this is a hedging situation so he has longs and shorts. The bigger point is that he says everyone at the bank, including the bank’s economist and the head of overall trading (managing billions) are wildly bullish.

    I happen to agree with Gary’s viewpoint but I wanted to share the viewpoint of two people from the inside and who have been at this quite a while.

    And on another note, Gary, you expect the final leg of this C wave in gold to begin sometime in the next month or so and to extend into the late spring (rough time-frames I believe you gave earlier). Does this mean you expect the municipalities to begin defaulting within weeks or a couple of months?

  47. Marc

    You don’t rise to the level of Fed chairman by being an incompetent idiot. You rise to that level by appearing as a thoughtful intellectual that is doing everything he can to help the economy over this “rough patch”. Judging from the media, Bernanke is quite successful.

    What’s really happening (as others have mentioned) is that Bernanke works for the big banks, the administration and the upper echelon of society. His comments, actions and rhetoric all support that position.

    So yes, he is taking a huge risk that the current monetary policy won’t implode down the road and no, he’s not an idiot. Those in power always seek to maintain that power at the expense of everyone else. Governments that doing nothing during a crisis quickly become ex-governments. You can hear all the talk of Obama being a one-termer. His administration will do whatever they can to hold onto the presidency.

  48. Wes


    What the Fed hopes to do is create at least the illusion of greater prosperity in the economy. The plan included the stock market higher and the bond market (he hoped but it’s not working) lower. I think (but he didn’t say this) that he hoped higher commodity prices would also induce people to think the economy was rapidly growing.

    All of this is supposed to make Joe Citizen go ahead and buy what he was putting off buying (car, boat, new house, etc.) before it got more expensive.

    Obviously, every public utterance by the Fed chairman is calculated to further this apparent prosperity. You can call it a lie, but that really isn’t technically true.

    If the public is induced to purchase things, this moves money from MZM (think savings) into M1 (think money in circulation). This probably has the effect of marginally increasing the CPI, but it’s not true inflation unless the total money supply is increased.

    Now, if he can lure people into borrowing the money to purchase things, then the money supply is increased. But, there’s so much slack in the economy, he thinks any inflation will be minimal.

    Not that it’s important, but I think he’s right and he’ll pull all this off. This board’s thoughts notwithstanding, those guys at the Fed are smart.

  49. Gary

    D shopping,
    If you aren’t leveraged you can always just ignore the market for the next month or so. This is just a correction and by the time the C-wave is done your positions should be much much higher.

    But if you don’t want to ride out a correction and you believe like I do that you will get an opportunity to enter lower then just pick a spot and sell. There is no right way to do it. And no matter what you do I guarantee the market will at some point trade higher before going lower.

    You aren’t going to be able to make the perfect exit so don’t even try. Just exit.

  50. Redwine


    There are different kinds of smart. What passes for intelligence these days is a college diploma or graduate degree.

    I’m glad you’re content in your faith. Personally I don’t trust human beings in positions of power and feel we’d be better off to decentralize power to the greatest degree possible.

    The fed is unnecessary and worse it’s poison to capitalism. Capital should be free from government interference and money should compete like any other commodity.

    No individual human is capable of controlling money as good as all humans in a free market can. The fact that this sounds extremist is proof to the depths of degradation knowledge has endured.

  51. Natanarchist

    Wes…you left some significant parts of your QE explanation. yes the FED is buying Gov’t Bonds and T Bills, to effectively lower interest rates to well below zero and create liquidity for the banks. The hope is through FRACTIONAL reserve lending they will INCREASE the money supply. QE is not intended to be a zero sum game. Second, the FED also has bought and does buy other assets, like MBS, which are marked to fantasy, and have little or now real value or liquidity at the marked to fantasy rate. So again the FED is providing liquidity, hoping that will be lent out through fractional reserve and INCREASE the money supply.

    However as Gary and many others have correctly pointed out. The money is mostly finding its way into real desired assets, commodities….the things people need…food, shelter, transportation, energy. Without a corresponding increase in wages paid to the people, this is nothing more that a surreptitious TAX on the everyone and especially the poorest wage earners. It is theft. Greenspan knows this.

    Watch Greenspan tell the truth just over a year ago. Carefully watch Ben B and the other panalist reaction as Greenspan goes on and on about FRAUD. The bow their heads and almost shield their eyes.

    I believe this conference/panel was in Jekyll Island, home of the creation of the FED.

    Does anyone hear think this should have been front page news? Did you ever hear about this on mainstream media? CNBC? Wash Post? Do you think it is co incidence? if you do, go back to your regular programming, American Idol starts soon. If you don’t, congratulations, you now understand the theft and graft and fraud amongst our leaders.

  52. Brian

    They will always bailout CA, NY, and probably IL. They will pick one state that isn’t politically important to them and hang it out to dry like Lehman as an example.

  53. Gary

    Wes, You are just looking at the current POMO schedule. During TARP the FED bought every piece of crap toxic asset the banks wanted throw at them. How did they pay for all that crap? They printed money.

    The banks unloaded their nonperforming loans and in return got treasuries. Quite the bargain.

    I wish I could unload my losing trades to the Fed and get a do over.

