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Guest Post: The Coming Rout
Submitted by Chris Martenson
The Coming Rout
There's a scenario that could play out between May and September in which commodities (including my beloved silver) and the stock and bond markets could all sell off between 20% and 40%. The trigger will be the cessation of QE II and a multi-month pause before QE III.
This is a reversal in my thinking from the outright inflationary 'buy with both hands' bent that I have held for the past two years. Even though it's quite a speculative analysis at this early stage, it is a possibility that we must consider.
Important note: This is a short-term scenario that stems from my trading days, so if you are a long-term holder of a core position in gold and silver, as am I, nothing has changed in my extended outlook for these metals. The fiscal and monetary path we are on has a very high likelihood of failure over the coming decade, and I see nothing that shakes that view.
But over the next 3-6 months, I have a few specific concerns.
It's time to build on the idea I planted in the Insider article entitled Blame the Victim (February 28, 2011) where I speculated on the idea that the Fed might be forced to end its quantitative easing programs, almost certainly because of behind-the-scenes pressure.
Here's what I said:
How I read [the Fed's recent propaganda tour] is that the Fed is taking some heat for its inflationary policies, mainly behind closed doors, and it is trying to do what it can -- with words -- to soothe the situation. Perhaps China is making noises, or perhaps Brazil's finance minister is making the phone lines feeding the Eccles building smoke ominously, or perhaps it is internal pressure coming from politicians with restless voters. Or all three.
The big risk here is that the Fed will be forced by this rising pressure to discontinue the QE program in June at the normal ending of the QE II efforts. Couple that with a possible federal showdown over the debt ceiling right at the same time, and you have the makings for a massive fireworks display, possibly involving derivative mortars bursting in air.
At the time, I speculated that all of the Fed's pronouncements about inflation being almost nonexistent were actually signs that the Fed was taking some behind-the-scenes heat for the inflation its policies was creating. And I worried about what would happen if the Fed were to end the QE program in June.
Let's just say it won't be pretty.
Everything would tank. Stocks, bonds, and commodities. All of the risk assets that have been unnaturally supported by a flood of liquidity, too-low interest rates, and thin-air base money would give up those ill-gotten gains. Gold might behave a bit differently, because along with these market declines will come an enormous amount of uncertainty about the financial system itself, usually a condition for higher gold prices. So I expect gold to correct somewhat, but not nearly as much as everything else, and it could even gain.
The story is, admittedly, getting more confusing by the week, with some calling for hyperinflation and some calling for massive, outright deflation. I am trying to surf the probabilities and stay one step ahead of whatever curve balls are coming our way.
The basic idea is this: The Fed has been dumping roughly $4 billion of thin-air money into the US markets each trading day since November 2010. The markets, all of them, are higher than they would be without this money. $4 billion per trading day is an enormous amount of money. It's gigantic by historical standards. As soon as the QE program ends, the markets will have to subsist on a lot less money and liquidity, and the result is almost perfectly predictable.
Hello, downdraft.
The markets are quite substantially elevated due to the efforts of the Fed. T, and then some, is quite likely to be rapidly eliminated as soon as the QE program has ended.
It's really that simple.
To make the story even more difficult to follow, the Fed has been sending out teams of PR agents in an effort to guide the markets with their words.
First, on March 2, 2011 Bernanke said this:
Bernanke Signals No Rush to Tighten When Asset-Buying Ends
March 2, 2011
Federal Reserve Chairman Ben S. Bernanke signaled he’s in no rush to tighten credit after the Fed finishes an expansion of record monetary stimulus, seeing little inflation risk and still-slow job growth.
A surge in the prices of oil and other commodities probably won’t generate a lasting rise in inflation, Bernanke told lawmakers yesterday in semiannual testimony on monetary policy. A “sustained period of stronger job creation” is needed to ensure a solid recovery, and the Fed’s benchmark rate will stay low for an “extended period,” he said.
The "no rush to tighten credit" statement is a signal that the Fed will neither raise rates at the end of the QE program nor perform reverse POMOs where it reels cash back in and pushes MBS and/or Treasury paper back out.
Upon the cessation of the QE efforts, and the cessation of $4 billion a day in Treasury buying pressure, it's a safe bet that market interest rates will rise. Bernanke is at least on record as saying that if this happens, it won't be because the Fed has taken the lead.
Bernanke was being a little bit sloppy in his statements, because stopping QE will serve to tighten credit simply because there will be a lot less liquidity sloshing around the system. It's a situation where the absence of excess is the same as the presence of tightness, if that makes any sense.
Then on March 5th, a much stronger and clearer signal was given, confirming my worries:
Fed Policy Makers Signal Abrupt End to Bond Purchases in June
March 4, 2011
Federal Reserve policy makers are signaling they favor an abrupt end to $600 billion in Treasury purchases in June, jettisoning their prior strategy of gradually pulling back on intervention in bond markets.
“I don’t see a lot of gain to reverting to a tapering approach,” Atlanta Fed President Dennis Lockhart told reporters yesterday. “I don’t think that is necessary,” Philadelphia Fed President Charles Plosser said last month.
Whoa. This is important news. Not only a cessation of QE, but the possibility of a sudden stop is being telegraphed. This will change everything.
The old saying 'sell in May and go away' might never be truer than this year, although with this sort of a warning, the cautious investor may want to get a head start on things and sell in March or April.
For some time there have been rumors that the Fed has been splitting into factions, with some of the inner team becoming increasingly uncomfortable with the QE program and its effects. But so far they've either spoken in code to reveal their displeasure or quietly resigned. So we're pretty sure there's an admirable level of support within the Fed for ending QE, and it has now bubbled to the surface and reached the public arena.
Of course, there's some form of gobbledy-gook reasoning being floated to justify the plan for a sudden stop rather than a gentle wind-down, and it involves the distinction between 'stocks and flows' (from the same article as above):
Fed staff members, such as Brian Sack, the New York Fed official in charge of carrying out the bond buying, have argued the total amount, or stock, of securities the Fed has announced it will make has more impact on longer-term interest rates than the timing of those purchases. That’s a view now held by several members on the Federal Open Market Committee, including the chairman.
