They might lose a battle or two, but wars is a composition of battles, and when it comes to war, these guys never lose, as their principle is simple. They take no prisoners, shoot to kill and ask questions only if you survive the onslaught of bullets.
All along we have stated that the world is the midst of a full-blown currency war, and Japan has just upped the ante by cutting rates into negative territory. This going to put pressure on China and a host of other nations to take the same route; the velocity of the "devalue or die" currency war game has increased five-fold. It won't be long before the Fed is forced to take a similar path. Start paying attention to the news, for our central bankers are suddenly going to start listing a slew of factors to backtrack on their claims that the economy was sound. Many Gold bugs have been stating that the central bankers are running out of room to manoeuvre; our response to this is a dream on. Look at the stunning rally the markets mounted when BOJ (Bank of Japan) fired its latest shot. The only day the central bankers will run out of ammunition is the day the masses wake up and that day is sadly still a long way in the making. Central bankers don't need to continuously lower rates; they can simply flood the markets with money while maintaining an ultra-low rate environment. What's another 1-2 trillion dollars when our debt is almost $19 trillion? What has changed between 2000 and 2016; our debt in 2000 was significantly lower, and it was even lower in 1990; from the 1980's the debt has tacked on roughly $17.6 trillion dollars and the masses are still quiet (look at the chart on the left). The short answer is that nothing has changed other than the level of the misery individuals are forced to endure. Now the BLS states that families earning $76,000 a year are living from pay check to pay check. Today the average hourly salary is approximately $25.00 an hour. Do you know that $22.41 today has the same buying power as $4.03 which was the average salary in 1973? So $25.00 has roughly the buying power of less than $5.00. Welcome to the nefarious and deadly game of inflation. Things are only going to get worse; the dollar amount might look like it's trending upwards, but individuals are working more for a lot less.
To solve a problem you have to understand the problem, the masses are blind to the concept of inflation. They are caught up in a vicious game of just trying to pay the bills and survive. They hardly look up to see what is going on; this sort of like Plato's allegory of the cave; if you are unfamiliar with this famous concept; we examine in this article "Economic & psychological warfare Big Money's favorite Weapon"
Against this backdrop, we can safely state that the Fed is omnipotent and that those gold bugs and hard money experts are smoking some strong medicine that they need to get off immediately. We believe in the concept of hard money, and we believe that the world would be a better place if central bankers adhered to such rules. However, we are not fools as we understand that being right does not equate to success in the markets. The key to the markets are the masses, and the masses believe that the Fed and the government can solve their problems. Until they think otherwise, the Gold bugs and the hard money experts will experience small moments of victory followed by massive periods of punishment. This is why they cannot understand why gold and the precious metals sector have taken a beating since 2011. Gold will rise again, but then any crappy sector can have its day in the sun given enough of time. This is why we have refused to join the Gold bugs camp, for they assume that precious metals can rise forever in price. They will make the same mistake during the next bullish phase.
The chart below clearly illustrates that SP500 has outperformed Gold by a wide margin and this is taking place in the midst of the greatest currency destruction experiment ever conducted.
Conclusion
Central bankers have not run out of firepower, in fact, we think they are so cocky now that they have just barely started to fire their bullets. So far they have been using pistols and rifles; they are about to transition to machine guns. The masses are sedated, so this process of pillaging the populace will go on for a long period. Translation; very strong market corrections or as the naysayers would have you believe "market crashes" have to be viewed as buying opportunities.
It is not the voice that commands the story: it is the ear.
Italo Calvino