  54. AK1000001

    I dont understand why everyone in the world now thinks they are municipal bond experts?!?!? Have you seen Meredith Whitney bumble her way through mistake after mistake and lie after lie? Her information and basis is flat out wrong – she has stopped publishing her report and has never once named an exact entity that is next to “default”. Her math is flawed and she is just randomly guessing and getting her mug on tv to get recognition.

    Please tell us why you think the muni market is about to implode and when exactly this is going to happen?

    Do you actually know what is held in the MUB and have you done credit work on these holdings? There is nothing that is going to default in the immediate time frame you are describing. You are looking at MUB from a techincal perspective – the backup in MUB has nothing to do with recent or immediate defaults and is specifically due to back up tax-exempt rates. Otuflows from the market and inflows to the equity market are to blame, there is nothing new we know today that we didn’t know last year (retail investors have an uncanny ablility to time tops and bottoms).

    Look at the long rates on the municipal bond tax-exempt rate curve since the begining of 2009 – it is exactly the same at ~5%. At the same time look at the long treasury rate – it has backed up over 100bps. Credit quality is arguably better today vs. what it was in Q109.

    Are you aware that states and local governments have the ability to raise taxes? Are you aware that annual debt service requirements usually represent less than 7% of total expenses (much lower than corporations or sovereign entities). What good would a debt default do other than block the only access to capital for municipalities? This is the last thing on earth these governments want to do. Look at the handfull of entities that have entered chapter 9 in the past two years – nothing has been resolved and they are telling everyone who will listen that it is not worth the hassle. Are you aware that municipalities generally issue 30 year amortizing debt and do not face the same renwal/rollover risk of corporations and sovereign entities? CA does not face $60bil in immediate debt payments like Greece.

    Yes, there are $3tril muni bonds outstanding, but do you know how many are essential service revenue bonds(water, sewer, utility, etc) that basically have a monopoly on their markets. What about hospitals and universities? Everyone mentions CA as the first to default – do you know how much debt California has outstanding or how much their annual debt service requirements are? Do you know that in their state constitution that debt service is the second priority payment after k-12education. That means there are ~$60bil in annual revenues in a lock box available to pay debt service each and every year. Revenue has actually been increasing over the past few months.

    There will be “muni” defaults, but it will be generally confined to “dirt deals”, start-up long-term care organizations, housing projects, redevolopment districts, etc – not your traditional state or major city general obligation bonds. We’ll definitely see some more downgrades, but wholesale write-off of the entire industry due to default is utter nonsense.

    Given the tax-exempt to treasury ratio (nearing 115% out long) – there is actually significant value in the asset class for anyone looking for consistent income. There will be support for the market in the near future. If you do your homework, a tax-exempt bond at 6+% is pretty darn attractive at 10+% on a tax-equivalent-yield basis. With the right names, I’ll take that all day long.

  55. Wes


    I was discussing the effects of QE2. If you were depending on previous Fed/Treasury actions for your desired inflation, I’ll point out that it didn’t happen.

    And QE2 won’t do it either.

  56. Gary

    You are missing the point entirely. Sure some municipals will flat out default. No doubt about that. Many won’t. The problem isn’t in the ones that throw in the towel and just give up it’s what has to be done to prevent a default that is the problem.

    Drastic cuts have to be made in order to meet obligations. What does that mean? It means massive layoffs in city and state payrolls. It means spiking unemployment. It means a lot more people that can’t pay their mortgage.

    Throw in the fact that the Fed is spiking inflation and you have these workers entering the ranks of the unemployed right as the price of everything they need to live is increasing radically.

    If unemployment is rising it means less revenue for states and cities. It means an even bigger drain on resources as more and more people receive unemployment benefits.

    It’s a vicious circle and the more the Fed prints to stop the collapse the higher inflation surges collapsing discretionary spending.

    Like I always say there is no free lunch in this world.

  57. Gary

    What fantasy land do you live in?

    The price of virtually every commodity is going through the roof. Gas is approaching $4 in CA. My weekly grocery bill is up roughly 20% in the last 6 months.

    No one can deny we have a serious commodity inflation problem. Well at least no one who actually lives in the real world. Most countries admit it by now. China is taking desperate measure to reverse it.

    The US on the other hand has decided to just go the denial route and pretend it doesn’t exist.

  58. Natanarchist

    Wes…tell you what, go here and tell me that the FED did not buy MBS.

    read the whole page and tell me that they are still not swapping MBS with primary dealers…the big banks.

    Show me where the FED does not have MBS and other type assets on its balance sheet.

    oh wait its here:

    and it totals more than bonds and treasury notes. weird isn’t it.

    answer this: Is creating credit increasing the money supply? yes or no.

    Is it the intent of the FED to manipulate interest rates aggressively by bidding up bond prices and lower yields to encourage credit creation? yes or no. And it doesn’t matter if it is overnight or weekly or whatever the term, if the balance sheet is increasing.

    Does the fed know how many dollars can be created by a banking system for every dollar it holds?

    I am completely baffled that you fail to understand fractional reserve lending, the role of interest rates in credit creation/destruction, ie creating money.

    I am sorry, showing one schedule of one months operations of the New York FED as your evidence is weak.

    here is the first link that popped up on searching “how the FED creates money”. read it and if it is wrong, then you are right.