“We learned in the first quarter of last year, when we ended our previous program, that the markets had anticipated that adequately, and we didn’t see any major impact on interest rates,” Fed Chairman Ben S. Bernanke told the Senate Banking Committee during his March 1 semiannual monetary-policy testimony. “It’s really the total amount of holdings, rather than the flow of new purchases, that affects the level of interest rates.”
Fed Vice Chairman Janet Yellen supported that perspective, saying at a monetary policy forum in New York last week that “the stock view won out over the flow view.”
The idea that Brian Sack, a 40-year-old economist with a PhD from MIT, is winning the day in the argument of "stocks over flows" is somewhat troubling to me. MIT is a quantitative shop, home to some very brilliant people, but how markets will actually respond is another specialty altogether, one that requires a bit of on-the-street experience. Markets have a bad habit of not being logical, not fitting neatly into tidy formulas, and ignoring things like 'stocks and flows.'
I'll go even further. I'll take the other side of that bet and opine that the flows are much more important than the stocks, because it is the flows that support the continued budget deficits of the US government — which, it should be noted, will still be with us each and every month long after June 2011. Those deficits are baked into the cake and will require in excess of $125 billion in new Treasury sales each and every month.
Who will buy all the Treasury bonds after the Fed steps aside? That is unclear. If there are not enough buyers at these artificially inflated prices, then the price will have to fall until sufficient buyers can be found. Falling bond prices are at the other side of the financial see-saw from rising bond yields; one goes down while the other goes up, and the Fed has been pressing firmly down on yields for a while via the QE II program. When that's over, pressure will be reduced and yields will rise.
So what to do? For those concerned enough about this possible scenario to consider taking action, please see Part II of this article (free executive summary; paid enrollment required to access). In it, I predict the extent to which stocks, commodities, Treasury bonds and precious metals prices may be impacted in the near term. I also detail the key indicators to look out for in order to determine if and when this scenario is unfolding - as well as recommended strategies to preserve capital during this corrective phase.
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Did you tell anyone to buy gold or silver prior to their run up?
No. So shut up.
But you're A-OK with The Bernank and TBTF selling the FALSE "recovery" of the USA for personal gain. Gotcha. At least you know where you're bread is buttered.
You're an idiot. The down-rating of the USA is in the cards... will you feel more patriotic if you lose your shirt when it happens? Turd may be helping people survive what is coming... while you are merely hot air. Who has really profited from the the downfall of the USA? It's certainly not TF or the average American..
Turd's blog is FREE. You can donate if you choose to do so. He is definitely helping people. So what if makes a few bucks along the way?
Spalding is an asshole and a joke.
Let me guess....under said scenario, EVERYTHING devalues, except for put contracts. Am I close? (No paid enrollment required, just please tip your waitress.)
Great piece..Always expect the unexpected..
+++
Yes, be diversified and agile. I am BIG im PMs, but they could have a hard downdraft. Right before gold goes to $55,000.
I see that sort of number a lot around here. I hold no gold nor will I. Not very useful to me, I prefer to be a skilled worker. I'm long saws and axes.
My guess is that gold will go somewhere near $2,500 and there it will stay for a little while.
And then quite suddenly nobody will ask what the value of gold is anymore.
Because by the time gold hits $2,500 so many wheels will have already come off of so many buses and so many trains leaped from so many tracks that the value of anything other than land and community will have evaporated out of hand.
Expect the unexpected, indeed.
Being a skilled worker is great. Demand will never go away completely for those with a good skill set.
I have no skills! So, I balance that by holding hard assets.
You are both right - I think having PM,s, some lead and lead projectors, and some skills, is the right combo - if you have only 1, you need to team up with someone else who has what you don't. Community will be more important than ever in the future.
DoChen - you have skills - those are in managing people, managing projects, etc - otherwise your Rolling Bearing business wouldn't be a business. As long as there are more than 2 people on earth, those skills will also be needed.
This very question has me perplexed. However, I can't see the Fed giving up the ground it has made in the equities markets that easily. Plus, everyone will know the game as soon as the market starts to dive. Not sure we will see the flight to dollar/UST bonds with a rout in the markets anyway. If silver goes below 25 I would be very surprised. The jig is up.
How is the market going to crash when the Fed owns everything? Are they going to crash it themselves?
All it takes is king Abdullah to pop an oil rig in saudi...all bets are off and we roll down the hill like down Wall Street. So far below that every thing follows down until the big machine grinds to a halt. Once the farting is all over, we may see some clear air and silver lining to the timid blue sky. Lets hope somebody hasn't popped the button on the doomsday machine in the meantime.
But you know they will, if there is some money in it.
+1 seems they're in control (of what!? is another question)
I've been told over and over again, the market will correct itself. I'm not seeing it. My expectation is that there's going to be something new in QE, but they'll present it, wearing a new coat: probably something to relieve the disparance in "core deflation" and "on the ground inflation". Though I doubt they'll have the american consumer in mind, suddenly... (which is going to bite them in the arse, eventually, but that's another question as well)
So, IMHO they'll announce a QE3 or QE2.1 but with a spin, to sell it to the herd.
Send all the sheeple a $100 stimulus check and they will give there blessing's to all the qe the fed's want to do..
that just might be a palatable alternative for the Fed - they can claim they're helping poor J6K cope with non-core inflation, and they get to keep the party going by printing frn's
sheep
can be bought...
on the cheap
I thought for sure we were headed for a significant correction.
But rocketing bank stocks today pretty much rules that out unless they turn around and close at the lows of the day.
Looks like commodities are finally falling off and money will be piling back into consumer stocks again.
Check out the huge reversal in JCP this morning.
Yup. Banks were the missing ingredient. Now it's all cylinders.
We have liftoff ....
The market ......
Sorry, not a "market," this is all central planning POMO/ZIRP, bitch. But you know that already. And profiting from it, no less. Profiting off the backs of poor brown people the world over. What a sick, sorry fuck you are.
Laissez les bons temps rouler!
