So, strange times indeed we are living through. Without many people realising it, a world wide QE programme was launched over the last two weeks, with the US, UK, Japan, China, Russia, Brazil and more spewing out vast amounts of money. The Japanese intervention is valued at over $7 Trillion alone, dwarfing the size of the US program. So now many are asking the question, what will happen next? The answer, as always is that I do not know, but I could make a few educated guesses and here they are.
The world QE will be a boost for precious metals and may be a short term boost for equities, although i would not be surprised if equities begin to decline as the effects of the world QE wear off, after all, it is only the USA that has been insane enough to announce open ended QE. Everyone is very nervous in the market at the moment. There have been declines in the price of commodities and the DJIA, to which they are closely linked. The main problem is that although the head of the ECB has said that he is willing to buy the bonds of bailed out countries, no country has actually applied yet, presumably because of the strings attached and also, unless their applying to the bailout program was kept secret. the lack of faith would make their lending rates shoot up.
In other words, Europe is in paralysis. At the same time, the US has stated QE3, called by many QE infinity, since they have announced that they will buy $40Billion in bonds a month until things turn around. Now, there are a bunch of problems with this. Firstly, the US Fed is already buying over two thirds of all the bonds issued by the USGovt. Secondly, the Fed has been engaging in 'Operation Twist' Which involves buying long term bonds and selling short term debt. This is to prevent the piling up of short term debt which happens as people begin to doubt whether a country will be able to pay their debts back. Less people ask for more money to hold long term debt from that sovereign.
This massive orgy of money is sure to do a number of things. Firstly, it will eventually debase the currencies involved, secondly, commodities will rise and there is a good chance that equities will also rise, at least in the short term. The works on the grapevine is that this world wide QE was hard to organise and explains a number of diplomatic visits made in the past few months.
If world wide QE fails to get us out of the shit, then there is a good chance that it will turn into every man for himself, intact, there is good evidence to suggest this is already happening, particularly with the new cold war between China and the USA. However, the Chinese have a hold over the US, which is that they hold massive amounts of US treasury debt. Even though they have been trying to shift the amount of USD that makes up their foreign reserves, the amount of money we are talking about is so massive, that if they sold their entire holdings, they would crash the USD. Now of course, they do not want that, no one does, it would be bad for business. Instead, China has been going into Africa and loaning all those worthless USD to African governments without strings attached, which is the real reason for the North Sudan / South Sudan situation.
One thing is for sure, there will be no attack on Iran before the US election. However, after that, it's anyone's guess. The word on the ground is that the Israeli's are hot to go, but the Americans are not so keen. The Israelis are trying to pull a fait accompli by making the Iranians attack them first, so they can call on the US for help, but the US have proved very reticent in this regard because of the looming election.
If you take a look at a map of the middle east, you will notice a couple of things. Firstly, because Iraq is now in ruins and the Americans have removed much of their presence, the Iraqi's have no air force to speak of. This means the Iranians will be able to strike targets in Syria or the Eastern Mediterranean, presumably, this is why there are so many American ships in the Gulf at the moment. Secondly, the USA has not been in a proper war for ages. Their usual tactic is to weaken a company through years of sanctions and then attack when they are fatally weakened, the way they did with Iraq. However,m cutting Iran off from the world economy has proved much harder due to Iran being a central energy partner of both German and China.
Thirdly, after being under sanctions for so many years, the Iranians have become VERY good at making their own technology. This is critical, since unknown to most people, many wars have been won by hacking. A classic example is the Argentine war, where the British pressured the French into giving them the disable codes for the ship to ship Exocet missile, which was being used by the Argentine navy. Now the US has a long history of selling components with backdoors to countries it does not like, witness the fall of the USSR, caused by the entire Russian oil system exploding due to valves imported from the US and tinkered with by the CIA, apparently, the explosion was visible from space. It was this cutting off of their export income that actually crashed the Soviet Union, despite the dreams of many an American hero.
There will be no such backdoor trickery if they fight Iran. America may have a larger army, but the Iranians have been preparing for this fight for the last 20 years. As a result, I expect that they have probably built an entire army around the concept of asymmetric warfare, given their inability to access the world markets due to sanctions. Asymmetric Warfare is probably best defined as using a $1000 missile to destroy a $15million tank. As Israel learned when they invaded Lebanon, Hizbollah had identified a weak spot in their main battle tank, the Merkava. The Merkava (Chariot of God) was not just a tank, but could also carry six troops, who could exit by a ramp than dropped down from the back. Hizbollah figured out that this ramp was poorly armoured and realised that by using an RPG (worth probably less than $1000) they could disable a tank worth thousands of times more to make.
It is this dilemma that the US is now facing. No doubt they have the better technology, but the maintenance of this technology is slowly bankrupting them.
I've said it before, and I'll say it again, NOW is the time to buy Silver or Gold and DO NOT trust an ETF. Only use a bailment service, otherwise, your money is probably as good as gone.
Thanks you for listening..
Christopher Carrion.
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