  59. William

    This is a good forum. I’m learning a lot, though I sure see that w/out facts and data and 1st hand knowledge, esp. behind the scenes, that correct judgement is impossible and even dangerous.

    An open question please: is the Fed money creation (TARP, QE) a series of loans?

    My dad (a Yale/Harvard grad, & ran his own investment firm) says it is, and that once paid back it’s not net inflationary, as the money that was once created is subsequently destroyed upon repayment – all of it.

    I don’t know.

    I’ve seen that some major banks have repaid their TARP loans. I’m bet those w/toxic paper haven’t.

    How does it work? So the Fed creates money, loans it to the banks, who then keep 1/10th and try to loan the rest to homebuyers et al, but since the consumer is done borrowing, banks invest it in bonds, stocks, muni’s, etc. … but one day are still on the hook to repay the loans?

    Or are we bankrupt – meaning the money is created, but can no be repaid because the paper is so toxic, or because the Feb bought bonds but they’re toast now, etc.?

    If stocks start to tumble hard, will banks then try to sell (hard) to lock in profits, so they can repay their loans?

    Is this whole run up in stocks a way for banks to make money, to repay their loans?

    Just trying to learn here.

    Next up we can talk about religion, politics, racism, sexism, and world domination! 😉

    W/out the facts, the net for me is to follow the charts, as while I enjoy learning from you all, w/out 1st hand knowledge of the actual facts and data, I in no way can judge this.

  60. Keys

    Just a thought. No I don’t believe this is smart.
    What if scenario.

    Stock market decides to start tanking. Ben can’t control it. We get some anti-US gov stuff and gov not being involved with the people. In a very patriotic speech Obama announces that “it wants to put its money where its mouth is, and starts investing into the stock market for the people to save jobs or whatever.” Anybody that disagrees will not be considered patriotic, etc. The Fed has already attempted to keep bond yields down through intervention in the bond market. Its ability to do this has lasted a couple years for arguments sake, now that idea is failing. It has already announced that it wants to inflate the stock market, unwisely and this will eventually fail, but just thinking out loud to how they may try to do it. The more severe the crash wants to be, the more likely the Fed will act aggressively to buy time. The more aggressive the action, the more PR the fed will need in order to do it.

  61. Gary

    The government and or the Fed can create all the liquidity they want to try and prop up asset markets. The reason it doesn’t and can’t work is because they can’t control where the liquidity flows to. In 07/08 Ben expanded the money supply to stop the sub prime implosion.

    The liquidity just flowed into the energy markets.

    They are doing the same thing now, pumping up the money supply but the liquidity is leaking faster and faster into the commodity markets. Eventually that will poison the economy just like it did in 08.

    This is why I think Bernanke is an idiot. Apparently he’s not capable of seeing the end result of his actions. Either that or he just doesn’t care what he does to the economy as long as he protects the banks.

  62. Keys

    This is why I think Bernanke is an idiot. Apparently he’s not capable of seeing the end result of his actions. Either that or he just doesn’t care what he does to the economy as long as he protects the banks.

    Great statement. I mean, what other option is there. Ben are you so stupid not to understand and observe what has happened since this entire QE started, or is it that you simply don’t care? Maybe he actually believes his CPI number. I know in accounting I have seen some very smart accountants that believe in their manipulated numbers, perhaps in the elitist economics it is the same way. You get so consumed by your own numbers that you lose sight of reality.

  63. Shalom Bernanke

    Shalom isn’t stupid, he’s just looking out for his gang, and we’re not in it. Not even DG though he fancies himself to be. 🙂

    There is much inflation around the world, all one has to do is look at the riots and what the people are protesting (energy prices in Chile, food prices in Tunisia). After all, Bernanke and his buddies want one world government and with that we’ll all be affected to some degree or another. Of course, he can’t admit to the public what he knows will occur or they might hang him. They key is to slowly let the people adjust to their newfound poverty, with bouts of unrest that their paid forces (UN, alpahbet agencies, military, and many police) can handle.

    As a side note, I see the Apple shares listed in Germany are down 8% today:

  64. Gary

    Buying the dip has worked for months. The market will continue to run this strategy until is stops working. There’s nothing mysterious about the bounce. It’s just the normal market dynamics. Eventually this strategy will fail and everyone who tries to buy the final dip will get burned.

    Then the intermediate correction will begin.

  65. Shalom Bernanke

    Glenn Beck is controlled opposition, not somebody who speaks the truth, same with the entire left/right “democracy”.

    Religion is not my thing, either. There are plenty of people sharing the facts, but you won’t find them on Fox or CNN!

  66. bluebox

    Gary said: “Actually if Gary was the head of the Fed he would have done exactly that because Gary has read history and he knows that a depression is inevitable no matter what one does. But the countries that have allowed the cleansing to run it’s course only suffer for 2-3 years on average.”

    Correct. Iceland was the first sovereignty to collapse as a result of the current crisis, but their policy direction was not to bail anything out at taxpayer expense – they let their banks fail. They have now recovered to better than pre-collapse measures less than three years later.

  67. Shalom Bernanke

    If David is afraid of Glenn Beck, then he must support the left with their open borders, open homosexuals in the military, affirmative action, Obamacare. And he’s a kicker, BOTH sides want more money for Israel (build illegals settlements, free fighter jets, on top of $3 billion/yr), as well as to fight wars in the Middle East solely for Israel’s protection and expansion. This is why I don’t choose sides in the Democrat/Republican charade.