Lent starts tomorrow.
Transports getting destroyed, market has topped!!
RobotTrader - Mon, Mar 7, 2011 - 11:08 AM
Bombs away!!!
Huge reversal day
exactly. the old girl changes her tune from day to day, and frequently post to post. what is amusing is that some zh'ers actually think the girl has a clue.
it might be the yoga tights she wears that forces all her blood into her brain, exploding it.
I'm still waiting to see a chart of how much gold and silver has blown up..
Hey Robotrader. We missed you during the big gold/silver run and coincident period of poor stock performance.
What has gold done since October 20th ? 5 months ....
What has JPMorgan, Exxon, Nvida, Melco Crown, Gluu Mobile done ?
What has gold done since October 20th ? 5 months ....
It got MonkeyHammered Spalding. Totally MonkeyHammered.
I was talking about the troll absence over the last few weeks. Like I said, you are definately the best troll here. Your ability to subtly shift the context almost makes you seem a little crazy but you pull it back just enough that its not quite a joke.
And what's gold at without the middle east blowup..... ? Or did his crystal ball see that coming also ?
Ask Turd about this also ....
"The end of the great keynesian experiment is upon us. Prepare accordingly."
"Ultimately disgruntled by the fraud known as "financial planning", he retired to a career as a serial entrepreneur in 2008."
Hey guys , I just opened an ice cream parlor. But,but, but during a total crash in the us dollar that you have been selling • pimping ??? WTF
Money printing--->higher prices--->riots in poor countries.
This isn't rocket science.
And you have been told on many occasions that small comforts are among the last to be sacrificed during an economic downturn. Look at all the candy companies that got their start in the middle of the great depression.
But hey, you don't care about that, you just want to use ad hominem attacks against someone who threatens your worldview. Pretty funny, considering YOUR choice of profession.
Let's be fair. He does correctly point out when the PMs are set up technically to run. I know, we don't want to hear about anything else in the ponziverse, but it is what it is.
I suspect you are correct, an all around correction is coming. All it means is that I can continue to buy Silver and Gold at cheaper prices before they resume their upward movement.
Of course, that is unless the Fed stops the money printing entirely. :>)
Its not just the FED who has been printing ever more fiat, our neighbors in Brazil see 11% inflation and in chavez-uela, inflation is a snappy 22%, with price controls on street peddlers. That means the inflation cat is way, way out of the bag. And every inflation has ended with a sudden and tragic deflation. That fact is unescapable.
If QE 3 is delayed, you can bet on QE-lite 2, which will itself be bigger than QE2 was, but smaller than QE 3.
If QE is stopped, even for a week, US markets collapse. Period. Don't bet on dollar strength under that scenario, either.
Are we getting near the physical FRN stage ? - can we even get that close to the edge of the $IMF cliff ?
Speaking from a Euro perspective I am more tempted to buy Gold on Euro strength rather then $ paper but FRNs have crossed my mind given the poltical problems of Germany vs pigs.
FRNs are maybe a rational insurance policey for foreigners in a near zero interest rate environment.
Also maybe just maybe this present oil price will increase the demand for dollars and will help the FED to ween itself off the excess reserve policey.
Just saying.
ABSOLUTELY no harm in holding some FRNs (or Euros for you). Enough for 6 months worth of expenses.
Diversification and Agility.
I'm singing in the rain which falls mainly in june as I run for cover on may-day.
May-day, may-day; make my day; hi-ho silver away. I'll be back in autumn with the falling leaves after the biblical flood. Hey Noah, tambourine man, sing a song for me...
Last summer there was plenty to cause concern, the market was sliding because the economy was hurting and shorting the market was the play. Then Bennie announced QEII and the market took off.
There are two factors that trump all others IMHO for QEIII (in whatever form). One is if the stock market and economy tank heading into an election year those in power will not get re-elected. Second, how do we pay for the $3+T in government debt requirements?
Obama appoints the Fed chairman, he serves at the pleasure of the President.
It is kick the can till 2013 time. Hope we make it that far.
sschu
That Lockhart quote was just one of his multiple personalities:
If oil prices continue to climb, it could force the Federal Reserve to make a new round of asset purchases, according to Atlanta Fed President Dennis Lockhart...
Nobodys getting cheap Silver, They will just boost premiums..Just remember, they use there monopoly status to self deal...
I had a dream last night that gold went to zero on the COMEX. I tried to back up the truck on APMEX, but they were completely out. The premiums had risen, but only to $200. I was searching frantically trying to find some, but couldn't anywhere. Lots of other things were going apeshit at the time as well.
are you serious? Shut up
What, you don't remember 2008? Gold and silver fell through the floor, but you could hardly find any, and when you did, it was at huge premiums. I managed to back up the truck and get filled after long delays, but I did lock in a now very low price.
That is exactly what happened. Tulving was out of most everything. My local coin shops were ALL out. They had none. And yet silver dropped like rock from $20 to around $9.
bernanke has an ego the size of the moon. he has made a catastrophic mistake...
what better out than to make us "eat it" by stopping the QE
and then, come september having the politicians come to him BEGGING to restart the program?
this is in perfect accord with Martin Armstrong's indications for a large pullback in Au in June
according to his cyclic projections.
As far as silver is concerned, with the amount of physical that was purchased prior to March, how can anyone believe the fiat price of silver will fall to low 30's? If it does, I fail to see how AGQ could not possibly be the best "investment" in the fiat ponzi scheme of a casino better known as the stock market there is. Being it went from 118 to 215 in a little over a month when silver went from 27.50ish to 36!
my man, AGQ is the beast....sadly i only spectated on agq but took delivery- g-
I'm all for physical and put some into buying physical when it was in the 20's. But I'm also not opposed to making some fiat paper off of these pricks at their own game also.
So a quick deflationary scare to cool things off and hope fully corral all the sheep back into the waiting, loving arms of uncle benny funnybux. Whatever happens, silver and gold will be proven right or be major buying opportunities. We all know qe will be back, there is still no economy and the us gov is fully addicted to the heroin of deficits. Lindsay lohan and charlie sheen will clean up and win oscars before the gov sobers up.
