fed taper in december, page-37

Question of the Week
Question: Fed Chairman Ben Bernanke said in part "We could begin (tapering) later this year. But even if we do that, the subsequent steps will be dependent on continued progress in the economy. So we are tied to the data. We don't have a fixed calendar schedule."

Answer: In plain-speak, we believe - as do many of our colleagues - that the Fed has actually boxed itself into a corner. It's actually tied to a lot more than just the data! Its efforts to keep rates low and provide liquidity to stimulate the economy have produced uneven results and caused distortions that are not likely to be unwound anytime soon. If it keeps printing money to buy government debt, things are likely to limp along with high unemployment, more discouraged people failing to seek even the few available low-paying entry level jobs, and a continued hollowing out of the middle class. If they 'taper' and ease off on bond purchases, rates go up, choking off the less than optimum recovery we've been seeing lately. Think of it as a metaphor, where the Fed is driving down a deeply rutted road, with the best case scenario being just more of the same.

Increasingly, people are starting to 'get it'. That's why sales of physical gold and silver are holding strong, and why the charts for the better miners are looking better. Today's violent and unexpected (by many) upside movement adds still more evidence that - as I have stated on several occasions over the last 6 weeks or so - it is very likely we've put in major intermediate lows in the metals and the miners. After this week, the bears are going to have their work cut out for them if they keep trying to drill down through what has just become a much more solid and durable price bottom.