    Right DF? Tell us what you think on the issues, instead of only attacking the messenger.

  68. DG

    David K. Yeah, there’s a bit of a Glen Beck mentality here. I hate big government, think the Fed should be abolished, etc. but there are some real over-the-top guys here. I am sorry gold attracts such people, but it does seem to go with the territory for some reason. Pretty much everyone here feels the gov’t/Fed is blowing it in one form or another, but the screed comes form the ones who can’t handle it emotionally, making up insulting names for Bernanke like grade-school kids(pre-grade school?). What can you do? Ben-Dover. Berskanke. Real sophisticated stuff.

  69. Redwine

    David Kafrick

    I haven’t noticed any religious postings here other than rantings about Jews. No religious right postings that I can recall.

  70. bluebox

    Gary also said: “The same thing would have happened with GM. Instead we’ve kept a dinosaur alive that can’t build an electric car for less than $40,000.”

    Ok, so there IS one thing on which I disagree with Gary.

    It may not seem palatable, but bailing out corporations is a far cheaper and, in this case, wiser thing than bailing the banks. If there is any crucial manufacturing to be saved in this country, it’s the auto industry. GM is in a much stronger position now, but a lot of that is also due to one Bob Lutz for pushing ahead years ago for the models they now sell. Not “bailing them out” would have caused more unrecoverable damage to the auto industry than any bank failure(s) would to the financial industry. Chrysler is the one that is questionable, in my opinion.

    Now, about the Volt. The Volt is a gas-electric hybrid, not an electric, no matter what the PR says. At $40K it’s more than a Leaf, but then you can’t go more than 80 miles in one of those before you’re stuck. If anything, Fisker is the one that can’t build a cheaper electric car – the Nina will cost nearly $50K when all is said and done. (btw, I live nearby the old GM Boxwood Road plant that Fisker bought and is going to make the Nina. Someday…) I’d buy a Volt before anything else on the market now or in the near future. 🙂

  71. Gary

    Doing the same thing over and over and expecting to get a different result is the definition of insanity.

    The Fed already tried the debasement strategy and look what it got us.

    What’s the point of trying it again and increasing the size. The wrong medicine is still the wrong medicine no matter what dose one uses.

    Inflation is for all intents and purposes taxation without representation. Isn’t that what this country was founded on in the first place?

  72. Redwine


    “It may not seem palatable, but bailing out corporations is a far cheaper and, in this case, wiser thing than bailing the banks. If there is any crucial manufacturing to be saved in this country, it’s the auto industry.”

    You don’t have even the most basic knowledge concerning what makes capitalism tick. Read up on creative destruction and understand that GM manufacturing assets would have been bought up, retooled, and put into service by other companies that were properly managed.

    Instead, the temporary saving and subsidizing of GM is damaging FORD and Tesla, to name only two. Why does it make sense to you to damage Ford in order to rip off GM bond holders and produce a pile of shit like the Volt that few will buy?

  73. Gary

    Let me ask you this. What do you think would have happened if we didn’t bail out GM? If we just let capitalism work the way it is supposed to work?

    Instead of stealing money from me and you and giving it to a failed company to keep it alive, let’s just say for once we actually allowed the market to work the way it’s supposed to work and we allowed GM to go bankrupt.

    Would that have just been the end of Detroit? Would it turn into a ghost town? Would all those jobs that you and I are now subsidizing just disappear?

    Of course not. Someone that actually knew how to build cars affordably would come in and buy GM’s remaining asset for pennies on the dollar and it wouldn’t be long at all before all those plants were running at full capacity again, producing the kind of cars people actually want at a price people can actually afford.

    The unions would be broken eliminating a huge part of the cost structure that prevents US car makers from being competitive.

    History is crystal clear on this one. Whenever you allow capitalism to work the productive forces of humanity are unleashed. Without a doubt free market capitalism is the single best method every found for producing the kind of economic growth that can and will raise the standard of living of the average man.

    The cleansing process is an important component of capitalism. If you only allow the upside but try to abort the downside then the whole system collapses.

    If the government would have allowed GM to collapse we would already see all those plants up and running again and we would be able to buy American electric cars for half the price of the Volt by now.

  74. Brian

    Bluebox, The argument for auto company bailouts is weak. The number of people they employ for manufacturing has been declining for 30 years. Whole cities have been decimated (Flint Michigan, Anderson Indiana to name 2, and yes even Detroit itself), all while factory jobs go to Mexico, China etc.

    If they had failed, there would have been plenty Private Equity money salivating to do exactly what the government did.

  75. Brian

    AK appears to be a sell side muni person. Those charts of the muni sector don’t show individual investor selling. Moves that size come from institutions. You seem to be saying catch the falling knife. There will always be outliers, but clearly this sector is in trouble.