+∞QE = WINNING
This thesis is my fear... I think there is a lot of weak hands out there holding on to the alpha assets that I like. Look to raising a little cash to take advantage of opps. that will arise. Thinking of picking up some shorts, but this goddam self-levitation act defies logic....
All my 'core' positions are physical everything that is paper is short term
Would the Fed really risk crashing the equity market for $1.75/gal gas? A market crash wouldn't jive with all the recovery propaganda. And this isn't '08 anymore, there is no guarantee there will be a rush into the dollar or "safe" treasuries, ceasing their QE programs could backfire on them with a rush into PM's.
$1.75 gas is just the start. Obama, "man of the people," will "rescue" the big banks via nationalization, and while he's at it they could even make a try for the pension funds too. It's a lot easier to hand out freebies when you have control of the machine down to the local level. The young idiots who voted for him last time will see a lot to like and flip the lever again.
It can easily be spun as evidence of the fragility of the 'continuing recovery'. Not too hard when you have a fawning media that salutes whatever you run up the flagpole. More bailouts anyone?
Maybe I'm stretching it, but how much learning can a man who claims 100% confidence undertake?
Sounds more like real-time experimentation to me.
The head of the anti-government rebel body in Libya says it will not pursue Moammar Gadhafi for alleged crimes if he steps down as leader of the north African country within the next three days.
Rebels won't pursue Gadhafi if he quits soon
Sweet. Possible silver buying opportunity.
So do you sell miners, gold, silver now at the tippe top and buy in after the 30-40% correction ?
fact: "market & economy" do or die with the fed's printing...!
fact: dollar is dying due to fed's printing....!
fact: don't believe dumbama's re election depends on "markets & economy"...!
That card has been long pulled and there are no more aces, nowhere!
fact: as oil & PMsmoves higher markets will tank accordingly, so is/will El Dolar
Last Fact: it makes no sense to buy puts for the "end game" since on the bottom,
there won't be any takers! Cash in while you still have "buyers"! The buy land,
rental properties etc just don't be fooled into another march '09 thing, it won't
be Cuming!
silver dropping 12$ :)
I'm keeping my warrants on silver, they are all 2012. I don't see the risk there
and selling my turbo's and speeders on silver after 36$ with a very nice profit :)
And I'm keeping the cash ready on a buy order on silver warrants if silver goes to 27$.
I also thought of this that it could be bad for silver if the market should correct, and the correction is comming.
First the VIX will drop near zero, then spike to 40.
And Banks will be the first indicator when this will go down. These will get suckerpunched bigtime when pomo retires.
But the silver spike will come back fast because a lot of people will realize that the FED will POMO right back in with a vengeance.
The next QE will be arround 3 or 4 trillion and "the wealth" will go to the moon.
delete
cm might be right. however, with the largest federal budget deficit ever in feb my hunch is that the fed would be double-second guessed (should they stop qe) if rates reverse up, causing an even bigger potential deficit with higher interest costs.
i'm in the camp that believes they'll qe to infinity until the market (bond, equity, oil, metals, food - who knows which) makes something bad happen. bernanke seems like a prideful guy who might not like to admit he was wrong.
++ my guess as well. these guys really think they know what they are doing. but they don't.
To QE, or Not to QE, that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles
And by opposing end them.
Hamlet (sort of)
Alas, poor Bernank, I knew him Horatio. A man of infinite quantitative easing...
Something is rotten in the District of Columbia.
Kenneth Branagh version:
http://www.youtube.com/watch?v=7740lGif65Y
Something wicked this way comes.
So cut off the QE, which is what I think the fed will do. Assuming that, where does the current money go? To me, interest rates will begin to rise as there's no treasury bid aside from BB, which will chase people out of equities and commodities into treasuries. I think this will strengthen the dollar.
Equity markets will fall...US treasury has a market for its shit and the Govt will blame rising oil prices, which is beyond their control you see, on the double dip.
Soon thereafter QE 2+ will begin once the double dip is announced.
Do I expect silver and gold to fall during this time, yes I do as all prices are touched by this excess liquidity. Do I plan to sell my physical? Hell no. I will just buy more at lower prices as the future is set....US must default and will do so by devaluation.
I question if QE3 will even be delayed. If I was Zimbabwe Ben I would engineer a take down before QE2 is even over and then make noise about having to make sure there is liquidity and drop statement of expanding and extending QE2 till market conditions warrant it's removal. If there is no QE then how long can Uncle Sugar unload it's treasuries at low rates? After all a massive roll this year as well as record setting deficits, and we all know what even historical mean rates would do to the budget, much less higher then normal rates.
Who knows, but considering how negatively the market,congress and media reaction was to QE2, it is hard to imagine a positive outcome from committing to an extension of the program.
Stealth...maybe.
I dont know if there is such a thing as stealth anymore with the Internet, they fucked up giving people the internet...
QE3 will roll out right on schedule. All of the discussion going on right now about it is just theatre to provide the illusion of reasoned debate and honest decision-making. It's a show to pretend that the policy makers are really thinking about the problems, exporing options, and making the best decisions. None of which is really happening, of course. There is no real debate, because there is no real alternative. The money printing, bond buying, market pumping, and deficit funding will continue. The only concession they might make is to channel the QE behind straw-buyers so that the monetization is less obvious. They'll claim that demand from the Chinks or the Brits or SWFs or Caribbean hedge funds has picked up in response to the Fed's exit from QE. They'll kick this can much, much further down the road before it finally, spectacularly blows up.
"There is no real debate, because there is no real alternative"
That's my take too. Without govt spending GDP is negative right now, as it would have been for the past few years. End of QE means severe recession or depression, and almost immediately too.
Ben and Timmay knows this. So the only question for me is the timing of QE3. Do they let there be some "swoon" between QE's to justify it? Or do they start the rumors of extended QE before June, to avoid such a swoon?
If they do engineer a strong correction, how brief can they keep it? And will turning on QE3 really reverse it this time?
