Thursday, May 19, 2011

Economic Reports Fall Hair-Raisingly Below Expectations...QE3 Expectations Go Up A Notch

Not that those of us who know The Truth should be surprised by this, but the consensus forecast on several economic indicators released today were substantially below the highly compensated Wall Street "Einstein" consensus forecasts.  Just what kind of fairy-tale is Wall Street/Obama pedalling these days?  I guess the reason they can promote their fiction is because most of the country passively enables - or wants to believe in - this world of make-believe.

Let me jump in here with links to the news reports - I don't think it requires too much commentary other than the theme that our economy is tanking hard continues to get further support.  What I don't understand is why the highly-paid geniuses on Wall Street with access to better than I continually fail in their forecasts, as do Bernanke and Obama.

"Existing home sales fall unexpectedly in April" - This one should have been a no-brainer to forecast.  What makes the data even worse is that plunging home sales are occurring while interest inch lower, credit standards are loosening up, the Government continues to subsidize credit risk via FNM/FRE/the Fed AND we are in what should be a seasonally strong period.  Here's the LINK

"Philly Fed sinks to 3.9 in May" - Wall Street was expecting a robust reading of 23.  Clearly, for whatever excuse the experts want to attribute, the manufacturing sector is tanking.  Here's the LINK

"April leading economic indicators fall .3%" - Wall St. was expecting no change from the previous month.  To make the case for housing even worse, one of the positive readings for this metric was interest rate spread, which means lower rates should be stimulating housing, but they're not.  Typically there is a high correlation between this index and the direction of the economy and the S&P 500.  Here's the LINK

Japan Q1 GDP reading MUCH worse than expected - down 5.2% annualized when you remove the deflator (i.e. actual output net of price increases) - This was substantially worse than any of the stock and economy promoters were expecting.  This is actually horrifying.  To be sure, there is a large effect from the nuclear disaster, but many on Wall Street actually thought the "rebuild" from that would promote growth LOL.  Here's a LINK to the details, with just straight reporting and no spin.

Government being called on to monetize Postal Service Retirement Benefits.  Does anyone REALLY think that the $2 trillion debt ceiling raise will be the last?  Does any REALLY believe that our Government will turn trillion-dollar deficits into a manageable budget?  REALLY?  Here's an instance in which the taxpayer will called-upon to pay for even MORE entitlements - the numbers in here are horriflyingly large:  LINK

Regardless of what caused the plummet in Japan's economic acitivity, there will be a large "ripple" effect globally, especially one that reverberates here and in China. There may ultimately, eventually be a small "snap-back" effect, but I doubt that will be anytime soon because the large part of economic demand in the major economies has been derived from massive monetary stimulus - the stimulus that policy-makers say they will no longer continue.  Of course, politicians like to keep their jobs - even Bernanke.  So I believe that not only will we see a continued increase in QE and deficit spending in this country, but the problems in Europe in and Japan make it a rock-solid bet that we will see more QE in those economies as well. 

The interesting question for me is, if the Japanese Central Bank has to divert funds away from supporting our Treasury auctions in order to support its own economic survival, who will start funding the inevitable $2 trillion increase in debt-spending in this country?  LOL - that's strictly a rhetorical question, of course.

As for the action in the metals markets.  The net long position in silver of the "large spec" (hedge fund momentum player) category is now at its lowest since February 2010.  I actually thought it would take a hit into the high $20's to see that occurrence.  What it tells me is that we are likely near a bottom in the silver market correction.  Here's excellent commentary on the condition of the physical silver market as reflected in the market for 1 oz. sovereign-minted coins LINK  There is no question that the supply of silver is getting tighter by the day, not only here but globally.  The commentor also gives a great explanation for why we are not even close to a "bubble" in this sector.

In terms of the market-action in silver futures, the bleed-off in open interest in Comex silver has been stunning.  The last time the silver o/i was at this low of level, the price of silver was $28.61 on Jan 31 this year.   The Comex inventory is now down to just 100mm ozs after a big withdrawal out of the "eligible" category last night (to review, the "eligible" category represents investors who are "safekeeping" their silver at a Comex depository).  From a trading perspective, although silver is still quite volatile hour-to-hour, it seems like the "trampoline mat" on the downside is giving a lot more resistance.  In other words, every sell-attack seems to be met with more buying and the price "snaps-back" a lot more quickly than in the past two weeks.  And finally, just to test things anecdotally, I stuck a roll of silver eagles for sale on craigslist.  I was shocked by the number of emails I received looking to buy my roll.  That tells me that more and more people are looking to buy on any price weakness, as opposed the past - when prices would plunge like they have and all the buyers would scatter.