  76. Peter

    The goverment and the big firms dont care about the American middle class. If they did, they wouldnt be punishing those who saved diligently and made sacrifices over the years by devastating the value of their money. Here is a snippet of an article in the Atlantic. Excellent article about the Wealthy and the Big US Firms and how much they care about you

    Meanwhile, the vast majority of U.S. workers, however devoted and skilled at their jobs, have missed out on the windfalls of this winner-take-most economy—or worse, found their savings, employers, or professions ravaged by the same forces that have enriched the plutocratic elite. The result of these divergent trends is a jaw-dropping surge in U.S. income inequality. According to the economists Emmanuel Saez of Berkeley and Thomas Piketty of the Paris School of Economics, between 2002 and 2007, 65 percent of all income growth in the United States went to the top 1 percent of the population


  77. Ollie

    Gary, I think you’ve mentioned several time that you don’t buy the manipulation and conspiracy stories, however…

    …aren’t you concerned about the disconnect between the paper and physical silver prices?

    Also after the recent CFTC vote JPM and HSBC can just continue throwing naked shorts at SLV and keep the paper price AND the miner stocks down too, just like they did in for the most of 2010…

    Should we be worried that silver and our mining stocks will not be able to break to new highs?


  78. DG

    NDX futures are getting pasted, and SPX is down some. I am short just a touch now and have a lot to add if I can get this right.

    Gary, if that SoS bulge from Friday nailed the top it’ll be another feather in your cap. (I’m hoping you’ll run out of room this year and we’ll all have to buy you a new cap).

  79. Jayhawk91

    Interesting…Looks like they are trying to link this nut job in AZ to the Ron Paul/limited Government clan. From the NYT-

    He became intrigued by antigovernment conspiracy theories, including that the Sept. 11 attacks were perpetrated by the government and that the country’s central banking system was enslaving its citizens. His anger would well up at the sight of President George W. Bush, or in discussing what he considered to be the nefarious designs of government.

    “I think he feels the people should be able to govern themselves,” said Ms. Figueroa, his former girlfriend. “We didn’t need a higher authority.”

    Breanna Castle, 21, another friend from junior and senior high school, agreed. “He was all about less government and less America,” she said, adding, “He thought it was full of conspiracies and that the government censored the Internet and banned certain books from being read by us.”

  80. bluebox

    Wow. Touched a nerve, did I?

    Since I don’t have time to write a lengthy re-direct, I’ll let some folks who have written on the subject before, with whom I agree to a large extent, say it for me.

    From November 2008:

    “Apparently there is one thing that liberal and neo-con think-tanks can agree upon: Let Ford, General Motors, and Chrylser fail. Lefties want to stick it to the man! Down with corporate greed! Environmental wonks wag their fingers at the industry and are reveling in a big “See I told you so!” Righties want to stick it to the unions. Down with corporate welfare to overpaid workers! Here is why all of y’all should be embarrassed.”

    And this, from 11/2010:

    “Faced with the option of its likely demise, the U.S. government had to bailout GM, taking majority ownership. Unlike the bailout of Wall Street, in which no one was made to suffer, or the potential resolution of the real estate crisis, in which no one has been willing to make hard decisions, the government forced everyone associated with GM to absorb major pain.

    Stockholders were wiped out. Bondholders lost a lot of money. Many dealers were forced to close. Workers took big pay cuts and made major concessions on health care. Management had big cut backs. No one emerged unscathed. The result of the government’s hard line is that we’re left with a company that cannot only survive, it might actually thrive.”

  81. n1tro


    What the gov’t did was just make GM operate at the same level as their Japanese rivals. Here in Canada anyways, the union had to accept 50% pay cut so instead of $50/hr or whatever, they had to actually settle for $25/hr to do donkey work. Cry me a river. Who cares if people got hurt, the intervention still penalizes effecient Japanese companies like Honda and Toyota while rewarding crap companies like GM and Chrysler. The government did it because they know the unemployed also vote and want to keep their jobs.

  82. Gary

    What disconnect are you talking about. I just checked and a 1000 oz. Comex bar is selling for .60 over spot.

    Seems like a normal spread to me between physical and paper.

    First off I’ll say again that I don’t buy the manipulation nonsense. If silver was being successfully manipulated then what happened this fall when the price rose 70+%?

    Furthermore any attempt to manipulate price will only increase demand. Which will ultimately just accelerate price appreciation.

    Actually the best thing that could happen would be for someone to try to suppress price (for whatever goofy reason I have no idea). To do so would just cause silver to eventually explode higher once demand overwhelmed the manipulation.

  83. n1tro

    I think Ollie is referring to the amount of paper silver/gold relative to physical and how JPM and HSBC are always showing up on the short side when looking at comex paper trails.

  84. n1tro

    taking physical delivery 1000oz silver bars with ScotiaMocatta is free! 500oz bars is $1.50 over spot and smaller amounts are $3.00 over spot.

  85. Gary

    Correct me if I’m wrong but isn’t the notational value of all derivatives on the stock market many times the actual value of the market?

    Does that mean someone is trying to manipulate stocks?

    If it doesn’t then why does it mean that it is so for silver? Almost none of these contracts are settled in physical.

    I’ve said many times in the past that these banks (if they really are holding large short contracts) are just playing a very successful regression to the mean strategy.

    As price stretches further and further above the average they add shorts. Eventually price collapses as it always does when the law of regression to the mean takes effect.

    Once price moves back to the average the shorts cover. There is nothing mysterious about that. That is just a very savvy trading strategy.

    Now if shorts continued to be piled on even after the correction had run it’s course then maybe one could make a case for illegal manipulation. But that never happens does it?