I've been long for awhile, taking advantage of the endless market melt-up, but I will go to cash and PMs over the next week or two. Then wait until I hear talk of QE3.
Some here are of the opinion that there will have to be an engineered swoon of some size before they will risk QE3.
My sense is that with things so fragile globally and domestically, they won't chance it. These guys do not strike me as either brave or foolhardy. They will go with QE3 without pause and then cook up something else as elections near. Regarding the latter, I suspect free money in the form of massive tax breaks or actual tax refunds near the end of summer. A hot 2011 holiday buying season marks a good kick-off to the 2012 campaign season. And any actual deficit hawks will be sent to Gitmo with the rest of the terrorists.
I agree that they won't chance it. Perhaps they'll try really hard not to telegraph their plans, so that the impact won't be priced in like before QE2.
I also agree that something will be cooked up for elections, but it seems there is a lot of time between now and then. Even QE3 would probably be set to expire by mid-2012. Plus a budget fight and debt ceiling debate, both this year and next year.
I have to think that the Fed is just worried about getting through June right now.
April and May will be a lot of stuff and nonsense.
In June --- the knives.
Am I the only one or did I just hear that Utah is going to accept gold and silver as legal tender?
They're talking about it, but I don't see how it would work as long as the rest of the United states is using funnybux. The metals would never truly circulate, because if they did, I'd immediately take a vacation and start scooping up metal for paper money. They also propose payment of taxes in gold and silver instead of paper funnybux, which you would only do if you were completely insane.
I add this for emphasis to your point: http://www.youtube.com/watch?v=JpV6RH-bOh4
Feb 16 blog post:
When DOW/S&P500 etc. overdue correction commences, I expect:
UP:
US Dollar, various USDXXX currencies, VIX Index
DOWN:
EURUSD, AUDUSD, NZDUSD, Base metals like COPPER, CRUDE OIL, GOLD/SILVER
http://stockmarket618.wordpress.com
You keep saying that, and you continue to be wrong. Perhaps it is time to re-examine your thesis?
Not only that, a rising USD does not mean gold will go down. From Aug 05 to May 06 both rose at the same time, as gold went from 450 to 700.
I see the same scenario. The events of 2008-09 were a dry run, and now the set-up for another attempt is complete. There will be a new financial "crisis", just in time for the 2012 elections. Bernanke pulls liquidity and the markets, commodities, and PMs tank. Obama will nationalize the banks, Fannie, Freddie, etc., "seize" pensions with a gilded offer to provide indexed, guaranteed annuities if the assets are converted to treasuries. States will be bailed out as needed if they agree to give up their sovereignty.
Not everyone will go along of course, and they will be painted as hoarders, obstructionists, or just old fogies who don't get it. Republicans will be villified as stingy bastards who want to hurt the poor through austerity. Obama's poll numbers will soar as he is seen taking concrete steps to help the common man -- hell they might even call it New Deal II.
After the dust settles, the term "United States" will have a new meaning. All notions of state's rights and independence will be gone. We will have the soft fascism of a command economy, with big biz, the media, unions, and pols all standing on the podium with ear to ear smiles.
What you propose would work so long as:
the internets stay on
the SNAP cards stay on
the TeeVee channels stay on
the airlines stay on, etc. etc. etc.
Now, if any of those services were to fail, look out for the muarding masses.
Fuck the fed-- it's time we end the bullshit institution and anything short of that will have gone towards cementing our slavery to bullshit debt.
The inside information tip on this one is worth billions.
How is the market absorbing $95.00 oil let alone $105.00 and other commodity costs in an economy that is already in the early stages of a depression?
Correlations only exist when it is beneficial for the price fixers. 2 years of this nonsense now.
I've long suspected that the last oil shock conditioned people to the current one; last time around we hit $3.50/gal gas around here and it made the papers, and $4.00/gal made the editorial page. People were seriously spooked.
It is back to just under $4 in my area and there is no discussion of any kind. $5 is absolutely baked into the cake as a result.
I suspect that $4/gal implies maybe $120/bbl crude. We're not quite there. I guess that means $5/gal equates to $140/bbl crude. That level will definitely make the papers, and have people complaining, but not less than that.
People around here have made a sport out of finding "cheap gas" meaning $.05 savings per gallon no matter the price average. This is a mental game they play that makes them think they retain control over their lives, that they are screwing the man, that they are winners. It's really sick to watch. But it's just the mental game that keeps them from worrying about the actual price so long as they can shave off 80 cents per fill-up on a $75 cost per tank.
It's part of the elegance of the trap that they all think they are winners.
I agree with that people may be conditioned to higher oil prices, but ultimately, the economic impact isn't any less. High oil prices may not have CAUSED the last recession (is it really over?), but IMHO they triggered it. The next recession could very well be triggered in the same way. And to my way of thinking, that leads to a whole series of events. The big problem with another recession now is that many governments lack the capacity at this point to backstop the banking system again and even more lack the political will. The U.S. government at this point would be hard pressed to apply a significant amount of fiscal stimulus. There is no political will for out right stimulus. Pres. O had to swallow hard at the end of 2010 and extend the Bush tax cuts in what was perhaps the greatest fiscal stimulus never heard of. I still can't believe how that entire episode got swept under the rug. The combination of that fiscal stimulus, ZIRP, and POMO are clearly the reason that markets are chugging along and our economy hasn't contracted (nominally). High oil prices, however, are counteracting that fiscal stimulus along with contracting local and state governments, and when the artificial stimulus falls away, yikes.
The next recession, whether triggered up by high oil prices or the withdrawal of monetary stimulus or both, will be ugly. I would agree with Grand Cycle above and Rosenberg in general that another recession would be strongly deflationary and in deflation, everything (stocks, bonds, and commodities including the ever so precious medals) goes down in price. Cash goes up (relative to everything else). The main issue with that (and Rosie's) analysis is that the almighty dollar MAY not be the flight to safety currency anymore. We won't really know until a truly financial-system-rattling event occurs, but the last couple of weeks signal there's a possibility that might not be the case. But I continue to believe that when times get truly tough the US$ will emerge as the bastion of safety once more. Just like 2007-2008, massive capital will exit emerging markets and commodities and seek the safety of the US$.
