E' Tutti Pronto Per QE3? (Everyone Ready For QE3?)

I think our system is set up quite eerily a lot like it was in the late spring of 2008.  Back then several large financial companies were getting ready to hit the wall and, quite frankly, our financial system experienced a "de facto" collapse.  It looks like now we have entire countries set up for a "de facto" collapse, including the United States, several EU member-States and Japan.

Take a peek at the economic news today:  Housing starts plunged again and keep hitting record lows:  LINK.  Can't really blame this one on the Japan nuclear crisis the way many U.S. manufacturing and consumer-oriented companies are and will do.  Despite all the "hope" out there, the housing market continues to crumble under the excessive weight of way too much inventory, including the "ubiquitous" bank-owned, soon-to-be-owned and hope-it's-never-owned inventory.  In most States delinquent mortgagees are going more than a year without making any payments - and in NY/NJ they are going more than 3 years - as banks close their eyes and do what they can from taking even more inventory onto their sagging balance sheets.  Here's the comment from Reuters:  "Residential construction is being crowded out by an oversupply of used homes on the market, in particular, foreclosed properties, which sell well below their value."

What's amusing about that is "their value" is the price that someone is willing to sell and someone is willing to buy.  That's the value. Period.  Homebuilders are either offering their product too high or they can't sell them for enough money to cover their costs.  That's the classic definition of "too much supply, not enough demand equalling prices too high." At the margin, the "value" of a home is being set by the "distressed" sellers and THAT is the value of your home right now.  That's plain old fashioned economics.  Prices being asked by homebuilders and non-distressed existing homesellers will eventually have to converge with the pricing level of the most competitively offered homes, which are the foreclosure/short-sales, as the inventory of that seller-sector continues to balloon.  Prices are going A LOT lower all across the country and this aspect of GDP will get hammered.

The manufacturing component of GDP is tanking, as industrial production declined and came in a lot lower than expected.  Japan was the excuse but that's b.s.  Consumers are dying on a vine.  The positive component of IP was utility and mining output.  The former driven by prices and the latter driven by a shift to the consumption of necessities, coal and metallic commodities plus gold and silver.  Here's the LINK.

As I suggested above, the consumer is fading fast.  But don't take it from me, take it from one of the major consumer product companies, Hewlett Packard, which announced a substantial cut in its revenue forecast, driven by a serious decline in personal pc-buying:  LINK.  Of course, Japan was the culprit here, but we know that's not true.

And here's a development that's even worse for those who believe that the "new paradigm" for our country is an economy driven by services and leisure:  McDonalds is in the process of displacing labor in Europe with computers:  LINK  Fear not, that business model (convenience/cost-cutting/efficiency) will soon be introduced in this country, displacing much of the service-sector workforce.   Alan Greenspan's "it's a new economy" vision will be one in which there will be plenty of labor in this country to provide housekeeping and yardkeeping services at a low cost to the country's very wealthiest businessmen and banking families.

What all this means is that unless the Fed shifts into a QE3 "paradigm," the new paradigm will be a stock market crash and bond market crash - a complete systemic collapse that will start with the slide that we're on now and then a big sudden drop, similar to what we saw in the autumn of 2008. The Fed has been propping up the stock and bond markets with QE1 and 2 and if QE3 does not happen, the support falls away.  THIS is the scenario in which people are going to wish they had ignored the "bubble" nonsense about gold and silver eminating from CNBC, Bloomberg and everyone's favorite financial advisor.  This is the paradigm shift that causes Ross Perot's euphemistic "sucking sound" out of paper currencies and into physical gold and silver.  If you notice, the Chinese, Indians and other major buyers of the precious metals have actually intensified their accumulation in this latest price slide.  And if the collapse of our stock market momentarily takes the metals even lower, I expect that those countries will be buying even more.  And when those in this country with any paper money left finally rush to buy into this "bubble," we will see prices really go parabolic. 

It's coming.  Don't ask me when because I no longer stick time-frames on my forecasts.  But when the time comes don't blame your big-firm, Wall Journal toting, pretty presentation-carrying golfing buddy finanacial advisor when your investment accounts are reduced to rubble and you are left standing without any means to buy gold and silver, because those of you who do know The Truth know that most financial advisors are idiots.  You only have yourself to blame...In the meantime, get ready for QE3 because it will happen - it just might get a little rocky in the markets first...