I. Greenspan

When former Federal Reserve Chairman, Mr. Alan "The Mystro" Greenspan - the famous creator of the Greenspan Put - publicly announces to the world that QE relatively failed for the real economy (unless you own stocks and assets similar to the top 1% of the world's population). Not only did Greenspan say monetary easing won't end well, but he boldly stated that gold would be a good place to put money. 

Greenspan himself wrote an outstanding essay in 1966 that was published in Ayn Rand's Objectivist newsletter titled, "Gold and Economic Freedom". 

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard, - Alan Greenspan(1966)

It's only speculative to question when Greenspan had abandoned his former position on gold and banking, but it certainly was absent for his two-decade tenure as fed chairman which oversaw the 1987 crash, 1999 dot com bubble, and 2007 housing bubble. Greenspan even had the audacity to claim that he and his colleagues knew there was a bubble in 2008 and with the ridiculous statement of how "bubbles per se are not what the issue is. It is turning out to be bubbles with leverage". An investor may feel uneasy or confused by that statement, and rightfully so: if leverage (debt) is increased with the help of lower rates (low rates make loans easier to service payments), and the Federal Reserve is the sole warden of rates, it is logical to assume bubbles with leverage are influenced by the fed.  

And if so, how do investors expect the same colleagues that couldn't prevent 2008 to prevent another crisis?  Maybe Greenspan is aware of this as he himself witnessed the unintended consequences of fed policy? Even so, Greenspan never held rates to 0%, let alone 0% for over 5 years or injected trillions into the economy. One can only imagine the unintended consequences now. 

II. Nest of Bubbles

As QE (quantitative easing) 1 came to and end, the officials said there would be no more. As QE2 came, the same officials said there would be no more. Operation Twist followed after QE2 and later extended. QE3 was issued but this time the same officials took away any forward guidance and kept QE3 in place until "they and the data saw fit". QE3 was upped from $45 billion a month to $85 billion a month now. QE3.5 has recently ended, but is there no reason to suspect there won't be a sequel?

Investors should question the fundamental problems to why was QE launched in the first place. What exactly has been fixed?  

1. The "middle class squeeze" has only gotten worse throughout the decade with families prohibited from luxuries and even basic necessities, even when the government calmly says there is no inflation, reality screams different. 
    
2. Median income, adjusted for inflation, has not moved at all since 2000 (and that is under the assumption the governments inflation numbers are correct). That means there has been no actually growth in over a decade in real wages. 
    
3. There is a bubble in car loans. 
    
4. There is a bubble in student debt. 
    
5. Stock prices have been grossly overvalued as companies take on debt and all their profits to buy back shares now, hurting growth in their business later. Peter Schiff explains this well. 
    
6. With the costs of living increasing and fixed income/yield all but dead, there is virtually no long term savings or incentive to save. 
    
7. There are less banks with more assets now. Those same "too big to fail" banks are bigger and riskier. 

This is just a short list that excludes the junk bond market and the housing market, which also deserve their own articles about. 

There should be no doubt there will be a QE4. But then the question is, when will it ever stop? Confidence is the most important thing to a currency, and once that is lost - its gone. 
 

III. Gold & Gold Mining

Only a day after Quantitative Easing Part 3 stopped, gold crumbled to a 4 year low and even gold mining shares crumbled to a 12 year low. That means gold mining shares are now lower than when gold price was only around $350/oz and even before the Federal Reserves Quantitative Easing Part 1 started. 

One would think, logically, that since historically golds price moves with inflation that the price would be higher. But this hasn't been the case. Crowd opinion has now shifted that QE3 has worked.

A quick summary of how currencies and gold work: Foreign currencies -> U.S. Dollar -> Gold.

If a foreign currency is weak, investors will anchor their savings to the U.S. dollar. But if the U.S. dollar is weak, investor anchor their capital into gold. 

With investors selling their gold to buy dollars, there's one structural question mark with this: if all other booms such as the late 90's dot-com boom and housing boom were fueled by low rates, about 1.25%, and there was no monetary easing then, wont 0% rates now still be even worse than before? This notion that just because the fed has temporarily stopped printing does not substitute the fact that rates are 0% which historically were enough alone to cause inflation and bubbles. The fact that the U.S. dollar has actually rallied is illogical especially since fundamentally nothing is better than 2008 (many would argue it is worse, in-fact). 

One would think since Quarter 3 GDP numbers were higher than expected, before revisions are made and the fact that US National Defense Spending was the most since 2008 (investors should actually thank ISIS) that this is a near sighted boost. But as Benjamin Graham so pleasantly taught us, Mr. Market is a manic depressive whom can change at any moment. 

This fact is why with all the hatred and short selling being done on the gold miners, prudent and contrarian investors would be wise to pick up quality assets for discount. Disregard companies that are on the margin (heavily affected by the gold price; high cost producers) and purchase low cost producers. Some premier choices would be Gold Resource Corp(GORO) and Yamana Gold(AUY). Both companies have all-in-sustaining cash costs at around $840/ounce. These companies are profitable even at lower gold prices and pay dividends currently. One would rationally think with all the Chinese demand that low cost producers would have inflows of capital coming from sold high cost producers, but they have not. Even companies such as Silver Wheaton(SLW) which is a royalty company and generates large amounts of cash with mild expenses has been caught in the sell off. 

A simple investment thesis for these mining equities is if QE1-3 had not work, there will be a QE4 and the worlds central banks have declared war on deflation. For example: Japan just increased their version of QE because the first time did not work at creating enough inflation. 

Gold is in position for a win-win, logically:

• Scenario A - with the large amounts of leverage and anemic economy, a bubble bursting in either car loans or student loans or home prices slump, could trigger another Lehman Brothers-like-collapse would spur a gold rally.
   
• Scenario B - the economy does recover and employment increases. The velocity of money will follow and with the $3.5 trillion in added monetary printing, prices will rise. Thus, the inflation from higher velocity will cause gold to rise alone. 

In either situation, I suppose, were all just laughing with invisible guns to our heads.

Either or, in the present state of affairs gold miners are the most hated and oversold, which should have contrarians and value investors dancing on the graves of mining equities to find life.