A bigger problem is, this time around, it's not just debt laden companies that will be tanking, it's debt laden countries. Stir all of that together and I think there's an enhanced chance we're in for a shit storm the likes of which we've never seen. Another aspect that I think is important to keep in mind in terms of trading this event is the cliff type nature of some of these matters. For example, once the selloff in Japan's debt begins, it will spiral downward more quickly than I think anyone expects. And when Japan goes, faith will be lost in the stability of currencies and the financial system worldwide. So, ultimately, a massive deflationary event or a massive inflationary event end us nearly in the same place, with faith lost in currencies and banks across the globe. I don't think anyone has any idea what the "new normal" is yet.
There is no market, there is only ZUU..er, FED.
Same levitating trick in full play.
I don't see how they can do it; all they can do is talk and try to manipulate perceptions. The economy is like one of those kids jumping castles -- turn of the blower (inflator) and the whole thing collapses in a heap.
Excellent analogy. I intend to steal it.
Yes it is a good one.
And as it deflates, you cannot get out nearly as easily as you got in.
Something to contemplate, that.
Sweet. Silver down in the 21-28 range will be a perfect dip TFB.
Yeah, no shit. I'd sell my house to get at those kind of prices.
Hell $28 is still a triple bagger for me.
Unfortunately for some large bank adding 6K contracts to their short position, and likely more since, barely holds silver under $36. You can push the levered specs around but delivery is where the rubber hits the road. Stop buying Treasuries and let rates go up enough to lure people out of PMs and what percentage of GDP will go to paying interest? They're cornered -- nothing to fight with but smoke and mirrors.
When should I sell my Gold?
I don't want to get caught with my pants down like sooooo many in 2008!
don't sell...hold irrespective of dips. There's only one course and that is the destruction of the dollar.
+ $55,000
Don't ever sell your gold. Unless you need to eat.
GIVE AWAY your gold to your children, or better yet, your grandchildren.
It is what the Rothschilds have done... As FOFOA says, we can walk in the footsteps of Giants.
fofoa.blogspot.com
Baby: Sell your gold? Surely you jest!
of course she jests, melanwhirl! the true part was her worry about getting caught in flagrante 2008 without slewie! she is hereby inoculated against all such nightmarish scenarios, forever.
besides, you know how smokin blythe is to me!
Correct me if I'm wrong, but if the Fed ceases their QE programs, that means they stop buying treasuries? Who would step up to fund the regime's deficits? Would the dollar regain it's luster sans QE, or would instant insolvency become the new risk? Looking at it from the PM perspective, are high gold and silver prices more a function of QE, or soverign default concernes?
"Yes."
Pension funds and IRAs/401Ks hold over $12T in assets...
oh yeah, forgot about the traditional bag-holders
I believe this is exactly what will happen also. I will start to prepare for this
outcome in the next several weeks.
I expect that they can't possibly entertain the idea that their judgement could be net negative. Buncha PhD's? No effin way. They'll sit in their "think about it tank" and decide that the delivery of accurate information to the markets IS the problem.
I believe they are blaming external factors (the markets, bloggers, etc) for the bad results and will seek to mitigate that by newly engineered slight-of-hand and outright misdirection. We will need ZH like never before during the "cornered rat" stage.
30% correction? OK fine, get your cash position to 30% and sit tight. They have to monetize debt and keep ZIRP. They are cornered. That's what the endgame looks like.
Article confirms what many have predicted: see-saw between commodities and stocks inflation and deflation ad infinitum as balance sheets, public outcry, and political ass-covering, and fear of general mayhem pull TPTB around by the ears.
PMs still good, just don't back up the truck.
Figure out the velocity, and you can hit the curve or slider the Fed throws......
If the Fed ends QEII, then how will the Gov't get funds to continue governing? I thought the bonds supplied the Gov't with cash flow to pay for all the wars and other such things.
Upon announcing the end of QEII, the stock market would most likely react violently to the downside. I am sure all those baby boomers investing in the market to recapture losses from 2008 - 2009 would love that little exercise as they hit their twilight years. The increasing interest rates in the bond market for Fed funding would probably hit double digits creating huge interest payments on the 14 trillion dollar debt issue. Not to mention the difficulty the gov't would have funding Social Security and medicare / medicaid and all the rest of the 4 trillion they require to run America annually.
I find it hard to believe there would be an end to QE.
Have you seen the numbers from the big fortune 500 companies in the USA who are a large part of the stock market. The global sales have been going up over the last 8 quarters.
QE and POMO are not the only driver for those sales or the forward looking market.
Their profits are earned where? Name somewhere those profits are made of organic demand and not printing of some stripe... QE cannot stop even the MSM could not save the bamster if that type of crash occurs not with out martial law.
In the end, if they want to give us blowout sale on metals, I'm all for it. Shake some more leaves out of the tree, and I'll be waiting with my rake and wheelbarrow bitchez.
Nice post. Food for thought. However there are some problems.
First and foremost, I would not take public quotes from these guys too seriously. The bulk of these public statements are pure propaganda; uttered to sooth the ignorant masses. Second, the US financial system is in CHECKMATE. There is no way to save the current system. I really don’t believe that the TPTB are just going to pull the plug and watch the markets figure it out. Some form of printing is required, even if the Fed has to take some heat. Maybe war will break out instead. I don’t know. Either way, the TPTB cannot fight mathematics.
I agree that there will be some correction, although the magnitude cannot be determined. Perhaps the system will come crashing down soon, or *they* will find a way to kick the can further down the road. No matter what, that light at the end of the tunnel is a mile long freight train bearing down on the global eCONomy. For now, I’m keeping my interests in PMs, guns, H20 and food.
