Today is President Hu's Visit MOPE Day helped by ECB and Fed Statements: QE Is now Permanent. No If's And's or Buts.

Here is a comment I wrote on CNBC in regard to the article entitled "Central Banks Cloud Commodity Outlook: Economist," which discussed ECB talk of raising interest rates and the idea that the Fed will actually discontinue QE near term:

"…This is management of perceptual economics (MOPE) designed to help the central banks change market direction (short term).

The Fed can not actually remove QE and here is why:

If the Fed removes QE the bond market will collapse because the Fed is now the primary buyer of most of the US debt.

If interest rates climb much, it will cause the US budget deficit to spike because even at 5% interest, most of the money in the US federal budget would have to go towards paying the debt service, rendering the US not only technically insolvent but functionally insolvent.

If the bond market collapses, interest rates fly. If interest rates fly the already extremely weak real estate market nose dives.

If the Fed stops its QE program and its related Permanent Open Market Operations programs, then the stock market will crash. This is because the primary money keeping the stock market afloat is coming from the Fed primary dealers who use the POMO money to buy the index futures.

Outflows from retail and insider sales have been very high for months.

I didn't have more space in the comment field. But the other aspect of the MOPE has to do with recent Fed comments and China's President's visit to the White House.

For that side of the story, I'll defer to Jim Sinclair in his article this morning at jsmineset:

"…The MOPE has started on President Hu’s visit from China. Sure there will be some face saving statements at the photo op, but nothing more.

The Federal Reserve says it will not bail out Main Street. Screw the little guy and bail out the Fat Cats. Of course that is MOPE.

You have local to state government rolling over and any recovery whatsoever goes directly into the tank. If the Fed keeps it up more bodyguards will be required to protect the Hall of Ivy building from the Main Street no account unwashed have-nots.

In other news, all the Bears in the woods are out again speaking on the price of gold.

Gold has a habit of drawing negative technical formations and then turning around and violating them bullishly. Fundamentally gold will look back at $1400 from $1650. Sir Dean Harry’s concern with the price of gold is highlighted in his most recent HSL Group letter titled, "Wake me up at $2400."

Consumer confidence falls, but the bullish excuses why proliferate the media. That is not dollar positive. The 2011 bull predictions are looking weaker by the day. For equities it means very little as QE2 is the real driver.

Jim Sinclair’s Commentary

Honest people are scorned, but then again they are from Main Street and who cares about them. Certainly not the Federal Reserve.

Screw the Sheeple and let them still sleep on.

Christie Bankruptcy Remark Amid Bond Sale Draws Flak
By Brendan A. McGrail – Jan 14, 2011 4:29 AM PT

New Jersey Governor Chris Christie’s comments that rising health-care costs might “bankrupt” the state, made on the same day of a planned bond sale, drew criticism for their poor timing and may have driven borrowing costs higher.

About 20 minutes after Christie, 48, made the bankruptcy reference in a town-hall meeting in Paramus yesterday, the New Jersey Economic Development Authority cut its tax-exempt school bond offering by almost half to $777.5 million.

“He is scaring some people when he says the state is going bankrupt,” said Gary Pollack, head of bond trading at Deutsche Bank Private Wealth Management in New York.

“It wasn’t timed well,” said Pollack, who oversees $6 billion and said he continues to buy New Jersey bonds.

Linking the governor’s remarks with the decision to reduce the debt sale is a “completely bogus interpretation and an irresponsible connecting of unconnected events,” Michael Drewniak, a spokesman for Christie, said in an e-mail to Bloomberg News. A spokesman for the Treasury Department also denied any connection, as did the deal’s main underwriter.

More…

Jim Sinclair’s Commentary

The operation to hold gold below $1400 is massive MOPE and destined to fail.

Any idea that all is well or even getting better has its foundation in sand.

New Hit to Strapped States
Borrowing Costs Up as Bond Flops; Refinancing Crunch Nears
By MICHAEL CORKERY And IANTHE JEANNE DUGAN

With the market for municipal bonds tumbling, cities, hospitals, schools and other public borrowers are scrambling to refinance tens of billions of dollars of debt this year, another sign that the once-safe market is under duress.

The muni bond market was hit with the latest wave of bad news Thursday, prompting a selloff that sent the market to its lowest level since the financial crisis. A New Jersey agency was forced to cut the size of a bond issue by about 40% because of mediocre demand, and pay a higher rate than expected. And mutual fund giant Vanguard Group shelved plans for three new muni bond funds, citing market turmoil.

"We believe that this delay is prudent given the high level of volatility in the municipal bond market," said Rebecca Katz, spokeswoman for the nation’s biggest fund company.

The market has fallen every day this week, and investors have been net sellers of their holdings in municipal-bond mutual funds for nine straight weeks, according to fund tracker Lipper FMI.

Yields on 30-year triple-A rated general obligation bonds shot higher to 5.01% on Thursday, reflecting a spike in perceived risk, according to Thomson Reuters Municipal Market Data. The last time those bonds yielded 5% was Jan. 30, 2009, during the financial crisis.

More…

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