16 October 2014

Gold Daily and Silver Weekly Charts - Moral Hazard, Policy Errors, and History Repeating

"Financial repression is sometimes the effect of policy even if it is not the intent. It manifests itself, for example, when policy makers react more forcefully to declines in asset prices than to increases.

Price increases tend to be treated with benign indifference. But declines often lead policy makers to respond with force, deploying fiscal stimulus and monetary accommodation. Market participants then conclude that governments have their backs...

Efforts to manage and manipulate asset prices are not new. But history provides little comfort that these practices work. Interfering with market prices occasionally buys time, but rarely do policy makers seize the window of opportunity to enact structural reform.

Financial repression embeds the wrong incentives—obfuscation begets delay, and a robust recovery becomes unattainable."

Kevin Warsh, The Financial Repression Trap, 2011

This is also one definition of 'moral hazard.'   And the fingerprints of officialdom were all over the markets today, pushing favored prices higher, and other disfavored prices lower.

The Fed's Bullard came out with a laughable statement that the Fed might consider extending QE3, which is fairly meaningless given that we are nearly at the end of the taper.

But concerted buying in the futures, specifically in the SP, gave a little more 'oomph' to the jawboning, and the markets were able to turn it around, although weakly, but still well off the lows.

I enjoyed watching the closing ticks on the SP futures into the end of day trade, and the quick drop off in the time from when the cash market closed at 4 PM and the futures paused at 4:15.

This is going to be a long grind in the metals I'm afraid. It will take quite a while for the reckoning to come, but then it does it will happen much more quickly than most suspect.
That is the way these big changes always happen: slowly, then all in a rush.

There was nothing of interest in the Comex metals warehouses and delivery reports, except perhaps a drain of silver stored at Scotia Mocatta which has been quite heavy of late.  But the other warehouses are well supplied in Comex terms.
What is most objectionable perhaps is that the current crop of pampered princes are repeating the very errors that led to and prolonged the human misery of the Great Depression. 
While they feign ignorance, and when pressed on their failures in the case of Chairman Greenspan even hide behind the excuse of blind ideological incompetence, it is difficult to believe that we have learned nothing, and continue repeating folly in the name of reason.

Have a pleasant evening.