Let's look at what QE 1 and 2 have been used for. To buy toxic debt, to prop up and manipulate the markets. It has not been used to actually produce anything and has only been used to stave off collapse. So, how would stopping or delaying QE3 force a meaningful drop in commodities? The perception of lack of Fed backstopping all the markets may dampen some demand but in reality the REAL economy has not recovered yet. So other than some deleveraging by financial institutions to cover losses I do not see that there should be a huge drop off in commodities. Just because the Fed stops at QE 2 does not mean that all of a sudden there is going to be a lot more oil available to produce. Peak oil will still be a reality. All countries will still need oil and food. We are only now seeing the inflation caused by QE1. The damage caused by QE2 will start about two years after it started. The dollar will not become stronger unless dollars are removed from circulation. Just my opinion.
Because currently the hedge funds (supplied with money by the banks) are speculating in commodities. So if the banks no longer supply the funds, the hedge funds can longer do this speculating--so commodity prices may go down.
Summary: Booga. Booga. Scary future. Send money and I'll tell you how you can get rich!
1- Commodity sell off beginning in July 2008 was a result of Fed pulling liquidity from the markets. Dollar up, equities & commodities down.
2- See MarketOracle article on dollar approaching 3 year cycle low. Says sometime between now & May the USD will begin rising after touching down around 70.
3- The Fed got away with it in 2008 so will do it again. They almost crashed the whole planet by 9/08 so they may be a little more careful this time.
4- QEIII has already begun by backdoor methods. Banks loaning direct to munis, credit card limit increases, balance transfer offers for EIGHTEEN MONTHS, NO INTEREST HELOC OFFERS...sound familiar... These secret methods will continue unabated. There will be QE for the crucial things.
5- Some caveats; in watching gold & silver recently it's obvious to me it's catching a bid no matter what happens. Especially silver, the jig is up on that one. So they may be able to squash it some but I bet it rises again fairly quickly, and once QEIII is announced they go THROUGH THE ROOF.
6- If you're sitting on paper PM's you may want to take some profits in the next couple months, watch it closely. Physical, hell no. Get ready to buy more.
Chris rocks.;)
#5 I was just thinking the same. The recent add of 7K contracts short wasn't a hail Mary pass so much as an utterly panicked last ditch defense. I can see a scenario where they get a few bucks off it and it comes back quickly as you wrote but I can also see a scenario where they don't even get that and we close this week on new highs.
a important part of this is " how can it end " every description involves a massive collapse of markets. they are doomed to keep printing?
if the inflows stop martkets crash, but can they keep printing for ever?its going to end somehow. either by their hands or the markets.
seems to me they will keep things goiung as long as possible. and just blame the resultant disaster on someone else.
If we are doomed to print, we are doomed. The operative word here is doomed; when you are sliding down the hill in an avalanche to Zimbabwe, the descent must be stopped, not encouraged.
Exactly! Their choice: die now or die later.
QUOTE
The hyperinflationary deluge is imminentThe lethal concoction of rising food and fuel prices is already affecting the Western world. The Continuous Commodity Index – CCI, (60% food, 17% energy and 23% metals) has almost doubled since the low in early 2009 and has gone up 42% in the last 12 months. The almost vertical rise of the CCI is one of the best indicators of hyperinflation being imminent (emphasis mine). A catastrophe of astronomical proportions is looming. This will hit the world at a time when there is no capacity whatsoever to take any real measures that could alleviate the problems.
Most countries are already running major deficits which will increase dramatically in the next few years. The banking system is bankrupt and is only holding together due to false valuations of toxic debt and derivatives. This is done with the blessing of governments since virtually no major bank could face an honest valuation of its assets. Unemployment and especially youth unemployment is currently a problem worldwide and it will get much worse. In 2010, the US government spent 60% more than its revenues. In order to balance the budget individual and corporate income taxes would have to double. – Egon von Greyerz: “A Hyperinflationary Deluge Is Imminent”, and Why, Therefore, Bernanke’s Motto is “Apres Nous Le Deluge
Came to the same conclusion a week ago and have been trimming my commodities and PM into strength. However, I came up with an alternate outcome post QEII in June where the Fed might need to opt for QEII+ a modest (lame) extension of QEII until fall. Why the fed won't let the system go cold turkey? The bond market would get hit very hard without someone bidding on the rollover and new issuance. Rates shoot up, equities sell off hard as money lock in gains to capitalize on higher rates.
I'm now leaning towards QEII+Lame until the ecomony weakens engouh to "justify" an all-in QE3.
this is very cogent, cognit. so many funding needs, just press a button and presto! no problemo!
yes, the bond market is very interesting, indeed. there are more than a few of us, however, who would not lose a wink of sleep if every IOU on planet earth were worth: $0.00, next week. not that we would wish for such a thing, of course!
I have been following this and generally agree with what has been said. However there are several plays going on in the theatre at once.
This sums it up.
http://www.spartacus-news.com/2011/03/gold-and-silver-over-next-month-or...
When my son was a little guy, he had a pretty healthy allowance. One day, he saw a large piece of branded colored plastic from China that he just couldn't live without. He wanted to buy it so badly that he ask if he could borrow the following week's allowance, and a small piece of the week following that one. I decided the advance was well worth the lesson he was probably going to get. We brought the plastic home and he played with it for two days, then it sat scattered over his bedroom floor. The following week, he actually expected another allowance, which he already borrowed and spent. You guessed it, he wanted to borrow two and three weeks out. I handed him his request and the can got kicked down the road. He was very sure of himself and was confident that his request could be carried out week-after-week, until it didn't. I raised his allowance 50%, effective at the moment he repaid all that was borrowed. If a nine year old can understand simple economics, why can't our Congress do the same?
We laid to rest our dog Gunner (yes, that son became a decorated Marine, dog named appropriately) after nine years of a great life together. I would've given my arm...
Great life lesson. Thanks for sharing.
Gunner is no doubt reunited with his brothers in arms. Sempre Fi!
Walter E. Williams, economist and academic, had a similar story, but his mother had a slightly different strategy.
When Walter kept borrowing and not repaying the money for his school lunches after he’d spent his earnings for a few good time weekends, she finally cut him off. When he came home from school famished for a few days, and Mom withheld the sympathy, Walter got the message. He then put his lunch money in a jar first, then spent accordingly. And look at Williams today.