    As far as I can tell nothing is happening that doesn’t always happen during the course of a secular bull market. All this crowing about manipulation is just the naive posturing by people who don’t understand the dynamics of bull markets.

  86. Beanie

    Gary, I’m pretty confident you will change your mind (no later than 2011 year end) about market falling back into a secular bear. Nothing wrong with changing mind to meet new realities. But you will change your mind, as you have done so in the past. Again, nothing wrong with that.

  87. n1tro

    Whether there is manipulation right now remains to be seen but the silver market was manipulated before by the Hunt brothers in 1980 on the upside. So much so that the comex made the silver 7 rule where you can’t buy commodities heavily on margin. Maybe that is why people are calling the large amount of shorts manipulation because JPM/HSBC can’t drive the price up given the comex rule. The current event now (don’t quote me) is the comex may be implementing soon a similar rule where you can’t sell commodities heavily on margin. Conspiracists point to the sudden increase in silver prices from Dec ($29ish/oz)to $31ish high because JPM/HSBC stopped shorting and the silver bugs drove up the prices. Prices are down now partly (as the conspiracists claim) because the comex is waiting 60 or 90 days before making the ruling on the shorting issue for public comments so JPM/HSBC have resumed shorting. Some call the comex moratorium bullshit because what does the public know about the activities of large banks and silver in general to have an opinion.

  88. Gary

    If I were to see a new world changing technology come online that could unleash the kind of productive growth needed to fuel a secular bull market then I would change my mind. So far there are none.

    Green energy is just a very small part of the solution to our energy problems. Those have to be rectified before any secular bull can begin.

    All that being said the world still has a gigantic debt problem that has to be cleansed before any secular bull can begin. Right now the world seems intent on trying to ignore the problem and kick the can down the road for someone else to deal with.

    The problem, as we were so rudely made aware of in 08/09, is that the consequences of kicking the can down the road mean a much bigger problem with much more dire consequences when the cancer resurfaces.

    So until the world is ready to deal with the real problem of debt and actually allow the cleansing process we will never have a secular bull market.

    Unfortunately we’ve kicked the can down the road for so long that we’ve reached the point where allowing the cleansing to run it’s course will now result in catastrophic distress in the global economy.

    Historically when this point was reached in the past it led to great wars as the politicians look for someone to blame instead of just biting the bullet or admitting they are the cause of the problem in the first place.

    Just look at our last two Fed presidents. Neither one are able or willing to see that their policy mistakes are the direct cause of what we are dealing with.

  89. pimaCanyon


    I know you’re analysis has the dollar going much lower. But other currencies that the dollar trade is based on (especially the Euro) also have problems.

    I believe there is a good chance the dollar may go higher here, much higher.

    If that were to happen, what impact do you think a dollar trading in the 90’s or even higher, and stocks going lower and lower and lower, like sub 1000, will have on PM’s?

    Seems to me the miners would get pulled down with the rest of the stock market. But I have no idea about PM’s themselves.

    Because of the possibility of an extended stock market decline this year, I’m thinking that going long on the miners could turn out to be a very risky trade, one with a lot of downside potential.

  90. Gary

    Understand that a move down into an intermediate low by stocks should also force a dollar rally.

    But intermediate declines don’t last indefinitely. Once they run their course then the market rallies. That should also correspond to the dollar falling (probably into the three year cycle low).

    I expect the rally in stocks to fail to make new highs. Not so in gold and miners. They should make big new highs during the time stocks are struggling to regain the recent highs.

    Then when the dollar rallies out of the three year cycle low a brief deflationary trend will begin. That should initiate the next leg down in the secular bear market for stocks. It should also drive the D-wave in gold.

    As stocks work their way down into the next 4 year cycle low gold should run through the D-wave, A-wave & B-wave cycle and possibly even begin the consolidation phase of the next C-wave.

    Ultimately the Fed will again panic and print more trillions in order to abort the bear market and as stock come out of the 4 year cycle low in 2012 all that liquidity will drive the next C-wave in gold.

    I hope that made sense.

  91. David Kafrick

    This weekend I reread some of my favorite interviews from Market Wizards 1 & 2. Just thought I´d share some great trading quotes with you guys. Always good to read them from time to time.

    If a betting game among a certain number of participants is played long enough, eventually one player will have all the money. If there is any skill involved, it will accelerate the process of concentrating all the stakes in a few hands. Something like this happens in the market. There is a persistent overall tendency for equity to flow from the many to the few. In the long run, the majority loses. The implication for the trader is that to win you have to act like the minority. If you bring normal human habits and tendencies to trading, you’ll gravitate toward the majority and inevitably lose. – William Eckhardt

    One common adage on this subject that is completely wrongheaded is: you can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.
    – William Eckhardt

    Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead. – Paul Tudor Jones

    If you can’t take a small loss, sooner or later you will take the mother of all losses. – Ed Seykota

    One evening, while having dinner with a fundamentalist, I accidentally knocked a sharp knife off the edge of the table. He watched the knife twirl through the air, as it came to rest with the pointed end sticking into his shoe. “Why didn’t you move your foot?” I exclaimed. “I was waiting for it to come back up,” he replied. – Ed Seykota

