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Although organic growth in the real economy is slack, the Fed has managed to maintain about 10 percent growth rate in M2, and around 8.5 percent in MZM.
As you might expect with money growth this high and real economic activity hovering at recession levels, the velocity of money is at record lows.
This is not yet stagflation, but it is the setup for such a condition to develop. The question is 'how pernicious' will it be.
I suspect that without reform, the extraction process of the financial sector and the perverse global trade regime will continue to dampen real economic activity despite the Fed's money supply expansion.
The lease rates indicate that someone dumped physical gold in a non-profit seeking manner into the gold-paper markets last week. I wonder who that could be. I suspect it helped fuel the bear raid on gold today.
Bloomberg TV was having an all day anti-gold festival, so I will surmise that something gold-friendly is coming up in the next few weeks.
Perverse logic perhaps. But it is what it is.
Gold is in a triangle and given that we have an FOMC day tomorrow I will not be surprised to see another determined bear raid.
Although Silver was hit, it seemed remarkably resilient compared to gold.
Zynga IPO will be out this week along with online fashion store Michael Kors. Perhaps you can take your US paper dollars, which were stronger today on euro weakness, and buy some shares in this zynga based virtual farming economy. Maybe they can send some virtual crops over the homeless victims of the increasingly virtual US ponzi economy.
The US markets were moving lower after a warning by Intel on their forecast. As you may recall I had said last week that my tech sector information was that sales were going to be weak. This has nothing to do with a lack of hard drives, which was the excuse presented.
The stock markets are still within their triangles and I would expect them to stay there unless something really happens to break them lower. The reason is the huge vested interest that the Street has in getting the Zynga IPO out the door, along with a few other IPOs this week.
But Zynga is significant because it sets the tone for Facebook. Zynga is virtual and produces zynga dollars and fun games, and Intel produces products for the real economy. The divergence is interesting.
FOMC issues its last rate decision of 2011 tomorrow. I am not sure I expect them to introduce QE3 at this meeting. It may already be underway with the de facto flow of swaps to Europe. But typically they do not wish to take such an action in a Presidential election year.
Let's see what happens.
Tom McClellan put forward a hypothesis today on Bloomberg TV that the spread between gold lease rates and LIBOR has been extraordinarily wide, and therefore it has been difficult to short gold. This sustained gold at an unusually high price. But now it is correcting so gold will fall much more in price as the shorts pile in.
I cannot speak to LIBOR, but the gold lease rates have hardly been unusually expensive of late. There is a theory that gold lease rates are the difference between LIBOR and gold swaps.
What these charts imply to me is that someone dumped physical gold into the paper markets, with the emphasis on 'dumped.' The same thing happened to a lesser extent on Dec. 8 to silver.
I also include the six month trend on lease rates for your review.
If this is true, then the same should apply to silver. Does it? I think that mixing paper and metal interchangeably does not necessarily work as well as it does with other paper currencies.