Says Williams today: "I praise lassez-faire capitalism as being the most moral and most productive system man has ever devised. Capitalism is relatively new in human history. Prior to capitalism, the way people amassed great wealth was by looting, plundering and enslaving their fellow man. Capitalism made it possible to become wealthy by serving your fellow man."
Unfortunately, the monopolization of the money supply and social credit in the hands of an international and supra-national money power is devolving American capitalism into corporatism – “ the organization of a society into industrial and professional corporations serving as organs of political representation and exercising control over persons and activities within their jurisdiction.”
Williams says democracy also is a tyranny. Ask yourself, he says, would you like the decisions for your family to be decided by a democracy – what car you will drive, what you will eat for Thanksgiving dinner – ham or chicken...?
I empathize with your feelings for Gunner. I resolved in part a similar sorrow, finally, by rescuing a dog I named Dude in his name from the SPCA. Dude, always a gentleman, knows and remains eternally grateful…
Sempre Fido
Answer these questions:
If QE2 ends all easing, what happens to interest rates?
Does anyone think the housing market has recovered enough to absorb the pending flood of foreclosures and higher interest rates?
THERE WILL NOT BE A QE3...
As much as it pains me to say, there HAS to be a QEIII.
Without it, we get immediate pain, and I mean near armageddon. It would make this gas price jump look like an ice cream social.
With it, they can continue pretend and extend until they are out of office/limelight and have time to fully prepare their buddies (and themselves) for the end game.
What if "they" have already prepared? What if this is the endgame?
It's delusional to believe that QE^infinity is a realistic solution. It's all about to crash and burn so all we can do is make our own preparations for the collapse. Nobody lives forever and not many have the opportunity to witness the death of an empire.
It's an interesting time to be alive.
Utah is moving rapidly in that direction.
No sane energy policies which move the republic in the direction of domestic energy independence
QE is about all they have left in their trick bag to keep the crows from picking their fields clean
Buying physical silver coin whenever you have surplus frn
I think if QE stops you will see those levels in Exeter's pyramid start contracting big time.
Good thoughts Chris there are certainly causes for concern here. If half the Elmer Fudd's here had ever owned Silver or gold before last Tuesday and still disagreed with you then I''d maybe another opinion.
To many people here are neophytes who really don't understand what they are doing. Their comments prove that.
Just yesterday I noted in another column my concerns to all that we are way ahead of ourselves here. The parallels to 2008 are truly profound.High oil, gold, and silver, and all the Ags
I remember that PM euphoria well. Again, the Elmer Fudds were buying with mortgaged money and had their fucking heads handed to them in the bread lines when both gold and silver collapsed.
I sold some silver yesterday back to mocatta actually. No need to be greedy. I have our family store but wanted to lighten up. Besides seeing mocatta bone dry on silver is not a good sign.
It's only profits if you sell people remember that. Chris timely call.
thanks
@mogul
I am one of your 'neophytes' in that I joined ZH recently having lurked for a very long time. I dislcose that I am an engineer and play no part in any financial trading etc. Therefore, I am at risk of having my 'head handed to me' if I get this wrong.
As I see it, there are two main reasons to swap some of your FRNs (GBPs in my case) for PMs.
1) A commodity gamble
2) Insurance
In the case of 1) you swap some of your fiat FRNs for a commodity on a temporary basis. You neither use nor wish to use that commodity. It is nothing other than your temporary holder of value. At some time later you swap that commodity back for (hopefully) more FRNs than you swapped it for in the first place. Assuming that you also take into account the devaluation of those FRNs during the time the swap was in transit then you may have made a real gain in the number of FRNs you have. That being the case, good on you.
In the case of 2) the person swapping FRNs for PMs believes that ultimately the spending power of the FRNs will decrease to zero (or as close to zero as makes no difference). That person knows from history, as irrational as that may be, that PMs are regarded globally as a store of wealth. There is no argument that this is as irrational as sea shells or Lama dung but it is what it is. PMs being priced in devaluing FRNs therefore is of no consequence to this person. If this person is short of some FRNs to pay some bills or other and he makes a swap back for fewer FRNs than he used to swap for them in the first place then it can be argued that he has lost in the transaction (again having taken the intervening devaluation of the said FRNs in to account). However, if he has some liquid FRNs and does not need to swap any of his PMs back then the 'price' of his PMs in FRNs is irrelevant. A person holding PMs as insurance would never consider swapping them back for FRNs prior to the crash. That would defeat the object. A good analogy would be a Zimbabwean having bought a few ounces of PMs before Mr Mugabe destroyed their Zimbabwean Dollar. How many Zimbabwean Dollars can he now swap for an ounce of his PMs? Why would he want to? There are, arguably, no Elmer Fudds holding PMs as insurance. Calling "To[sic] many people" "Elmer Fudds" is to misunderstand this concept.
I bought my PMs back in late 2007. I have no intention of selling my insurance. The price of my PMs in British Pounds is of no consequence. It would only have an effect if I swapped them back for GBPs.
I suggest reviewing the direction in which the barrel is pointing before pulling the trigger. Please feel free to junk or flame me as you feel appropriate.
Regards
Diplodicus Rex
Mogul,
you think after the lessons learned in '08, the sheeples will SELL as assets fall?.THe PM's did not stay L_O_W.
Maybe, bit a will but a hell of a lot less will.
disclosure
I just backed up the bus on kinross today though with my silver sell. 4 million ounce producer that has been crushed is worth a few sheckles.
A little reallocation never hurt.
why does the market hate Kinross so much? low P/E and a dividend yield too, is it because the CFO replacement?
Yamana and El Dorado are two others in the same boat. All good low cost miners. All lagging the POG.
Mauretania
QE is causing international political fallout for months...i bet allot of western 'allies' are reconsidering their positions.
In my very bearish analysis I get to the conclusion that if the market crashes, the dollar will crash as well because the demand for US dollar largely depends on US treasury holdings (and other USD denominated securities). Thus, there must be a save haven dollar substitute such as gold, silver and save haven currencies.