    “The “aha!” process lies at the heart of price change. For instance, consider the series: OTTFFSSE. What is the next letter? This puzzle creates tension – until you see the first letters of the ordinal numbers – one, two. “Aha!” you say. A lot happens during an “aha.” The puzzle dies and the tension dissipates. A societal “aha!” drives price. Read the newspapers and the news magazines during a major move. At first, no one gets why the move is happening. There’s a lot of confusion. Part of the move’s way up, some people get it. At the end, everybody gets it. The tension is resolved and the move ends.” – Ed Seykota

    Fundamentalists and anticipators may have difficulties with risk control because a trade keeps looking ‘better’ the more it goes against them. – Ed Seykota

    By the way, if you want something certain about the markets, uncertainty itself almost certainly happens to be one of the most certain things about the markets. – Ed Seykota

    Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money. – Ed Seykota

    In trading or in Life… you cant act in the past or the future. You can only Act in the momment of NOW. – Ed Seykota

    The joy of winning and the pain of losing are right up there with the pain of winning and the joy of losing. Also to consider are the pain and the joy of not participating. – Ed Seykota

    Ed Seykota is the best 🙂

  92. Gary

    “One common adage on this subject that is completely wrongheaded is: you can’t go broke taking profits. That’s precisely how many traders do go broke.”

    This is what I’ve been saying for years now.

    It’s the reason why I’ve questioned from time to time why a trader didn’t let his trade work but took profits early because something didn’t “look right” or he was just nervous about losing a small profit.

  93. Jayhawk91

    If you can’t take a small loss, sooner or later you will take the mother of all losses. – Ed Seykota

    Nice. I’m not at all worried about the loss we took this year…We need to bail if things don’t go our way.

  94. Avann

    Gary/David, I agree … I’m likely like most traders … when I get a decent profit I am hugely tempted to take it and run for fear of losing it. I know I have to work on that emotion more then anything else.
    But how do you get past that? At some point the trade will go against you … when/how to you come to the realization that it’s finally time to take the money and run?
    Using stops perhaps?

  95. Jayhawk91

    For me, it’s got to be trusting the intermediate cycle analysis. Getting a descent entry on the cycle bottom and not freaking out until the intermediate gets moving for the several months these things take to play out. I’ve blown several intermediates now and don’t intend to keep doing this.

  96. Gary

    I have cured the problem by suggesting investors set stops below each daily cycle low. Then I try to spot the top as best I can but I usually get caught at least once at an intermediate top because gold almost always throws me a curve ball that I just can’t hit.

    The stop prevents us from riding the intermediate correction all the way down.

    The problem most people have is that after a large rally like we just saw they don’t believe the stop can get hit so despite my best efforts to warn against it they take on way too much leverage.

    Then when that stop does get hit at the intermediate top they are shell shocked because they gave back a big chunk of their gains.

    If people will just listen to me about leverage every single one of us will come out of this with a fortune. Those that choose to ignore me will manage to lose money in a bull market.

    That’s just the cold hard truth.

  97. ike


    Let me get this straight. You said to PC “Understand that a move down into an intermediate low by stocks should also force a dollar rally.”

    I was under the impression that stocks reacted the dollar cycle.

    Your statement seems to indicate the dollar reacting to stocks…

    Is this a new development or are there certain circumstances where stocks force the action on the dollar?

  98. Gary

    I think it is sort of a symbiotic relationship. If stocks correct money will flee into the dollar. But if the dollar drops liquidity looks for protection in assets.

  99. Patrik

    Hello Gary!

    I read today that the tightness in gold is revealed by the growing spread between physical and paper gld.

    The silver market is very tight also. Maybe fundamental stuff like this maybe dont affect price as the intermediate correction will come anyway?

    Its very interesting because the problem in europa is still big and there is strong demand from Asia..But the price drops anyway..You sad that the drop in price doesnt have anything to do with the funtamental. Its just profit taking!

    The dollar bounced back today and the market ni Europe was weak.

    It feels like this rally in the stock market soon will drive in to a wall.

    Very nice blogg..:-)

  100. DG

    David K. Isn’t Ed Seykota great? And I love that quote about professional traders going broke taking small profits. If you never take large profits you will never recover from your losses. Gary: the trick is to know when to do which. You will also go broke always shooting for large profits. Exiting is an art, IMO (or at least the way I trade).

    Avann: One way to do it is to sell on the way up. Sell some. Many people are all or nothing. That is when they sell they sell the whole load at once. Sell 25% after each 30% additional rally in the item. If you run out you’ve made 250%. Or, in the speculative ones, sell 1/2 100% up and you have then recovered all your original capital.

  101. pimaCanyon

    thanks, Gary. Your reply to my question about the possibility of a higher dollar does make sense.

    A lot is riding on the 3 year cycle low in the dollar!

  102. Slumdog

    TZ refers us to the ZeroHedge article by Peter (2 posts up).

    I was actively dealing during the 81-82 silver parabola and crash. What I recollect was the public was melting gramma’s silver and gold in stunning amounts. Every medical xray library was being scrubbed clean. And the platers were dumping sludge into the refiners, too. The outcome was refinery backups and a price collapse. And there was created a new pile of silver to be drawn on for the next now 30 years.

    Is that correct?

    We are here, now. Gramma’s cupboards are thinly covered in silver; there’s no mountain of xrays; platers have become serious managers of their PM piles; and the massive overhang has been consumed. It’s gone. That wave and its backside parabolic crash are now long gone. Silver rose from $5-8 to $30.

