Monday, May 16, 2011

As The Economy Heads Into Another Cliff-Dive, The Idea Of QE3 Gaining Acceptance...

Last week former FOMC Vice Chairman Alan Blinder gave a speech in which he said that more monetary stimulus would be needed in order to improve the employment situation in this country.  Blinder happens to be a senior economics professor at Princeton, where what's-his-name, the current FOMC chief was departmant chairman.   Some analysts from Wall Street are also now starting to entertain the idea that we need more money printing in order to fund Government spending.  We know that the Obama people are begging for a $2 trillion increase in the debt limit, which will supposedly last until November 2012.  Anyone believe that?  The bigger question in my mind is, even with higher interest rates, who is going to fund all of that Government new issuance? 

We found out today that China reduced its holdings in U.S. Treasuries for the fifth month in a row.  And we know that since QE2 started, the Fed has actually been monetizing close to 100% of the Treasury auctions.  So if China is reducing its holdings, thereby requiring even more funds needed to buy both China's and Geithner's bonds, if the Fed stops printing who will step in with the necessary funds? 

For more proof that the economy is losing any steam it had from QE1 and 2, just take a quick look at today's economic reports.  The NY State manufacturing index drop sharply and came in a lot lower than the mean consesus forecast LINK.  The homebuilder sentiment index showed no improvement in May LINK and from what I've been reading, housing market conditions across the country are headed south again:
A decline for the U.S. property market is accelerating. It could fall another 20% over the next 12 months  LINK
Here's another commentary that sees the likelihood of more QE3:  LINK In fact, I would argue that part of the agenda with this latest attack on gold and silver is an effort by the Fed to get the price of gold and silver to much lower levels before apologetically rollling out QE3 in some form.  If the metals are hitting new records everyday, it makes it harder to intellectually justify more QE.  But if gold and silver are retreating in price, the Fed can patronize us with its "inflation is not a problem and is transitory" rhetoric.  If you don't think gold and silver are being manipulated, then explain to me why all of a sudden a lot futures sellers show up after the London PM fix, when the physical market closes and then again after 1:30 p.m. NY time, after the Comex closes. If you were a futures trader and wanted to unload your long positions, wouldn't you try to do it when the market is at its most liquid and you'll have much better odds of getting paid a higher price than if you dump your paper in the afternoon when no one is around, which is essentially what has been occurring for two weeks now?

As every one now knows, the Treasury is going over its debt limit today and will be tapping into Federal pension plans in order to fund operations.  You can see where this is headed:  eventually the Federal pension plans will be used to fund Government operations, like State pension funds are being used now in most States.  At some point, in the spirit of being fair, the Government will impose its will on the private pension/IRA system and convert the entire retirment system into one large Treasury funded operation managed by Wall Street. In exchange, everyone with retirement funds, public and private, will receive a "guaranteed" annuity payment when they retire.  I have been warning anyone willing to listen that this is where this country is eventually headed (much the same way I warned about housing back in 2002).  Would you rather pay a 10% penalty and take what you can out of your retirement plans and control your own financial destiny or take your chances and face increasing odds that an increasingly all-powerful Government will eventually take what's yours, like it is doing in many other facets of our lives?


  1. Yep, I agree that a Federal raid of IRAs and 401(k)s is coming. I liquidated my IRA and 401(k) back in 2008.

    It was Prechter's, 'Conquer the Crash,' that put that fear in me. I am most happy that my money is free from Federal hands, now (my long-term money is sitting in the form of gold and silver bars at a small, private, 200 year old, single location Swiss bank).

  2. one add'l reason to change private retirement plans is that when folks start taking their money out it wil generate big tax revenues immediately and then also the pulled out money will generate taxable income (not the deferred situation) so the govt gets more cash flow in any event.

    except of course if you have physical and when you sell it you do not....

  3. People keep acting as if there is a major shortage of silver. Im not sure that I believe that. Tulving for example claims to have over 450,000 oz in stock and that is just one company. When you include apmex, gainesville etc we are talking about millions of ounces. Doesn't sound like a shortage to me.

  4. I don't disagree. I think the mint just pledged another shipment. BUT actually I just looked and Tulving has sold out his allocation for 1 oz. silver eagles. He sold out of his opened boxes of 5 oz. silver eagles. He has the sealed boxes of 5 oz. silver eagles. He seems to have a good allocation of silver maple leafs BUT they don't ship until the end of the month.

    You can find silver eagles around for sure. But based on what I'm seeing now vs. historically, the market is getting thin. Sounds like Asia and India are hoovering up silver on this price pullback.

  5. Dave,

    I am getting ready to change jobs. What options should I consider for transferring my 401K into?

    Thanks for keeping us up to date on the financial front. Yours is one of a couple blogs I check every day.

  6. I think you can roll your existing 401-k into a self-directed IRA. If you have a stock account with Schwab or Fidelity or whoever, call them and ask - they'll know for sure. Once you do that, I would suggest cashing out your IRA and paying the 10% penalty and buying gold and silver.

    With your new job I would have them withhold the minimum amount possible and try to save on your own instead by using what you save (vs. withholding salary into a 401k) to buy gold/silver coins.

  7. Dave,
    I don't understand how it is possible to cash out a 401k account. I thought it was locked until I quit or get fired. I can take a loan, but then they'll just take it back from my paycheck. I'd certainly be willing to pull it all out, even with steep tax penalties. Is there a secret way of doing this that I don't know about?

  8. re Tulving - Small supply is there, but you have to think like the rich... 2 mil oz would fund .gov for how long?

    Bigger question - wtf is going on?

    As Sprott mentioned, how insane is it for a commod to paper trade 4x the above ground supply in 1 week.

    What about DSK? Are you telling me that arguably the most powerful banker in the world could not control himself and r*ped some nasty hotel maid?

    I used to be fairly mainstream in thinking, now I just wait for the next Sunday night headline (silver takedown, OBL, DSK, OBL porn stash????). Who knows, is it failing faster than we thought?

  9. Wilderness: I think when you change jobs, you have the option of rolling your existing 401k into a self-directed IRA. "I think" is the key operative there and that's why I suggested that the commentor should call one of the broker reps at his brokerage because they'll know for sure.

    If you have a 401k with your current employer, you can't cash that out or move it into an IRA, although there may be some loopholes you can exploit to "platoon" a lot of it out (like borrowing for expensive medical procedures, not really having those procedures, buying gold and silver and then defaulting on the loan to yourself LOL).

    I do think when you change jobs you do the roll into an IRA and avoid having to roll it into the new 401k at the new job.

  10. LOL anonymous. The DSK thing is emblematic of the entitlement that the elitists feel. They think they're above the law. Look at Ted Kennedy. Hell at least DSK didn't murder anyone. We're on the slippery slope to Government/elitist totalitarianism per Orwell/Rand.

  11. When you leave an Employer you have the opportunity to start a business using your 401K as equity capital. I started Saints Investments, Inc., which is a gold & silver / hard-asset investment company. I used Guidant Financial to setup the Company and the 401K Trust.

  12. Cliff dive isn't the word for it, my hard commodity positions are down 25% thanks to the "strong dollar" BS. Honestly. comparing the "value" of the dollar to the "value" of the Euro is like comparing two buckets of excrement. Not to worry, I'm holding and planning to buy even more.

  13. Here is the set up for Fed Three Card Monty come June @