NEXT WEEK IN FOCUS

Next week will be a very interesting week as we have the Fed and BO meeting. But it is the BO's actions that will likely cause a major shift in global markets.

The BOJ has come under fire for the NIRP and bonds and ETFs buying spree which has resulted in a bloated balance sheet which nothing much to show. Japan's economy and inflation remain weak. Just as recently the Government Pension Fund loss more than US$100B in 12 months. So even the BOJ has admitted they may need to tweak their plans.

Many economists are of the opinion that the BOJ will do the following:

1) Cut the short term interest rate deeper into negative territory 

2) Buying short term (<5 years) bonds
3) Selling long term bonds (>10 years)

1) and 2) will be a stimulus while ensuring the yield for long term bonds increase so that pension funds and savers could benefit.

However, the flip side is that any heavy selling of long term bonds could cause wide spread selling in long term bonds and thus investors who bought the long term bonds could likely suffer heavy losses. This too may spread to other bond markets.

The Fed has been jawboning about interest rate hike, claiming that all is well with the economy, but data in the last two weeks point to the contrary. Manufacturing is in contraction, Services is below expectations and lower than the prior month and retails sales have fallen more than expected. On top of that, the August jobs number came below expectations. Zerohedge also reported that the BLS has slashed 150,000 jobs 'created' in the past 12 months in their annual adjustment.

So despite the deluge of bad data the bullion banks continue to hammer gold and silver. As I mentioned in one of my previous posts, the central banks are managing the price of gold and silver lower because the Fed is unlikely to raise interest rate, and that uplift will put us back where gold and silver was a few weeks ago,

If the Fed does raise interest rate it will bring calamity to global markets, much so to the heavily indebted US economy. Economists predicted that were the interest rates normalise at just 5%, the US would need to pay US$1T in interest payment alone in a year. So normalisation is a myth - at least in the next few years.

Either way, gold and silver are the only wealth protection and miners would be the best hedge for multiple gains when the asset bubbles burst. 2008 was the housing bubble. But what we have in our horizon are bonds, stocks, housing and derivatives bubbles.And when they burst, it could be worse than the Great Depression.