    New production is streaming in from new mines and expanded copper mining. But that’s nothing compared to the deluge that was busted loose from those now old and recently dead who sold off the silver fortunes squirreled during the late 1890’s – 1910.

    Indian silver is not a factor. It was there; it is there; and it will be there.

    The question is at what rate silver will continue to be consumed, not just hoarded, but consumed. If the consumption rate exceeds the production and reclamation rates, then silver has no option but to rise to whatever price will balance supply/demand.

    And that price will be? Guesses?

  103. Gary

    I’m going to guess a final bull market top of $7000 for gold. If the silver:gold ratio reaches 30:1 that would work out to about $233 an oz. for silver.

  104. jc

    yikes! any thoughts on a time when that may happen gary? Im gonna guess we will have a 1-1 gold/dow ratio. (?) not that matters much

  105. TZ(5288)

    Options on GLD would tend to point to a close lower at 130 this friday (approx 1330 on gold).

    GDX, SLW and SLV don’t seem to show a significant tendency.

    (I don’t want to get into the option expiration debate of whether it matters or not. Believe what you want.)

  106. Gary

    My best guess is a final top around 2017/18 based on the next 8 year cycle low due in 2016.

    My theory is that major cycle low will serve to separate the 2nd phase of the bull from the third bubble phase.

  107. Slumdog

    Gary: “Gary said…
    I’m going to guess a final bull market top of $7000 for gold. If the silver:gold ratio reaches 30:1 that would work out to about $233 an oz. for silver.”

    On the 10 yr gold chart, the french curve parabola extends out to 2017-2018, with parabolic price target of around $7000-$7500.

    This parabolic calculation has zip consideration of what you just posted. I’ve been watching the 5 and 10 yr charts for a long time. This parabolic ascent has been happening for the past 10 years. We’re just entering the “elbow” area wherein price will rise faster as a percentage of itself each year. A year end price of $1600-1700, and a stretch at 1800 would be very reasonable. The return on an entry at 1300+ would on that range estimate be 20-30% for this year.

    Gary, how do you arrive at your price and time for the high?

  108. Slumdog

    At $5000 in gold, I will release some of the position in both gold and silver.

    Gary, if you’re willing to stick around for the final phase blow off, you’ll have served the thousands who will be your subs better than any publicly accessible subscription service that I’ve ever known (and I’ve known way too many).

    Thx for your openness.

  109. Gary

    Several factors figure into my projection. First; Most secular bull markets gain 2000% or better. I think the current gold bull will the greatest bull any of us will ever see. The last gold bull rose 23X. So it’s not much of a stretch to look for a bull that gains 25-28X.

    Next is the Dow Gold ratio. I expect it to go to a minimum of 1:1 and maybe even slightly lower.

    The next 8 year cycle low in gold is due in 2016. I expect that to separate the second phase of the gold bull from the third bubble phase.

    Bubble phases last about a year to a year and a half. So once gold comes out of that 8 year cycle low and makes a new high that should initiate the bubble phase. At that point there should be about 1 year left. That gives us the 2017/18 target.

    And finally humans for what ever weird reason usually have to be taught a lesson three times before they learn. Greenspan made the first mistake and we got a very painful lesson in 2008/9.

    Bernanke is making the same mistake again. We will feel the effects of his mistake at the four year cycle low in 2012.

    Then if he’s lucky enough to survive as the head of the Fed he will do it one more time. The effects of that will be felt as the world and global stock markets collapse down into the bottom of the secular bear at the next four year cycle low in 2016.

    Coincidentally that should mark the 8 year cycle low for gold.

    Moving to the dollar cycle the next 3 year cycle low should come this year. Then in 2014 and the third one in late 2017. That should drive the final blow-off top in the secular gold bull market.

  110. Vegeta


    I tend to think it will take gold some time to get back to its previous highs from the next 8 yr cycle low in mid to late 2016. I think we might see gold reach its old high at least 1 1/2 years so that would push the time period of the initial parabolic move into 2018 or so, therefore the move will take 1 to 2 years so I guess the top would be 2019 to 2020 (also a 3 yr dollar cycle low).

  111. Bullion Baron

    Interesting that you guys think the bull market is going to last so long, personally I could see it blowing off into a parabolic run much sooner (perhaps in the next 1-2 years). I discussed some thoughts on what we are seeing currently and why I think we are entering the 3rd phase on my blog the other day:

    Would be interested on any feedback from those that are expecting another 8-10 years from this bull market.

  112. Gary

    That’s not usually how the bubble phase begins.

    What entices the public into an asset is usually the speed that it recovers from the correction that separates phase two from phase three.

    A classic example is the recovery out of the LTCM debacle in late 98.

    That initiated the final bubble phase in stocks. At that point the public lost all fear of investing in stocks.

    I expect the same thing coming out of the 2016 8 year cycle low. Basically at that point I expect the ABCD wave pattern to breakdown and the A-wave should just turn into a parabolic blow off top.

  113. pdpsi

    Hi Gary, just wondering why your core account has only silver (SLV), silver miners (SIL) and gold juniors (GDXJ)? Why are GDX and GLD not getting any love?

    Sorry if you already discussed this.

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