Thursday, May 19, 2011

The End of QE?

Michael Krieger was formerly a macro analyst at Bernstein Research (widely recognized as Wall Street's premier sell-side research firm) and currently runs his own fund, KAM LP.

He has come out with some thoughts on the US Federal Reserve's on going money printing and the ensuing current propaganda that is flooding the financial news waves.

Kreiger classifies US Federal Reserve Chairman Ben Bernanke as a misguided Keynesian witch doctor central planner who is attempting a grand experiment based on completely insane and nonsensical theories that have no chance at success.

He argues that Bernanke claims to have all sorts of “tools” but in reality he has nothing.

When faced with a complete credit collapse of proportions never seen before in recorded history there were and are only two “tools.” And those 'tools' are the two P’s: Printing and Propaganda.

And Kreiger laments the propaganda tool is in full vigor right now.

He reminds us of that which we alreday know: that the central planners believe the tail wags the dog.

To them, the economy doesn’t lead to higher stock prices but higher stock prices will lead to a better economy.


Absolutely. But it is the religion of the central planners... 100%.

And Kreiger cautions that investors need to be aware that - when they are comparing the current state of affairs to what many lived through in the 1970’s - that the central planners have learned some lessons.

Central planners will never renege on their core philosophy which is that an elite academic and political class in their wisdom are better stewards than free humans interacting in a marketplace.

That said, most people do not share their worldview for obvious reasons (who wants their lives micromanaged) so the trick of the central planners is to micromanage your life while you think you are in charge.

As Goethe said “None are more hopelessly enslaved than those who falsely believe they are free.”

He didn’t just make up this clever quote, it is a tried a true method of the most successful control systems throughout history. 

Price controls were tried in the 1970’s and failed. We also know why. Therefore, the last thing the current group of central planners will want to do is announce price controls. That doesn’t mean they don’t attempt them anyway.

Bernanke has already publicly proclaimed he is attempting to inflate the stock market through direct intervention.  They have been rigging stocks in the United States consistently for the past two years and most people get this and accept it as a part of the current state of emergency economic action we are in.

Kreiger now argues we have now entered Phase 2 of that action. This was represented by the recent raid on commodities. 
  • A tried and true strategy that the powers that be have used in precious metals for years has been to create such tremendous volatility in gold and silver and especially the shares that most investors stay away since they can’t stomach it. This strategy is now seemingly being employed to a much wider spectrum of commodities.  Unfortunately, this battle between finding a safe haven and the authorities’ desire to render it ‘unsafe’ is only in its earliest stages. Our manta since 2007 – governments can and will do anything to survive.
Kreiger asks you to put yourself in The Bernank’s shoes for a moment. This guy loves printing more than Hewlett Packard. He is despondent beyond belief that the markets and an increasing amount of financial commentators have criticized his precious QE insanity.

Meanwhile, the economic data is starting to roll over and housing looks set to launch into another spiral lower. So what is a Bernank to do? Bluff the heck out of the markets.

He knows that the only way he can have cover for his printing party is to smash commodities because the rise in commodities is the biggest point of contention amongst the masses.
  • Unfortunately, most people don’t delve deep enough into how the system works to have the serious moral and philosophical issues with the central planning system as I and many others do. The Bernank knows this. Bread and circus is a tried and true method. Problems emerge when the bread runs out. So the period we are in right now is huge for the Bernank and his merry band of mental patients. They don’t have to make any decision on more printing until June when the current fiasco ends. It is during this window when they think they can have their cake and eat it too. They can print like mad yet at the same time claim they are about to stop and maybe even tighten. Yeah, and the Easter Bunny is sitting next to me trading LinkedIn shares.
Kreiger contends this is The Bernank Bluff and he is milking it for all it is worth while at the same time orchestrating raids on commodity futures.

Kreiger further contends that this is just a massive psychological game against the investors class to keep them from the assets that will actually provide protection.
  • Well Bernank you’ve got a month left. Make the most of it because after that you need to act. I can’t wait to see you try to tighten as the economy rolls over.
The reality is QE 2 is not the end of the money printing.

But then... you knew that already, right?
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  1. "But it is the religion of the central planners... 100%."
    While it seems baked in the cake that the printing will not end, something recently occurred to me regarding the Ben Bernank. Mr Kreiger talks about central planners as if Ben is the man. However, Ben is only an employee who takes his marching orders from those who own the Fed and Wallstreet. Are these the central planners that Kreiger discusses?

  2. Regardless of the price of silver Kitco is not selling leafs for less than 41.

    Is it the same in Van Bullion Ex?