Jim Rickards on the golden bullet

http://www.zerohedge.com/article/jim-rickards-tells-his-clients-get-out-stocks-and-discusses-feds-final-golden-bullet

What's happened is that all the markets have become so badly distorted that their price discovery function and therefore the information content around it no longer has any value." The primary culprit in this distortion is, of course, the Fed which is now and has been for over a year, openly (and not so openly when it comes to stocks) manipulating the broader market: "I always like to say if a private sector person does it, it's manipulation, but if the government does it it's policy. So they call it policy and they would say they had reasons for it, but in fact it was massively distorting."

In effect the US and policy intervention from homebuyer tax credit, cash for clunkers, quantitative easing, mortgage purchases have in effect destroyed our markets, they no longer give us valuable information." Obviously, today's most recent battery of micro fiscal stimuli announced by the administration will merely make the market even more irrelevant as a price discovery and a capital allocation deterministic mechanism: and the more administrative meddling, the more money will sit on the sidelines, and the more retail investors will withdraw capital from risky assets. If you no longer invest in stocks, you are not alone: "I don't even take the stock market seriously" says Rickards, "and I mean that in all seriousness. Who's in the stock market right? You have indexers and robots. Is anybody else trading the stock market?"

If you have an avalanche who cares what snow flake started it, what you care about is the instability of the mountainside. The Flash Crash was the warning, I don't think the warning has not been taking very seriously. The markets are not reflecting fundamentals, because there are no more fundamental traders. It is an accident waiting to happen. I recommend to clients that they not be in stocks anymore.

I don't think quantitative easing is a bullet that's going to work. I think that chamber is empty. But the Fed does have a bullet that they may not even realize which I call 'The Golden Bullet.' Which would be basically conducting open market operations in gold in such a way as to devalue the dollar.

If you're worried about deflation and you want to cause inflation and you're printing money as fast as you can and the inflation is not happening, at some point you have to stop and ask yourself well what else can I do? Well the answer is that you can severely devalue the dollar against gold...So the Fed wakes up one day and as fiscal agent for the Treasury, we're a buyer at $1,495 and we are a seller at $1,505, and that represents a 20% depreciation in the value of the dollar.

You have to scare the American people into spending money. Right now the American people are more afraid of not having money, they are not afraid of inflation, but if you make them afraid, they will go out and start spending. So what better way than to devalue the dollar 20% against gold, and the way to do that is through open market operations...Well if that happens to be $2,000 an ounce what have you done? You've depreciated the dollar by not quite 50%. Well that's pretty powerful stuff if you are trying to get people to spend money and dump dollars. So they are not out of bullets, they have what I call the golden bullet...They have that kind of ace in the hole if they really want to trash the dollar.