My point is that I think the metals market may recover and move higher a lot more quickly than after previous price-smashing Comex open-interest liquidations AND the availability of physical silver at these prices is wearing thin.


  1. On the QE 3/whatever:

    You know I like to keep things simple.

    So, if we had a lack of 3rd party buyers of Treasury debt already (and continuing) how come so few really see that we cannot fund entitlements, defense (even if cut back a little) and interest and running this country (which now includes going postal so to speak) without the Fed (or whatever the hell they do) buying most of the issuance needed to keep the doors of this country open.

    And I guess the Treasury and Fed mavens kind of forgot the Illinois situation where not funding the pension sdue to cash shortages does not work out to well-oh, I forgot our President was a State Senator in Illinois and thats how he learned what he knows.

    (I love being sarcastic)

  2. 'Experts' who say that there will be growth due to the rebuilding effort in Japan need to be educated on "The Broken Window Fallacy".

    I do think there'll be more QE, but I don't see it immediately after QE2. There may be some relative strength for the dollar because of the intensifying Euro-zone crisis. Countries like Belgium, Italy and Austria haven't woken up to their fiscal situation yet. They will inevitably.

  3. john of R&IThursday, 19 May, 2011

    Its apparent we will wash-rinse-repeat with a relapse into "recessionary fears" at the end of QE2 and that will bring on Queezing 3. Remember "Queezing" is where bloody vaporous dollars waft out of Ben Bernanke's tuchostal membrane.

    Its is sad that Ben has disallowed historic economic cycles. I argue that a deflation of financial assets should follow the enormous loss of wealth we just had in 2000- 2003 and then 2007 through present. The cleansing of bad debt reduces debt service, and allows a fresh start in a real economic recovery. At the same time, consumers (whose wealth was destroyed by the banksters) get a small benefit in the reduction of prices. Ben's refusal to allow any economic benefit to accrue to savers, or wage earners will now come back to bite him. He has pushed the envelope to the limit, $4 gas and doubling of food prices have now injured the "dead-consuner-walking" to the point where it is being priced into stocks.

    Stocks topping = QE3 rising. Something has to take the place of the lost consumer demand. But the financial asset inflation and the dollar debasement will not serve the saver or wage earner... only their masters will be improved. Yes, we the people accept this. And, I guess we deserve it until we stand up and fight.

    I'm horrified when I realize Ben's intent and commitment to Zimbabwification.

    Ben and friends will do another round of Queezing. And they will further injure the wage earner and retired saver past the point of recovery. Then the fun will start.

  4. My point is that I think the metals market may recover and move higher a lot more quickly than after previous price-smashing Comex open-interest liquidations AND the availability of physical silver at these prices is wearing thin.


    100% Agree. I think the price of gold and silver keeps going up and heats up going into the summer and winter. I think seasonality is a past-time as we are nearing the end of the current global reserve currency... and gold and silver will not "dwindle into the summer" instead keep moving. The cat is out of the bag and there is no putting it back in.

    A fantastic article, very very well put. Your mission and mine are much alike.

    Ron Paul 2012

  5. An Interview with Hugo Salinas Price on a Return to a Silver Mexican Peso

    TDV: OK, this clarifies things a lot. So, your goal here is not to
    fully back the Peso with silver.

    HSP: Yes, as I said before, I am NOT for "backing the Peso with
    silver". I am striving to have a single silver coin, the one-ounce
    pure silver "Libertad", MONETIZED by means of a monetary quote to be
    issued by the Central Bank.

    The Government of Mexico, just like the Governments of every single
    country in the world today, allows the Central Bank to inflate the
    money supply through the banking system. Not one of the world's
    governments is ever going to willingly stop inflating!

    The monetized one-ounce pure silver "Libertad" will provide an
    excellent refuge for savers who want to preserve the value of their
    savings for their old age, for the education of their children, or
    simply to eat when hard times strike. It would be the first and (for a
    time) the only true alternative money in the world of the 21st

  6. Agree in theory, but the seasonal weakness of precious metals may well combine this summer with further deceleration of the global industrial economy to induce a further move into paper rather than tangibles. This is a necessity to allow TPTB to continue to fund the enlarged govt at acceptable interest costs.