Tuesday, May 17, 2011

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...


  1. Good post. The when is the question. Fortunes will be lost and made on that call. Right now I'm in the toilet with my miners and sinking faster every day. Fk this hurts. Does Bennie boy let it burn then print?

  2. I think he has to let the markets tank hard so that everyone is begging from QE3. The miners are getting beat up but the metals themselves are hanging in well because of the physical demand. Look at HUI/GOLD ratio chart and you'll see what I mean.

    Ya have to just sit tight and be right per Jesse Livermore.

  3. What are your thought's on Martin Armstrong's cycle low of June 13th/14th?

  4. I don't buy into "cycles" and waves. I think it all depends on when the Fed blinks on QE3

  5. Dave, I've read your blog now for two years and have yet to miss any of your posts. This, however, is a first for me---My first comment. Here it is:
    If your analysis suggests a scenario where we are "set up for a 2008-like crash", could we also be set up for a 2008-like crash in silver and gold prices?

    Before you answer, I'm going to attempt to answer my own question and you tell me if I'm right or wrong:

    "1. This time is different, the supply/demand dynamics relating to comex inventories, etc, are skewed in favor of a RISE in price rather than a fall.

    2. The dollar has fallen to an almost critical level that may accelerate into a free-fall.

    3. The tendency for people to run to gold-silver as a "safe-haven" is greater now than at any other time in our history.
    Conclusion: This coming collapse, if it materializes, will be country based rather than bank-based and be currency-driven rather than equity devaluation driven.

    Am I Missing anything?

  6. Anonymous, you could have written today's post LOL. I ::think:: that is how this is set up. So to make a provision for the "hope" factor, since I'm 100% invested in the sector, I have to assume that the metals/miners will get whacked temporarily if the stock market takes a dive. I'm sure the way the big black box hedge funds are set up that's what will happen. BUT, try to time that one perfectly. I think you have to be prepared for a very hairy ride but have faith in your conviction about what is going on and how you are positioned to take advantage of it. In 1929 the mining stocks and metals were absolutely shellacked but quickly recovered and went on to new highs over the next several years.

  7. I would love to believe that this time people would rush to precious metals for safety but I just don't and here is why. Most people still are oblivious and don't have a clue about gold/silver. I for one still get called an idiot, nut etc for accumulating physical metals. In the market crash in 2008 people all around the world rushed into USD and I don't see how this time would be any different. Just because it is the wrong move doesn't mean that it will not happen. I believe most people who forsaw the collapse Schiff, Faber etc didn't anticipate investors rushing into dollars thus creating a huge dollar rally. I just don't think the majority has wised up since then. Things have not gotten bad enough and most of the sheeple have no clue that we are on the verge of a major depression. Standards of living have stagnated in this country for years and it is clearly not headed in the right direction. I am very cautious though to unload all my USD's in the event of a huge market crash/dollar rally I will be able to pick up more gold/silver at fire sale prices. I hope I am wrong but everyone I talk to still looks at me like im crazy when I recommend physical gold/silver over stock/bonds etc which tells me those same fools will be the ones dumping assets to move into cash. Out the frying pan into the fire.

  8. I think you will have easy warning for QE 3.0 when they make the Sunday talk rounds and write Op-Ed suggesting they "do more" to help. Trial balloon leads action by about 2-3 months.

  9. Your post addresses the most perplexing issue on everyone's mind. I just have no idea how they're going to do it. In what form do you think it will take?

    You really think we have to suffer through a deeper correction on the PMs and the equity markets before QE3 can be introduced? We're like addicts.

    And for the most important question: why isn't it "tutti"?

    All the best Dave. Buona notte.

  10. Its all coming together just as they are planning. Next will be our gun rights.


    There will be a lot of busy funeral homes with this law. And what I mean is, people still have a right to protect their personal property, and as far as I am concerned this is breaking and entering and I have the right to take down an offender, no matter who you are.

    Interesting times are coming folks.

  11. LOL Gallo. Sei corretto. E' il mio sbaglio! Grazie per dicendo qualcosa!

  12. QE3 or not?

    I think it would be more costly to wait for a crash rather than supporting the market in a smooth continuos way. So I think the latter pattern as the economic indicators are really tanking.

    Of course the most "prudent" way would be to announce QE3 and revalue gold. But they can't because they don't own any gold anymore. The 1930 confiscated gold as been squandered.

  13. There may not be an official QE3 just a de facto QE3. The FED has a lot of treasuries on its balance sheet and when they mature the proceeds can be re-invested. This is not new money but there is a lot of it.

    If it is not enough to support the markets, I sure BB will be able to spin a line that will make printing more hand towels seem like a good thing.

    The crash will come, but only when the big money has rescued as much of its wealth as it can, and the poor sheep, desperate for returns have been lured into the markets.

    What price a last big gulp of liquidity and an equity spike before the crash?

  14. Ciao Dave, i tuoi post sono sempre interessanti.
    Scusami se mi permetto di correggerti anch'io: la corretta traduzione in italiano del titolo di questo post (Everyone Ready For QE3 ?) è: "Siete tutti pronti per la QE3 ?"
    Comunque, complimenti per il tuo italiano !


  15. Grazie Marco! Voglio sempre imparare piu!